<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
GAINSCO, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
GAINSCO, INC.
500 COMMERCE STREET
FORT WORTH, TEXAS 76102
July __, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of GAINSCO, INC., a Texas corporation (the "Company"), to be
held at ________________ a.m., local time, on _____________, 1999, at
____________________________, Fort Worth, Texas ________. The attached Notice of
Special Meeting and Proxy Statement describe the sole matter to be considered at
the Meeting, a proposed transaction between the Company and Goff Moore Strategic
Partners, L.P. ("GMSP") which involves, among other things, the issuance by the
Company of shares of its Series A Convertible Preferred Stock and Warrants in
exchange for a $31,620,000 investment in the Company by GMSP (the "Purchase
Agreement Proposal").
Directors and officers of the Company will be present to help host the
Meeting and to respond to any questions that our shareholders may have. We hope
that you will be able to attend.
The Company's Board of Directors believes that approval of the Purchase
Agreement Proposal is in the best interest of the Company and its shareholders
and unanimously recommends a vote "FOR" such matter. Accordingly, we urge you to
review the attached material carefully and to return the enclosed Proxy
promptly. Whether or not you plan to attend the Meeting, please either complete,
sign, date and return your proxy in the enclosed envelope or vote your shares by
using the internet or telephone in accordance with the instructions contained on
the enclosed form of Proxy. If you attend the Meeting, you may vote in person if
you wish, even though you have previously returned your proxy. It is important
that your shares be represented and voted at the Meeting. Under the Company's
Bylaws, abstentions and broker non-votes are not counted and will be treated as
shares not entitled to vote.
On behalf of your Board of Directors, thank you for your support.
Sincerely,
JOEL C. PUCKETT GLENN W. ANDERSON
Chairman of the Board President and Chief Executive Officer
<PAGE> 3
GAINSCO, INC.
500 COMMERCE STREET
FORT WORTH, TEXAS 76102
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of GAINSCO, INC. (the "Company") will be held at _____________, local
time, on ______________, 1999, at __________________, Fort Worth, Texas
__________, for the purpose of considering and voting upon the approval of the
Securities Purchase Agreement dated as of June 29, 1999 (the "Purchase
Agreement") between the Company and Goff Moore Strategic Partners, L.P., a Texas
limited partnership ("GMSP"), and the transactions contemplated thereby
(collectively, the "Transaction"). The Transaction includes (a) the sale to GMSP
for an aggregate purchase price of $31,620,000 of (i) 31,620 shares of the
Company's Series A Convertible Preferred Stock (the "Series A Shares"), which
are convertible into shares of the Company'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 herein); (ii) a five year Warrant (the "Series A
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 herein);
and (iii) a seven year Warrant (the "Series B 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 herein); (b) the issuance of shares of
Common Stock upon the conversion of the Series A Shares and upon exercise of the
Series A Warrant and the Series B Warrant in accordance with their terms and (c)
the entry by the Company and certain of the Company's subsidiaries into
Investment Management Agreements with GMSP, pursuant to which GMSP will manage
the consolidated investment portfolios of the Company and its insurance company
subsidiaries.
The close of business on ________________, 1999, has been fixed as the
record date for determining shareholders entitled to notice of and to vote at
the Meeting or any adjournments thereof. For a period of at least 10 days prior
to the Meeting, a complete list of shareholders entitled to vote at the Meeting
will be open for examination by any shareholder during ordinary business hours
at the offices of the Company at 500 Commerce Street, Fort Worth, Texas 76102.
Information concerning the matters to be acted upon at the Meeting is set forth
in the accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
EITHER COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY OR VOTE
YOUR SHARES BY USING THE INTERNET OR TELEPHONE IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED ON THE ENCLOSED FORM OF PROXY TO ASSURE THAT YOUR SHARES
ARE REPRESENTED AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS PROVIDED IN THE EVENT YOU CHOOSE TO MAIL YOUR
PROXY. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU
ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD
BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
By Order Of The Board Of Directors
SAM ROSEN
Secretary
Fort Worth, Texas
____________, 1999
<PAGE> 4
GAINSCO, INC.
500 COMMERCE STREET
FORT WORTH, TX 76102
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 1999
This Proxy Statement is being first mailed on or about ____________,
1999 to shareholders of GAINSCO, INC., a Texas corporation ("GNA" or the
"Company"), by the Board of Directors to solicit proxies (the "Proxies") for use
at a Special Meeting of Shareholders (the "Meeting") to be held at _____________
, local time, on ___________, 1999, at _________________________________, Fort
Worth, Texas ______, or at such other time and place to which the Meeting may be
adjourned (the "Meeting Date").
The sole purpose of the Meeting is to consider and vote upon the
approval of the Securities Purchase Agreement dated as of June 29, 1999 (the
"Purchase Agreement") between the Company and Goff Moore Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and the transactions contemplated
thereby (collectively, the "Transaction"). The Transaction includes (a) the sale
to GMSP for an aggregate purchase price of $31,620,000 of (i) 31,620 shares of
the Company's Series A Convertible Preferred Stock (the "Series A Shares"),
which are convertible into shares of the Company'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 herein); (ii) a five year Warrant (the "Series A
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 herein)
and (iii) a seven year Warrant (the "Series B 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 herein); (b) the issuance of shares of
Common Stock upon the conversion of the Series A Shares and upon exercise of the
Series A Warrant and the Series B Warrant in accordance with their terms and (c)
the entry by the Company and certain of the Company's subsidiaries into
Investment Management Agreements with GMSP, pursuant to which GMSP will manage
the consolidated investment portfolios of the Company and its insurance company
subsidiaries (collectively, the "Purchase Agreement Proposal"). The Series A
Shares, if converted, would represent approximately 23% of the currently
outstanding Common Stock. The Warrants, if exercised, would represent
approximately 8% of the currently outstanding Common Stock and 31% of the
currently outstanding Common Stock when taken together with the Series A Shares.
Under the Purchase Agreement, the members of the Buyer Group may not
Beneficially Own more than 35% of the Fully-Diluted Common Stock (as such terms
are defined therein), subject to certain exceptions.
The Purchase Agreement Proposal is being submitted to the Company's
shareholders for approval because it is the policy of The New York Stock
Exchange, Inc. (the "NYSE"), which lists the Company's outstanding Common Stock,
to require shareholder approval of any transaction if either (i) the present or
potential issuance of newly issued common stock or securities convertible into
common stock could result in an increase of 20% or more in the outstanding
common stock of a company or (ii) common stock, or securities convertible into
or exercisable for common stock, is to be issued to an entity in which a
director of the issuing company has a substantial interest if the number of
shares of common stock to be issued, or if the number of shares of common stock
into which the securities may be convertible or exercisable, exceeds either one
percent of the number of shares of common stock or one percent of the voting
power outstanding before the issuance. If the Purchase Agreement Proposal is
approved by the shareholders and the securities are issued, the Series A Shares
will be immediately convertible, and the Warrants will be immediately
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<PAGE> 5
exercisable, at the option of the holder, into shares of Common Stock. Assuming
the Series A Shares are fully converted and the Warrants are fully exercised,
GMSP would own approximately 31% of the then outstanding Common Stock. In
addition, John C. Goff, a director of the Company, is a Managing Principal of
GMSP and, therefore, has an interest in the Purchase Agreement Proposal.
As a result, shareholders are being asked to approve the issuance of
the Series A Shares and the Warrants in accordance with the policy of the NYSE.
Approval by a majority of the votes cast "FOR" or "AGAINST" the Purchase
Agreement Proposal will be required to approve the issuance.
IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THE SHARES OF COMMON
STOCK REPRESENTED BY A PROXY DELIVERED TO THE BOARD OF DIRECTORS WILL BE VOTED
FOR THE PURCHASE AGREEMENT PROPOSAL.
THE BOARD OF DIRECTORS UNANIMOUSLY (EXCEPT FOR THE ABSTENTION BY JOHN
C. GOFF) RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE THE PURCHASE AGREEMENT
PROPOSAL. MR. GOFF WAS NOT PRESENT AT THE MEETING AT WHICH THE BOARD APPROVED
THE PURCHASE AGREEMENT PROPOSAL BECAUSE OF HIS OWNERSHIP IN GMSP AND HIS
PERSONAL INTEREST IN THE TRANSACTION.
Where a shareholder has appropriately specified how a Proxy is to be
voted, it will be voted accordingly. Otherwise, all shares represented by valid
Proxies will be voted FOR the Purchase Agreement Proposal.
The Proxy may be revoked at any time by providing written notice of
such revocation to the Secretary of the Company, by _______________, 1999. If
notice of revocation is not received by such date, you may nevertheless revoke a
Proxy if you attend the Meeting and desire to vote in person; however, if your
shares are held of record by a broker, bank or other nominee and you wish to
vote at the meeting, you must obtain from the record holder a proxy issued in
your name.
RECORD DATE AND VOTING SECURITIES
The record date for determining the shareholders entitled to vote at
the Meeting is the close of business on ________, 1999 (the "Record Date"), at
which time the Company had issued and outstanding _________ shares of Common
Stock. Common Stock is currently the only class of outstanding voting securities
of the Company.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum to transact business. Each share represented at the Meeting
in person or by proxy will be counted toward a quorum. In deciding all questions
and other matters, a holder of Common Stock on the Record Date shall be entitled
to cast one vote for each share of Common Stock registered in his or her name.
The affirmative vote of the holders of a majority of the shares voting "FOR" or
"AGAINST" the Purchase Agreement Proposal at the Meeting is required for the
Purchase Agreement Proposal to be approved. Under the Company's Bylaws,
abstentions and broker non-votes are not counted and will be treated as shares
not entitled to vote.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1999, the number of
shares of Common Stock beneficially owned (as defined by the Securities and
Exchange Commission (the "SEC") rules) by (i) each person who is known to the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock, (ii) each director of the Company, (iii) the Chief Executive
Officer and each of the other four most highly compensated executive officers of
the Company for the year ended December 31, 1998, and (iv) all of the executive
officers of the Company as a group. Except as otherwise indicated, each of the
persons named below has sole voting and investment power with respect to the
shares of Common Stock beneficially owned by that person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (18)
----------------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
- ------------------------ --------------------- ------------
<S> <C> <C>
Joseph D. Macchia 2,347,762 (1) 11.2%
I.G. Investment Management, Ltd. 1,699,800 (2) 8.1%
The Millers Mutual Fire Insurance Company 1,559,900 (3) 7.5%
Dimensional Fund Advisors Inc. 1,381,842 (4) 6.6%
Sandera Partners, L.P. 1,080,565 (5) 5.2%
Glenn W. Anderson 599,925 (6) 2.7%
Joel C. Puckett 480,021 (7) 2.2%
Sam Rosen 226,372 (8) 1.0%
Carolyn E. Ray 128,763 (9) *
Daniel J. Coots 117,898 (10) *
John H. Williams 54,162 (11) *
Harden H. Wiedemann 44,185 (12) *
Richard M. Buxton 36,479 (13) *
J. Landis Graham 31,632 (14) *
John C. Goff 25,200 (15) *
Robert J. McGee, Jr. 25,200 (16) *
Directors and executive officers as a group 1,802,940 (17) 8.2%
(14 persons)
</TABLE>
- -------------------------
* Less than 1%
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(1) Based on information set forth in a Schedule 13D/A, dated July 13,
1999, these shares were reported, as of July 1, 1999, by Joseph D.
Macchia, 1409 Indian Creek Drive, Fort Worth, Texas 76107-3520. Mr.
Macchia reported beneficial ownership of these shares with sole voting
and dispositive power.
(2) Based on information set forth in a Schedule 13G/A, dated May 18, 1999,
these shares were reported, as of March 30, 1999, by I.G. Investment
Management, Ltd., Investors Group Inc., Investors Group Trustco Inc.,
Investors Group Trust Co. Ltd. and Investors U.S. Opportunities Fund
(the "IGIM Reporting Persons"). All of the IGIM Reporting Persons have
their principal place of business at One Canada Centre, 447 Portage
Avenue, Winnipeg, Manitoba R3C 3B6. All of the IGIM Reporting Persons
reported beneficial ownership of these shares with shared voting and
dispositive power.
(3) Based on information set forth in a Schedule 13D, dated May 6, 1998,
these shares were reported, as of April 27, 1998, by The Millers Mutual
Fire Insurance Company, 300 Burnett Street, Fort Worth, Texas 76102.
The Millers Mutual Fire Insurance Company reported beneficial ownership
of these shares with sole voting and dispositive power.
(4) Based on information set forth in a Schedule 13G, dated February 11,
1999, these shares were reported, as of December 31, 1998, by
Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401. Dimensional Fund Advisors Inc. reported
beneficial ownership of these shares with sole voting and dispositive
power.
(5) Based on information set forth in a Schedule 13D/A, dated August 7,
1998, these shares were reported, as of August 5, 1998, by the members
of a group consisting of Sandera Partners, L.P., SCM Advisors, L.L.C.,
Newcastle Partners, L.P., and John A. (Pete) Bricker, Jr., 1601 Elm
Street, Suite 4000, Dallas, Texas 75201. The members of such group
beneficially own such shares as follows: Sandera Partners, L.P. -
1,080,565 shares; SCM Advisors, L.L.C. - 7,588 shares; Newcastle
Partners, L.P. - 64,000 shares; and John A. (Pete) Bricker, Jr. - 849
shares (Mr. Bricker also shares voting and dispositive power with
respect to 1,088,153 shares solely in his capacity as a controlling
person of each of Sandera Partners, L.P. and SCM Advisors, L.L.C.).
Except as noted in the immediately preceding sentence, each of the
members of such group reported beneficial ownership of these shares
with sole voting and dispositive power.
(6) Includes 579,710 shares of Common Stock that Mr. Anderson has the right
to acquire within 60 days through the exercise of options granted
pursuant to his Employment Agreement with the Company.
(7) Includes 51,927 shares of Common Sock held by the Joel Puckett
Self-Employed Retirement Trust and 176,901 shares of Common Stock that
Mr. Puckett has the right to acquire within 60 days through the
exercise of options granted under the 1990 and 1995 Stock Option Plan.
(8) Includes 3,163 shares of an IRA of Mr. Rosen's wife. Mr. Rosen
disclaims beneficial ownership of those shares. Also includes 35,065
shares held for the benefit of Mr. Rosen by the Shannon, Gracey,
Ratliff & Miller, L.L.P. Profit Sharing Plan, 3,163 shares of Common
Stock held by Mr. Rosen's IRA and 107,264 shares of Common Stock that
Mr. Rosen has the right to acquire within 60 days through the exercise
of options granted under the 1990 and 1995 Stock Option Plans. Mr.
Rosen is a partner in the law firm of Shannon, Gracey, Ratliff &
Miller, L.L.P. That firm, or it predecessors, has been general counsel
to the Company since 1979. The Company intends to retain that firm as
its general counsel during the current fiscal year.
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<PAGE> 8
(9) Includes 11,611 shares of Common Stock held by the Profit Sharing Plan
of the Company for the account of Ms. Ray as beneficiary and 66,412
shares of Common Stock that Ms. Ray has the right to acquire within 60
days through the exercise of options granted under the 1990 and 1995
Stock Option plans.
(10) Includes 40,134 shares of Common Stock held by the Profit Sharing Plan
of the Company for the account of Mr. Coots as beneficiary and 69,243
shares of Common Stock that Mr. Coots has the right to acquire within
60 days through the exercise of options granted under the 1990 and 1995
Stock Option Plans.
(11) Includes 53,545 shares of Common Stock that Mr. Williams has the right
to acquire within 60 days through the exercise of options granted under
the 1990 and 1995 Stock Option Plans.
(12) Includes 40,320 shares of Common Stock that Mr. Wiedemann has the right
to acquire within 60 days through the exercise of options granted under
the 1990 and 1995 Stock Option Plans.
(13) Includes 980 shares of Common Stock held by the Profit Sharing Plan of
the Company for the account of Mr. Buxton as beneficiary and 20,499
shares of Common Stock that Mr. Buxton has the right to acquire within
60 days through the exercise of options granted under the 1995 Stock
Option Plan.
(14) Includes 7,367 shares of Common Stock held by the Profit Sharing Plan
of the Company for the account of Mr. Graham as beneficiary and 23,963
shares of Common Stock that Mr. Graham has the right to acquire within
60 days through the exercise of options granted under the 1990 and 1995
Stock Option Plans.
(15) Includes 25,200 shares of Common Stock that Mr. Goff has the right to
acquire within 60 days through the exercise of options granted under
the 1995 Stock Option Plan. Mr. Goff is a Managing Principal of GMSP.
(16) Includes 25,200 shares of Common Stock that Mr. McGee has the right to
acquire within 60 days through the exercise of options granted under
the 1995 Stock Option Plan.
(17) Includes 60,917 shares of Common Stock held by the Profit Sharing Plan
of the Company for the account of executive officers and 1,220,394
shares of Common Stock that executive officers of the Company have the
right to acquire within 60 days through the exercise of options granted
under the 1990 and 1995 Stock Option Plans.
(18) Participants in the Profit Sharing Plan of the Company have no voting
power with regard to shares held for their benefit but have sole
disposition power.
DESCRIPTION OF GMSP;
INTEREST OF CERTAIN PERSONS IN MATTER TO BE ACTED UPON
GMSP was formed in February 1998, to serve as the primary ongoing
investment vehicle for the firm's principals, as well as Richard E. Rainwater
and his family, who are limited partners. GMSP is principally a long-term
investor in companies that it deems to have superior management and attractive
growth prospects. The partnership's Managing Principals are John C. Goff, a
partner of Mr. Rainwater's for
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<PAGE> 9
over 12 years, and Darla D. Moore, who is Mr. Rainwater's wife and a former
Managing Director of The Chase Manhattan Bank. J. Randall Chappel and Hugh
Balloch are the other key principals of GMSP. Mr. Chappel has been associated
with Rainwater and his affiliated companies for 12 years, and Mr. Balloch joined
GMSP in January 1999 from The Chase Manhattan Bank.
Mr. Goff is the President, Chief Executive Officer and Vice Chairman of
Crescent Real Estate Equities, Inc. (NYSE-CEI) ("Crescent"). From 1987 to 1994,
Mr. Goff served as Vice President of Rainwater, Inc., acting as a senior
investment advisor to, and investor with, Richard E. Rainwater. Beginning in
1990, Mr. Goff was responsible for the development of Mr. Rainwater's real
estate business, designing and implementing the strategy that led to the public
offering of Crescent in May, 1994. Mr. Goff served as Chief Executive Officer of
Crescent through late 1996 when he assumed the role of Vice Chairman. During
June 1999, Mr. Goff resumed his role as President and Chief Executive Officer of
Crescent. Crescent currently is one of the nation's larger publicly traded real
estate investment companies. Mr. Goff also serves as President, Chief Executive
Officer and Vice Chairman of Crescent Operating, Inc. (NASDAQ-COPI), which was
spun off from Crescent in 1997, and is on the boards of directors of the Company
and other companies, including The Staubach Company, one of the nation's largest
tenant representation firms. Prior to joining Rainwater, Inc., Mr. Goff was
employed by KPMG Peat, Marwick from 1981 to 1987. Mr. Goff is a graduate of the
University of Texas at Austin and is a certified public accountant.
Mr. Chappel has been associated with Mr. Rainwater and his affiliated
companies for twelve years. Since 1995, he has served as an officer of
Rainwater, Inc. He has been involved in a number of transactions, including the
purchase of the initial properties that led to the creation of Crescent, as well
as several other significant Rainwater investments. For the past four years, Mr.
Chappel has also had primary responsibility for managing other aspects of Mr.
Rainwater's portfolio, including hedging strategies, derivative transactions,
and the initial review of new investment opportunities submitted to Rainwater
Inc.'s attention. Since GMSP's inception, Mr. Chappel has been active in the
formation of the G2 Opportunity Fund, L.P. and the GMSP investments in
Medpartners Inc., CRIIMI MAE Inc. and Cendant Corporation. Mr. Chappel serves as
a director of OpenConnect Systems, a Dallas-based technology company. Mr.
Chappel earned an A.B. degree in Economics from Stanford University and also
earned an M.B.A. degree from Stanford where he graduated as an Arjay Miller
Scholar.
As noted above, John C. Goff, a director of the Company, is a Managing
Principal of GMSP. Mr. Goff owns approximately 44.9% of the partnership
interests of GMSP Operating Partners, L.P., a Texas limited partnership and the
general partner of GMSP. GMSP Operating Partners, L.P. owns approximately 14.3%
of the partnership interests of GMSP. Mr. Goff also owns 50% of the membership
interests of GMSP, L.L.C., a Texas limited liability company and the general
partner of GMSP Operating Partners, L.P. GMSP, L.L.C. owns 1% of the partnership
interests of GMSP Operating Partners, L.P.
THE PURCHASE AGREEMENT PROPOSAL
BOARD APPROVAL AND RECOMMENDATION
On June 29, 1999, the Board of Directors of the Company (the "Board")
approved, and voted to recommend that the shareholders approve, the Purchase
Agreement Proposal. Mr. Goff was not present at the meeting at which the Board
approved the Purchase Agreement Proposal because of his ownership in GMSP and
his personal interest in the Transaction. The Company entered into the Purchase
Agreement on June 29, 1999 following the meeting of the Board. Pursuant to the
Purchase Agreement, GMSP is to acquire the Series A Shares and Warrants of the
Company on terms more fully described below.
6
<PAGE> 10
BACKGROUND
On August 28, 1998, the Company announced that it had engaged
Wasserstein Perella & Co., Inc. ("WP&Co.") to act as the Company's financial
advisor as the Company embarked on a strategic alternative review process to
seek out additional ways to maximize shareholder value, including a possible
sale of the Company. In the ensuing ten month strategic alternative review
process, over 70 potential parties were contacted. After extensive discussions
with a small number of interested and qualified parties, the Board and the other
parties could not ultimately reach agreement for a sale or merger because of
valuation issues, risk/reward issues, and other business considerations.
When it became clear that a sale or merger with a third party on
acceptable terms was not achievable, the Board turned to alternatives for
growth. The Board subsequently received a proposal from GMSP, which, after
significant negotiations, resulted in the Purchase Agreement Proposal.
PURCHASE AGREEMENT
A copy of the Purchase Agreement, together with all exhibits thereto,
is attached hereto as "Appendix I" and is incorporated by reference herein.
Capitalized terms defined in Section 1.1 of the Purchase Agreement are used
herein with the same meaning unless otherwise defined herein. References to
Sections in brackets "[Section __]" are references to Sections in the Purchase
Agreement.
The Purchase Agreement provides for an aggregate purchase price of
$31,620,000 [Sections 2.1 and 2.2], for which GMSP will receive:
o 31,620 Series A Shares, convertible into an aggregate of
6,200,000 shares of Common Stock (23% of the Fully-Diluted
Common Stock), subject to certain adjustments, at a conversion
price of $5.10, plus
o two warrants to purchase an aggregate of 3,100,000 shares of
Common Stock (8% of the Fully-Diluted Common Stock):
o one warrant with a five year term to purchase
1,550,000 shares for $6.375 per share.
o one warrant with a seven year term to purchase
1,550,000 shares for $8.50 per share.
Both of the Warrants are otherwise identical and contain certain
cashless exercise and antidilution provisions. Consummation of the sale of the
Series A Shares and the Warrants is conditioned upon regulatory approvals and
the approval of the Company's shareholders as set forth in this Proxy Statement.
At Closing, the Company will pay to GMSP a financing fee of 0.75% of
its total investment ($237,150) and reimburse it for all reasonably-incurred
out-of-pocket expenses (not to exceed $250,000) incurred after May 11, 1999 in
connection with the transaction [Section 6.5].
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<PAGE> 11
The Purchase Agreement contains typical representations, warranties and
covenants, including the following covenants:
o Board Representation. After Closing, GMSP will be represented
on the Board by J. Randall Chappel and John C. Goff [Section
6.4]. Mr. Goff is currently a member of the Board; after
Closing, the number of directors constituting the Board will
be increased by one and the Board will elect Mr. Chappel to
fill the newly created director position. GMSP will remain
entitled to designate two directors as long as Buyer Group
maintains its security holdings in the Company at 75% of its
closing level or 20% of the Fully-Diluted Common Stock, and
one director if it continues to own 50% of its closing level
or 5% of the Fully-Diluted Common Stock. Any substitute
designated for Messrs. Goff or Chappel must be acceptable to
the members of the Board not affiliated with the Buyer Group.
For biographical information regarding Messrs. Goff and
Chappel, see "Description of GMSP; Interest of Certain Persons
in Matter to be Acted Upon."
o Nonsolicitation. The Company generally is prohibited from
directly or indirectly soliciting, initiating or encouraging
third party proposals which could frustrate the contemplated
transactions or withdrawing the Board recommendation thereof;
provided, however, that the Board may pursue an unsolicited
proposal if (i) the Board concludes it is a Superior Proposal
or (ii) the Board concludes that its fiduciary duties so
require. [Section 6.11]
o Standstill. The members of the Buyer Group may not
Beneficially Own more than 35% of the Fully-Diluted Common
Stock (provided that there will be no violation of the
prohibition if members of the Buyer Group own more than 35% as
a result of repurchases of stock by the Company or pursuant to
the acquisition of additional shares of Common Stock pursuant
to GNA Stock Plans). [Section 6.9]
o Preemptive Rights. Until such time as GMSP and its Affiliates
no longer Beneficially Own in the aggregate at least 20% of
the Common Stock, in the event that the Company issues
additional equity securities for cash in a private placement,
GMSP shall have a right of first refusal to participate pro
rata in such offering in order to maintain its percentage
ownership in the Company at pre-offering levels. Shares issued
for employee and director options, third-party business
combinations and certain other transactions are excluded from
GMSP's right of first refusal. [Section 6.10]
o Right of First Offer. In the event that any member(s) of the
Buyer Group desires to sell any equity securities of the
Company (other than shares of Common Stock acquired pursuant
to GNA Stock Plans), the Company shall have the right, during
the five Business Days following receipt of notice from GMSP,
to elect to purchase the number of equity securities to be
sold at the proposed sale price and 15 additional Business
Days to consummate the purchase [Section 6.17]. The notice and
closing periods increase in the event 5% or more of the Fully
Diluted Common Stock is to be sold. If the Company does not
elect to purchase at the offer price, members of the GMSP
Group may sell to someone else during the following 90 days at
a price not less than 90% of the offer price.
o Transfer Restrictions. GMSP generally is prohibited from
selling or otherwise disposing of any of the Series A Shares
or the Warrants at any time. GMSP generally is prohibited from
selling or otherwise disposing of any of the shares of Common
Stock issuable upon conversion or exercise of the Series A
Shares or the Warrants for three years after the
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<PAGE> 12
Closing and thereafter generally may not sell (i) blocks of
Common Stock representing more than 3.5% of the Fully-Diluted
Common Stock to any Person or (ii) Common Stock to any Person
already Beneficially Owning 5% or more of the Common Stock.
GMSP may transfer Underlying Shares to Buyer Group members who
agree to be bound by the provisions of the Purchase Agreement.
[Section 6.6]
o Registration Rights. A shelf registration statement for the
public distribution of the shares of Common Stock issuable
upon conversion or exercise of the Series A Shares and the
Warrants is to be filed on the third anniversary of the
Closing and maintained until such time as members of the Buyer
Group do not Beneficially Own 10% of the Common Stock and are
not otherwise Affiliates of the Company. Members of the Buyer
Group also have (i) one demand registration right for an
underwritten public offering and (ii) piggyback registration
rights, neither of which may be exercised prior to the third
anniversary of the Closing. The Company is generally
responsible for the registration costs. [Section 6.3]
In addition to customary conditions to Closing, neither the Company nor
GMSP is obligated to consummate the Transaction if:
o The approval of the Company's shareholders is not obtained.
o The Transaction (including the Investment Management
Agreements) is not approved by insurance regulatory
authorities in Oklahoma and Texas.
o The Company is informed that A.M. Best will reduce its rating
of the Company or any of its Subsidiaries to below "A" as a
result of the Transaction.
o The consent of Bank One, Texas, National Association, under
the Company's Revolving Credit Agreement is not obtained.
Additionally, GMSP is not obligated to consummate the
Transaction if a GNA Material Adverse Effect or Material Adverse Market
Condition has occurred and is continuing. [Section 8.13]
The Purchase Agreement may be terminated and the Transaction may be
abandoned at any time prior to the Closing:
o By the Company or GMSP if:
o The Company's shareholders do not approve the
Transaction; or
o The Closing does not occur prior to December 31, 1999
(but that date is extended to February 15, 2000 if
necessary to hold the Meeting or obtain required
regulatory approvals).
o By the Company if:
o There has been a material Breach of GMSP's
representations, warranties or covenants;
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<PAGE> 13
o A bona fide Transaction Proposal that the Board by a
majority vote determines in its good faith judgment,
after consultation with its financial and legal
advisors, to constitute a Superior Proposal has been
received; or
o The Board by a majority vote determines in its good
faith judgment, after consultation with its financial
and legal advisors, that their fiduciary duties
require them to do so, it being recognized that a
change in the market price of the Common Stock is not
an appropriate reason for the Board to exercise this
termination right.
o By GMSP, if:
o There has been a material Breach of the Company's
representations or warranties or covenants;
o The Company agrees to a Third Party Transaction;
o The Board withdraws or modifies in a manner adverse
to GMSP its approval or recommendation of the
Transaction or the Purchase Agreement or recommends a
Third Party Transaction, or has adopted any
resolution to effect any of the foregoing; or
o The Company fails to file proxy materials with the
SEC with reasonable dispatch and take such other
actions necessary to convene the Meeting within a
period of time after the execution of the Purchase
Agreement reasonably necessary to consummate the
Transaction as promptly as practicable.
The Company is obligated to make termination payments [Section 9.3] to
GMSP as follows:
o up to $500,000 of GMSP's out of pocket expenses if the
Company's shareholders do not approve the Transaction.
o up to $948,600 (3% of the Purchase Price), inclusive of the
expense reimbursement provided above, if the Company
terminates to pursue another transaction or GMSP terminates
because the Company has accepted a Third Party Proposal or has
failed to diligently pursue shareholder approval of the
Transaction or the Board withdraws its recommendation of the
Transaction.
The Purchase Agreement contains mutual indemnification obligations for
breaches of representations, warranties or covenants. The Company is obligated
to indemnify the members of the Buyer Group for any Damages resulting from any
Proceeding brought against any of them by a Person other than the Company or any
of its Affiliates, Associates or shareholders in respect of any action taken in
good faith on behalf of the Company in the course of the performance of GMSP's
duties under the Purchase Agreement (provided that the Company will make
indemnification in connection with any shareholder Proceedings if the
indemnified Person is wholly successful, on the merits or otherwise, in its
defense of the Proceeding). [Section 10.2] Except in certain circumstances, each
party's indemnification obligations are subject to a "basket" of $750,000 of
Damages in the aggregate. [Sections 10.2 and 10.3]
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<PAGE> 14
INVESTMENT MANAGEMENT AGREEMENTS
At Closing, GMSP will enter into separate, but substantially
identical, Investment Management Agreements with the Company and each GNA
Insurance Subsidiary pursuant to which GMSP will manage the investment of the
holding and insurance company funds of the type listed under the categories
"Investments" on the Company's reports filed with the SEC.
The Company will pay GMSP investment management fees equal on an annual
basis equal to (i) 30 basis points multiplied by the fair market value with
respect to any portion of the portfolio invested in short term debt or
investment grade debt obligations at the end of a given calendar month or during
a majority of the days in the given calendar month and (ii) 100 basis points
multiplied by the fair market value with respect to any portion of the portfolio
invested in equity securities or other alternative investments in securities
which are not investment grade debt obligations. No fees are payable with
respect to the portions of the portfolio held in cash. Accrued fees will be paid
monthly, based on the fair value of the investments at the end of each calendar
month and subject to a minimum monthly fee of $75,000 in the aggregate under all
of the Investment Management Agreements.
GMSP is required to manage the portfolio in accordance with the
investment objectives and policies set forth in the letter (the "Policy Letter")
delivered to GMSP by the Company (or the GNA Insurance Subsidiary, as
applicable). The Company (or the GNA Insurance Subsidiary, as applicable) may
amend or supplement the contents of the Policy Letter, including the investment
criteria and other instructions set forth therein, in whole or in part and at
any time. Subject to the provisions of the Policy Letter and the oversight and
direction of the Board's Investment Committee, GMSP shall have authority to make
all specific investment decisions with respect to the assets in the portfolio.
The Investment Management Agreements do not have a specified term, but
either party may terminate after three years upon not less than 90 days written
notice to the other party. Additionally, the Company (or the GNA Insurance
Subsidiary, as applicable) may terminate the respective Investment Management
Agreements at any time for "Cause" (as defined therein). GMSP may terminate the
respective Investment Management Agreements at any time upon the breach of the
Company's (or the GNA Insurance Subsidiary's, as applicable) material
obligations thereunder (subject to certain "cure" provisions).
The respective Investment Management Agreements contain requirements
that GMSP deliver monthly reports on the investment activities of the portfolio
and preclude GMSP from engaging in certain transactions that would represent a
conflict of interests without prior approval. GMSP is required to maintain
fiduciary liability insurance customary for investment managers in similar
situations with policy limits, terms, conditions and "tail" provisions as are
reasonably acceptable to the Company and GMSP. The respective Investment
Management Agreements also contain indemnification provisions that are
substantially similar to those contained in the Purchase Agreement.
AMENDMENT TO RIGHTS AGREEMENT
The Board also approved an amendment to the Rights Agreement at the
same time it approved the Transaction. The Amendment to the Rights Agreement
prevents the triggering of the protections contained in the Rights Plan upon the
acquisition of the Series A Shares and the Warrants and the Underlying Shares
that may be acquired upon the conversion or exercise of the Series A Shares and
Warrants by GMSP, and additional open market purchases of Common Stock, so long
as members of the Buyer Group do not acquire Beneficial Ownership of more than
35% of the Common Stock or terminate the Purchase Agreement prior to Closing.
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<PAGE> 15
DESCRIPTION OF THE SERIES A SHARES
The Purchase Agreement requires that the Company issue shares of a
newly created Series A Convertible Preferred Stock to GMSP. The Board of
Directors of the Company has the power and discretion to designate series of
preferred stock pursuant to the authority vested in it by the Company's Articles
of Incorporation, as amended.
Series A Shares are essentially Common Stock equivalents except for the
liquidation value and have the following features:
o Liquidation value of $1,000 per share, plus any accrued and
unpaid dividends.
o Dividends at the same rate per share (including dividends paid
in Common Stock or rights) and at the same time as paid on the
number of shares of Common Stock into which such Series A
Share is convertible.
o Convertible into an aggregate of 6,200,000 shares of Common
Stock at a conversion price of $5.10 per share (subject to
adjustment in certain circumstances).
o The Company unilaterally may require conversion at any time on
or after June 30, 2005 if the Current Market Price (as defined
in the Statement of Resolution) is at least $7.65.
o The Company may redeem the Series A Shares on or after June
30, 2005 for liquidation value of $1,000 per share plus
accrued and unpaid dividends (subject to the holder's right to
convert such Series A Shares prior to the effective date of
the redemption).
o Entitled to one vote per share of Common Stock into which it
is convertible and entitled to vote with the Common Stock on
all matters (including the election of directors) submitted to
shareholder vote and not entitled to vote separately as a
class except where a class vote is required by law.
o No other special rights.
A copy of the Statement of Resolution Establishing and Designating the
Series A Shares is attached as Exhibit C to the Purchase Agreement, which is
attached hereto as "Appendix I" and incorporated by reference herein.
REASONS FOR THE TRANSACTION
Generally. The Company's earnings come principally from its insurance
operations and investments. As discussed below, the Board believes the
consummation of the Transaction will result in a substantial infusion of capital
and talent that is intended to enhance both of these earnings sources and
provide other benefits to the Company that are intended to enhance shareholder
value.
Insurance Operations. A key element of the Company's long term growth
plan is to build through acquisition upon the Company's traditional nonstandard
commercial lines and the nonstandard personal lines operations of the Lalande
Group acquired in 1998. The Board believes growth through acquisition is a very
attractive opportunity for the Company in view of the consolidation process that
is occurring in the insurance industry. The Company will receive $31,620,000 in
cash proceeds upon the closing of the Transaction and
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<PAGE> 16
will receive $23,000,000 in future additional proceeds if the Warrants are
exercised other than through a cashless exercise. The Company anticipates that a
portion of the cash proceeds will be used for insurance-related acquisitions.
While the Company is currently evaluating several acquisition possibilities,
there can be no assurance as to whether or when acquisitions can be accomplished
or, if consummated, whether any of them will be profitable.
Investments. In addition, the Board believes that the Transaction
offers the opportunity to enhance the returns on the investment portfolios of
the Company and its insurance company subsidiaries (approximately $________ at
June 30, 1999) both as a result of the infusion of capital and the services to
be provided by GMSP under the Investment Management Agreements (discussed
below). The Company anticipates that a portion of the cash proceeds it will
receive pursuant to the Transaction will be used for holding company investments
as well as capital management activities, including possible share buybacks. No
share buybacks are authorized or planned by the Board as of the date hereof.
Insurance company legal investment statutes and regulations will limit the type
of investments that the insurance company subsidiaries can make with the major
part of their assets and therefore may continue to limit the potential return on
their investments. There can be no assurance that GMSP will be able to increase
the returns from the Company's investments.
GMSP. The Board believes that the GMSP principals are sophisticated and
historically successful investors who, pursuant to the Investment Management
Agreements and under the supervision of the Board's Investment Committee, can
implement a plan to increase the returns of the Company's fixed income and
equity portfolios over time. GMSP's significant ownership interest in the
Company will provide further incentive and align GMSP's interests with those of
the Company's shareholders. The Company also expects to receive intangible
benefits as a result of its relationship with GMSP.
Terms of the Transaction. The Board deems the terms of the Transaction
to be favorable to the Company. The Board considered, among other things, the
following factors in its evaluation of the Transaction:
o The right of the Company to (i) require conversion of the
Series A Shares at any time on or after June 30, 2005 if the
Current Market Price (as such term is defined in the Statement
of Resolution) is at least $7.65 or (ii) redeem the Series A
Shares on or after June 30, 2005 for liquidation value of
$1,000 per share, plus accrued and unpaid dividends.
o Rating agency, cash flow and capital considerations make
issuing equity securities preferable to issuing debt.
o The fairness opinion of WP&Co. to the effect that the
consideration to be received in the Transaction is fair, from
a financial point of view, to the Company (discussed below).
o The closing price of the Common Stock as quoted on the NYSE on
June 28, 1999 was $4.00 per share. During the ninety day
period preceding June 28, 1999, the average closing price of
the Common Stock as quoted on the NYSE was $4.66. The book
value per share of the Common Stock at March 31, 1999 was
$5.10 per share. The Series A Shares are convertible into
Common Stock at a conversion price of $5.10 per share. The
Warrants are exercisable for Common Stock at $6.375 and $8.50
per share, respectively.
Strategic Review Process. The Board undertook a ten month strategic
alternative review process to seek out additional ways to maximize shareholder
value during which over 70 potential parties were
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<PAGE> 17
contacted. The Board received no credible offers acceptable to it other than the
offer embodied by the Purchase Agreement Proposal. See "--Background"
OPINION OF FINANCIAL ADVISOR.
Generally. On June 29, 1999, WP&Co. delivered its oral opinion to the
Board to the effect that, as of such date, and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
consideration to be received by the Company pursuant to the Purchase Agreement
was fair from a financial point of view to the Company. WP&Co. confirmed its
oral opinion by delivery to the Board of a written opinion, dated June 29, 1999
(the "Opinion").
THE FOLLOWING SUMMARY OF THE OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED TO THIS PROXY STATEMENT AS
APPENDIX II AND INCORPORATED HEREIN BY REFERENCE. HOLDERS OF SHARES OF COMMON
STOCK ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY IN ITS ENTIRETY AND
CONSIDER THE ASSUMPTIONS MADE AND LIMITATIONS OF THE REVIEW BY WP&CO. THE
OPINION IS ADDRESSED TO THE BOARD AND ADDRESSES ONLY THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY THE COMPANY
PURSUANT TO THE TRANSACTION. THE CONSIDERATION TO BE RECEIVED BY THE COMPANY
PURSUANT TO THE TRANSACTION WAS DETERMINED BY THE COMPANY AND GMSP THROUGH
ARM'S-LENGTH NEGOTIATIONS IN WHICH WP&CO. ADVISED THE COMPANY. THE OPINION DOES
NOT ADDRESS THE UNDERLYING BUSINESS DECISION BY THE COMPANY TO EFFECT THE
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF
COMMON STOCK AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE PURCHASE
AGREEMENT PROPOSAL AND SHOULD NOT BE RELIED UPON BY ANY HOLDER OF COMMON STOCK
AS SUCH.
In preparing its Opinion, WP&Co. performed a variety of financial and
comparative analyses and considered a variety of factors of which the material
analyses and factors are described below. The following summary of such analyses
does not purport to be a complete description of the analyses underlying the
Opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such opinion is not readily susceptible to summary
description.
In arriving at its Opinion, WP&Co. did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, WP&Co. believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its Opinion.
The Board selected WP&Co. as its financial advisor in connection with
the proposed transaction because WP&Co. is an internationally recognized
investment banking firm and members of WP&Co. have substantial experience in
transactions similar to the Transaction. WP&Co. is an investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In addition,
WP&Co. has performed various investment banking services for the Company from
time to time in the past, and may provide such services to the Company in the
future. In the ordinary course of WP&Co.'s business, WP&Co. may actively trade
the debt and equity securities of the Company for its own account and for the
accounts of customers and, accordingly, may hold, at any time, a long or short
position in such securities.
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<PAGE> 18
In connection with the Opinion, WP&Co. reviewed the Purchase Agreement,
the Investment Management Agreements, the Warrants, and certain other draft
agreements and documents related to the Transaction, and for purposes of its
Opinion, assumed that the final form of these documents would not differ in any
material respect from the drafts provided to WP&Co. WP&Co. also reviewed and
analyzed certain publicly available business and financial information relating
to the Company for recent years and interim periods to date. WP&Co. reviewed and
considered certain financial and stock market data relating to the Company, and
WP&Co. compared that data with similar data for certain other companies, the
securities of which are publicly traded, that WP&Co. believed may be relevant or
comparable in certain respects to the Company or one or more of its businesses
or assets. WP&Co. also performed such other financial studies, analyses, and
investigations and reviewed such other information as it considered appropriate
for purposes of the Opinion.
In WP&Co.'s review and analysis and in formulating its Opinion, WP&Co.
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to or discussed with it or publicly available,
and WP&Co. did not assume any responsibility for independent verification of any
of such information. WP&Co. did not review any of the books and records of the
Company, or assume any responsibility for conducting a physical inspection of
the properties or facilities of the Company, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of the Company,
and no such independent valuation or appraisal was provided to WP&Co. WP&Co.
also assumed that obtaining all regulatory and other approvals and third-party
consents required for consummation of the Transaction will not have an adverse
impact on the Company and WP&Co. assumed that the Transaction will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. WP&Co. also assumed that the
purchase price payable pursuant to Section 2.2 of the Purchase Agreement is in
the form of cash. While WP&Co. did not independently value the benefits to be
derived by the Company from the Investment Management Agreements in formulating
its Opinion, WP&Co. relied on the Company's assessment of the strategic benefits
to be derived from such agreements. The Opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be evaluated
by WP&Co. as of the date of the Opinion. WP&Co. is not expressing any opinion
herein as to the prices at which any securities of the Company will actually
trade at any time.
In formulating the Opinion, WP&Co. relied on the fact that the
Company's decision to enter into the Purchase Agreement was preceded by the
Company's announcement on August 28, 1998 that the Board had decided to pursue
strategic alternatives, including a possible sale of the Company, and an ensuing
ten-month process in which proposals for a business combination or other
transaction were solicited by or on behalf of the Company from over 70 potential
parties, including parties the Company believed were logical parties for a
business combination with the Company. WP&Co. was not authorized to and did not
solicit indications of interest by third parties in an investment in the Company
similar to that embodied by the Purchase Agreement Proposal.
Financial Analyses used by WP&Co. The following is a summary of certain
of the financial analyses used by WP&Co. in connection with providing its
Opinion to the Board on June 29, 1999.
Summary Financial Information. WP&Co. reviewed summary
financial information for the Company for the fiscal years ended December 31,
1996 through 1998 and for the three month periods ended March 31, 1998 and 1999.
Historical Trading Analysis. WP&Co. reviewed the historical
daily trading prices for the Common Stock for the period from June 25, 1996
through June 25, 1999.
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<PAGE> 19
Selected Companies Analysis. WP&Co. calculated certain
financial information, ratios and public market multiples relating to the
Company, and compared them to corresponding financial information, ratios and
public market multiples for Capitol Transamerica Corporation, Penn-America
Group, Inc., Acceptance Insurance Companies Inc., The Navigators Group, Inc. and
NYMAGIC, Inc. (the "Selected Insurance Companies"). The multiples of the
Selected Insurance Companies and the Company were calculated using financial
data as of March 31, 1999 and market data as of June 25, 1999. Earnings
estimates used in the analysis were based on the latest mean earnings per share
("EPS") estimates by I/B/E/S International, Inc. The analysis showed, among
other things, that the ratio of price to EPS (i) using operating earnings
(adjusted to exclude prior period reserve adjustments and other one time
charges) for the twelve months ended March 31, 1999 ranged from a low of 9.9x to
a high of 13.6x for the Selected Insurance Companies as compared to 14.8x for
the Company; (ii) using estimated 1999 EPS ranged from a low of 6.8x to a high
of 12.2x for the Selected Insurance Companies as compared to 8.9x for the
Company; and (iii) using estimated 2000 EPS ranged from a low of 5.8x to a high
of 11.9x for the Selected Insurance Companies as compared to 7.8x for the
Company. The analysis also showed that the 1999 to 2000 estimated EPS growth
rate ranged from (3.6%) to 16.5% for the Selected Insurance Companies as
compared to 14.9% for the Company. Finally, the analysis showed that the ratio
of price to book ranged from a low of 0.68x to a high of 1.04x for the Selected
Insurance Companies as compared to 0.82x for the Company.
Securities Valuation Analysis. Under this analysis, WP&Co.
created a binomial model to calculate a range of values for the Series A Shares,
the Series A Warrant and the Series B Warrant. The values calculated were based
on a range of assumptions regarding the value of the Common Stock and the
expected volatility of the Common Stock. Based upon this analysis, (i) the range
of values calculated for the Series A Shares was $3.48 to $5.64 per share of
Common Stock underlying the Series A Shares, (ii) the range of values calculated
for the Series A Warrant was $0.04 to $0.50 per share of Common Stock underlying
the Series A Shares, and (iii) the range of values calculated for the Series A
Shares was $0.01 to $0.39 per share of Common Stock underlying the Series A
Shares.
Terms of WP&Co.s Engagement. Pursuant to the terms of an engagement
letter agreement dated May 8, 1998 and the amendment to the engagement letter
dated May 11, 1999, the Company has agreed to pay WP&Co. the sum of $100,000 in
retainer fees and $500,000 upon rendering of its written Opinion and has agreed
to pay WP&Co. an additional fee equal to $150,000 (which includes $50,000 in
retainer fees previously paid) upon consummation of the Transaction. In
addition, the Company also agreed to reimburse WP&Co. for its reasonable
out-of-pocket expenses, including attorneys' fees (such expenses not to exceed
$50,000 in aggregate without prior written consent from the Company), and to
indemnify WP&Co. against certain liabilities, including certain liabilities
under the federal securities laws, in connection with such engagement.
POSSIBLE DISADVANTAGES.
While the Board has determined that the Transaction is in the best
interest of the Company and its shareholders, the Board recognizes that the
issuance of the Series A Shares to GMSP in connection with the Transaction may
have certain disadvantages. The Series A Shares will have liquidation
preferences that are senior to those of the Common Stock. The issuance of Series
A Shares will dilute the voting power of the Common Stock. The issuance of
Series A Shares could also make it less likely that a takeover or other change
of control of the Company would take place. Unlike GMSP, holders of Common Stock
do not have preemptive rights to subscribe for additional securities which may
be issued by the Company.
BOARD RECOMMENDS APPROVAL OF PURCHASE AGREEMENT PROPOSAL
THE BOARD OF DIRECTORS UNANIMOUSLY (EXCEPT FOR THE ABSTENTION BY JOHN
C. GOFF) RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE THE PURCHASE
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<PAGE> 20
AGREEMENT PROPOSAL. MR. GOFF WAS NOT PRESENT AT THE MEETING AT WHICH THE BOARD
APPROVED THE PURCHASE AGREEMENT PROPOSAL BECAUSE OF HIS OWNERSHIP IN GMSP AND
HIS PERSONAL INTEREST IN THE TRANSACTION.
IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THE SHARES OF COMMON
STOCK REPRESENTED BY A PROXY DELIVERED TO THE BOARD OF DIRECTORS WILL BE VOTED
FOR THE PURCHASE AGREEMENT PROPOSAL.
MISCELLANEOUS
You should rely only on the information contained or incorporated by
reference in this document to vote on the Purchase Agreement Proposal. We have
not authorized anyone to provide you with information that is different from
what is contained in this document. This document is dated __________, 1999.
All costs of solicitation of Proxies will be borne by the Company. In
addition to solicitation by mail, the directors, officers and employees of the
Company may solicit proxies personally or by other appropriate means, without
additional compensation. It is also contemplated that, for a fee of
approximately $5,000 plus certain expenses, additional solicitations will be
made by personal interview, electronic correspondence, telephone or other
appropriate means under direction of Morrow & Co., Inc., 909 Third Avenue, New
York, NY 10022-4799.
By Order Of The Board Of Directors
SAM ROSEN
Secretary
Fort Worth, Texas
, 1999
- ------------------
17
<PAGE> 21
APPENDIX I
SECURITIES PURCHASE AGREEMENT
DATED JUNE 29, 1999
BETWEEN
THE COMPANY AND GMSP (WITH EXHIBITS)
<PAGE> 22
SECURITIES PURCHASE AGREEMENT
BETWEEN
GAINSCO, INC.
AND
GOFF MOORE STRATEGIC PARTNERS, L.P.
DATED JUNE 29, 1999
-i-
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
"Affiliate". . . . . . . . . . . . . . . . . . . . . . . . .1
"Agreement". . . . . . . . . . . . . . . . . . . . . . . . .1
"Ancillary Documents". . . . . . . . . . . . . . . . . . . .1
"Applicable Law" . . . . . . . . . . . . . . . . . . . . . .1
"Associate". . . . . . . . . . . . . . . . . . . . . . . . .1
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . .1
"Beneficially Own" . . . . . . . . . . . . . . . . . . . . .1
"Board". . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Breach" . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Business Day" . . . . . . . . . . . . . . . . . . . . . . .2
"Buyer". . . . . . . . . . . . . . . . . . . . . . . . . . .2
"Buyer Group". . . . . . . . . . . . . . . . . . . . . . . .2
"Buyer Material Adverse Effect". . . . . . . . . . . . . . .3
"Buyer Representative" . . . . . . . . . . . . . . . . . . .3
"Capitalization Date". . . . . . . . . . . . . . . . . . . .3
"Closing". . . . . . . . . . . . . . . . . . . . . . . . . .3
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . .3
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"Common Stock" . . . . . . . . . . . . . . . . . . . . . . .3
"Common Stock Equivalents" . . . . . . . . . . . . . . . . .3
"Confidential Information" . . . . . . . . . . . . . . . . .3
"Confidentiality Agreement". . . . . . . . . . . . . . . . .3
"Damages". . . . . . . . . . . . . . . . . . . . . . . . . .3
"Demand Registration". . . . . . . . . . . . . . . . . . . .3
"Director Designees" . . . . . . . . . . . . . . . . . . . .3
"Encumbrances" . . . . . . . . . . . . . . . . . . . . . . .3
"Environmental Law". . . . . . . . . . . . . . . . . . . . .4
"Environmental Liabilities and Costs". . . . . . . . . . . .4
"Equity Securities". . . . . . . . . . . . . . . . . . . . .4
"ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . .4
"ERISA Affiliate". . . . . . . . . . . . . . . . . . . . . .4
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . .4
"Final Date" . . . . . . . . . . . . . . . . . . . . . . . .4
"Final Order". . . . . . . . . . . . . . . . . . . . . . . .4
"First Offer Period" . . . . . . . . . . . . . . . . . . . .4
"First Offer Right". . . . . . . . . . . . . . . . . . . . .4
"Fully-Diluted Common Stock" . . . . . . . . . . . . . . . .4
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"GNA". . . . . . . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
-ii-
<PAGE> 24
<TABLE>
<S> <C>
"GNA Annual Statements". . . . . . . . . . . . . . . . . . .5
"GNA Applicable Insurance Department". . . . . . . . . . . .5
"GNA Authorizations" . . . . . . . . . . . . . . . . . . . .5
"GNA Business" . . . . . . . . . . . . . . . . . . . . . . .5
"GNA Disclosure Letter". . . . . . . . . . . . . . . . . . .5
"GNA Employee Benefit Plans" . . . . . . . . . . . . . . . .5
"GNA 1998 Form 10-K Report". . . . . . . . . . . . . . . . .5
"GNA Financial Statements" . . . . . . . . . . . . . . . . .5
"GNA Insurance Subsidiaries" . . . . . . . . . . . . . . . .5
"GNA Material Adverse Effect". . . . . . . . . . . . . . . .5
"GNA Material Contracts" . . . . . . . . . . . . . . . . . .5
"GNA Options". . . . . . . . . . . . . . . . . . . . . . . .6
"GNA Pension Plan" . . . . . . . . . . . . . . . . . . . . .6
"GNA Quarterly Statement". . . . . . . . . . . . . . . . . .6
"GNA Required Consents". . . . . . . . . . . . . . . . . . .6
"GNA Required Statutory Approvals" . . . . . . . . . . . . .6
"GNA Rights" . . . . . . . . . . . . . . . . . . . . . . . .6
"GNA Rights Agreement" . . . . . . . . . . . . . . . . . . .6
"GNA SEC Documents". . . . . . . . . . . . . . . . . . . . .6
"GNA Shareholder Approval" . . . . . . . . . . . . . . . . .6
"GNA Significant Subsidiaries" . . . . . . . . . . . . . . .6
"GNA Stock Plans". . . . . . . . . . . . . . . . . . . . . .6
"GNA Subsidiaries" . . . . . . . . . . . . . . . . . . . . .6
"GNA Subsidiary Securities". . . . . . . . . . . . . . . . .6
"good faith" . . . . . . . . . . . . . . . . . . . . . . . .7
"Governmental Authority" . . . . . . . . . . . . . . . . . .7
"HSR Act". . . . . . . . . . . . . . . . . . . . . . . . . .7
"Investment Management Agreement". . . . . . . . . . . . . .7
"IRS". . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Malfunction". . . . . . . . . . . . . . . . . . . . . . . .7
"Material Activity". . . . . . . . . . . . . . . . . . . . .7
"Material Adverse Market Condition". . . . . . . . . . . . .7
"NYSE" . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Offer Notice" . . . . . . . . . . . . . . . . . . . . . . .7
"PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . .7
"Permitted Assignee" . . . . . . . . . . . . . . . . . . . .7
"Permitted Encumbrances" . . . . . . . . . . . . . . . . . .7
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . .8
"Piggyback Registration" . . . . . . . . . . . . . . . . . .8
"Preemptive Notice". . . . . . . . . . . . . . . . . . . . .8
"Preemptive Right" . . . . . . . . . . . . . . . . . . . . .8
"Preemptive Right Offer Period". . . . . . . . . . . . . . .8
"Preferred Stock". . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
-iii-
<PAGE> 25
<TABLE>
<S> <C>
"Proceedings". . . . . . . . . . . . . . . . . . . . . . . .8
"Proxy Statement". . . . . . . . . . . . . . . . . . . . . .8
"Purchase Price" . . . . . . . . . . . . . . . . . . . . . .8
"Registration Expenses". . . . . . . . . . . . . . . . . . .8
"Registration Statement" . . . . . . . . . . . . . . . . . .8
"Reimbursement Amount" . . . . . . . . . . . . . . . . . . .8
"Rights Agreement" . . . . . . . . . . . . . . . . . . . . .8
"SAP". . . . . . . . . . . . . . . . . . . . . . . . . . . .8
"SEC". . . . . . . . . . . . . . . . . . . . . . . . . . . .8
"Securities" . . . . . . . . . . . . . . . . . . . . . . . .8
"Securities Act" . . . . . . . . . . . . . . . . . . . . . .8
"Series A Shares". . . . . . . . . . . . . . . . . . . . . .8
"Series A Warrant" . . . . . . . . . . . . . . . . . . . . .9
"Series B Warrant" . . . . . . . . . . . . . . . . . . . . .9
"Shareholder Meeting". . . . . . . . . . . . . . . . . . . .9
"Shelf Registration" . . . . . . . . . . . . . . . . . . . .9
"Software" . . . . . . . . . . . . . . . . . . . . . . . . .9
"Statement of Resolution". . . . . . . . . . . . . . . . . .9
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . .9
"Superior Proposal". . . . . . . . . . . . . . . . . . . . .9
"Survival Date". . . . . . . . . . . . . . . . . . . . . . .9
"Taxes". . . . . . . . . . . . . . . . . . . . . . . . . . .9
"Tax Returns". . . . . . . . . . . . . . . . . . . . . . . .9
"TBCA" . . . . . . . . . . . . . . . . . . . . . . . . . . .9
"Third Party Transaction". . . . . . . . . . . . . . . . . .9
"Transactions" . . . . . . . . . . . . . . . . . . . . . . 10
"Transaction Proposal" . . . . . . . . . . . . . . . . . . 10
"Underlying Shares". . . . . . . . . . . . . . . . . . . . 10
"U.S." . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Warrants" . . . . . . . . . . . . . . . . . . . . . . . . 10
"WP & Co." . . . . . . . . . . . . . . . . . . . . . . . . 10
"Year 2000". . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<TABLE>
<S> <C> <C>
ARTICLE II - TERMS OF THE TRANSACTION. . . . . . . . . . . . . . 10
2.1 Agreement to Sell and to Purchase Series A
Shares and Warrants . . . . . . . . . . . . . . . . 10
2.2 Purchase Price and Payment. . . . . . . . . . . . . . 10
ARTICLE III - CLOSING AND CLOSING DATE . . . . . . . . . . . . . 11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF GNA . . . . . . . 11
4.1 Organization and Qualification. . . . . . . . . . . . 11
4.2 Capitalization. . . . . . . . . . . . . . . . . . . . 11
4.3 Authority Relative to This Agreement. . . . . . . . . 12
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C> <C>
4.4 Subsidiaries. . . . . . . . . . . . . . . . . . . . . 12
4.5 Statutory Approvals . . . . . . . . . . . . . . . . . 12
4.6 Non-Contravention . . . . . . . . . . . . . . . . . . 13
4.7 Authorizations. . . . . . . . . . . . . . . . . . . . 13
4.8 Compliance with Laws. . . . . . . . . . . . . . . . . 13
4.9 Statutory Financial Statements. . . . . . . . . . . . 14
4.10 GNA SEC Documents and GNA Financial Statements. . . . 14
4.11 Investments . . . . . . . . . . . . . . . . . . . . . 15
4.12 Absence of Changes. . . . . . . . . . . . . . . . . . 15
4.13 No Undisclosed Liabilities. . . . . . . . . . . . . . 15
4.14 Litigation. . . . . . . . . . . . . . . . . . . . . . 15
4.15 Insurance Business. . . . . . . . . . . . . . . . . . 16
4.16 Regulatory Filings. . . . . . . . . . . . . . . . . . 16
4.17 Reinsurance, Coinsurance and Underwriting Management. 16
4.18 Labor Matters . . . . . . . . . . . . . . . . . . . . 17
4.19 Environmental Compliance. . . . . . . . . . . . . . . 17
4.20 Employee Benefit Plans. . . . . . . . . . . . . . . . 18
4.21 Tax Matters . . . . . . . . . . . . . . . . . . . . . 19
4.22 Year 2000 . . . . . . . . . . . . . . . . . . . . . . 19
4.23 Brokers . . . . . . . . . . . . . . . . . . . . . . . 20
4.24 Prior Private Offerings.. . . . . . . . . . . . . . . 20
4.25 Private Offering of the Securities. . . . . . . . . . 20
4.26 True and Complete Disclosure. . . . . . . . . . . . . 20
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . 20
5.1 Organization and Qualification. . . . . . . . . . . . 20
5.2 Authority Relative to This Agreement. . . . . . . . . 21
5.3 Statutory Approvals . . . . . . . . . . . . . . . . . 21
5.4 Non-Contravention.. . . . . . . . . . . . . . . . . . 21
5.5 No Other Shares.. . . . . . . . . . . . . . . . . . . 21
5.6 Litigation. . . . . . . . . . . . . . . . . . . . . . 21
5.7 Brokers.. . . . . . . . . . . . . . . . . . . . . . . 22
5.8 Securities Matters. . . . . . . . . . . . . . . . . . 22
5.9 Financing.. . . . . . . . . . . . . . . . . . . . . . 23
5.10 Advisers Act. . . . . . . . . . . . . . . . . . . . . 23
5.11 Information to Be Supplied. . . . . . . . . . . . . . 23
5.12 True and Complete Disclosure. . . . . . . . . . . . . 23
ARTICLE VI - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . 23
6.1 Public Announcements. . . . . . . . . . . . . . . . . 23
6.2 NYSE Listing. . . . . . . . . . . . . . . . . . . . . 24
6.3 Registration Rights.. . . . . . . . . . . . . . . . . 24
6.4 Board Representation. . . . . . . . . . . . . . . . . 28
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C>
6.5 Fees and Expenses at Closing. . . . . . . . . . . . . 29
6.6 Restrictions on Transfers.. . . . . . . . . . . . . . 29
6.7 Delivery of Information.. . . . . . . . . . . . . . . 30
6.8 Rule 144 and Rule 144A Information. . . . . . . . . . 30
6.9 Standstill. . . . . . . . . . . . . . . . . . . . . . 31
6.10 Participation in Subsequent Private Placements. . . . 31
6.11 No Solicitation.. . . . . . . . . . . . . . . . . . . 32
6.12 Amendment of GNA Disclosure Letter. . . . . . . . . . 33
6.13 Access to Information.. . . . . . . . . . . . . . . . 33
6.14 HSR Act Notification. . . . . . . . . . . . . . . . . 33
6.15 Private Offering of the Securities. . . . . . . . . . 33
6.16 Financing Support.. . . . . . . . . . . . . . . . . . 33
6.17 Right of First Offer. . . . . . . . . . . . . . . . . 34
6.18 Special Meeting; Proxy Statement. . . . . . . . . . . 34
6.19 Confidentiality . . . . . . . . . . . . . . . . . . . 35
6.20 Reasonable Best Efforts.. . . . . . . . . . . . . . . 35
6.21 Survival of Covenants.. . . . . . . . . . . . . . . . 35
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF GNA . . . . . . . . . 35
7.1 Representations and Warranties True.. . . . . . . . . 36
7.2 Covenants and Agreements Performed. . . . . . . . . . 36
7.3 HSR Act.. . . . . . . . . . . . . . . . . . . . . . . 36
7.4 Legal Proceedings.. . . . . . . . . . . . . . . . . . 36
7.5 Investment Management Agreements. . . . . . . . . . . 36
7.6 Consents and Approvals. . . . . . . . . . . . . . . . 36
7.7 A.M. Best Rating. . . . . . . . . . . . . . . . . . . 36
7.8 Certificate.. . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF BUYER. . . . . . . . 36
8.1 Representations and Warranties True.. . . . . . . . . 36
8.2 Covenants and Agreements Performed. . . . . . . . . . 37
8.3 Opinion of Counsel. . . . . . . . . . . . . . . . . . 37
8.4 Legal Proceedings.. . . . . . . . . . . . . . . . . . 37
8.5 Certificates. . . . . . . . . . . . . . . . . . . . . 37
8.6 Board Approval of Stock Ownership . . . . . . . . . . 37
8.7 Amendment to Rights Agreement.. . . . . . . . . . . . 37
8.8 Investment Management Agreements. . . . . . . . . . . 37
8.9 Consents and Approvals. . . . . . . . . . . . . . . . 37
8.10 A.M. Best Rating. . . . . . . . . . . . . . . . . . . 37
8.11 Statement of Resolution.. . . . . . . . . . . . . . . 37
8.12 Officer Certificate.. . . . . . . . . . . . . . . . . 37
8.13 No Material Adverse Changes.. . . . . . . . . . . . . 38
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C> <C>
ARTICLE IX - TERMINATION, AMENDMENT, AND WAIVER. . . . . . . . . 38
9.1 Termination.. . . . . . . . . . . . . . . . . . . . . 38
9.2 Effect of Termination.. . . . . . . . . . . . . . . . 39
9.3 Fees and Expenses Payable upon Termination. . . . . . 40
9.4 Amendment.. . . . . . . . . . . . . . . . . . . . . . 40
9.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE X - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION . . . . 40
10.1 Survival. . . . . . . . . . . . . . . . . . . . . . . 40
10.2 Indemnification by GNA. . . . . . . . . . . . . . . . 41
10.3 Indemnification by Buyer. . . . . . . . . . . . . . . 41
10.4 Procedure for Indemnification.. . . . . . . . . . . . 41
10.5 Indemnification if Negligence of Indemnitee.. . . . . 42
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 42
11.1 Notices.. . . . . . . . . . . . . . . . . . . . . . . 42
11.2 Entire Agreement. . . . . . . . . . . . . . . . . . . 43
11.3 Binding Effect; Assignment; No Third Party Benefit. . 43
11.4 Interpretation. . . . . . . . . . . . . . . . . . . . 43
11.5 Severability. . . . . . . . . . . . . . . . . . . . . 44
11.6 Time of Essence.. . . . . . . . . . . . . . . . . . . 44
11.7 No Waiver of Privilege. . . . . . . . . . . . . . . . 44
11.8 GNA Disclosure Letter . . . . . . . . . . . . . . . . 44
11.9 Governing Law.. . . . . . . . . . . . . . . . . . . . 44
11.10 Counterparts. . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
EXHIBITS
Exhibit A - Form of Investment Management Agreement
Exhibit B -Form of Investment Management Agreement (Insurance Subsidiaries)
Exhibit C - Form of Statement of Resolution
Exhibit D - Form of Series A Warrant
Exhibit E - Form of Series B Warrant
Exhibit F - Opinion of Counsel of GNA
Exhibit G - Amendment to Rights Agreement
-vii-
<PAGE> 29
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June
29, 1999, between GAINSCO, INC., a Texas corporation ("GNA"), and Goff Moore
Strategic Partners, L.P., a Texas limited partnership ("Buyer").
WHEREAS, GNA desires to sell to Buyer, and Buyer desires to purchase
from GNA, shares of Series A Convertible Preferred Stock of GNA and warrants to
purchase shares of Common Stock of GNA;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, GNA and Buyer hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Ancillary Documents" means the Warrants and the Investment Management
Agreements.
"Applicable Law" means any statute, law, rule, policy, guideline or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA or a
Subsidiary of GNA) of which such Person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of any class of equity
securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
Person, or any relative of such Person, or any relative of such spouse, who has
the same home as such Person or who is a director or officer of GNA or any of
its Subsidiaries.
"Beneficial Owner" and "Beneficially Own" mean, with respect to any
Person, any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly; or
SECURITIES PURCHASE AGREEMENT - PAGE 1
<PAGE> 30
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (whether or not
in writing), or upon the exercise of conversion rights,
exchange rights, rights (other than GNA Rights), warrants or
options, or otherwise; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or any
of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange;
or
(B) the right to vote pursuant to any agreement, arrangement or
understanding (whether or not in writing), provided,
however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such
security (1) arises solely from an immediately revocable
proxy or consent given to such Persons in response to an
public proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and regulations of
the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates)
has any agreement, arrangement or understanding (whether or not
in writing) for the purpose of acquiring, holding, voting (except
to the extent permitted by subparagraph (ii)(B) of this
definition) or disposing of any voting securities of the same
issuer.
"Board" means the board of directors of GNA.
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Buyer" has the meaning set forth in the introductory paragraph of this
Agreement.
"Buyer Group" means Buyer together with its Affiliates, Associates and
employees, and expressly includes Buyer's partners and the partners of the
general partner of Buyer.
"Buyer Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of Buyer that is material to
Buyer and the ability of Buyer to consummate the Transactions, excluding any
such condition, circumstance or development which adversely affects the U.S.
economy or financial markets generally.
SECURITIES PURCHASE AGREEMENT - PAGE 2
<PAGE> 31
"Buyer Representative" has the meaning set forth in Section 6.3(b).
"Capitalization Date" has the meaning set forth in Section 4.2.
"Closing" has the meaning set forth in Article III.
"Closing Date" has the meaning set forth in Article III.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.10 per share, of GNA
and, except where the context otherwise requires, the accompanying GNA Rights.
"Common Stock Equivalents" means (without duplication with any other
Common Stock or Common Stock Equivalents) rights (other than GNA Rights),
warrants, options, convertible securities or convertible indebtedness,
exchangeable securities or exchangeable indebtedness, or other rights
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock (at the time or upon the passage of time or the occurrence of
future events), including all Common Stock issuable upon conversion of the
Series A Shares or issuable upon exercise of the Warrants.
"Confidential Information" means information received at any time by
Buyer from GNA that is not generally known or which would logically be
considered confidential or proprietary, or which would do GNA harm if divulged,
or which is marked "Confidential Information."
"Confidentiality Agreement" means the letter agreement dated May 26,
1999, between Buyer and GNA.
"Damages" has the meaning set forth in Section 10.2.
"Demand Registration" has the meaning set forth in Section 6.3(b).
"Director Designees" has the meaning set forth in Section 6.4.
"Encumbrances" means liens, charges, pledges, options, mortgages, deeds
of trust, security interests, claims, restrictions (whether on voting, sale,
transfer, disposition, or otherwise), easements, and other encumbrances of every
type and description, whether imposed by law, agreement, understanding, or
otherwise, other than restrictions imposed under applicable securities laws.
"Environmental Law" means any law, regulation, decree, judgment, permit
or authorization relating to the environment, including, without limitation,
pollution, contamination, cleanup and protection of the environment.
"Environmental Liabilities and Costs" means all damages, penalties or
cleanup costs assessed or levied pursuant to any Environmental Law.
SECURITIES PURCHASE AGREEMENT - PAGE 3
<PAGE> 32
"Equity Securities" means any capital stock of GNA, any securities
directly or indirectly convertible into, or exercisable or exchangeable for any
capital stock of GNA, or any right, option, warrant or other security which,
with the payment of additional consideration, the expiration of time or the
occurrence of any event shall give the holder thereof the right to acquire any
capital stock of GNA or any security convertible into or exercisable or
exchangeable for, any capital stock of GNA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all of the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business, whether or not
incorporated, which together with a Person and its Subsidiaries would be deemed
a "single-employer" within the meaning of Section 4001 of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Date" means December 31, 1999; provided that in the event that
by such date (i) the GNA Required Statutory Approvals or the GNA Shareholder
Approval shall not have been received, (ii) the other conditions to the
consummation of the Transaction are then capable of being satisfied, (iii) the
Shareholder Meeting shall have been called by the Board but not held, and (iv)
any of the GNA Required Statutory Approvals or the GNA Shareholder Approval
which have not been received are being pursued with reasonable diligence, then
the Final Date shall automatically be changed to the earlier of (x) February 15,
2000 or (y) the fifth Business Day after the date of the receipt of the later of
the GNA Required Statutory Approvals or the GNA Shareholder Approval.
"Final Order" means action by the relevant regulatory authority that
has not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the Transactions
may be consummated has expired, and as to which all conditions to the
consummation of such Transactions prescribed by law, regulation or order have
been satisfied, and as to which all opportunities for rehearing are exhausted
(whether or not any appeal thereof is pending).
"First Offer Period" has the meaning set forth in Section 6.18.
"First Offer Right" has the meaning set forth in Section 6.18.
"Fully-Diluted Common Stock" means, at any time, the then outstanding
shares of Common Stock plus (without duplication) all shares of Common Stock
issuable (at the time or upon passage of time or the occurrence of future
events), upon the exercise, conversion or exchange of all then-outstanding
Common Stock Equivalents. The percentage of the Fully-Diluted Common Stock held
by a Person at any time shall be determined so that a Person is deemed the
Beneficial Owner of the then outstanding shares of Common Stock attributable to
such Person plus (without duplication) all shares of Common Stock issuable
(whether at the time or upon passage of time or the occurrence of future
events), upon the exercise, conversion or exchange of all then-outstanding
Common Stock Equivalents attributable to such Person but not any other
outstanding Common Stock Equivalents.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
SECURITIES PURCHASE AGREEMENT - PAGE 4
<PAGE> 33
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Annual Statements" has the meaning set forth in Section 4.9.
"GNA Applicable Insurance Department" means as to (i) GNA's Insurance
Subsidiaries located in Oklahoma, the Oklahoma Department of Insurance and (ii)
GNA's Insurance Subsidiaries located in Texas, the Texas Department of
Insurance.
"GNA Authorizations" has the meaning set forth in Section 4.7.
"GNA Business" means the business conducted by GNA and GNA Subsidiaries
taken as a whole.
"GNA Disclosure Letter" means the disclosure letter delivered by GNA to
Buyer concurrently with the execution and delivery of this Agreement.
"GNA Employee Benefit Plans" has the meaning set forth in Section
4.20(a).
"GNA 1998 Form 10-K Report" means the Form 10-K Report filed by GNA
with the SEC for GNA's fiscal year ended December 31, 1998.
"GNA Financial Statements" has the meaning set forth in Section 4.10.
"GNA Insurance Subsidiaries" means MGA Insurance Company, Inc., a Texas
corporation; GAINSCO County Mutual Insurance Company, a Texas mutual insurance
company; and General Agents Insurance Company of America, Inc., an Oklahoma
corporation.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to GNA and its Subsidiaries taken as a whole and as to the
ability of GNA to consummate the Transactions, excluding any such condition,
circumstance or development which adversely affects the U.S. economy, financial
markets or insurance industry generally, provided that no change in the prices
at which the Common Stock is quoted or traded in and of itself shall be a GNA
Material Adverse Effect.
"GNA Material Contracts" means:
(i) any written agreement, contract, lease, commitment,
understanding, instrument or obligation to which GNA or any
of its Subsidiaries is a party or by which GNA or any of its
Subsidiaries or any of their respective properties may be
bound upon which any substantial part of the GNA Business is
dependent or which, if Breached, could reasonably be
expected to have a GNA Material Adverse Effect;
(ii) which provides for the sale or lease after the date hereof
of any of the assets of GNA or its Subsidiaries other than
in the ordinary course of business; or
(iii) any agreement filed as an exhibit to the GNA 1998 Form 10-K
Report.
SECURITIES PURCHASE AGREEMENT - PAGE 5
<PAGE> 34
"GNA Options" means (i) all options granted and outstanding under any
of the GNA Stock Plans and related option agreements and (ii) the option to
purchase 579,710 shares of Common Stock evidenced by the Replacement
Nonqualified Stock Option Agreement dated July 24, 1998 between GNA and Glenn W.
Anderson.
"GNA Pension Plan" has the meaning set forth in Section 4.20(d).
"GNA Quarterly Statement" has the meaning set forth in Section 4.9.
"GNA Required Consents" has the meaning set forth in Section 4.6(c).
"GNA Required Statutory Approvals" has the meaning set forth in Section
4.5.
"GNA Rights" means rights to purchase Common Stock issued pursuant to
the GNA Rights Agreement.
"GNA Rights Agreement" means the Rights Agreement dated as of March 3,
1988, as amended, between GNA and Continental Stock Transfer & Trust Company.
"GNA SEC Documents" has the meaning set forth in Section 4.10.
"GNA Shareholder Approval" means the approval of the Transactions by a
plurality of the holders of Common Stock voting thereon at the Shareholder
Meeting.
"GNA Significant Subsidiaries" means the GNA Insurance Subsidiaries;
National Specialty Lines, Inc., a Florida corporation; DLT Insurance Adjusters,
Inc., a Florida corporation; and GAINSCO Service Corp., a Texas corporation.
"GNA Stock Plans" means GNA's 1990 and 1995 Stock Option Plans and
GNA's 1998 Long-Term Incentive Plan.
"GNA Subsidiaries" means the Subsidiaries of GNA.
"GNA Subsidiary Securities" has the meaning set forth in Section 4.4.
"good faith", when used in respect of any action, means that the action
was taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Investment Management Agreement" means an Investment Management
Agreement between Buyer and GNA in substantially the form of Exhibit "A"
attached hereto or between Buyer and a GNA Insurance
SECURITIES PURCHASE AGREEMENT - PAGE 6
<PAGE> 35
Subsidiary in substantially the form of Exhibit "B" attached hereto, and
"Investment Management Agreements" means the respective Investment Management
Agreements to be entered into by Buyer with each of GNA and the GNA Insurance
Subsidiaries.
"IRS" means the Internal Revenue Service.
"Malfunction" means any failure to: (a) accurately recognize dates
falling before, on or after the Year 2000; or (b) accurately record, store,
retrieve and process data input and date information.
"Material Activity" has the meaning set forth in Section 6.3(e).
"Material Adverse Market Condition" shall mean the existence of either
of the following conditions: (i) a general moratorium in commercial banking
activities in the State of Texas has been declared by either Federal or Texas
State authorities and has continued for more than the two trading weeks
preceding the earlier to occur of the Closing Date or the Final Date; or (ii)
there has occurred a reduction of more than 30% in the Standard & Poor's 500
Index from the amount thereof at the close of business on the date hereof that
has continued for more than the two trading weeks preceding the earlier to occur
of the Closing Date or the Final Date.
"NYSE" means the New York Stock Exchange.
"Offer Notice" has the meaning set forth in Section 6.18.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Assignee" has the meaning set forth in Section 11.3.
"Permitted Encumbrances" means (i) liens for Taxes not yet due and
payable; (ii) mechanics', carriers', workers', repairers' and other similar
liens arising or incurred in the ordinary course of business relating to
obligations as to which there is no default on the part of the obligor; (iii)
liens arising in the ordinary course of business incident to the purchase and
sale of Securities and other investments or the holding thereof by banks,
brokerage firms, custodians and intermediaries for the benefit of GNA or its
Subsidiaries; (iv) exceptions which do not materially affect the use or
occupancy of the real property covered thereby; and (v) such other recorded
liens, imperfections in title, charges, easements, restrictions and encumbrances
which do not materially affect the use or occupancy of the property.
"Person" means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
any Governmental Authority.
"Piggyback Registration" has the meaning set forth in Section 6.3(b).
"Preemptive Notice" has the meaning set forth in Section 6.10.
"Preemptive Right" has the meaning set forth in Section 6.10.
"Preemptive Right Offer Period" has the meaning set forth in Section
6.10.
SECURITIES PURCHASE AGREEMENT - PAGE 7
<PAGE> 36
"Preferred Stock" means the authorized Preferred Stock, par value
$100.00 per share, of GNA.
"Proceedings" means all complaints, claims, prosecutions, indictments,
proceedings, actions, suits, investigations, and inquiries by or before any
arbitrator or Governmental Authority, whether civil, criminal, administrative,
arbitrative or investigative.
"Proxy Statement" has the meaning set forth in Section 5.11.
"Purchase Price" has the meaning set forth in Section 2.2.
"Registration Expenses" has the meaning set forth in Section 6.3(g).
"Registration Statement" has the meaning set forth in Section 6.3(c).
"Reimbursement Amount" has the meaning set forth in Section 9.3(a).
"Rights Agreement" means the Rights Agreement dated as of March 3,
1988, as amended, between GNA and Texas American Bank/Fort Worth, N.A.
"SAP" means the insurance accounting practices required or permitted by
the GNA Applicable Insurance Department applicable to the specified Person(s)
consistently applied by such Person(s).
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning set forth in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Shares" means shares of the series of Preferred Stock of GNA
to be designated "Series A Convertible Preferred Stock" and to have the rights,
powers, preferences, qualifications, limitations and restrictions set forth in
the Statement of Resolution.
"Series A Warrant" has the meaning set forth in Section 2.1.
"Series B Warrant" has the meaning set forth in Section 2.1.
"Shareholder Meeting" means the special meeting of the Company's
shareholders at which the Transactions are submitted to shareholders for their
approval.
"Shelf Registration" has the meaning set forth in Section 6.3(a).
"Software" means all computer software and subsequent versions thereof,
including but not limited to, source code, object code, objects, comments,
screens, user interfaces, report formats, templates, menus, buttons and icons,
and all files, data, materials, manuals, design notes and other items and
documentation related thereto or associated therewith.
SECURITIES PURCHASE AGREEMENT - PAGE 8
<PAGE> 37
"Statement of Resolution" means a Statement of Resolution to be filed
with the Secretary of State of the State of Texas substantially in the form of
Exhibit "C" attached hereto to establish and designate the Series A Shares.
"Subsidiary" means, with respect to any Person, any corporation or
other entity (including partnerships and other business associations) in which
the Person directly or indirectly owns at least a majority of the outstanding
voting securities or other equity interests having the power, under ordinary
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"Superior Proposal" has the meaning set forth in Section 6.11(a).
"Survival Date" has the meaning set forth in Section 10.1.
"Taxes" means all federal, state, local and foreign income, franchise,
property, sales, use, excise and other taxes, including without limitation
obligations for withholding taxes from payments due or made to any other Person
and any interest, penalties or additions to taxes.
"Tax Returns" means all original and amended returns, declarations,
certifications, statements, notices, elections, estimates, reports, claims for
refund and information returns relating to or required to be filed or maintained
in connection with any Tax, together with all schedules and attachments thereto.
"TBCA" means the Texas Business Corporation Act, as amended.
"Third Party Transaction" means the occurrence of any of the following
events: (i) any merger, consolidation or other business combination of GNA with
any Person or group other than Buyer (a "Third Party"); (ii) the acquisition by
a Third Party of more than 20% of the total assets of GNA and its Subsidiaries,
taken as a whole; (iii) the acquisition by a Third Party of Beneficial Ownership
of 20% or more of the aggregate outstanding Common Stock of GNA from GNA or any
other Person pursuant to a business combination to which GNA is a party or
otherwise; (iv) the adoption by GNA of a plan of recapitalization,
restructuring, reorganization, liquidation or dissolution; (v) the declaration
or payment of an extraordinary dividend by GNA or (vi) the entry by GNA into an
investment management or similar agreement providing for the management of all
or substantially all of the assets contained in the investment portfolio of GNA
and its Subsidiaries that may not be canceled or terminated within 90 days after
the Closing Date without material penalty.
"Transactions" means the purchase and sale of securities contemplated
by this Agreement.
"Transaction Proposal" has the meaning set forth in Section 6.11(a).
"Underlying Shares" means, at any time, all shares of Common Stock
which may be acquired upon exercise of the Warrants or upon the conversion of
Series A Shares and any other Equity Securities issued with respect thereto by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
"U.S." means the United States of America.
SECURITIES PURCHASE AGREEMENT - PAGE 9
<PAGE> 38
"Warrants" has the meaning set forth in Section 2.1.
"WP & Co." means Wasserstein Perella & Co., Inc.
"Year 2000" means the calendar year 2000 A.D.
ARTICLE II
TERMS OF THE TRANSACTION
2.1 AGREEMENT TO SELL AND TO PURCHASE SERIES A SHARES AND WARRANTS. At
the Closing and on the terms and subject to the conditions set forth in this
Agreement, GNA shall sell and deliver to Buyer, and Buyer shall purchase and
accept from GNA (i) 31,620 Series A Shares, (ii) a Series A Warrant in
substantially the form of Exhibit "D" attached hereto expiring on the fifth
anniversary of the Closing Date and entitling Buyer to purchase 1,550,000 shares
of Common Stock for $6.375 per share, as subject to adjustment as set forth
therein (the "Series A Warrant"), and (iii) a Series B Warrant in substantially
the form of Exhibit "E" attached hereto expiring on the seventh anniversary of
the Closing Date and entitling Buyer to purchase 1,550,000 shares of Common
Stock for $8.50 per share, as subject to adjustment as set forth therein (the
"Series B Warrant") (collectively, the "Warrants", and herein together with the
Series A Shares referred to as the "Securities").
2.2 PURCHASE PRICE AND PAYMENT. The aggregate purchase price for the
Securities is $31,620,000 (the "Purchase Price"), of which $29,580,000 is for
the Series A Shares, $1,250,000 is for the Series A Warrant and $790,000 is for
the Series B Warrant. The Purchase Price shall be paid by Buyer on or before the
Closing Date in immediately available funds by confirmed wire transfer to a bank
account to be designated by GNA no later than the third Business Day prior to
the Closing Date.
ARTICLE III
CLOSING AND CLOSING DATE
The closing of the Transactions (the "Closing") shall take place (i) at
the offices of Jackson Walker, L.L.P., 301 Commerce Street, Suite 2400, Fort
Worth, Texas at 10:00 a.m., local time, on the third Business Day following the
satisfaction or waiver (subject to Applicable Law) of each of the conditions to
the obligations of the parties set forth in Articles VII and VIII hereof, or
(ii) at such other time or place or on such other date as the parties hereto
shall agree. The date on which the Closing is required to take place is herein
referred to as the "Closing Date". All Closing transactions shall be deemed to
have occurred simultaneously.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GNA
GNA represents and warrants to Buyer the following:
4.1 ORGANIZATION AND QUALIFICATION. Each of GNA and the GNA Significant
Subsidiaries is a corporation or other entity duly organized, validly existing
and in good standing under the laws of its
SECURITIES PURCHASE AGREEMENT - PAGE 10
<PAGE> 39
jurisdiction of incorporation or organization, and has corporate or other power
and authority to own all of its properties and assets and to carry on its
business as now being conducted. Each of GNA and the GNA Significant
Subsidiaries is duly qualified and in good standing to transact business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except where
the failure to be in good standing or to be duly qualified would not,
individually or in the aggregate, have or reasonably be expected to have a GNA
Material Adverse Effect.
4.2 CAPITALIZATION. The authorized capital stock of GNA consists of
250,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. As
of the close of business on June 1, 1999 (the "Capitalization Date") and
excluding shares of Common Stock subject to the GNA Rights Agreement: 20,896,563
shares of Common Stock were issued and outstanding; no shares of Preferred Stock
were outstanding; 844,094 shares of Common Stock were held in GNA's treasury;
and there were outstanding GNA Options with respect to 1,555,640 shares of
Common Stock. Since the Capitalization Date, except as disclosed in Section 4.2
of the GNA Disclosure Letter or in the GNA SEC Documents, GNA (i) has not issued
any shares of Common Stock other than upon the exercise or vesting of GNA
Options outstanding on such date; (ii) has not granted any options or rights to
purchase or acquire shares of Common Stock under the GNA Stock Plans or
otherwise; and (iii) has not split, combined or reclassified any of its shares
of capital stock. All of the outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and are free
of preemptive rights. Except as disclosed in this Section or in Section 4.2 of
the GNA Disclosure Letter or the GNA SEC Documents and other than the GNA
Rights, there are no outstanding Equity Securities. Except as disclosed in
Section 4.2 of the GNA Disclosure Letter, there are no outstanding obligations
of GNA or any Subsidiary to repurchase, redeem or otherwise acquire any Equity
Securities.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) GNA has all requisite power and authority to enter into this
Agreement and, subject to the GNA Shareholder Approval, the GNA Required
Statutory Approvals and the GNA Required Consents, to consummate the
Transactions. The execution and delivery of this Agreement and, subject to GNA
Shareholder Approval, the consummation by GNA of the Transactions have been duly
authorized by all necessary corporate action on the part of GNA. This Agreement
has been duly and validly executed and delivered by GNA and, assuming the due
authorization, execution and delivery hereof by Buyer, constitutes the valid and
binding obligation of GNA, enforceable against GNA in accordance with its terms,
except as would be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion of
any court before which any proceeding therefor may be brought.
(b) When issued and delivered pursuant to this Agreement against
payment therefor, the Securities will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of GNA
entitled to the benefits provided therein. When issued and delivered pursuant to
the Agreement against payment therefor, the Series A Shares will be fully paid
and nonassessable. During the period within which the Series A Shares may be
converted into Common Stock or the Warrants may be exercised, GNA will at all
times have a sufficient number of shares of Common Stock authorized and reserved
for the purpose of issue upon conversion of the Series A Shares or exercise of
the Warrants. All of the Underlying Shares will, when issued, be validly issued,
fully paid and nonassessable. The issuance
SECURITIES PURCHASE AGREEMENT - PAGE 11
<PAGE> 40
of the Series A Shares is not, and upon conversion of the Series A Shares or
exercise of the Warrants, the issuance of the Underlying Shares will not be,
subject to any preemptive or similar rights.
4.4 SUBSIDIARIES. Except as disclosed in Section 4.4 of the GNA
Disclosure Letter or in the GNA SEC Documents, GNA Beneficially Owns, directly
or indirectly, of record all the outstanding shares of capital stock of each of
its Subsidiaries, free and clear of any Encumbrance of any kind, and there are
no irrevocable proxies with respect to any such shares. Except as disclosed in
this Section or in Section 4.4 of the GNA Disclosure Letter or the GNA SEC
Documents, there are no outstanding (i) shares of capital stock or other voting
securities of any Subsidiary of GNA; (ii) securities of GNA or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any such Subsidiary; or (iii)
options or other rights to acquire from GNA or any of its Subsidiaries, or other
obligations of GNA or any of its Subsidiaries to issue, any capital stock,
voting securities or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or ownership
interests in, any of the Subsidiaries of GNA, or to grant, extend or enter into
any subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (the items in clauses (i), (ii) and (iii) being
referred to collectively as "GNA Subsidiary Securities"). There are no
outstanding obligations of GNA or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any outstanding GNA Subsidiary Securities. Except to the
extent that any of the GNA Significant Subsidiaries is a "significant
subsidiary" as such term is used in Rule 1-02(w) of Regulation S-X as
promulgated under the Securities Act, GNA does not have a "significant
subsidiary" as such term is used in Rule 1-02(w) of Regulation S-X as
promulgated under the Securities Act.
4.5 STATUTORY APPROVALS. Except for filings under the HSR Act and the
Exchange Act and as set forth in Section 4.5 of the GNA Disclosure Letter or
otherwise contemplated by this Agreement, no declaration, filing or registration
with, or notice to or authorization, consent or approval of any Governmental
Authority is necessary for the execution and delivery of this Agreement by GNA
or the consummation by GNA of the Transactions, the failure to obtain, make or
give which could reasonably be expected to have a GNA Material Adverse Effect
(the "GNA Required Statutory Approvals"), it being understood that references in
this Agreement to "obtaining" such GNA Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving such notice;
obtaining such consents or approvals; and having such waiting periods expire as
are necessary to avoid a violation of law.
4.6 NON-CONTRAVENTION. Subject to obtaining the GNA Required Statutory
Approvals and the receipt of the GNA Shareholder Approval, the execution and
delivery of this Agreement by GNA do not, and the consummation of the
Transactions will not, result in any violation by GNA or any of its Subsidiaries
under any provisions of:
(a) the Articles of Incorporation, Bylaws or similar governing
documents of GNA or any of its Subsidiaries;
(b) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its Subsidiaries or any of their respective
properties or assets; or
(c) subject to obtaining the third-party consents or other
approvals set forth in Section 4.6 of the GNA Disclosure Letter (the "GNA
Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement
SECURITIES PURCHASE AGREEMENT - PAGE 12
<PAGE> 41
of any kind to which GNA or any of its Subsidiaries is now a party or by which
it or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (b) and (c) such violations as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
4.7 AUTHORIZATIONS. Except as described in the GNA SEC Documents or
Section 4.7 of the GNA Disclosure Letter, GNA and each of the GNA Insurance
Subsidiaries have obtained all licenses, certificates of authority, permits,
authorizations, orders and approvals of, and have made all registrations or
filings with, all Governmental Authorities as required in connection with the
conduct of its business as currently conducted, and with respect to which a
failure to so obtain would have a GNA Material Adverse Effect (collectively, the
"GNA Authorizations"). All material GNA Authorizations are valid and in full
force and effect. Except as would not cause a GNA Material Adverse Effect, no
notice that GNA or any of the GNA Insurance Subsidiaries is in material
violation of any such GNA Authorization has been received by GNA or any of the
GNA Insurance Subsidiaries, or to the knowledge of GNA, recorded or published,
and no Proceeding is pending or, to the knowledge of GNA threatened, to revoke
or limit any of them such as reasonably would be expected to cause a GNA
Material Adverse Effect.
4.8 COMPLIANCE WITH LAWS. Except as set forth in the GNA Disclosure
Letter or in the GNA SEC Documents or GNA Financial Statements, and in addition
to the representations and warranties contained in Section 4.7 relating to GNA
Authorizations, to the knowledge of GNA, GNA and its Subsidiaries are in
compliance with all Applicable Laws applicable to GNA and its Subsidiaries the
failure to comply with which, individually or in the aggregate, could reasonably
be expected to have a GNA Material Adverse Effect. Furthermore, except as is
disclosed in the GNA Disclosure Letter or in the GNA SEC Documents or GNA
Financial Statements or as would not cause a GNA Material Adverse Effect, to the
knowledge of GNA neither GNA nor any of its Subsidiaries has received any notice
alleging material non-compliance with any of the aforementioned Applicable Laws.
4.9 STATUTORY FINANCIAL STATEMENTS. GNA has heretofore made (or will
make prior to Closing) available to Buyer copies of the annual statements of the
GNA Insurance Subsidiaries as filed with the GNA Applicable Insurance Department
(the "GNA Annual Statements") for the years ended December 31, 1996, 1997 and
1998 and copies of the quarterly statement of the GNA Insurance Subsidiaries to
the GNA Applicable Insurance Department ended March 31, 1999 (the "GNA Quarterly
Statement"). The balance sheets of each of the GNA Insurance Subsidiaries as of
December 31, 1998, and the related statements of income and cash flow for the
year then ended, included in the GNA Annual Statement for the year ended
December 31, 1998, were prepared in conformity with SAP, except as otherwise
noted therein, for the period covered thereby and fairly present the statutory
financial position of such GNA Insurance Subsidiary as at the date thereof and
the results of operations and cash flow of such GNA Insurance Subsidiary for the
period then ended. The balance sheets of the GNA Insurance Subsidiaries and the
related statements of income and cash flow included in the GNA Quarterly
Statements were prepared in conformity with SAP applicable to interim financial
statements consistently applied during the period involved, except as otherwise
noted therein, subject to normal year-end adjustments, and fairly present the
statutory financial position of such GNA Insurance Subsidiary as at the dates
thereof and the results of operations and cash flow of such GNA Insurance
Subsidiary for the periods then ended. Without limiting the generality of the
foregoing and subject to the cautionary statements regarding reserves contained
under "Item 1. BUSINESS--Unpaid Claims and Claim Adjustment Expenses" and
elsewhere in the GNA 1998 Form 10-K Report, the reserves carried on the GNA
Annual Statement for the year ended December 31, 1998 and the GNA Quarterly
Statement for the
SECURITIES PURCHASE AGREEMENT - PAGE 13
<PAGE> 42
payment of estimated claims and claim adjustment expenses for both reported and
unreported claims were (i) reported in accordance with SAP and (ii) believed by
GNA to be adequate to cover the amounts GNA expected the GNA Insurance
Subsidiaries to pay on incurred claims based on facts and circumstances then
known. The admitted assets of each GNA Insurance Subsidiary as determined under
Applicable Laws are in an amount at least equal to the minimum amounts required
by Applicable Laws.
4.10 GNA SEC DOCUMENTS AND GNA FINANCIAL STATEMENTS. Except as set
forth in Section 4.10 of the GNA Disclosure Letter or as could not reasonably be
expected to have a GNA Material Adverse Effect, GNA and the GNA Insurance
Subsidiaries have timely filed all reports, registrations, statements and other
filings, together with any amendments required to be made with respect thereto,
that were required to be filed since December 31, 1996 with the SEC. GNA has or
will have made available to Buyer prior to the Closing copies of each
registration statement, offering circular, report, definitive proxy statement or
information statement filed by it with the SEC with respect to periods since
January 1, 1998 through the date of this Agreement and will promptly provide
each such registration statement, offering circular, report, definitive proxy
statement or information statement filed or circulated after the date hereof
(collectively, the "GNA SEC Documents"), each in the form (including exhibits
and any amendments thereto) filed with the SEC.
As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Agreement), and except
as set forth in Section 4.10 of the GNA Disclosure Letter, each of the GNA SEC
Documents, including the financial statements, exhibits and schedules thereto,
filed or circulated prior to the date hereof complied (and each of the GNA SEC
Documents filed after the date of this Agreement, will comply) in all material
respects as to form with applicable federal securities laws and did not (or in
the case of reports, statements, or circulars filed after the date of this
Agreement, will not) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
Each of GNA's consolidated statements of condition or balance sheets
included in or incorporated by reference into the GNA SEC Documents, including
the related notes and schedules, fairly presented in accordance with GAAP the
consolidated financial position of GNA and its Subsidiaries as of the date of
such statement of condition or balance sheet and each of the consolidated
statements of income, cash flows and shareholders' equity included in or
incorporated by reference into GNA SEC Documents, including any related notes
and schedules (collectively, the foregoing financial statements and related
notes and schedules are referred to as the "GNA Financial Statements"), fairly
presented the consolidated results of operations, cash flows and shareholders'
equity, as the case may be, of GNA and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments and the absence of certain notes), in each case in
accordance with GAAP except as may be noted therein or in Section 4.10 of the
GNA Disclosure Letter.
4.11 INVESTMENTS. Except as disclosed in Section 4.11 of the GNA
Disclosure Letter or in the GNA SEC Documents, GNA and each of its Subsidiaries
has good and marketable title, free and clear of all Encumbrances other than
Permitted Encumbrances, to all of its investment assets reflected in the GNA
Quarterly Statement for March 31, 1999, or acquired after March 31, 1999, other
than investment assets that (i) have been sold or disposed of in the normal
course of business or (ii) have been pledged for the benefit of policyholders in
accordance with the requirements of state Governmental Authorities. All such
SECURITIES PURCHASE AGREEMENT - PAGE 14
<PAGE> 43
investments are properly treated and valued as admitted assets in accordance
with the regulations of the GNA Applicable Insurance Department and the National
Association of Insurance Commissioners.
4.12 ABSENCE OF CHANGES. Except as contemplated by this Agreement or as
set forth in the GNA Disclosure Letter, the GNA SEC Documents or the GNA
Financial Statements, since March 31, 1999, the GNA Business has been operated
in the ordinary and usual course and neither GNA nor any of any of its
Subsidiaries has entered into any agreement that would require GNA or any of its
Subsidiaries to operate the GNA Business other than in the ordinary and usual
course.
4.13 NO UNDISCLOSED LIABILITIES. To the knowledge of GNA, none of GNA
or any of its Subsidiaries has any liabilities or obligations except (i) as and
to the extent set forth or contemplated in the GNA SEC Documents or GNA
Financial Statements, (ii) liabilities and obligations incurred in the ordinary
course of business, (iii) as would not have a GNA Material Adverse Effect or
(iv) as set forth in the GNA Disclosure Letter.
4.14 LITIGATION. Except as set forth in the GNA SEC Documents, GNA
Financial Statements, or Section 4.14 of the GNA Disclosure Letter, there are no
Proceedings pending or, to the knowledge of GNA, threatened, against GNA or any
of its Subsidiaries, which (i) have, or, if adversely determined, could
reasonably be expected to have a GNA Material Adverse Effect or (ii) seek
specifically to prevent, restrict or delay consummation of the Transactions or
fulfillment of any of the conditions of this Agreement. Except as set forth in
the GNA SEC Documents or GNA Financial Statements or Section 4.14 of the GNA
Disclosure Letter, there are no orders, writs, injunctions, judgments, and
decrees of any Governmental Authority outstanding against GNA or any of its
Subsidiaries, except for such orders, writs, injunctions, judgments and decrees
as could not individually or in the aggregate reasonably be expected to have a
GNA Material Adverse Effect. Except for regular periodic assessments in the
ordinary course of business or assessments based on developments which are
publicly known within the insurance industry, to the knowledge of GNA, no claim
or assessment is pending or threatened against any GNA Insurance Subsidiary by
(i) any state insurance guaranty associations in connection with such
association's fund relating to insolvent insurers or (ii) any assigned risk plan
or other involuntary market plan which if determined adversely could,
individually or in the aggregate, be reasonably expected to result in a cost to
GNA or any of its Subsidiaries of an amount in excess of $500,000, which in
either case individually or in the aggregate could reasonably be expected to
have a GNA Material Adverse Effect.
4.15 INSURANCE BUSINESS. All policies of insurance issued by the GNA
Insurance Subsidiaries and in force on the date hereof are, and on the Closing
Date will be, to the extent required by applicable law, in all material respects
on forms approved by applicable insurance regulatory authorities or which have
been filed with and not objected to by such authorities within the period
provided for such objection, except as could not reasonably be expected to have
a GNA Material Adverse Effect. Any premium rates required to be filed with or
approved by insurance regulatory authorities have been so filed or approved and
the premiums charged conform thereto in all material respects, except as could
not reasonably be expected to have a GNA Material Adverse Effect.
4.16 REGULATORY FILINGS. GNA has heretofore made (or will make prior to
Closing) available to Buyer all material registrations, filings or submissions
(other than policy filings or rate filings) made by or on behalf of GNA or any
of the GNA Insurance Subsidiaries with or to any insurance regulatory authority
and all reports of examination issued by any insurance regulatory authority
since January 1, 1998. Except as disclosed in Section 4.16 of the GNA Disclosure
Letter, GNA and the GNA Insurance Subsidiaries have
SECURITIES PURCHASE AGREEMENT - PAGE 15
<PAGE> 44
filed all reports, statements, documents, registrations, filings or submissions
required to be filed with any Governmental Authority, except with respect to
which the failure to file individually or in the aggregate does not adversely
affect their respective licenses or authority as an insurance company in any
jurisdiction or does not otherwise have a GNA Material Adverse Effect. All such
registrations, filings and submissions were in material compliance with
applicable law when filed, and no material deficiencies have been asserted with
respect thereto.
4.17 REINSURANCE, COINSURANCE AND UNDERWRITING MANAGEMENT.
(a) Section 4.17 of the GNA Disclosure Letter contains a list of
all material coinsurance, reinsurance, excess insurance, coding of insurance,
assumption of insurance or indemnification with respect to insurance treaties or
agreements to which GNA or any GNA Subsidiary is a party or beneficiary and
which are or were in force at any time after December 31, 1998. All such
treaties or agreements are in full force and effect and, except as set forth in
Section 4.17 of the GNA Disclosure Letter or in the GNA SEC Documents or the GNA
Financial Statements, GNA has no knowledge that any such treaties will not be
renewed on acceptable terms that are at least as favorable to GNA as the terms
as they exist on the date of this Agreement. None of the GNA Insurance
Subsidiaries, nor to the knowledge of GNA, any other party thereto, is in
default as to any provision thereof, and no such treaty or agreement contains
any provision to the effect that the other party thereto may terminate the
treaty or agreement by reason of the Transactions. To the knowledge of GNA,
except as set forth in Section 4.17 of the GNA Disclosure Letter, there is no
reason to believe that the financial condition of any other party to any such
treaty or agreement is impaired such that a default thereunder may reasonably be
anticipated.
(b) Section 4.17 of the GNA Disclosure Letter contains a list of
all material agreements to which GNA or any of its Subsidiaries is or was a
party pursuant to which GNA or any of its Subsidiaries served or serves as, or
received or receives services from, a managing general agent or underwriting
manager or pursuant to which any of them continues to be obligated to provide
any services. All such material agreements are in full force and effect and
except as set forth in Section 4.17 of the GNA Disclosure Letter or in the GNA
SEC Documents or GNA Financial Statements, GNA has no knowledge that any other
party to any such agreements intends to terminate or does not intend to renew
such agreements on substantially the same terms as presently exist, except those
agreements which have terminated but for which GNA or any of its Subsidiaries
maintains servicing obligations. Neither GNA nor any of its Subsidiaries, nor to
the knowledge of GNA, any other party thereto, is in default as to any provision
thereof, and no such agreement contains any provision to the effect that the
other party thereto may terminate the agreement by reason of the Transactions.
To the knowledge of GNA, except as set forth in Section 4.17 of the GNA
Disclosure Letter, there is no reason to believe that the financial condition of
any other party to any such agreement is impaired such that a default thereunder
may reasonably be anticipated.
4.18 LABOR MATTERS.
(a) There are no labor unions or other organizations
representing, purporting to represent or attempting to
represent any employees of GNA or its Subsidiaries.
(b) Except as set forth in Section 4.18 of the GNA Disclosure
Letter or in the GNA SEC Documents or GNA Financial
Statements, there are no controversies pending or, to the
knowledge of GNA, threatened between GNA or any of its
Subsidiaries
SECURITIES PURCHASE AGREEMENT - PAGE 16
<PAGE> 45
and any of its employees, except as could not be reasonably
be expected to have a GNA Material Adverse Effect.
4.19 ENVIRONMENTAL COMPLIANCE. Except as disclosed in Section 4.19 of
the GNA Disclosure Letter or in the GNA SEC Documents, to the knowledge of GNA,
(i) the assets, properties, businesses and operations of GNA and its
Subsidiaries are in compliance with applicable Environmental Laws, except for
such instances of non-compliance as would not individually or in the aggregate
have a GNA Material Adverse Effect; (ii) GNA and its Subsidiaries have obtained
and, as currently operating are in compliance with, all permits necessary for
any Environmental Law for the conduct of the business and operations of GNA and
its Subsidiaries in the manner now conducted, except for such instances of
non-compliance as would not individually or in the aggregate have a GNA Material
Adverse Effect; and (iii) neither GNA nor any of its Subsidiaries nor any of
their respective assets, properties, businesses or operations has received or is
subject to any outstanding order, decree, judgment, complaint, agreement, claim,
citation, notice, or proceeding indicating that GNA or any of its Subsidiaries
is or may be liable for (A) a violation of any Environmental Law or (B) any
Environmental Liabilities and Costs, except, in each case, for such liabilities
as would not individually or in the aggregate have a GNA Material Adverse
Effect.
4.20 EMPLOYEE BENEFIT PLANS.
(a) Section 4.20(a) of the GNA Disclosure Letter includes a
complete list of all material employee benefit plans, programs, policies,
practices, and other arrangements providing benefits to any employee or former
employee or beneficiary or dependent thereof, sponsored or maintained by GNA or
its Subsidiaries or to which GNA or its Subsidiaries contribute or are obligated
to contribute (collectively, "GNA Employee Benefit Plans"). "GNA Employee
Benefit Plans" includes all employee welfare benefit plans within the meaning of
Section 3(1) of ERISA and all employee pension benefit plans within the meaning
of Section 3(2) of ERISA. Except as set forth in Section 4.20(a) of the GNA
Disclosure Letter, GNA or its Subsidiaries may amend or terminate any GNA
Employee Benefit Plan without incurring any material liability thereunder.
(b) With respect to each GNA Employee Benefit Plan, there has been
made (or will be made prior to the Closing) available to Buyer a true, correct
and complete copy of: (i) all plan documents, trust agreements, and insurance
contracts and other agreements relating to funding vehicles; (ii) the three most
recent annual reports on Form 5500 and accompanying schedules, if any, filed
with the IRS; (iii) the current summary plan description, if any; (iv) the most
recent annual financial report, if any, filed with the IRS; and (v) the most
recent determination letter, if any, issued by the IRS. All financial statements
for each GNA Employee Benefit Plan have been prepared in all material respects
in compliance with applicable regulations under ERISA.
(c) All GNA Employee Benefit Plans which are "employee benefit
plans," as defined in Section 3(3) of ERISA, in all material respects are in
compliance with and have been administered in compliance with all applicable
requirements of law, including the Code and ERISA, and all unpaid contributions
required to be made to each such plan under the terms of such plan, ERISA or the
Code as of the date hereof have been fully reflected in the appropriate GNA
Financial Statements except where the failure to do so could not reasonably be
expected to have a GNA Material Adverse Effect. There is no lien arising under
ERISA against any of the assets of GNA or any of its Subsidiaries. There are no
threatened or pending claims by or on behalf of the GNA Employee Benefit Plans,
or by any participant therein, alleging a breach or breaches of fiduciary duties
or violations of Applicable Laws which could result in liability on
SECURITIES PURCHASE AGREEMENT - PAGE 17
<PAGE> 46
the part of GNA, its officers or directors, or such GNA Employee Benefit Plans
under ERISA or any other Applicable Law, and to the knowledge of GNA, there is
no basis for any such claim.
(d) Section 4.20(d) of the GNA Disclosure Letter identifies each
GNA Employee Benefit Plan that is intended to be a "qualified plan" satisfying
the requirements of Section 401(a) of the Code (a "GNA Pension Plan"). A
favorable IRS determination letter as to the qualification of each GNA Pension
Plan under Section 401(a) of the Code has been issued and remains in effect and
the related trust has been determined to be exempt from taxation under Section
501(a) of the Code and any amendment made or event relating to such GNA Pension
Plan subsequent to the date of such determination letter has not adversely
affected the qualified status of such GNA Pension Plan. No issue concerning
qualification of any GNA Pension Plan is pending before or, to the knowledge of
GNA, threatened by, the IRS. Each GNA Pension Plan has been administered in
accordance with its terms, except for those terms which are inconsistent with
the changes required by the Code and any regulations and rulings promulgated
thereunder for which changes are not yet required to be made, in which case each
GNA Pension Plan has been administered in accordance with the provisions of the
Code and such regulations and rulings, and neither GNA and its Subsidiaries, nor
any fiduciary of any GNA Pension Plan has done anything which would adversely
affect the qualified status of any GNA Pension Plan or related trust. GNA and
its Subsidiaries have performed all obligations required to be performed by them
under, and are not in default under or in violation of, the terms of any of the
GNA Employee Benefit Plans in any manner that could reasonably be expected to
have a GNA Material Adverse Effect. None of GNA or its Subsidiaries or any other
"disqualified person" (as defined in Section 4975 of the Code) or
"party-in-interest" (as defined in Section 3(14) of ERISA) has engaged in any
"prohibited transaction" (as such term is defined in Section 4975 of the Code or
Section 406 of ERISA), which could subject any GNA Employee Benefit Plan (or its
related trust), GNA or its Subsidiaries or any officer, director or employee of
GNA or its Subsidiaries to the tax or penalty imposed under Section 4975 of the
Code or Section 502(i) of ERISA; and, to the knowledge of GNA, all
"fiduciaries," as defined in Section 3(21) of ERISA, with respect to the GNA
Employee Benefit Plans have complied in all material respects with the
requirements of Section 404 of ERISA.
(e) None of the GNA Employee Benefit Plans is subject to Section
412 of the Code. None of GNA, its Subsidiaries or ERISA Affiliates maintains, or
has any liability with respect to, a GNA Pension Plan that is subject to Title
IV of ERISA.
(f) GNA and its Subsidiaries have no liability for life, health,
medical or other welfare benefits to former employees or beneficiaries or
dependents thereof, except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA, and at no expense to
GNA or its Subsidiaries.
4.21 TAX MATTERS. GNA and each of its Subsidiaries has filed all Tax
Returns required to be filed by it, or requests for extensions to file such Tax
Returns have been timely filed and granted and have not expired, except for such
failures to file as would not individually or in the aggregate have a GNA
Material Adverse Effect. GNA and each of its Subsidiaries has paid (or GNA has
paid on its behalf) or made provision for all Taxes shown as due on such Tax
Returns. The most recent financial statements contained in the GNA SEC Documents
reflect adequate reserves for all Taxes payable by GNA and its Subsidiaries for
all taxable periods and portions thereof accrued through the date of such
financial statements. To the knowledge of GNA, no material deficiencies or
adjustments exist or have been asserted with respect to Taxes of GNA or any of
its Subsidiaries and neither GNA nor any of its Subsidiaries has received notice
that it has not filed a Tax Return or paid any Taxes required to be filed or
paid which could reasonably be expected to
SECURITIES PURCHASE AGREEMENT - PAGE 18
<PAGE> 47
have a GNA Material Adverse Effect. No audit, examination, investigation,
action, suit, claim or proceeding relating to the determination, assessment or
collection of any Tax of GNA or any of its Subsidiaries is currently in process
or pending, except as disclosed in Section 4.21 of the GNA Disclosure Letter. No
waiver or extension of any statute of limitations relating to the assessment or
collection of any Tax of GNA or any of its Subsidiaries is in effect.
4.22 YEAR 2000. Except as disclosed in Section 4.22 of the GNA
Disclosure Letter, all of the equipment, Software and computer hardware, owned
or used by GNA or used and operated by third parties on behalf of GNA, which
performs or is or may be required to perform functions involving dates or the
computation of dates, or containing date related data, has the programming,
design and performance capabilities to ensure that:
(a) it will not suffer any Malfunction that would reasonably be
expected to have a GNA Material Adverse Effect; and
(b) it will not, as a result of the date change at the end of the
twentieth century or the input, processing, storage or use of dates up to and
including December 31, 2001, (i) be adversely affected, (ii) require changes in
inputting or operating practices, (iii) produce invalid or incorrect output or
results, (iv) cause any abnormal ending scenario, or (v) suffer any diminution
in functionality or performance that, in any of the above, would reasonably be
expected to have a GNA Material Adverse Effect.
4.23 BROKERS. Except for such Persons as set forth in Section 4.23 of
the GNA Disclosure Letter (the expenses of which shall be borne by GNA), no
broker, finder, or other investment banker or other Person is or will be
entitled to receive any brokerage, finder's or other fee or commission in
connection with this Agreement or the Transactions based upon agreements made by
or on behalf of GNA or any of its Subsidiaries.
4.24 PRIOR PRIVATE OFFERINGS. Since December 31, 1996: (i) all
securities offered or sold by GNA which were not registered pursuant to the
Securities Act and applicable state securities laws, were offered or sold
pursuant to valid exemptions from the Securities Act and applicable state
securities laws and (ii) no private offering memorandum or other information
furnished (whether in writing or orally) to any offeree or purchaser of such
securities, at the time of delivery of such private offering memorandum or other
information, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
4.25 PRIVATE OFFERING OF THE SECURITIES. GNA has not offered, and will
not offer, the Securities or any part hereof or any similar securities for issue
or sale to, or has solicited or will solicit any offer to acquire any of the
same from, any person so as to bring the issuance and sale of the Securities
within the provisions of Section 5 of the Securities Act.
4.26 TRUE AND COMPLETE DISCLOSURE. Taken in the aggregate and to the
knowledge of GNA, the factual information furnished by GNA to Buyer subsequent
to May 11, 1999 in writing for purposes of this Agreement or the Transaction did
not contain untrue statements of material facts, or omit to state material facts
necessary to make the statements made not misleading in the light of the
circumstances under which they were made, as of the date as of which such
information is dated. The financial forecasts prepared and furnished by GNA to
Buyer subsequent to May 11, 1999 as a whole were prepared in good faith on the
basis
SECURITIES PURCHASE AGREEMENT - PAGE 19
<PAGE> 48
of assumptions believed to be reasonable and data, information, tests or
conditions believed to be valid or accurate or to exist at the time such
forecasts were prepared.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to GNA that:
5.1 ORGANIZATION AND QUALIFICATION. Buyer is a limited partnership duly
organized, validly existing and in good standing under the Texas Revised Limited
Partnership Act, as amended, and has the power and authority to own all of its
properties and assets and to carry on its business as now being conducted. Buyer
is duly qualified and in good standing to transact business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be in good standing or to be duly qualified would not, individually
or in the aggregate, have or reasonably be expected to have a Buyer Material
Adverse Effect.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has all requisite power
and authority to enter into this Agreement and to consummate the Transactions.
The execution and delivery of this Agreement and the consummation by Buyer of
the Transactions have been duly authorized by all necessary action on the part
of Buyer. This Agreement has been duly and validly executed and delivered by
Buyer and, assuming the due authorization, execution and delivery hereof by GNA,
constitutes the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except as would be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought.
5.3 STATUTORY APPROVALS. Except for (i) filings under the HSR Act and
the Exchange Act and with the GNA Applicable Insurance Departments, and (ii) as
otherwise contemplated by this Agreement, no declaration, filing or registration
with, or notice to or authorization, consent or approval of any Governmental
Authority is necessary for the execution and delivery of this Agreement by Buyer
or the consummation by Buyer of the Transactions, the failure to obtain, make or
give which could reasonably be expected to have a Buyer Material Adverse Effect.
5.4 NON-CONTRAVENTION. The execution and delivery of this Agreement by
Buyer does not, and the consummation of the Transactions will not, result in any
violation by Buyer under any provisions of:
(i) the partnership agreement or similar governing documents of
Buyer;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to Buyer or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which Buyer is now a party or by which it or any of
its properties or assets may be bound or affected;
SECURITIES PURCHASE AGREEMENT - PAGE 20
<PAGE> 49
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a Buyer Material Adverse
Effect.
5.5 NO OTHER SHARES. Except for such rights as may be conferred on
Buyer by this Agreement and the Ancillary Documents, as of the date hereof, the
Buyer Group does not Beneficially Own, directly or indirectly, any Common Stock
or Common Stock Equivalents other than options granted under GNA Stock Plans to
John C. Goff.
5.6 LITIGATION. There is no Proceeding pending, or to the knowledge of
Buyer, threatened against Buyer that questions the validity of this Agreement or
any action to be taken by Buyer in connection with this Agreement.
5.7 BROKERS. Except for WP & Co. (the expenses of which will be borne
by GNA), all negotiations relative to this Agreement and the Transactions have
been carried out by Buyer directly with GNA, without the intervention of any
Person on behalf of Buyer or its Affiliates in such manner as to give rise to
any valid claim by any Person against Buyer, GNA, any Subsidiary, or any of
their Affiliates for a finder's fee, brokerage commission, or similar payment.
5.8 SECURITIES MATTERS.
(a) Buyer understands and acknowledges that the Securities have not
been registered under the Securities Act, or the securities laws of any state or
foreign jurisdiction and, unless so registered, may not be offered, sold,
transferred, or otherwise disposed of except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities
Act and any applicable securities laws of any state or foreign jurisdiction.
(b) Buyer is an "accredited investor" (as defined in Rule 501(a) of the
Regulation D under the Securities Act).
(c) Buyer (i) has knowledge and experience in financial and business
matters such that it is capable of evaluating the merits and risks of purchasing
the Securities and (ii) is able to bear the economic risk of an investment in
the Securities for an indefinite period of time, including the risk of a
complete loss of any such investment.
(d) Buyer is acquiring the Securities for its own account for
investment purposes and not with a view to, or for offer or sale for GNA in
connection with, the distribution or resale thereof.
(e) Buyer understands and agrees that the Securities are being sold in
a transaction not involving any public offering within the meaning of the
Securities Act, and that the Securities may not be offered, sold, or otherwise
transferred to, or for the account or benefit of, any Person except as permitted
in the following sentence. Buyer agrees, on its own behalf and on behalf of any
accounts for which Buyer is acting, that if Buyer should sell or otherwise
transfer any Securities, it will do so only (i) pursuant to an exemption from
the registration requirements of the Securities Act (if available) or if the
Securities Act does not apply or (ii) pursuant to an effective registration
statement under the Securities Act, and Buyer further agrees to provide to any
Person purchasing any of the Securities from it a notice advising such purchaser
that resales of the Securities are restricted as stated herein.
SECURITIES PURCHASE AGREEMENT - PAGE 21
<PAGE> 50
(f) Buyer understands that the certificates for the Securities
purchased pursuant to this Agreement will bear a legend substantially to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN PURCHASED
PURSUANT TO A SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE 29, 1999,
BETWEEN GAINSCO, INC. AND GOFF MOORE STRATEGIC PARTNERS, L.P. SUCH
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW,
AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
5.9 FINANCING. Buyer has available to it, and on the Closing Date will
have, all financial resources necessary to consummate the Transactions,
including, without limitation, the payment of the Purchase Price to GNA.
5.10 ADVISERS ACT. Buyer is exempt from registration as an investment
adviser under the Investment Advisers Act of 1940 and, subject to the approval
of this Agreement and the Investment Management Agreements by the GNA Applicable
Insurance Departments, all other Applicable Laws, and there is no writ,
judgment, order or decree, pending or threatened against any member of the Buyer
Group that could prevent or disqualify Buyer from performing its obligations and
duties pursuant to the Investment Management Agreements pursuant to the statutes
and regulations administered by the GNA Applicable Insurance Departments.
5.11 INFORMATION TO BE SUPPLIED. The information to be supplied by
Buyer and included or incorporated by reference in GNA's proxy statement related
to the Shareholder Meeting (the "Proxy Statement") will, at the time of the
mailing thereof and at the time of the Shareholder Meeting, not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
representations and warranties contained in this Section 5.11 shall not apply to
statements or omissions in the information furnished pursuant to Section 6.18 to
the extent such information is based upon information furnished to Buyer by GNA.
5.12 TRUE AND COMPLETE DISCLOSURE. Taken in the aggregate and to the
knowledge of buyer, the factual information (including, without limitation,
information regarding its knowledge, investment experience and investment track
record) furnished by Buyer to GNA subsequent to May 11, 1999 in writing for
purposes of this Agreement or the Transaction did not contain untrue statements
of material facts, or omit to state material facts necessary to make the
statements made not misleading in the light of the circumstances under which
they were made, as of the date as of which such information is dated. The
financial forecasts prepared and furnished by Buyer to GNA subsequent to May 11,
1999 as a whole were prepared in good faith on the basis of assumptions believed
to be reasonable and data, information, tests or conditions believed to be valid
or accurate or to exist at the time such forecasts were prepared.
SECURITIES PURCHASE AGREEMENT - PAGE 22
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 PUBLIC ANNOUNCEMENTS. Except as may be required by Applicable Law
or by the rules of any national securities exchange, neither Buyer, on the one
hand, nor GNA, on the other, shall issue any press release or make any public
announcement with respect to this Agreement or the Transactions without the
prior consent of the other party (which consent shall not be unreasonably
withheld under the circumstances). Any such press release or public announcement
required by Applicable Law or by the rules of any national securities exchange
shall only be made after reasonable notice to the other party.
6.2 NYSE LISTING. GNA shall use its reasonable best efforts to cause
the Underlying Shares to be approved for listing on the NYSE, subject to
official notice of issuance by, or as soon as practicable after, the Closing
Date.
6.3 REGISTRATION RIGHTS.
(a) SHELF REGISTRATION. On or as soon as practicable after the third
anniversary of the date of this Agreement, GNA shall file a shelf registration
under the Securities Act with respect to the public distribution of the
Underlying Shares (the "Shelf Registration") and cause such registration
statement to become effective as promptly as possible and remain continually
effective; provided that Buyer shall have the right to waive or postpone the
requirement that such Shelf Registration be effected or continued. The
obligation to file or maintain the effectiveness of such Shelf Registration
shall expire at such time as members of the Buyer Group do not Beneficially Own
in the aggregate more than 10% of the Fully-Diluted Common Stock and none of
them is an Affiliate of GNA. It is specifically agreed that the Shelf
Registration rights set forth in this subsection (a) shall be assignable to any
transferee of Underlying Shares who is a member of the Buyer Group, but not
otherwise.
(b) DEMAND REGISTRATION. Commencing on the third anniversary of the
date of this Agreement and continuing until Buyer or members of the Buyer Group
do not Beneficially Own more than 10% of the Fully-Diluted Common Stock and none
of them is an Affiliate of GNA, Buyer shall have the right to require GNA,
through written notice delivered to GNA, to prepare and file one registration
statement under the Securities Act with respect to an underwritten public
offering of the Underlying Shares (the "Demand Registration") and cause such
registration statement to become effective as promptly as possible. It is
specifically agreed that the Demand Registration rights set forth in this
subsection (b) shall be assignable to any transferee of Underlying Shares who is
a member of the Buyer Group, but not otherwise; provided, however, that only
Buyer, or such Person duly designated by Buyer by written notice to GNA as
Buyer's agent or successor (the "Buyer Representative") for the purposes of the
giving and receipt of demands, requests and other communications pursuant to
Section 6.3, shall be entitled to request GNA to effect the Demand Registration.
(c) PIGGYBACK REGISTRATIONS. Commencing on the third anniversary of the
date of this Agreement and continuing until members of the Buyer Group do not
Beneficially Own more than 10% of the Fully-Diluted Common Stock and no member
of the Buyer Group is an Affiliate of GNA, whenever GNA proposes to register an
offering of any of its Common Stock under the Securities Act other than (i)
under employee compensation or benefit programs or otherwise on Form S-8 or an
equivalent form, (ii) an exchange offer or an offering of securities solely to
the existing shareholders or employees of GNA or to the
SECURITIES PURCHASE AGREEMENT - PAGE 23
<PAGE> 52
existing shareholders of another company in connection with a merger or
acquisition or otherwise on Form S-4 or an equivalent form or (iii) a secondary
registration solely on behalf of holders of securities of GNA, and the
registration form to be used may be used for the registration of the Underlying
Shares, GNA will give prompt notice to Buyer of its intention to effect such a
registration and will include in such registration and offering all Underlying
Shares which are then owned by Buyer and with respect to which GNA has received
written requests for inclusion therein within 20 days after the receipt of GNA's
notice (a "Piggyback Registration"). GNA shall use reasonable efforts to cause
the managing underwriters of a proposed underwritten offering to permit the
Underlying Shares then owned by Buyer which have been requested to be included
in the registration statement (or registration statements) for such offering to
be included therein and in the prospectus used in connection therewith on the
same terms and conditions as are provided for therein for Persons other than
Buyer. Notwithstanding the foregoing, if GNA gives notice of such a proposed
registration, the total number of Underlying Shares which shall be included in
such registration shall be reduced pro rata to such number, if any, as in the
reasonable opinion of the managing underwriters of such offering would not
adversely affect the marketability or offering price of all of the securities
proposed to be offered by GNA in such offering; provided, however, that to the
extent not prohibited by any registration rights agreements existing as of the
date hereof, the securities to be included in the registration statement (or
registration statements) for any Person other than Buyer and GNA shall be first
reduced prior to any such pro rata reduction. It is specifically agreed that the
Piggyback Registration rights set forth in this subsection (c) shall not be
assignable to any transferee of Underlying Shares other than members of the
Buyer Group who own more than 3% of the Underlying Shares; provided, however,
that no member of the Buyer Group (other than Buyer or the Buyer Representative)
shall be entitled to receive or make notices under this Section 6.3(c);
provided, further, that, for purposes of this Section 6.3(c) only, all notices
delivered to Buyer or the Buyer Representative shall be deemed to have been
given to all members of the Buyer Group and all notices delivered to GNA by
Buyer or the Buyer Representative shall be deemed to have been given by the
members of the Buyer Group, to the extent explicitly specified in such notice.
(d) REGISTRATION PROCEDURES. With respect to each registration
statement filed in accordance with this Section 6.3 (the "Registration
Statement"), GNA shall:
(i) cause the Registration Statement and the related
prospectus and any amendment or supplement (A) to comply in all
material respects with the applicable requirements of the Securities
Act and under the rules and regulations promulgated thereunder and (B)
not to contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(ii) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration
Statement effective on a continual basis for so long as Buyer
Beneficially Owns more than 10% of the Fully-Diluted Common Stock or is
an Affiliate of GNA (or until the earlier distribution of all the
Underlying Shares of Buyer included in the Registration Statement);
provided that, GNA shall not be required to maintain the effectiveness
of any Registration Statement filed for a Piggyback Registration for
more than 90 days;
(iii) furnish, upon written request, to Buyer a copy of
any amendment or supplement to the Registration Statement or prospectus
prior to filing it after effectiveness and not file any such amendment
or supplement to which Buyer shall have reasonably objected on the
grounds that such
SECURITIES PURCHASE AGREEMENT - PAGE 24
<PAGE> 53
amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or of the rules or regulations
promulgated thereunder;
(iv) furnish to Buyer such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus used in connection therewith (including, without limitation,
each preliminary prospectus and final prospectus) and such other
document as Buyer may reasonably request in order to facilitate the
disposition of the Underlying Shares owned by Buyer;
(v) use its best efforts to register or qualify all
Underlying Shares covered by the Registration Statement under such
other securities or blue sky laws of the states of the United States as
may be required for the issuance and sale of the Underlying Shares, to
keep such registration or qualification in effect for so long as the
Registration Statement remains in effect, except that GNA shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction in which it is not and would
not, but for the requirements of this Section 6.3, be obligated to be
so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(vi) prior to any sale of the Underlying Shares effected
on the NYSE, deliver to the NYSE copies of the prospectus to be used in
connection with the offering to be conducted pursuant to the
Registration Statement;
(vii) upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in the Registration
Statement, as then in effect, includes or in the judgment of GNA may
include an untrue statement of a material fact or omits or may omit to
state any material fact required to be stated in such prospectus or
necessary to make the statements in such prospectus not misleading in
the light of the circumstances in which they were made, which
circumstance requires amendment of the Registration Statement or
supplementation of the prospectus, prepare and file as promptly as
reasonably possible a supplement to or an amendment of such prospectus
as may be necessary so that, as when delivered (if required by the
Securities Act) to a purchaser of Underlying Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated in such prospectus or
necessary to make the statements in such prospectus not misleading in
the light of the circumstances in which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations under the Securities Act and, in its
discretion, to make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with
the first month of the first fiscal quarter after the effective date of
the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(ix) provide and cause to be maintained a transfer agent
and registrar for all Underlying Shares covered by the Registration
Statement from and after a date not later than the effective date of
the Registration Statement;
(x) after any sale of the Underlying Shares pursuant to
this Section 6.3 to the extent not needed to comply with Applicable
Law, cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to the Underlying Shares;
SECURITIES PURCHASE AGREEMENT - PAGE 25
<PAGE> 54
(xi) enter into such customary agreements (including,
without limitation, underwriting agreements in customary form,
substance, and scope) and take all such other actions as Buyer or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Series A Shares;
(xii) in the event of the issuance of any stop order
suspending the effectiveness of the Registration Statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Common Stock included in the
Registration Statement for sale in any jurisdiction, GNA will use its
best efforts promptly to obtain the withdrawal of such order; and
(xiii) use its best efforts to cause such Underlying
Shares covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the disposition of such Series A Shares.
(e) OBLIGATIONS OF BUYER. Buyer shall furnish to GNA such information
regarding Buyer as GNA may from time to time reasonably request in writing (and
will notify GNA of any changes in such information) and as shall be required by
the Securities Act in connection with such registration. Buyer shall enter into
such customary agreements (including, without limitation, underwriting
agreements, custody agreements and powers of attorney in customary form,
substance and scope) and take all such other actions as GNA or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition of
the Underlying Shares.
(f) DELAY OF SALES. During any period in which GNA is required to file
or maintain the effectiveness of a Registration Statement for the Underlying
Shares pursuant to this Section 6.3, GNA shall have the right exercisable on no
more than one occasion during any twelve month period), upon giving notice to
Buyer of the exercise of such right, to postpone the filing or suspend the
availability of the Registration Statement, or require Buyer not to sell any
Underlying Shares pursuant to the Registration Statement, for a period of time
GNA deems reasonably necessary, which time shall be specified in such notice but
in no event longer than a period of 90 days, if (i) GNA is engaged in an
offering of shares by GNA for its own account or is engaged in or proposes to
engage in discussions or negotiations with respect to, or has proposed or taken
a substantial step to commence, or there otherwise is pending, any merger,
acquisition, other form of business combination, divestiture, tender offer,
financing or other transaction, or there is an event or state of facts relating
to GNA, in each case which is material to GNA (any such negotiation, step, event
or state of facts being herein called a "Material Activity"), (ii) such Material
Activity would, in the opinion of counsel for GNA, require disclosure so as to
permit the Underlying Shares to be sold in compliance with Applicable Law, and
(iii) such disclosure would, in the reasonable judgment of GNA, be adverse to
its interests. GNA shall have no obligation to include in any notice
contemplated by this subsection (e) any reference to or description of the facts
based upon which GNA is delivering such notice.
(G) INDEMNIFICATION.
(i) GNA shall indemnify and hold harmless Buyer, members
of the Buyer Group and each other Person, if any, who controls Buyer
within the meaning of the Securities Act against any losses, claims,
damages, liabilities or expenses (including reasonable fees and
expenses of counsel), joint or several, to which Buyer or any such
Affiliate or controlling Person may become subject under the Securities
Act or otherwise in connection with or as a result of a sale by Buyer
of the
SECURITIES PURCHASE AGREEMENT - PAGE 26
<PAGE> 55
Underlying Shares, insofar as such losses, claims, damages, liabilities
or expenses (or related actions or proceedings) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained in the
Registration Statement, or any amendment or supplement to the
Registration Statement, or any document incorporated by reference in
the Registration Statement, or (ii) any omission or alleged omission to
state in any such document a material fact required to be stated in any
such document or necessary to make the statements in any such document
not misleading, and GNA will reimburse such member and each such
Affiliate and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or expense (or action
or proceeding in respect of any such loss, claim, damage, liability or
expense) which arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement other than in
reliance upon and in conformity with written information furnished to
GNA by Buyer or any such Affiliate or controlling Person for use in the
preparation of the Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of Buyer or any such Affiliate or controlling Person.
(ii) Buyer shall indemnify and hold harmless (in the same
manner and to the same extent as set forth in clause (i) of this
subsection (f)) GNA, each director of GNA, each officer of GNA who
shall sign the Registration Statement and each other Person, if any,
who controls GNA within the meaning of the Securities Act, with respect
to any untrue statement in or omission from the Registration Statement,
any preliminary prospectus, final prospectus or summary prospectus
included in the Registration Statement, or any amendment or supplement
to the Registration Statement, but only to the extent that such
statement or omission was made in direct reliance upon and in
conformity with written information furnished to GNA by any member of
the Buyer Group for use in the preparation of the Registration
Statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of GNA or any such director, officer or controlling Person.
(iii) Indemnification under this Section 6.3 shall be
made as set forth in Article X hereof.
(h) REGISTRATION EXPENSES. All expenses incident to GNA's registration
of the Underlying Shares pursuant to the provisions of this Section 6.3,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing and engraving
expenses, messenger and delivery expenses and fees and disbursements of counsel
for GNA and all independent certified public accountants, underwriters
(excluding underwriting discounts and any selling commissions) and any Persons
retained by GNA (all such expenses being herein called "Registration Expenses")
will be paid by GNA, provided, that all expenses incurred by Buyer to retain any
counsel, accountant or other advisor, will not be deemed to be Registration
Expenses and will be paid by Buyer. The underwriting discounts or commissions
and any selling commissions together with any stock transfer or similar taxes
attributable to sales of the Underlying Shares will be paid by Buyer.
SECURITIES PURCHASE AGREEMENT - PAGE 27
<PAGE> 56
6.4 BOARD REPRESENTATION.
(a) As soon as practicable after the Closing, the current Board shall
elect J. Randall Chappel and John C. Goff (if he is not otherwise a member of
the Board on the Closing Date) or, in the event either or both of them ceases to
be a member of the Buyer Group or J. Randall Chappel declines to continue to
serve as a member of the Board, a substitute selected by Buyer and acceptable to
the members of the Board not affiliated with the Buyer Group (the "Director
Designees") to the Board.
(b) As long as either (i) members of the Buyer Group continue to
Beneficially Own not less than 75% of the Securities (or the Underlying Shares)
purchased by Buyer pursuant to this Agreement or (ii) members of the Buyer Group
continue to Beneficially Own in the aggregate shares of Common Stock (including,
for purposes of this Section 6.4 only, all Underlying Shares) representing at
least twenty percent (20%) of the Fully-Diluted Common Stock, GNA will continue
to nominate both of the Director Designees on each subsequent date for
re-nomination of the Director Designees and will use its reasonable best efforts
to cause such Director Designees to be elected to the Board.
(c) In the event that GNA is not obligated to nominate two Director
Designees pursuant to Section 6.4(b) and either (i) members of the Buyer Group
continue to Beneficially Own in the aggregate shares of Common Stock (including,
for purposes of this Section 6.4 only, all Underlying Shares) representing not
less than five percent (5%) of the Fully-Diluted Common Stock or (ii) members of
the Buyer Group continue to Beneficially Own not less than 50% of the Securities
(or the Underlying Shares) purchased by Buyer, GNA will continue to nominate one
Director Designee, who shall be John C. Goff so long as he is a member of Buyer
Group, on each subsequent date for renomination of the Director Designee and
will use its reasonable best efforts to cause such Director Designee to be
elected to the Board.
(d) In the event that the conditions of Sections 6.4(b) or (c) are no
longer satisfied, GNA will cease to have any obligation to nominate any Director
Designees for election to the Board or to take any action to cause any Director
Designees to be elected to the Board.
(e) GNA shall take such action as is necessary to ensure that, for such
period of time as any Director Designees are members of the Board, at least one
of the Director Designees serves on the Compensation Committee of the Board.
6.5 FEES AND EXPENSES AT CLOSING. At the Closing and subject to the
consummation of the Transactions, GNA shall pay Buyer (i) a financing fee equal
to three quarters of one percent (0.75%) of the Purchase Price plus (ii) an
amount (not to exceed $250,000) equal to the reasonable documented fees and
expenses (including fees and expenses of counsel, accountants and other third
party consultants and filing fees under the HSR Act) incurred by Buyer after May
11, 1999 in connection with the negotiation and execution of this Agreement and
the Ancillary Documents and the consummation of the Transaction.
6.6 RESTRICTIONS ON TRANSFERS.
(a) RESTRICTIONS ON TRANSFER OF SERIES A SHARES, WARRANTS AND
UNDERLYING SHARES. Subject to the provisions of subsection (b), and without
having obtained the prior written consent of GNA, Buyer shall not:
(i) sell or transfer any of the Series A Shares or Warrants to
any other Person at any time (except that Buyer may sell or transfer the
Warrants or either of them for tax reasons after the
SECURITIES PURCHASE AGREEMENT - PAGE 28
<PAGE> 57
third anniversary of the Closing Date to such Person(s) and upon such terms
as are acceptable to GNA in its sole discretion);
(ii) prior to the third anniversary of the Closing Date, sell or
transfer any of the Underlying Shares to any other Person who is not a
member of the Buyer Group; and
(iii) following the third anniversary of the Closing Date, sell
or transfer Underlying Shares to any Person who is not a member of the
Buyer Group other than pursuant to a registered public distribution or Rule
144 promulgated under the Securities Act, provided, that, to Buyer's
knowledge and as a result of any transaction(s), (x) no more than 3.5% of
the Fully-Diluted Common Stock is sold to any Person (other than an
underwriter in a firm commitment underwriting) or its Affiliates or
Associates, or any "group" as such term is defined in Rule 13d-5(b)(1)
under the Exchange Act, and (y) neither the purchaser of the Securities or
any of its Affiliates or Associates has filed, or after the transaction
will be obligated to file, a Schedule 13D or G in respect of the Common
Stock.
(b) EXCEPTIONS TO TRANSFER RESTRICTIONS. Notwithstanding subsection
(a), Buyer may sell or transfer (x) any of the Series A Shares, Warrants or
Underlying Shares to any Person pursuant to, as a result of, or in connection
with (i) a tender offer or an exchange offer approved by the Board or (ii) the
consummation of a merger or other business combination transaction with a
previously unaffiliated entity in which GNA is not the surviving or acquiring
entity, and (y) any of the Underlying Shares to members of the Buyer Group,
provided that no such sale or transfer to or among members of the Buyer Group
shall be effective unless and until any transferee who is not already a party to
this Agreement (and such transferee's spouse, if applicable) shall execute and
deliver to Buyer an agreement in which such transferee (and such transferee's
spouse, if applicable) agrees to be bound by this Agreement and to observe and
comply with this Agreement and with all of the obligations and restrictions
imposed on Buyer hereby.
6.7 DELIVERY OF INFORMATION. GNA will deliver to Buyer promptly upon
the filing thereof, copies of all registration statements (other than the
exhibits thereto and any registration statements on Form S-8 or its equivalent)
and reports on Forms 10-K or 10-Q (or their equivalents) which GNA shall have
filed with the SEC or any similar reports filed with any state securities
commission or office.
6.8 RULE 144 AND RULE 144A INFORMATION. With a view to making available
to Buyer the benefits of Rule 144 and Rule 144A promulgated under the Securities
Act and any other rule or regulation of the SEC that may at any time permit
Buyer to sell Common Stock of GNA to the public without registration, GNA agrees
to:
(i) make and keep adequate current public information available,
as those terms are understood and defined in Rule 144;
(ii) file with the SEC in a timely manner all reports and other
documents required of GNA under the Securities Act and the Exchange Act;
(iii) furnish to Buyer forthwith upon request (A) a written
statement by GNA that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (B) a copy of the most
recent annual or quarterly report of GNA and such other reports and
documents so filed by GNA under the Securities Act and the Exchange Act and
(C) such other information as
SECURITIES PURCHASE AGREEMENT - PAGE 29
<PAGE> 58
may be reasonably requested by Buyer in availing itself of any rule or
regulation of the SEC which permits the selling of any such securities
without registration;
(iv) comply with all rules and regulations of the SEC applicable
to GNA in connection with use of Rule 144A (or any successor thereto); and
(v) within five business days of GNA's receipt of a request made
by, or on behalf of, any prospective transferee of who is a Qualified
Institutional Buyer (as defined in Rule 144A) and would be purchasing
Common Stock of GNA in reliance upon Rule 144A), provide to such
prospective transferee copies of annual audited and quarterly unaudited
financial statements of GNA for it to comply with Rule 144A.
6.9 STANDSTILL.
(a) GENERAL. Buyer agrees that it will not, and it will cause the other
members of the Buyer Group not to, purchase or otherwise acquire additional
shares of Common Stock if thereafter the Buyer Group would collectively
Beneficially Own more than 35% of the Fully-Diluted Common Stock, based on the
amount of Fully-Diluted Common Stock set forth in the most recent report
containing such information filed by GNA with the SEC at the time such
measurement takes place; provided, however, that the Buyer Group shall not be
deemed to own more than 35% of the Fully-Diluted Common Stock solely by reason
of (i) GNA's purchase of any Common Stock unless thereafter members of the Buyer
Group purchase any additional shares of Common Stock (excluding any acquisition
of Underlying Shares upon conversion of the Series A Shares or exercise of the
Warrants, which shall not be restricted hereunder, or the exercise of Buyer's
Preemptive Right pursuant to Section 6.10) or (ii) the acquisition after the
date of this Agreement of Common Stock by any Director Designee pursuant to any
of the GNA Stock Plans.
(b) ADDITIONAL STANDSTILL OBLIGATIONS. Buyer further agrees that it will
not, and it will cause the other members of the Buyer Group (excluding the
Director Designees acting in their capacities as members of the Board in the
deliberations of, or pursuant to the authorization of, the Board) not to,
without the prior written consent of the Board, (i) effect or cause to be
effected any (A) "solicitation" of "proxies" (as such terms are used in the
proxy rules of the SEC) with respect to GNA or any action resulting in such
Person becoming a "participant" in any "election contest" (as such terms are
used in the proxy rules of the SEC) with respect to GNA, or (B) any tender or
exchange offer or offer for a merger, consolidation, share exchange or business
combination involving GNA or substantially all of its assets, or (ii) propose
any matter for submission to a vote of the shareholders of GNA.
(c) EXPANDED BUYER GROUP. For purposes of this Section 6.9 only, the term
"Buyer Group" shall be deemed to include all Persons that, together with Buyer
or one or more of any Affiliate, Associate or employee of Buyer, would
constitute a "group" within the meaning of Section 13(d) of the Exchange Act
that would be required to file a Schedule 13D or 13G with respect to its
Beneficial Ownership of Common Stock.
6.10 PARTICIPATION IN SUBSEQUENT PRIVATE PLACEMENTS. Until such time as
Buyer and its Affiliates no longer beneficially own in the aggregate at least
20% of the Fully-Diluted Common Stock, in the event that GNA desires to issue
any Equity Securities for cash in a private placement transaction (other than in
connection with a business combination transaction or pursuant to employee or
director stock option agreements or any other employee benefit plan approved by
GNA's shareholders), GNA shall, prior to such
SECURITIES PURCHASE AGREEMENT - PAGE 30
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issuance, provide written notice to Buyer describing the Equity Securities to be
issued, the potential purchasers thereof, if specifically known, and the
consideration to be received therefrom (a "Preemptive Notice"). Buyer shall have
the right, during the 10 Business Days following receipt of the Preemptive
Notice (the "Preemptive Right Offer Period"), to elect to subscribe for and
purchase (the "Preemptive Right") at the same price, and on such other terms and
conditions as are set forth in the Preemptive Notice, such number of shares of
Equity Securities (in GNA's sole discretion either as a portion of or in
addition to the Equity Securities covered by the Preemptive Notice) as may be
required to cause Buyer to Beneficially Own the same percentage of the
Fully-Diluted Common Stock immediately following such issuance as Buyer
Beneficially owned on the date of the Preemptive Notice.
6.11 NO SOLICITATION.
(a) Except as provided in this Agreement, from and after the date hereof
until the earlier of the Closing Date or the date on which this Agreement shall
have been terminated in accordance with Article IX of this Agreement, GNA shall
not, directly or indirectly through any officer, director, employee, investment
banker, financial advisor, attorney, accountant or other representative or agent
of GNA or any of its Subsidiaries, solicit, initiate or encourage the initiation
of any inquiries or proposals regarding a Third Party Transaction (any of the
foregoing inquiries or proposals being referred to herein as a "Transaction
Proposal").
(b) Except as set forth in this Section 6.11(b), the Board shall not (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Buyer, the approval or recommendation of the Board of this Agreement or the
Transaction, (ii) approve or recommend, or propose to approve or recommend, any
Transaction Proposal, or (iii) cause the Company to enter into any agreement
with respect to any Transaction Proposal. Notwithstanding the foregoing, nothing
contained in Section 6.11(a) or this Section 6.11(b) or any other provision of
this Agreement shall prevent the Board from considering, negotiating, approving
and recommending to the shareholders of GNA an unsolicited bona fide written
Transaction Proposal, or providing information to any Third Party in connection
therewith, if (i) the Board determines in good faith (after consultation with
legal counsel) that failure to do so would be inconsistent with the proper
discharge of its fiduciary duties or (ii) the Board determines in good faith
(after consultation with its financial advisors and legal counsel) that the
Transaction Proposal may reasonably result in a transaction more favorable to
GNA's shareholders than the Transactions (any Transaction Proposal meeting such
criterion, including those specified in the immediately preceding parenthetical
proviso, being referred to herein as a "Superior Proposal"). Nothing contained
in this Agreement shall prohibit GNA from complying with Rules 14d-9 and 14e-2
under the Exchange Act with respect to any tender offer.
(c) If the Board receives a request for material nonpublic information by a
party who makes an unsolicited bona fide Transaction Proposal and the Board
determines that either (i) failure to do so would be inconsistent with the
proper discharge of its fiduciary duties or (ii) such proposal, if consummated
pursuant to its terms, could constitute a Superior Proposal, then, and only in
such case, GNA may, subject to the execution of a confidentiality agreement
substantially similar to that then in effect between GNA and Buyer, provide such
party with access to information regarding GNA. In addition to the obligations
of GNA set forth in this Section 6.11, GNA shall promptly advise Buyer of any
request for information or of any Transaction Proposal and disclose to Buyer the
material terms and conditions of any Transaction Proposal.
(d) GNA shall immediately cease and cause to be terminated any existing
discussions or negotiations with any parties (other than Buyer) conducted
heretofore with respect to any of the foregoing.
SECURITIES PURCHASE AGREEMENT - PAGE 31
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(e) GNA shall ensure that the officers, directors and employees of GNA and
its Subsidiaries and any investment bankers, financial advisors, attorneys,
accountants or other advisors or representatives retained by GNA are aware of
the restrictions described in this Section and shall be responsible for any
Breach of this Section 6.11 by such bankers, advisors and representatives.
6.12 AMENDMENT OF GNA DISCLOSURE LETTER. GNA agrees that, with respect to
the representations and warranties of GNA contained in this Agreement, GNA shall
have the continuing right until the Closing to supplement or amend promptly the
GNA Disclosure Letter with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the GNA Disclosure Letter. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 7.1 and 8.1 have been
fulfilled, the GNA Disclosure Letter shall be deemed to include only that
information contained therein on the date of this Agreement and shall be deemed
to exclude all information contained in any supplement or amendment thereto;
provided, however, that if the Closing shall occur, then all matters disclosed
pursuant to any such supplement or amendment at or prior to the Closing shall be
waived and Buyer shall not be entitled to make a claim thereon pursuant to the
terms of this Agreement.
6.13 ACCESS TO INFORMATION. Between the date hereof and the Closing, GNA
(i) shall give Buyer and its authorized representatives reasonable access to
GNA's employees, offices and other facilities, and all books and records of GNA
and the Subsidiaries, (ii) shall permit Buyer and its authorized representatives
to make such inspections as they may reasonably require to verify the accuracy
of any representation or warranty contained in Article IV, and (iii) shall cause
GNA's officers to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to GNA and the
Subsidiaries as Buyer may from time to time reasonably request; provided,
however, that no investigation pursuant to this Section shall affect any
representation or warranty of GNA contained in this Agreement or in any
agreement, instrument, or document delivered pursuant hereto or in connection
herewith; and provided further that GNA shall have the right to have a
representative present at all times.
6.14 HSR ACT NOTIFICATION. To the extent it is determined that the HSR Act
will be applicable to the Transaction, each of the parties hereto shall (i) file
or cause to be filed, as promptly as practicable after the execution and
delivery of this Agreement with the Federal Trade Commission and the United
States Department of Justice, all reports and other documents required to be
filed by such party under the HSR Act concerning the Transactions and (ii)
promptly comply with or cause to be complied with any requests by the Federal
Trade Commission or the United States Department of Justice for additional
information concerning such Transactions, in each case so that the waiting
period applicable to this Agreement and the Transactions under the HSR Act shall
expire as soon as practicable after the execution and delivery of this
Agreement. Each party hereto agrees to request, and to cooperate with the other
party or parties in requesting, early termination of any applicable waiting
period under the HSR Act. GNA shall pay the filing fees applicable to any such
filings pursuant to this Section 6.14, provided that any such filing fees paid
on behalf of Buyer's filings shall be deducted from the amount payable pursuant
to Section 6.5(ii).
6.15 PRIVATE OFFERING OF THE SECURITIES. GNA agrees that neither GNA nor
anyone acting on its behalf has offered or will offer the Securities or any part
thereof or any similar securities for issuance or sale to, or has solicited or
will solicit any offer to acquire any of the same from, anyone so as to bring
the issuance and sale of the Securities within the provisions of Section 5 of
the Securities Act.
SECURITIES PURCHASE AGREEMENT - PAGE 32
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6.16 FINANCING SUPPORT. Buyer shall assist GNA in arranging long-term,
interest-only for a minimum of ten years, debt financing to replace GNA's
existing term bank loan. GNA shall be solely responsible for the payment of any
commission or other compensation payable to any financial advisor, broker,
agent, finder, or similar intermediary (other than members of the Buyer Group)
retained by or acting on behalf of GNA in connection with any such arrangement.
6.17 RIGHT OF FIRST OFFER. In the event that any member(s) of the Buyer
Group desires to sell any Equity Securities (other than Equity Securities
purchased pursuant to any GNA Stock Plan), Buyer shall, prior to such sale,
provide written notice to GNA describing in detail the number of Equity
Securities to be sold, the potential purchasers thereof, if known, and the
consideration expected to be received therefrom (an "Offer Notice"). Except as
set forth below, GNA shall have the right, during the five (5) Business Days
following receipt of the Offer Notice (the "First Offer Period") to elect to
purchase (the "First Offer Right"), at the same price, and on such other terms
and conditions as are set forth in the Offer Notice, the number of Equity
Securities to be sold by any member of the Buyer Group as described in the Offer
Notice. GNA shall have 15 Business Days from the date of its election to
consummate such purchase. If GNA does not exercise its First Offer Right or does
not consummate its purchase of the offered Equity Securities, the Equity
Securities covered by the Offer Notice may be sold during the 90 Business Days
following the termination of the First Offer Period on terms that are at least
90% as favorable with respect to such Equity Securities than those described in
the Offer Notice. If the Equity Securities are not sold within such 90 Business
Day period, GNA's first offer rights set forth in the preceding sentences of
this Section 6.17 shall be reinstated.
The foregoing notwithstanding:
(a) in the event that any member(s) of the Buyer Group seeks to sell Equity
Securities constituting in the aggregate more than 5% but less than 10% of the
Fully-Diluted Common Stock, the First Offer Period shall be ten (10) Business
Days following receipt of the Offer Notice and GNA shall have 30 Business Days
from the date of its election to consummate such purchase; and
(b) in the event that any member(s) of the Buyer Group seeks to sell Equity
Securities constituting in the aggregate more than or equal to 10% of the
Fully-Diluted Common Stock, the First Offer Period shall be twenty (20) Business
Days following receipt of the Offer Notice and GNA shall have 60 Business Days
from the date of its election to consummate such purchase.
6.18 SPECIAL MEETING; PROXY STATEMENT.
(a) GNA shall take all action necessary in accordance with Applicable Law
and the Company's Articles of Incorporation and Bylaws to duly call, give notice
of, convene and hold the Shareholder Meeting as promptly as practicable after
the date hereof in order to obtain the GNA Shareholder Approval. The shareholder
vote required for the adoption and approval of the Transaction shall be the vote
required by Applicable Law, GNA's Articles of Incorporation, and the rules of
the NYSE, as represented by GNA in this Agreement. The Board shall, subject to
its fiduciary obligations to GNA's shareholders under Applicable Law, taking
into account the advice of counsel, (i) recommend to the shareholders of GNA
that they vote in favor of the adoption and approval of all matters necessary to
effectuate the Transaction, (ii) use its reasonable best efforts to solicit from
the shareholders of GNA proxies in favor of such adoption and approval, and
(iii) take all other action reasonably necessary to secure the GNA Shareholder
Approval.
(b) As promptly as practicable after the date hereof, GNA shall prepare,
shall file with the SEC under the Exchange Act, shall use all reasonable best
efforts to have cleared by the SEC, and promptly
SECURITIES PURCHASE AGREEMENT - PAGE 33
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thereafter shall mail to its shareholders, a proxy statement with respect to the
Special Meeting. The term "Proxy Statement", as used herein, means such proxy
statement and all related proxy materials and all amendments and supplements
thereto, if any. Except to the extent otherwise determined in good faith by the
Board in the exercise of its fiduciary duties, taking into account the advice of
counsel, the Proxy Statement shall contain the recommendation of the Board that
shareholders of GNA vote in favor of the adoption and approval of all matters
necessary to effectuate the Transaction. GNA shall notify Buyer promptly of the
receipt of any comments on, or any requests for amendments or supplements to,
the Proxy Statement by the SEC, and GNA shall supply Buyer with copies of all
correspondence between it and its representatives, on the one hand, and the SEC
or members of its staff, on the other, with respect to the Proxy Statement. GNA,
after consultation with Buyer, shall use its reasonable best efforts to respond
promptly to any comments made by the SEC with respect to the Proxy Statement.
GNA and Buyer shall cooperate with each other in preparing the Proxy Statement,
and the GNA and Buyer shall each use its reasonable best efforts to obtain and
furnish the information required to be included in the Proxy Statement. GNA and
Buyer each agrees promptly to correct any information provided by it for use in
the Proxy Statement if and to the extent that such information shall have become
false or misleading in any material respect, and GNA further agrees to take all
steps necessary to cause the Proxy Statement as so corrected to be filed with
the SEC and to be disseminated promptly to holders of shares of the Common
Stock, in each case as and to the extent required by Applicable Law.
6.19 CONFIDENTIALITY. Buyer shall keep all Confidential Information in
confidence, and shall not disclose said information to any other party other
than Buyer's advisors, attorneys and accountants, who will be advised of the
confidential nature of information. Buyer shall protect the Confidential
Information with the same degree of care as Buyer normally uses in the
protection of its confidential and proprietary information. Buyer further agrees
not to use Confidential Information for any purpose except in connection with
this Agreement. The restrictions set forth herein shall not apply with respect
to Confidential Information which (i) is already generally available to the
public when received by Buyer; (ii) becomes available to the public through no
fault of any member of the Buyer Group; or (iii) is required to be disclosed by
Applicable Law or a Governmental Authority.
6.20 REASONABLE BEST EFFORTS. Except as contemplated by Section 6.11, each
party hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
Applicable Laws to consummate the Transaction, including obtaining all GNA
Required Consents and GNA Required Statutory Approvals.
6.21 SURVIVAL OF COVENANTS. Except for any covenant or agreement which by
its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF GNA
The obligations of GNA to consummate the Transactions shall be subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
SECURITIES PURCHASE AGREEMENT - PAGE 34
<PAGE> 63
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All the representations and
warranties of Buyer contained in this Agreement shall be true and correct on and
as of the Closing Date, except to the extent contemplated by this Agreement or
the Ancillary Documents; provided, however, that to the extent that any such
representation or warranty is made as of a specified date, such representation
or warranty shall have been true and correct in all material respects as of such
specified date, and (ii) with respect to each representation and warranty that
is not otherwise qualified by its terms by a materiality standard (such as a
qualification that a future condition not have a Buyer Material Adverse Effect),
this condition shall be satisfied if such representation or warranty shall be
true and correct in all material respects.
7.2 COVENANTS AND AGREEMENTS PERFORMED. Buyer shall have performed and
complied with in all material respects all covenants and agreements required by
this Agreement, if any, to be performed or complied with by it or prior to the
Closing Date.
7.3 HSR ACT. To the extent that the HSR Act is applicable to the
transaction contemplated herein, all waiting periods (and any extensions
thereof) applicable to this Agreement and the Transactions under the HSR Act
shall have expired or been terminated.
7.4 LEGAL PROCEEDINGS. No court of competent jurisdiction in the U.S. or
other Governmental Authority shall have issued an order, decree or ruling, or
taken any other action restraining, enjoining or otherwise prohibiting the
Transactions, and such order, decree, ruling or other action shall have become
final and non-appealable.
7.5 INVESTMENT MANAGEMENT AGREEMENTS. The Investment Management Agreements
shall have been duly executed and delivered by Buyer with each of GNA and the
GNA Insurance Subsidiaries.
7.6 CONSENTS AND APPROVALS. All GNA Required Consents, GNA Shareholder
Approval and GNA Required Statutory Approvals shall have been obtained or
waived.
7.7 A.M. BEST RATING. GNA shall not have been informed or have reason to
believe that any A.M. Best Company rating presently held by GNA or any of its
Subsidiaries is likely to be lowered to below "A" as a result of the
Transactions.
7.8 CERTIFICATE. GNA shall have received a certificate executed by a duly
authorized individual on behalf of Buyer dated the Closing Date, representing
and certifying, in such detail as GNA may reasonably request, that the
conditions set forth in Sections 7.1 and 7.2 have been fulfilled.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the Transactions shall be subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE. All the representations and
warranties of GNA contained in this Agreement shall be true and correct on and
as of the Closing Date, except to the extent contemplated by this Agreement or
the Ancillary Documents; provided, however, that (i) to the extent that any such
representation or warranty is made as of a specified date, such representation
or warranty shall have
SECURITIES PURCHASE AGREEMENT - PAGE 35
<PAGE> 64
been true and correct in all material respects as of such specified date , and
(ii) with respect to each representation and warranty that is not otherwise
qualified by its terms by a materiality standard (such as a qualification that a
future condition have a GNA Material Adverse Effect), this condition shall be
satisfied if such representation or warranty shall be true and correct in all
material respects.
8.2 COVENANTS AND AGREEMENTS PERFORMED. GNA shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
8.3 OPINION OF COUNSEL. Buyer shall have received an opinion of legal
counsel to GNA, dated the Closing Date, in form and substance reasonably
satisfactory to Buyer and its counsel, covering those matters set forth in
Exhibit "F" attached hereto.
8.4 LEGAL PROCEEDINGS. No court of competent jurisdiction in the U.S. or
other Governmental Authority shall have issued an order, decree or ruling, or
taken any other action restraining, enjoining or otherwise prohibiting the
Transactions, and such order, decree, ruling or other action shall have become
final and non-appealable.
8.5 CERTIFICATES. Buyer shall have received a certificate or certificates
representing the Series A Shares and the Warrants, as applicable, in definitive
form representing the Series A Shares and Warrants purchased by it, registered
in the name of Buyer and duly executed by GNA.
8.6 BOARD APPROVAL OF STOCK OWNERSHIP. The Board, for the purposes of Part
Thirteen of the TBCA, shall have approved (a) the Transactions and (b) purchases
of Common Stock by Buyer in open market or privately negotiated transactions,
provided that (i) Buyer complies with all applicable securities laws and (ii)
Buyer does not thereafter violate Section 6.9 hereof.
8.7 AMENDMENT TO RIGHTS AGREEMENT. The Rights Agreement shall have been
amended as set forth in Exhibit "G" attached hereto.
8.8 INVESTMENT MANAGEMENT AGREEMENTS. The Investment Management Agreements
shall have been duly executed and delivered by Buyer with each of GNA and the
GNA Insurance Subsidiaries.
8.9 CONSENTS AND APPROVALS. All GNA Required Consents and GNA Required
Statutory Approvals, and the GNA Shareholder Approval, shall have been obtained
or waived.
8.10 A.M. BEST RATING. GNA shall not have been informed or have reason to
believe that any A.M. Best Company rating presently held by GNA or any of its
Subsidiaries is likely to be lowered to below "A" as a result of the
Transactions.
8.11 STATEMENT OF RESOLUTION. The Statement of Resolution shall have been
accepted for filing by the Secretary of State of the State of Texas.
8.12 OFFICER CERTIFICATE. Buyer shall have received a certificate executed
on behalf of GNA by the chief executive officer or the chief financial officer
of GNA, dated the Closing Date, representing and certifying, in such detail as
the Buyer may reasonably request, that the conditions set forth in Sections 8.1,
8.2 and 8.10 have been fulfilled.
SECURITIES PURCHASE AGREEMENT - PAGE 36
<PAGE> 65
8.13 NO MATERIAL ADVERSE CHANGES. No event which has a GNA Material Adverse
Effect, or constitutes a Material Adverse Market Condition, shall have occurred
since March 31, 1999 and be continuing.
ARTICLE IX
TERMINATION, AMENDMENT, AND WAIVER
9.1 TERMINATION. This Agreement may be terminated and the Transactions may
be abandoned at any time prior to the Closing (notwithstanding any approval of
the Transactions by the shareholders of GNA):
(a) by GNA or Buyer if
(i) the GNA Shareholder Approval is not obtained at the Shareholder
Meeting or any adjournment thereof;
(ii) the Closing does not occur prior to the Final Date;
(iii) any court of competent jurisdiction in the U.S. or other
Governmental Authority shall have issued an order, decree or ruling, or taken
any other action restraining, enjoining or otherwise prohibiting the
Transactions, and such order, decree, ruling or other action shall have become
final and non-appealable; or
(iv) GNA and Buyer agree in writing to terminate this Agreement.
provided that the right to terminate this Agreement under this subsection (a)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Closing to occur on or before such date.
(b) by GNA if:
(i) there has been a Breach (which Breach is not cured or not
capable of being cured prior to the earlier of (A) 10 days following notice to
Buyer by GNA of such Breach or (B) two Business Days prior to the Final Date) of
any representation or warranty on the part of Buyer (1) in any material respect
such that such representation or warranty is not true and correct, or if such
representation or warranty is not otherwise qualified by its terms by a
materiality standard (such as a qualification that a future condition have a
Buyer Material Adverse Effect), such representation or warranty is not true and
correct in all material respects, or (2) such that closing would put GNA in
conflict with the federal securities laws;
(ii) there has been a Breach (which Breach is not cured or not
capable of being cured prior to the earlier of (A) 10 days following notice to
Buyer by GNA of such Breach or (B) two Business Days prior to the Final Date) of
any covenant or agreement on the part of Buyer (1) resulting in a Buyer Material
Adverse Effect or a material diminution of benefits to be received by GNA under
this Agreement or (2) such that closing would put GNA in conflict with
applicable federal securities laws;
SECURITIES PURCHASE AGREEMENT - PAGE 37
<PAGE> 66
(iii) a Person or group has made a bona fide Transaction Proposal
that the Board by a majority vote determines in its good faith judgment, after
consultation with its financial and legal advisors, to constitute a Superior
Proposal; or
(iv) the Board by a majority vote determines in its good faith
judgment, after consultation with its financial and legal advisors, that their
fiduciary duties require them to do so, it being recognized that a change in the
prices at which the Common Stock is quoted or traded in and of itself shall not
be considered an appropriate reason for the Board to exercise its termination
rights pursuant to this subsection.
(c) by Buyer, if:
(i) there has been a Breach (which Breach is not cured or not
capable of being cured prior to the earlier of (A) 10 days following notice to
GNA by Buyer of such Breach or (B) two Business Days prior to the Final Date) of
any representation or warranty on the part of GNA (1) (i) such that such
representation or warranty is not true and correct, or if such representation or
warranty is not otherwise qualified by its terms by a materiality standard (such
as a qualification that a future condition have a GNA Material Adverse Effect),
such representation or warranty is not true and correct in all material
respects, or (2) such that closing would put Buyer in conflict with applicable
federal securities laws;
(ii) there has been a Breach (which Breach is not cured or not
capable of being cured prior to the earlier of (A) 10 days following notice to
GNA by Buyer of such Breach or (B) two Business Days prior to the Final Date) of
any covenant or agreement on the part of GNA (1) resulting in a GNA Material
Adverse Effect or a material diminution of the benefits to be received by Buyer
under this Agreement or (2) such that closing would put Buyer in conflict with
applicable federal securities laws;
(iii) GNA enters into an agreement, letter of intent, or arrangement
with respect to a Third Party Transaction;
(iv) the Board withdraws or modifies in a manner adverse to Buyer
its approval or recommendation of the Transactions or this Agreement or
recommends a Third Party Transaction, or has adopted any resolution to effect
any of the foregoing; or
(v) GNA fails to file proxy materials with the SEC with reasonable
dispatch and take such other actions necessary to convene the Shareholder
Meeting within a period of time after the execution of this Agreement reasonably
necessary to consummate the Transactions as promptly as practicable.
9.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to Section 9.1, this Agreement will become void and
have no effect, without any liability on the part of any party to this Agreement
or its affiliates, directors, officers, or shareholders, other than the
provisions of this Section 9.2, Section 9.3 and Article X. Nothing contained in
this Section 9.2 will relieve any party from liability for any Breach of this
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
in the event of the termination and abandonment of this Agreement, the
provisions of the Confidentiality Agreement (including without limitation the
provisions of Section (6) thereof, which provisions shall be thereby revived and
reinstated) shall survive in their entirety.
SECURITIES PURCHASE AGREEMENT - PAGE 38
<PAGE> 67
9.3 FEES AND EXPENSES PAYABLE UPON TERMINATION.
(a) In the event either Buyer or GNA terminates this Agreement pursuant to
Section 9.1(a)(i), GNA will pay to Buyer (in immediately available funds and not
later than five business days after submission of statements together with
reasonable documentation therefor) an amount (the "Reimbursement Amount") equal
to all reasonable out-of-pocket fees and expenses actually incurred by Buyer
after May 11, 1999 in connection with the Transactions and the proposed
consummation of all Transactions (including, without limitation, costs of
advertising, filing fees and fees payable to legal counsel, financial printers,
financing sources, investment bankers, counsel to any of the foregoing, and
accountants). Notwithstanding anything to the contrary contained in this
Agreement, the Reimbursement Amount shall not exceed $500,000.
(b) If GNA terminates this Agreement pursuant to Section 9.1(b)(iii) or
Buyer terminates this Agreement pursuant to Section 9.1(c)(iii), (iv) or (v),
then GNA will pay to Buyer in immediately available funds within five business
days thereafter a fee equal to (i) the Reimbursement Amount plus (ii) an amount
equal to the difference of three percent (3%) of the Purchase Price less the
Reimbursement Amount.
(c) Notwithstanding anything to the contrary contained in this Agreement,
under no circumstances will all fees and reimbursed amounts payable to Buyer by
GNA in the aggregate exceed an amount equal to three percent (3%) of the
Purchase Price.
(d) Except as specifically provided in this Section 9.3, Section 6.5 and
Section 6.14, each party will bear its own expenses in connection with this
Agreement and the Transactions.
9.4 AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed by or on behalf of all the parties hereto.
9.5 WAIVER. No failure or delay by a party hereto in exercising any right,
power, or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The provisions
of this Agreement may not be waived except by an instrument in writing signed by
or on behalf of the party against whom such waiver is sought to be enforced.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
10.1 SURVIVAL. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the second anniversary of
the Closing Date (the "Survival Date"). No action may be brought with respect to
a Breach of any representation after the Survival Date unless, prior to such
time, the party seeking to bring such an action has notified the other parties
of such claim, specifying in reasonable detail the nature of the loss suffered.
The provisions of this Section 10.1 shall have no effect upon any of the
covenants or agreements of the parties set forth in Article VI or any of the
other obligations of the parties hereto under the Agreement, whether to be
performed later, at or after the Closing.
SECURITIES PURCHASE AGREEMENT - PAGE 39
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10.2 INDEMNIFICATION BY GNA. GNA shall indemnify, defend, and hold harmless
Buyer and the members of the Buyer Group from and against any and all claims,
actions, causes of action, demands, losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) (collectively,
"Damages"), asserted against, resulting to, imposed upon, or incurred by any of
them, directly or indirectly, by reason of or resulting from (i) any Breach by
GNA of any of its representations, warranties, covenants or agreements contained
in this Agreement or in any certificate, instrument or document delivered
pursuant hereto, or (ii) any Proceeding brought against any of them by a Person
other than GNA or any of its Affiliates, Associates or shareholders in respect
of any action taken in good faith on behalf of GNA in the course of the
performance of Buyer's duties under this Agreement; provided, however, that GNA
shall indemnify, defend, and hold harmless Buyer and the members of the Buyer
Group from and against any reasonable expenses incurred by such Person(s) in
connection with a Proceeding brought against any of them by any of GNA's
shareholders if such Person(s) is wholly successful, on the merits or otherwise,
in the defense of such Proceeding, and provided, further, that GNA's obligation
to indemnify, defend and hold harmless as provided in this Section 10.2 shall
not apply to the first $750,000 in the aggregate of claims hereunder (other than
claims based on Sections 2.1, 2.2, 6.3(g) or (h), 6.5, 6.14, 6.17 (to the extent
GNA has agreed to acquire Equity Securities offered thereunder) or 9.3 or claims
for expenses in defending a Proceeding for which the Person is entitled to
indemnification under clause (ii) of this Section).
10.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, and hold
harmless GNA and its Affiliates, Associates, directors, officers and employees
from and against any and all Damages asserted against, resulting to, imposed
upon, or incurred by any of them, directly or indirectly, by reason of or
resulting from any Breach by Buyer of any of its representations, warranties,
covenants, or agreements contained in this Agreement or in any certificate,
instrument, or document delivered pursuant hereto, provided, however, that such
obligation to indemnify, defend and hold harmless shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims based on
Sections 2.1, 2.2, 6.3(g) or 6.17 (to the extent GNA has agreed to acquire
Equity Securities offered thereunder)).
10.4 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party under Section 10.2 or 10.3 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such Section, give written notice to
the indemnifying party of the commencement thereof, but the failure so to notify
the indemnifying party shall not relieve it of any liability that it may have to
any indemnified party except to the extent the indemnifying party demonstrates
that the defense of such action is prejudiced thereby. In case any such action
shall be brought against an indemnified party and it shall give written notice
to the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. If the indemnifying party elects to assume the defense of
such action, the indemnified party shall have the right to employ separate
counsel at its own expense and to participate in the defense thereof. If the
indemnifying party elects not to assume (or fails to assume) the defense of such
action, the indemnified party shall be entitled to assume the defense of such
action with counsel of its own choice, at the expense of the indemnifying party.
If the action is asserted against both the indemnifying party and the
indemnified party and there is a conflict of interests which renders it
inappropriate for the same counsel to represent both the indemnifying party and
the indemnified party, the indemnifying party shall be responsible for paying
for separate counsel for the indemnified party; provided, however, that if there
is more than one indemnified party, the indemnifying party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the indemnified parties, regardless of the number of indemnified parties. The
indemnifying party
SECURITIES PURCHASE AGREEMENT - PAGE 40
<PAGE> 69
shall have no liability with respect to any compromise or settlement of any
action effected without its written consent (which shall not be unreasonably
withheld).
10.5 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE. THE INDEMNIFICATION
PROVIDED IN THIS SECTION 10 SHALL BE APPLICABLE WHETHER OR NOT THE SOLE OR
CONCURRENT NEGLIGENCE OR GROSS NEGLIGENCE OF THE INDEMNIFIED PARTY, OR THE SOLE
OR CONCURRENT STRICT LIABILITY IMPOSED ON THE INDEMNIFIED PARTY, OR THE SOLE OR
CONCURRENT LIABILITY IMPOSED VICARIOUSLY ON THE INDEMNIFIED PARTY, IS ALLEGED OR
PROVEN.
ARTICLE XI
MISCELLANEOUS
11.1 NOTICES. All notices required to be given in writing hereunder shall
be deemed to have been given if (i) delivered personally or by documented
courier or delivery service, (ii) transmitted by facsimile or (iii) mailed by
registered or certified mail (return receipt requested and postage prepaid) to
the following listed persons at the addresses and facsimile numbers specified
below, or to such other persons, addresses or facsimile numbers as a party
entitled to notice shall give, in the manner hereinabove described, to the
others entitled to notice:
If Buyer: 777 Main Street, Suite 2250
Fort Worth, Texas 76102
Attention J. Randall Chappel
Fax: (817) 820-6651
with a copy to: Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Jeffrey A. Zlotky
Fax: (214) 969-1751
If to GNA, to: 500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Fax: (817) 338-1454
with a copy to: Shannon, Gracey, Ratliff & Miller, L.L.P.
Bank One Tower
500 Throckmorton, Suite 1600
Fort Worth, Texas 76102-3803
Attention: Sam Rosen
Fax: (817) 336-3735
and
SECURITIES PURCHASE AGREEMENT - PAGE 41
<PAGE> 70
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: Byron F. Egan
Fax: (214) 953-5733
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours, and otherwise, on
the first Business Day following electronic confirmation of receipt. If given by
mail, it shall be deemed to have been given on the third Business Day following
the day on which it was posted.
11.2 ENTIRE AGREEMENT. This Agreement, together with the Ancillary
Documents, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
11.3 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Except as otherwise expressly provided in this Agreement, neither this Agreement
nor any of the rights, interests, or obligations hereunder may be assigned by
either of the parties hereto without the prior written consent of the other
party ; provided, however, that upon written notice to GNA, Buyer may assign all
or any portion of Buyer's rights and obligations under this Agreement to a
limited partnership of which Buyer is the general partner and holds a majority
of the economic interest therein (a "Permitted Assignee") provided that (i) such
Permitted Assignee shall assume in writing all of Buyer's obligations to GNA,
and (ii) notwithstanding such assumption, Buyer shall not be released from any
liabilities or obligations hereunder. Except as provided in Section 6.3(f),
Section 6.20 and Article X, nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person other than the parties hereto, and
their respective heirs, legal representatives, successors, and permitted
assigns, any rights, benefits, or remedies of any nature whatsoever under or by
reason of this Agreement.
11.4 INTERPRETATION. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation" and, where
the context so requires, the word "or" is used in the inclusive sense. All
accounting terms not defined in this Agreement shall have the meaning determined
by GAAP. All capitalized terms defined herein are equally applicable to both the
singular and plural forms.
11.5 SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement, provided
that the remaining provisions of the Agreement shall in their totality
constitute a commercially reasonable agreement. Nothing herein shall be
construed as a waiver of any party's right to challenge the validity of such
law.
11.6 TIME OF ESSENCE. With regard to all dates and time periods set forth
in this Agreement, time is of the essence.
SECURITIES PURCHASE AGREEMENT - PAGE 42
<PAGE> 71
11.7 NO WAIVER OF PRIVILEGE. Neither GNA, Buyer nor any of their respective
Subsidiaries, Affiliates or Associates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement or the Confidentiality Agreement.
11.8 GNA DISCLOSURE LETTER. Any disclosure under any Section of the GNA
Disclosure Letter shall be deemed disclosure under all Sections of the GNA
Disclosure Letter and this Agreement. To the extent that any representation or
warranty set forth in this Agreement is qualified by the materiality of the
matter(s) to which the representation or warranty relates, the inclusion of any
matter in the GNA Disclosure Letter does not constitute a determination by GNA
that any such matter is material or required to be disclosed for purposes of
this Agreement. The disclosure of any information concerning a matter in the GNA
Disclosure Letter does not imply that any other or undisclosed matter which has
a greater significance or value is material.
11.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
11.10 COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
SECURITIES PURCHASE AGREEMENT - PAGE 43
<PAGE> 72
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives all as of the day and year first above
written.
GAINSCO, INC.
By: /s/ GLENN W. ANDERSON
--------------------------------------
Glenn W. Anderson
President and Chief Executive Officer
GOFF MOORE STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its
general partner
By: GMSP, L.L.C., its general partner
By: /s/ JOHN C. GOFF
--------------------------------
John C. Goff, Managing Principal
By: /s/ J. RANDALL CHAPPEL
--------------------------------
J. Randall Chappel, Principal
SECURITIES PURCHASE AGREEMENT - PAGE 44
<PAGE> 73
EXHIBIT A
INVESTMENT MANAGEMENT AGREEMENT
FOR
GAINSCO, INC.
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into this
___ day of _____, 1999, by and between Goff Moore Strategic Partners, L.P., a
Texas limited partnership ("GMSP"), and GAINSCO, INC., a Texas corporation
("GNA").
WHEREAS, GNA is a holding company whose subsidiaries are regulated insurance
companies;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager with
respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA or a
Subsidiary of GNA) of which such Person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of any class of Equity
Securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
Person, or any relative of such Person, or any relative of such spouse, who has
the same home as such Person or who is a director or officer of GNA or any of
its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT 1
<PAGE> 74
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit with a
financial institution.
"Cause" means that GMSP has committed or engaged in (i) any malfeasance, bad
faith or negligence in respect of GMSP's material duties pursuant to this
Agreement; (ii) any commission of any fraud by GMSP; (iii) any conviction or
indictment of or plea of no contest to any felony by GMSP or any member of the
GMSP Group; (iv) any violation of the provisions of the U. S. federal securities
laws or state securities laws by GMSP or any GMSP Principal; or (v) any material
breach by GMSP of its obligations (including, without limitation, its
obligations to observe and comply with the provisions of the Policy Letter)
under, or its representations or warranties in, this Agreement if such breach
continues for more than 10 days after GMSP receives written notice, specifying
such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members of
which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA or
received by GNA from GMSP that is not generally known or which would logically
be considered confidential or proprietary, or which would do GNA or GMSP, as
applicable, harm if divulged, or which is marked "Confidential Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests of any
Person, any Securities directly or indirectly convertible into, or exercisable
or exchangeable for any capital stock or other equity interests of any Person,
or any right, option, warrant or other Security which, with the payment of
additional consideration, the expiration of time or the occurrence of any event
shall give the holder thereof the right to acquire any capital stock or other
equity interests of any Person or any Security convertible into or exercisable
or exchangeable for, any capital stock or other equity interests of any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that
INVESTMENT MANAGEMENT AGREEMENT 2
<PAGE> 75
either GMSP or the Committee determine that there has been a material change in
the value of such Securities since the date of acquisition of such Securities,
such other valuation as is reflective of the value of such Securities; provided,
however, that, if GMSP and the Committee are unable to agree on such fair market
value, such Securities shall be valued by such nationally recognized independent
public accounting firm or investment banking firm designated by the Committee
and reasonably acceptable to GMSP. Any such third-party valuation shall be final
and binding on the parties and enforceable in accordance with the provisions of
the Texas General Arbitration Act, and the costs and expenses thereof shall be
shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean John C. Goff, J. Randall Chappel and any other
Persons employed by or otherwise affiliated with GMSP or its general partner who
have access to information regarding particular Securities being considered for
purchase or sale by GNA. The parties recognize that the limited partners of GMSP
as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the Oklahoma Department of
Insurance and the Texas Department of Insurance.
"GNA Entities" means GAINSCO, INC., a Texas corporation; MGA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to GNA and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally
INVESTMENT MANAGEMENT AGREEMENT 3
<PAGE> 76
provided, that no change in the prices at which the Common Stock is quoted or
traded on the NYSE or otherwise shall be a GNA Material Adverse Effect
"good faith", when used in respect of any action, means that the action was
taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
Moody's Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates falling
before, on or after the Year 2000; or (b) accurately record, store, retrieve and
process data input and date information.
"Person" means any individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including any
Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA at the holding company level
in Securities of the type more particularly described under the category
"Investments" in GNA's periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations, and
inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June ___, 1999, between GMSP and GAINSCO, INC.
"Short Term Debt" means any note, draft, bill of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including partnerships and other business associations) in which the
Person directly or indirectly owns at least a
INVESTMENT MANAGEMENT AGREEMENT 4
<PAGE> 77
majority of the outstanding voting Securities or other equity interests having
the power, under ordinary circumstances, to elect a majority of the directors,
or otherwise to direct the management and policies, of such corporation or other
entity.
"U.S." means the United States of America.
"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to serve, as
investment manager with respect to the Portfolio on the terms and conditions
hereinafter set forth:
(a) The investment policies and all other actions of the Portfolio are
and shall at all times be subject to the oversight and direction of the
Committee. GMSP shall manage the Portfolio in accordance with the investment
objectives and policies set forth in the letter (the "Policy Letter") heretofore
delivered to GMSP by GNA. GNA may amend or supplement the contents of the Policy
Letter, including the investment criteria and other instructions set forth
therein, in whole or in part and at any time and from time to time; provided,
however, that no amendment or supplement shall be binding upon GMSP until GMSP
is notified of the amendment or supplement; and provided further, that in the
event that an amended or supplemented Policy Letter shall require GMSP to make
any changes in the manner in which GMSP has performed its services pursuant to
this Agreement, GMSP shall have a reasonable time period to comply with such
changes. GMSP shall periodically evaluate the provisions of the Policy Letter
and provide GNA with any recommendations for the amendment or supplementation of
the provisions of the Policy Letter that GMSP deems advisable for the benefit of
GNA. To the extent that the provisions of the Policy Letter, as the same may be
amended or supplemented from time to time, conflict with the provisions of this
Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the oversight
and direction of the Committee, GMSP shall have authority to make all specific
investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its obligations
under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during the term
of this Agreement a qualified investment portfolio manager reasonably acceptable
to GNA, who shall have the primary responsibilities of coordinating all aspects
of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP currently is
not registered as an (i) investment adviser under the Investment Advisers Act of
1940, as amended, and all other Applicable Laws or (ii) a broker or dealer under
the Securities Exchange Act of 1934, as amended, and all other Applicable Laws.
INVESTMENT MANAGEMENT AGREEMENT 5
<PAGE> 78
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with respect
to the assets in and investment performance of the Portfolio. The reports shall
include such financial information in such format as GNA may reasonably request
in connection with the administration of the Portfolio and a record of all
transactions effected during the interim period from the preceding report,
including the price per Security, the broker or dealer executing the transaction
and the commissions paid. The reports shall be made with such frequency, but not
less often than within 20 days following the end of each calendar month, as GNA
may reasonably request in connection with the administration of the Portfolio;
provided that the late delivery of a complete report no more than one time in
any three-year period with respect to any particular Securities in the Portfolio
shall not constitute a Breach of this Agreement if (i) the delay was caused by
the failure of an unaffiliated Person in providing information to GMSP that had
been timely requested by GMSP, (ii) any portion of the report that is not
dependent upon the unaffiliated Person is delivered to GNA by GMSP on a timely
basis, and (iii) GMSP uses its commercially reasonable efforts to cause such
late report to be delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized representatives
reasonable access to the GMSP Principals, GMSP's offices and other facilities,
and all books, records and other documents of GMSP relating to the Portfolio or
this Agreement and (ii) permit GNA and its authorized representatives to make
such inspections and copies of all books, records and other documents as they
may reasonably require to verify the accuracy of any report furnished pursuant
to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the assets in
the Portfolio at the end of each calendar month, and shall be calculated at the
end of each calendar month based upon the actual number of days elapsed during
the calendar month, during which this Agreement is in effect over a year of 365
days. Within fifteen (15) days after the end of each calendar month, GNA shall
pay to GMSP
INVESTMENT MANAGEMENT AGREEMENT 6
<PAGE> 79
the Fees earned with respect to the preceding calendar month. In the event of
termination prior to the end of a calendar month, GNA will pay to GMSP a
prorated portion of the Fees based upon the Fair Market Value of the assets in
the Portfolio at the time of termination. No other fees, charges or assessments
shall be payable by GNA to or for the benefit of GMSP or any member of the GMSP
Group with respect to the services performed by GMSP pursuant to this Agreement,
provided that GNA shall have the responsibility to reimburse GMSP for GMSP's
payment of any amounts described pursuant to Section 4(d) below. There shall not
be any annual reconciliation, adjustment or other "true-up" at the end of each
calendar year.
(c) GMSP shall be solely responsible for all of its general and
administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall consist of all costs
and expenses in connection with the provision of office space and facilities,
equipment and personnel for servicing the investments of the Portfolio and the
salaries and fees of all personnel employed by GMSP performing services relating
to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the following costs
and expenses related to GMSP's performance of its duties pursuant to this
Agreement that are reasonable and payable to Persons not affiliated with the
GMSP Group:
(i) brokerage commissions and other costs, fees and expenses
incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected pursuant to Section
2(b);
(iii) costs related to third party Proceedings involving GNA's
ownership of Securities pursuant to this Agreement, directly or indirectly,
including, without limitation, attorneys' fees incurred in connection therewith
(but excluding all costs related to Proceedings or other disputes between GNA
and GMSP or any member of the GMSP Group or which constitute Cause);
(iv) interest on and fees and expenses arising out of all
borrowings made by GNA with respect to the purchase of Securities, including,
but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied against GNA;
and
(vi) any other expense, whether ordinary or extraordinary, that is
determined by the Committee to be appropriate for GNA to pay pursuant to this
Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP may give
preference, and may cause GNA to pay higher negotiated commission rates, to
unaffiliated brokers which, in addition to having the capacity of obtaining the
best price for the Security itself and of executing the order with speed,
efficiency and confidentiality, also provide Research to GMSP or GNA. Research
furnished by brokers through whom Securities transactions are effected may be
used by GMSP in servicing all of its accounts, and there shall be no reduction
in the compensation of GMSP hereunder as a consequence of its receipt of such
Research. In the allocation of brokerage, however, GMSP must determine in good
faith, and demonstrate to GNA upon request, that the amount of the commission is
reasonable in relation to the value of the brokerage services and Research
provided by the broker, viewed in terms of either the particular transaction or
GMSP's overall responsibilities with respect to the Portfolio. In the allocation
of brokerage for the
INVESTMENT MANAGEMENT AGREEMENT 7
<PAGE> 80
Portfolio, GMSP shall be subject always to Applicable Law and such policies and
requirements that the Committee may adopt or approve as reflected in the Policy
Letter.
(f) In the event that, in any calendar month, the aggregate amount of
Fees (as such term is defined in the respective GNA Investment Management
Agreements) paid to GMSP by the GNA Entities pursuant to the GNA Investment
Management Agreements is less than $75,000, GNA shall pay to GMSP an amount
equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be exclusive, and
GMSP shall be free to engage in any other business or to render similar services
to others. GMSP and any member of the GMSP Group may engage independently or
with others, for its or their own accounts and for the accounts of others, in
other business ventures and activities of every nature and description,
including, without limitation, purchasing, selling or holding Securities for the
account of any other Person or for its or his own account, including Securities
included within the Portfolio or eligible for investment pursuant to this
Agreement; provided, that the management of such entities and accounts do not
interfere with the performance of their obligations and duties to GNA pursuant
to this Agreement. GNA shall not have any rights or obligations by virtue of
this Agreement in and to such independent ventures and activities or the income
or profits derived therefrom. The foregoing notwithstanding, without the prior
written consent of GNA in a specific case, GMSP shall at all times adhere, and
cause the members of the GMSP Group or the GMSP Principals, as the case may be,
to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group shall act,
either as principal or agent, on the opposite side of any transaction in which
GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times (A) place the
interests of GNA before such member's personal transactional interests; (B)
conduct all personal transactions in Securities in such a manner as to avoid any
actual or potential conflict of interest or abuse of such Person's position of
trust and confidence in relation to GNA; and (C) promptly disclose to GNA all
personal transactions made by or on behalf of such Person in Securities which
are or were at any time during the preceding two years in the Portfolio or
issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of interest
which is not specifically authorized by or pursuant to this Agreement, GMSP
shall submit such issue to the Committee for prior approval, and shall take such
actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by any member
of the GMSP Group as if GMSP had committed such breach.
INVESTMENT MANAGEMENT AGREEMENT 8
<PAGE> 81
6. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA at any
time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP at any
time after the third anniversary hereof;
(d) by GNA, at any time, immediately upon written notice to GMSP
following (i) the good faith determination by both the Committee and two-thirds
of the members of the Board (excluding members of the Board designated for
election by GMSP or its successors in interest under the Securities Purchase
Agreement or otherwise affiliated with GMSP) that an event that constitutes
Cause has occurred and is continuing beyond any applicable period for notice and
opportunity to cure or (ii) the commencement by a Governmental Authority of any
Proceeding alleging any matter which, if proven, would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event that GNA
defaults in the performance of any of its material obligations hereunder and
such default continues for not less than 10 days after GNA receives notice of
such default; provided, however, that in the event that such default is of a
nature that it cannot, with due diligence, be cured within 10 days, GMSP may not
terminate this Agreement so long as GNA begins to cure such default within 10
days and thereafter diligently pursues such cure to completion.
Termination of this Agreement shall not terminate GMSP's obligations under
Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly existing and
in good standing under the Texas Revised Limited Partnership Act, as amended,
and has the power and authority to own all of its properties and assets and to
carry on its business as now being conducted. GMSP is duly qualified and in good
standing (to the extent applicable) to transact business in each jurisdiction in
which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GMSP Material Adverse Effect.
(b) GMSP has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other
INVESTMENT MANAGEMENT AGREEMENT 9
<PAGE> 82
similar laws affecting the enforcement of creditors' rights generally and except
that the availability of equitable remedies, including specific performance, may
be subject to the discretion of any court before which any proceeding therefor
may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
as described in the Securities Purchase Agreement or with any GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GMSP
do not and will not result in any violation by GMSP under any provisions of:
(i) the partnership agreement or similar governing documents of
GMSP;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GMSP is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of GMSP,
threatened against GMSP that questions the validity of this Agreement or any
action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will continue to be
(i) either exempt from registration or duly registered as an investment adviser
under the Investment Advisers Act of 1940 and all Applicable Laws and (ii)
qualified and eligible to manage the Portfolio under the statutes and
regulations administered by the GNA Applicable Insurance Departments, provided
that GNA shall inform GMSP immediately in the event that GNA becomes aware of
any changes in the qualification and eligibility requirements with respect to
such statutes and regulations. GMSP will provide prompt written notice to GNA if
GMSP ceases to be so registered or qualified or becomes aware of any fact, event
or circumstance which will or is reasonably likely to cause it to cease to be so
registered or qualified.
(g) Taken in the aggregate, the factual information (including, without
limitation, information regarding its knowledge, investment experience and
investment track record) furnished by GMSP to GNA subsequent to May 11, 1999 in
writing for purposes of this Agreement did not contain untrue statements of
material facts, or omit to state material facts necessary to make the statements
made not misleading in the light of the circumstances under which they were
made, as of the date as of which such information is dated. All financial
forecasts prepared and furnished by GMSP to GNA subsequent to May 11, 1999 were
prepared in good faith on the basis of assumptions believed to be reasonable and
data,
INVESTMENT MANAGEMENT AGREEMENT 10
<PAGE> 83
information, tests or conditions believed to be valid or accurate or to exist at
the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned or used
by GMSP or used and operated by third parties on behalf of GMSP, which performs
or is or may be required to perform functions involving dates or the computation
of dates, or containing date related data, has the programming, design and
performance capabilities to ensure that:
(i) it will not suffer any Malfunction that would reasonably be
expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at the end of the
twentieth century or the input, processing, storage or use of dates up to and
including December 31, 2001, (A) be adversely affected, (B) require changes in
inputting or operating practices, (C) produce invalid or incorrect output or
results, (D) cause any abnormal ending scenario, or (E) suffer any diminution in
functionality or performance that, in any of the above, could reasonably be
expected to have a GMSP Material Adverse Effect.
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is a corporation duly organized and validly existing under the
laws of the State of Texas, and has the power and authority to own all of its
properties and assets and to carry on its business as now being conducted. GNA
is duly qualified and in good standing to transact business in each jurisdiction
in which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GNA Material Adverse Effect.
(b) GNA has all requisite power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action on the part of
GNA. This Agreement has been duly and validly executed and delivered by GNA and,
assuming the due authorization, execution and delivery hereof by GMSP,
constitutes the valid and binding obligation of GNA, enforceable against GNA in
accordance with its terms, except as would be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with any GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GNA do
not and will not result in any violation by GNA under any provisions of:
(i) articles of incorporation or similar governing documents of
GNA;
INVESTMENT MANAGEMENT AGREEMENT 11
<PAGE> 84
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GNA is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
(e) There is no Proceeding pending, or to the knowledge of GNA,
threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of entering into
this Agreement.
(g) No part of the funds to be used to purchase and hold Securities or
to pay any amounts pursuant to this Agreement constitutes an asset of any
employee benefit plan within the meaning of Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and GNA is not a "benefit
plan investor" (as such term is defined in 29 C.F.R. Section 2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of GMSP Group shall be liable for any
loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and the GMSP
Principals from and against any and all claims, actions, causes of action,
demands, losses, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred by any of them, directly or indirectly,
by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section
INVESTMENT MANAGEMENT AGREEMENT 12
<PAGE> 85
10(a) shall not apply to the first $750,000 in the aggregate of claims hereunder
(other than claims for expenses in defending a Proceeding for which the Person
is entitled to indemnification under clause (ii) of this Section) and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and its
Affiliates, Associates, directors, officers and employees from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
of them, directly or indirectly, by reason of or resulting from any Breach by
GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under Section 10(a)
or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such Section, give written notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability that it may have to any indemnified party except
to the extent the indemnifying party demonstrates that the defense of such
action is prejudiced thereby. In case any such action shall be brought against
an indemnified party and it shall give written notice to the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. If the
indemnifying party elects to assume the defense of such action, the indemnified
party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof. If the indemnifying party elects not to
assume (or fails to assume) the defense of such action, the indemnified party
shall be entitled to assume the defense of such action with counsel of its own
choice, at the expense of the indemnifying party. If the action is asserted
against both the indemnifying party and the indemnified party and there is a
conflict of interests which renders it inappropriate for the same counsel to
represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the
INVESTMENT MANAGEMENT AGREEMENT 13
<PAGE> 86
public through no fault of any member of the GMSP Group or GNA, as applicable;
or (iii) is required to be disclosed by Applicable Law or a Governmental
Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder shall be
deemed to have been given if (i) delivered personally or by documented courier
or delivery service, (ii) transmitted by facsimile or (iii) mailed by registered
or certified mail (return receipt requested and postage prepaid) to the
following listed Persons at the addresses and facsimile numbers specified below,
or to such other Persons, addresses or facsimile numbers as a party entitled to
notice shall give, in the manner hereinabove described, to the others entitled
to notice:
If to GMSP, to: 777 Main Street, Suite 2250
Fort Worth, Texas 76102
Attention: J. Randall Chappel
Fax: (817) 820-6651
If to GNA, to: 500 Commerce Street
Fort Worth, Texas 76102-5439
Attention: Chief Executive Officer
Fax: (817) 338-1454
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in
INVESTMENT MANAGEMENT AGREEMENT 14
<PAGE> 87
this Agreement, express or implied, is intended to or shall confer upon any
Person other than the parties hereto, and their respective heirs, legal
representatives, successors, and permitted assigns, any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
19. TIME OF ESSENCE. With regard to all dates and time periods set forth in
this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
<PAGE> 88
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be executed
all as of the day and year first above written.
GAINSCO, INC.
By:
----------------------------------------------------
Glenn W. Anderson
President and Chief Executive Officer
GOFF MOORE STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its general partner
By: GMSP, L.L.C., its general partner
By:
-------------------------------------------
John C. Goff, Managing Principal
By:
-------------------------------------------
J. Randall Chappel, Principal
INVESTMENT MANAGEMENT AGREEMENT 16
<PAGE> 89
EXHIBIT B
[Form of Investment Management Agreement for GNA Insurance Subsidiaries]
INVESTMENT MANAGEMENT AGREEMENT
FOR
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into this
___ day of _____, 1999, by and between Goff Moore Strategic Partners, L.P., a
Texas limited partnership ("GMSP"), and _______________ ("GNA"), a subsidiary of
GAINSCO, INC. ("Parent").
WHEREAS, GNA is a regulated insurance company;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager with
respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA, Parent or a
Subsidiary of GNA or Parent) of which such Person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of GNA or any
of its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT 1
<PAGE> 90
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit with a
financial institution.
"Cause" means that GMSP has committed or engaged in (i) any malfeasance, bad
faith or negligence in respect of GMSP's material duties pursuant to this
Agreement; (ii) any commission of any fraud by GMSP; (iii) any conviction or
indictment of or plea of no contest to any felony by GMSP or any member of the
GMSP Group; (iv) any violation of the provisions of the U. S. federal securities
laws or state securities laws by GMSP or any GMSP Principal; or (v) any material
breach by GMSP of its obligations (including, without limitation, its
obligations to observe and comply with the provisions of the Policy Letter)
under, or its representations or warranties in, this Agreement if such breach
continues for more than 10 days after GMSP receives written notice, specifying
such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members of
which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA or
received by GNA from GMSP that is not generally known or which would logically
be considered confidential or proprietary, or which would do GNA or GMSP, as
applicable, harm if divulged, or which is marked "Confidential Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests of any
Person, any Securities directly or indirectly convertible into, or exercisable
or exchangeable for any capital stock or other equity interests of any Person,
or any right, option, warrant or other Security which, with the payment of
additional consideration, the expiration of time or the occurrence of any event
shall give the holder thereof the right to acquire any capital stock or other
equity interests of any Person or any Security convertible into or exercisable
or exchangeable for, any capital stock or other equity interests of any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
INVESTMENT MANAGEMENT AGREEMENT 2
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of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm designated by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean John C. Goff, J. Randall Chappel and any other
Persons employed by or otherwise affiliated with GMSP or its general partner who
have access to information regarding particular Securities being considered for
purchase or sale by GNA. The parties recognize that the limited partners of GMSP
as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the [Oklahoma Department of
Insurance] [the Texas Department of Insurance].
"GNA Entities" means GAINSCO, INC., a Texas corporation; MGA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to Parent and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally.
INVESTMENT MANAGEMENT AGREEMENT 3
<PAGE> 92
"good faith", when used in respect of any action, means that the action was
taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
Moody's Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates falling
before, on or after the Year 2000; or (b) accurately record, store, retrieve and
process data input and date information.
"Parent" has the meaning set forth in the first paragraph hereof.
"Person" means any individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including any
Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA in Securities of the type
more particularly described under the category "Investments" in Parent's
periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations, and
inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June ___, 1999, between GMSP and Parent.
"Short Term Debt" means any note, draft, bill of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including partnerships and other business associations) in which the
Person directly or indirectly owns at least a majority of the outstanding voting
Securities or other equity interests having the power, under ordinary
INVESTMENT MANAGEMENT AGREEMENT 4
<PAGE> 93
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"U.S." means the United States of America.
"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to serve, as
investment manager with respect to the Portfolio on the terms and conditions
hereinafter set forth:
(a) The investment policies and all other actions of the Portfolio are
and shall at all times be subject to the oversight and direction of the
Committee. GMSP shall manage the Portfolio in accordance with the investment
objectives and policies set forth in the letter (the "Policy Letter") heretofore
delivered to GMSP by GNA. GNA may amend or supplement the contents of the Policy
Letter, including the investment criteria and other instructions set forth
therein, in whole or in part and at any time and from time to time; provided,
however, that no amendment or supplement shall be binding upon GMSP until GMSP
is notified of the amendment or supplement; and provided further, that in the
event that an amended or supplemented Policy Letter shall require GMSP to make
any changes in the manner in which GMSP has performed its services pursuant to
this Agreement, GMSP shall have a reasonable time period to comply with such
changes. GMSP shall periodically evaluate the provisions of the Policy Letter
and provide GNA with any recommendations for the amendment or supplementation of
the provisions of the Policy Letter that GMSP deems advisable for the benefit of
GNA. To the extent that the provisions of the Policy Letter, as the same may be
amended or supplemented from time to time, conflict with the provisions of this
Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the oversight
and direction of the Committee, GMSP shall have authority to make all specific
investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its obligations
under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during the term
of this Agreement a qualified investment portfolio manager reasonably acceptable
to GNA, who shall have the primary responsibilities of coordinating all aspects
of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP currently is
not registered as an (i) investment adviser under the Investment Advisers Act of
1940, as amended, and all other Applicable Laws or (ii) a broker or dealer under
the Securities Exchange Act of 1934, as amended, and all other Applicable Laws.
INVESTMENT MANAGEMENT AGREEMENT 5
<PAGE> 94
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with respect
to the assets in and investment performance of the Portfolio. The reports shall
include such financial information in such format as GNA may reasonably request
in connection with the administration of the Portfolio and a record of all
transactions effected during the interim period from the preceding report,
including the price per Security, the broker or dealer executing the transaction
and the commissions paid. The reports shall be made with such frequency, but not
less often than within 20 days following the end of each calendar month, as GNA
may reasonably request in connection with the administration of the Portfolio;
provided that the late delivery of a complete report no more than one time in
any three-year period with respect to any particular Security in the Portfolio
shall not constitute a Breach of this Agreement if (i) the delay was caused by
the failure of an unaffiliated Person in providing information to GMSP that had
been timely requested by GMSP, (ii) any portion of the report that is not
dependent upon the unaffiliated Person is delivered to GNA by GMSP on a timely
basis, and (iii) GMSP uses its commercially reasonable efforts to cause such
late report to be delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized representatives
reasonable access to the GMSP Principals, GMSP's offices and other facilities,
and all books, records and other documents of GMSP relating to the Portfolio or
this Agreement and (ii) permit GNA and its authorized representatives to make
such inspections and copies of all books, records and other documents as they
may reasonably require to verify the accuracy of any report furnished pursuant
to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the assets in
the Portfolio at the end of each calendar month, and shall be calculated at the
end of each calendar month based upon the actual number of days elapsed during
the calendar month, during which this Agreement is in effect over a year of 365
days. Within fifteen (15) days after the end of each calendar month, GNA shall
pay to GMSP the Fees earned with respect to the preceding calendar month. In the
event of termination prior to the end of a calendar month, GNA will pay to GMSP
a prorated portion of the Fees based upon the Fair Market Value of the assets in
the Portfolio at the time of termination. No other fees, charges or assessments
shall be payable by GNA to or for the benefit of GMSP or any member of the GMSP
Group with respect to the
INVESTMENT MANAGEMENT AGREEMENT 6
<PAGE> 95
services performed by GMSP pursuant to this Agreement, provided that GNA shall
have the responsibility to reimburse GMSP for GMSP's payment of any amounts
described pursuant to Section 4(d) below. There shall not be any annual
reconciliation, adjustment or other "true-up" at the end of each calendar year.
(c) GMSP shall be solely responsible for all of its general and
administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall consist of all costs
and expenses in connection with the provision of office space and facilities,
equipment and personnel for servicing the investments of the Portfolio and the
salaries and fees of all personnel employed by GMSP performing services relating
to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the following costs
and expenses related to GMSP's performance of its duties pursuant to this
Agreement that are reasonable and payable to Persons not affiliated with the
GMSP Group:
(i) brokerage commissions and other costs, fees and expenses
incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected pursuant to Section
2(b);
(iii) costs related to third party Proceedings involving GNA's
ownership of Securities pursuant to this Agreement, directly or indirectly,
including, without limitation, attorneys' fees incurred in connection therewith
(but excluding all costs related to Proceedings or other disputes between GNA
and GMSP or any member of the GMSP Group or which constitute Cause);
(iv) interest on and fees and expenses arising out of all
borrowings made by GNA with respect to the purchase of Securities, including,
but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied against GNA;
and
(vi) any other expense, whether ordinary or extraordinary, that is
determined by the Committee to be appropriate for GNA to pay pursuant to this
Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP may give
preference, and may cause GNA to pay higher negotiated commission rates, to
unaffiliated brokers which, in addition to having the capacity of obtaining the
best price for the Security itself and of executing the order with speed,
efficiency and confidentiality, also provide Research to GMSP or GNA. Research
furnished by brokers through whom Securities transactions are effected may be
used by GMSP in servicing all of its accounts, and there shall be no reduction
in the compensation of GMSP hereunder as a consequence of its receipt of such
Research. In the allocation of brokerage, however, GMSP must determine in good
faith, and demonstrate to GNA upon request, that the amount of the commission is
reasonable in relation to the value of the brokerage services and Research
provided by the broker, viewed in terms of either the particular transaction or
GMSP's overall responsibilities with respect to the Portfolio. In the allocation
of brokerage for the Portfolio, GMSP shall be subject always to Applicable Law
and such policies and requirements that the Committee may adopt or approve as
reflected in the Policy Letter.
(f) In the event that, in any calendar month, the aggregate amount of
Fees (as such term is defined in the respective GNA Investment Management
Agreements) paid to GMSP by the GNA Entities pursuant to the GNA Investment
Management Agreements is less than $75,000, GNA shall pay to GMSP
INVESTMENT MANAGEMENT AGREEMENT 7
<PAGE> 96
an amount equal to the product of (i) the quotient of the Fair Market Value of
the Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be exclusive, and
GMSP shall be free to engage in any other business or to render similar services
to others. GMSP and any member of the GMSP Group may engage independently or
with others, for its or their own accounts and for the accounts of others, in
other business ventures and activities of every nature and description,
including, without limitation, purchasing, selling or holding Securities for the
account of any other Person or for its or his own account, including Securities
included within the Portfolio or eligible for investment pursuant to this
Agreement; provided, that the management of such entities and accounts do not
interfere with the performance of their obligations and duties to GNA pursuant
to this Agreement. GNA shall not have any rights or obligations by virtue of
this Agreement in and to such independent ventures and activities or the income
or profits derived therefrom. The foregoing notwithstanding, without the prior
written consent of GNA in a specific case, GMSP shall at all times adhere, and
cause the members of the GMSP Group or the GMSP Principals, as the case may be,
to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group shall act,
either as principal or agent, on the opposite side of any transaction in which
GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times (A) place the
interests of GNA before such member's personal transactional interests; (B)
conduct all personal transactions in Securities in such a manner as to avoid any
actual or potential conflict of interest or abuse of such Person's position of
trust and confidence in relation to GNA; and (C) promptly disclose to GNA all
personal transactions made by or on behalf of such Person in Securities which
are or were at any time during the preceding two years in the Portfolio or
issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of interest
which is not specifically authorized by or pursuant to this Agreement, GMSP
shall submit such issue to the Committee for prior approval, and shall take such
actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by any member
of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
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<PAGE> 97
(b) by GMSP upon not less than 90 days written notice to GNA at any
time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP at any
time after the third anniversary hereof;
(d) by GNA, at any time, immediately upon written notice to GMSP
following (i) the good faith determination by both the Committee and two-thirds
of the members of the Board (excluding members of the Board designated for
election by GMSP or its successors in interest under the Securities Purchase
Agreement or otherwise affiliated with GMSP) that an event that constitutes
Cause has occurred and is continuing beyond any applicable period for notice and
opportunity to cure or (ii) the commencement by a Governmental Authority of any
Proceeding alleging any matter which, if proven, would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event that GNA
defaults in the performance of any of its material obligations hereunder and
such default continues for not less than 10 days after GNA receives notice of
such default; provided, however, that in the event that such default is of a
nature that it cannot, with due diligence, be cured within 10 days, GMSP may not
terminate this Agreement so long as GNA begins to cure such default within 10
days and thereafter diligently pursues such cure to completion.
Termination of this Agreement shall not terminate GMSP's obligations under
Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly existing and
in good standing under the Texas Revised Limited Partnership Act, as amended,
and has the power and authority to own all of its properties and assets and to
carry on its business as now being conducted. GMSP is duly qualified and in good
standing (to the extent applicable) to transact business in each jurisdiction in
which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GMSP Material Adverse Effect.
(b) GMSP has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this
INVESTMENT MANAGEMENT AGREEMENT 9
<PAGE> 98
Agreement by GMSP other than as described in the Securities Purchase Agreement
or with the GNA Applicable Insurance Department.
(d) The execution, delivery and performance of this Agreement by GMSP
do not and will not result in any violation by GMSP under any provisions of:
(i) the partnership agreement or similar governing documents of
GMSP;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GMSP is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of GMSP,
threatened against GMSP that questions the validity of this Agreement or any
action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will continue to be
(i) either exempt from registration or duly registered as an investment adviser
under the Investment Advisers Act of 1940 and all Applicable Laws and (ii)
qualified and eligible to manage the Portfolio under the statutes and
regulations administered by the GNA Applicable Insurance Department, provided
that GNA shall inform GMSP immediately in the event that GNA becomes aware of
any changes in the qualification and eligibility requirements with respect to
such statutes and regulations. GMSP will provide prompt written notice to GNA if
GMSP ceases to be so registered or qualified or becomes aware of any fact, event
or circumstance which will or is reasonably likely to cause it to cease to be so
registered or qualified.
(g) Taken in the aggregate, the factual information (including, without
limitation, information regarding its knowledge, investment experience and
investment track record) furnished by GMSP to GNA subsequent to May 11, 1999 in
writing for purposes of this Agreement did not contain untrue statements of
material facts, or omit to state material facts necessary to make the statements
made not misleading in the light of the circumstances under which they were
made, as of the date as of which such information is dated. All financial
forecasts prepared and furnished by GMSP to GNA subsequent to May 11, 1999 were
prepared in good faith on the basis of assumptions believed to be reasonable and
data, information, tests or conditions believed to be valid or accurate or to
exist at the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned or used
by GMSP or used and operated by third parties on behalf of GMSP, which performs
or is or may be required to perform functions involving dates or the computation
of dates, or containing date related data, has the programming, design and
performance capabilities to ensure that:
INVESTMENT MANAGEMENT AGREEMENT 10
<PAGE> 99
(i) it will not suffer any Malfunction that would reasonably be
expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at the end of the
twentieth century or the input, processing, storage or use of dates up to and
including December 31, 2001, (A) be adversely affected, (B) require changes in
inputting or operating practices, (C) produce invalid or incorrect output or
results, (D) cause any abnormal ending scenario, or (E) suffer any diminution in
functionality or performance that, in any of the above, could reasonably be
expected to have a GMSP Material Adverse Effect.
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is an insurance company duly organized and validly existing
under the laws of the State of [Texas] [Oklahoma], and has the power and
authority to own all of its properties and assets and to carry on its business
as now being conducted. GNA is duly qualified and in good standing to transact
business in each jurisdiction in which the performance of its obligations
hereunder require such qualification except where the failure to be duly
qualified or in good standing would not have or reasonably be expected to have a
GNA Material Adverse Effect.
(b) GNA has all requisite power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action on the part of
GNA. This Agreement has been duly and validly executed and delivered by GNA and,
assuming the due authorization, execution and delivery hereof by GMSP,
constitutes the valid and binding obligation of GNA, enforceable against GNA in
accordance with its terms, except as would be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GNA do
not and will not result in any violation by GNA under any provisions of:
(i) articles of incorporation or similar governing documents of
GNA;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GNA is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
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<PAGE> 100
(e) There is no Proceeding pending, or to the knowledge of GNA,
threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of entering into
this Agreement.
(g) No part of the funds to be used to purchase and hold Securities or
to pay any amounts pursuant to this Agreement constitutes an asset of any
employee benefit plan within the meaning of Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and GNA is not a "benefit
plan investor" (as such term is defined in 29 C.F.R. Section 2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of the GMSP Group shall be liable for
any loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and the GMSP
Principals from and against any and all claims, actions, causes of action,
demands, losses, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred by any of them, directly or indirectly,
by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and its
Affiliates, Associates, directors, officers and employees from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
of them, directly or indirectly, by reason of or resulting from any Breach by
GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply
INVESTMENT MANAGEMENT AGREEMENT 12
<PAGE> 101
to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under Section 10(a)
or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such Section, give written notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability that it may have to any indemnified party except
to the extent the indemnifying party demonstrates that the defense of such
action is prejudiced thereby. In case any such action shall be brought against
an indemnified party and it shall give written notice to the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. If the
indemnifying party elects to assume the defense of such action, the indemnified
party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof. If the indemnifying party elects not to
assume (or fails to assume) the defense of such action, the indemnified party
shall be entitled to assume the defense of such action with counsel of its own
choice, at the expense of the indemnifying party. If the action is asserted
against both the indemnifying party and the indemnified party and there is a
conflict of interests which renders it inappropriate for the same counsel to
represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder shall be
deemed to have been given if (i) delivered personally or by documented courier
or delivery service, (ii) transmitted by facsimile or (iii) mailed by registered
or certified mail (return receipt requested and postage prepaid) to the
following
INVESTMENT MANAGEMENT AGREEMENT 13
<PAGE> 102
listed Persons at the addresses and facsimile numbers specified below, or to
such other Persons, addresses or facsimile numbers as a party entitled to notice
shall give, in the manner hereinabove described, to the others entitled to
notice:
If to GMSP, to: 777 Main Street, Suite 2250
Fort Worth, Texas 76102
Attention: J. Randall Chappel
Fax: (817) 820-6651
If to GNA, to:
----------------------------------------
----------------------------------------
Attention: President
Fax:
-----------------------------------
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
INVESTMENT MANAGEMENT AGREEMENT 14
<PAGE> 103
19. TIME OF ESSENCE. With regard to all dates and time periods set forth in
this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
<PAGE> 104
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be executed
all as of the day and year first above written.
-------------------------------------------------------
By:
---------------------------------------------------
GOFF MOORE STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its general partner
By: GMSP, L.L.C., its general partner
By:
----------------------------------------------
John C. Goff, Managing Principal
By:
----------------------------------------------
J. Randall Chappel, Principal
INVESTMENT MANAGEMENT AGREEMENT 16
<PAGE> 105
EXHIBIT C
STATEMENT OF RESOLUTION
ESTABLISHING AND DESIGNATING A SERIES OF SHARES
OF
GAINSCO, INC.
SERIES A CONVERTIBLE PREFERRED STOCK, PAR VALUE $100.00 PER SHARE
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, and pursuant to Article 4 of its Articles of Incorporation, as
amended, the undersigned, GAINSCO, INC. (the "Company"), hereby submits the
following statement for the purposes of establishing and designating a series of
shares and fixing and determining the relative rights and preferences thereof:
I. The name of the Company is GAINSCO, INC.
II. The following resolution establishing and designating a series of
shares and fixing and determining the relative rights and preferences thereof
was duly adopted by the Board of Directors of the Company on , 1999:
RESOLVED, by the Board of Directors (the "Board") of GAINSCO, INC., a Texas
corporation (the "Company"), that pursuant to authority expressly granted to and
vested in the Board by the provisions of the Articles of Incorporation of the
Company (the "Articles of Incorporation"), the Board hereby creates a first
series or the class of authorized Preferred Stock, par value $100.00 per share
(the "Preferred Stock"), of the Company, and authorizes the issuance thereof,
and hereby fixes the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof, as follows:
SECTION 1. Designation of Series. The shares of such series shall be
designated "Series A Convertible Preferred Stock" (hereinafter called "Series A
Preferred Stock")
SECTION 2. Number of Shares. The number of shares of Series A Preferred
Stock shall be 31,620, which number the Board may decrease (but not below the
number of shares of the series then outstanding).
SECTION 3. Dividends. Should the Company declare, pay or set apart for
payment any dividend or other distribution on or in respect of its common stock
("Common Stock"), including a dividend or other distribution payable in Common
Stock or other securities of the Company, or warrants or rights to purchase
Common Stock or other securities of the Company, the same dividend or
distribution concurrently shall be declared and paid with respect to each share
of Series A
<PAGE> 106
Preferred Stock outstanding as if such share of Series A Preferred Stock had
been converted into Common Stock pursuant to the terms of Section 6 hereof.
SECTION 4. No Sinking Fund. The Series A Preferred Stock shall not be
entitled to the benefits of any retirement or sinking fund.
SECTION 5. Liquidation. The holders of the Series A Preferred Stock shall,
in case of voluntary or involuntary liquidation dissolution or winding up of the
affairs of the Company, be entitled to receive in full out of the assets of the
Company, including its capital, before any amount shall be paid or distributed
among the holders of Common Stock, the amount of $1,000.00 per share, plus an
amount in cash equal to any dividends or other distributions declared and not
yet paid thereon pursuant to Section 3 (the "Liquidation Value"). After payment
to the holders of the Series A Preferred Stock of the amount set forth in the
preceding sentence, the remaining assets of the Company shall be distributed to
the holders of the Company's stock in accordance with the Articles of
Incorporation and applicable law. If upon any liquidation, dissolution or
winding up of the Company, the amounts payable with respect to the Series A
Preferred Stock and any other stock ranking as to any such distribution on a
parity with the Series A Preferred Stock are not paid in full, the holders of
the Series A Preferred Stock and of such other stock will share ratably in any
such distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation, merger or other business combination of the
Company with or into one or more corporations or other entities shall be deemed
to be a liquidation, dissolution or winding-up, voluntary or involuntary, of the
Company.
SECTION 6. Conversion Rights. The holders of shares of Series A Preferred
Stock shall have the right, at their option, to convert all or any part of such
shares into Common Stock at any time on and subject to the following terms and
conditions:
(a) Conversion Price. The number of shares of Common Stock issued upon
conversion of each share of the Series A Preferred Stock shall be equal to
$1,000.00 divided by the Conversion Price (as hereinafter defined) then in
effect. The price at which Common Stock shall be delivered upon conversion
(herein called the "Conversion Price") initially shall be $5.10; provided
however, that such Conversion Price shall be subject to adjustments from time to
time as hereinafter provided.
(b) Procedure. Each holder of Series A Preferred Stock may exercise such
conversion privilege by delivering to the Company the certificate for the shares
of Series A Preferred Stock to be converted into Common Stock and written notice
that the holder elects to convert such shares. Conversion shall be deemed to
have been effected immediately prior to the close of business on the date when
such delivery is made. On the conversion date or as promptly thereafter as
practicable, the Company shall deliver to the holder of the Series A Preferred
Stock surrendered for conversion, or as otherwise directed by such holder in
writing, a certificate for the number of shares of Common Stock deliverable upon
the conversion of such Series A Preferred Stock. No adjustment shall be
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<PAGE> 107
made for any dividends on shares of Series A Preferred Stock surrendered for
conversion or for dividends on the Common Stock delivered on conversion. No
fractional shares of Common Stock will be issued upon conversion; any fractional
interest which would result from conversion shall be rounded up or down to the
nearest whole share and there shall be no cash due by or to the Company in
respect of such fractional interest.
(c) Adjustments to Conversion Price. The Conversion Price in effect at any
time shall be subject to adjustment as follows:
(i) Adjustment for Change in Capital Stock. If the Company:
(A) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(B) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(C) issues by reclassification of its Common Stock any
shares of its capital stock;
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of shares of Series A
Preferred Stock thereafter converted may receive the number of shares of capital
stock of the Company which he would have owned immediately following such action
if the holder had converted the Series A Preferred Stock immediately prior to
such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If, after an adjustment, a holder of shares of Series A Preferred Stock
upon conversion of such shares may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Conversion Price between the classes of capital stock. After such
allocation the conversion privilege and the Conversion Price of each class of
capital stock thereafter shall be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(ii) When Adjustment May Be Deferred. No adjustment in the Conversion Price
need be made unless the adjustment would require an increase or decrease of at
least one percent (1%) in the Conversion Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Section shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
3
<PAGE> 108
(iii) When No Adjustment Required. No adjustment need be made for a change
in the par value or no par value of the Common Stock. To the extent the shares
of Series A Preferred Stock become convertible into cash, no adjustment need be
made thereafter as to the cash. Interest will not accrue on the cash.
(iv) Notice of Adjustment. Whenever the Conversion Price is adjusted, the
Company shall promptly mail to all holders of shares of Series A Preferred Stock
a notice and description of the adjustment.
(v) Notice of Certain Transactions. If there is a liquidation or
dissolution of the Company, the Company shall mail to all holders of the Series
A Preferred Stock a notice thereof stating the proposed record date for the
dividend or distribution or the proposed effective date of the subdivision,
combination or reclassification. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(vi) Fundamental Change Transaction. In case at any time after the issuance
of the Series A Preferred Stock, the Company shall be a party to any transaction
(including without limitation, a merger, consolidation, statutory share
exchange, sale of all or substantially all of the Company's assets or
capitalization of the Common Stock), in each case as a result of which shares of
Common Stock (or any other securities of the Company then issuable upon
conversion of the Series A Preferred Stock) shall be converted to the right to
receive stock, securities or other property (including cash or any combination
thereof) (each of the foregoing transactions being referred to as a "Fundamental
Change Transaction"), then the shares of Series A Preferred Stock remaining
outstanding will thereafter no longer be subject to conversion into Common Stock
(or such other securities) pursuant to this Section 6, but instead each share
shall be convertible into the kind and amount of stock and other securities and
property receivable (including cash) upon the consummation of such Fundamental
Change Transaction by a holder of that number of shares or fraction thereof of
Common Stock (or such other securities) into which one share of Series A
Preferred Stock was convertible immediately prior to such Fundamental Change
Transaction assuming such holder of Common Stock failed to exercise any right of
election as to the kind of consideration to be received in such Fundamental
Change Transaction. The Company shall not be a party to any Fundamental Change
Transaction after which shares of the Series A Preferred Stock shall remain
outstanding unless the terms of such Fundamental Change Transaction are
consistent with the provisions of this Section 6(c), and it shall not consent or
agree to the occurrence of any such Fundamental Change Transaction until the
Company has entered into an agreement with the successor or purchasing entity,
as the case may be, for the benefit of the holders of the shares of Series A
Preferred Stock which will contain provisions enabling the holders of shares of
the Series A Preferred Stock which remain outstanding after such Fundamental
Change Transaction to convert such shares into the consideration received by
holders of Common Stock (or any other securities of the Company then issuable
upon conversion of the Series A Preferred Stock) at a Conversion Price
immediately after such Fundamental Change Transaction. In the event that at any
time, as a result of an adjustment made pursuant to this Section 6, the Series A
Preferred Stock shall become subject
4
<PAGE> 109
to conversion into any securities other than shares of Common Stock, thereafter
the number of such other securities so issuable upon conversion of the shares of
Series A Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms nearly equivalent as practicable to the provisions with
respect to the shares of Series A Preferred Stock contained in this Section 6.
The provisions of this Section 6(c)(ix) shall similarly apply to successive
Fundamental Change Transactions.
(vii) Par Value. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the Common
Stock deliverable upon conversion of the Series A Preferred Stock, the Company
will take any corporate action which may, in the opinion of its counsel be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Common Stock at such adjusted Conversion Price.
(d) Reservation of Shares. The Company shall at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued Common Stock and issued Common Stock held in its treasury, solely
for the purpose of effecting the conversion of the shares of Series A Preferred
Stock, the full number of shares of Common Stock then issuable upon the
conversion of all outstanding shares of Series A Preferred Stock. For the
purpose of this paragraph (d), the full number of shares of Common Stock
issuable upon the conversion of all outstanding shares of Series A Preferred
Stock shall be computed as if at the time of computation of such number of
shares of Common Stock, all outstanding shares of Series A Preferred Stock were
held by a single holder. The Company shall, from time to time, in accordance
with the laws of the State of Texas, increase the authorized number of shares of
its Common Stock if at any time the aggregate of the authorized number of shares
of its Common Stock remaining unissued and its issued Common Stock held in its
treasury (other than any such shares reserved for issuance in any other
connection) shall not be sufficient to permit the conversion of all shares of
Series A Preferred Stock at the time outstanding.
(e) Taxes. The Company will pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of Common Stock on conversion of shares of Series A Preferred Stock pursuant
hereto. The Company shall not, however, be required to pay any such tax which
may be payable in respect of any transfer involved in the issue or transfer and
delivery of Common Stock in a name other than that in which the shares of Series
A Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax or has established to the satisfaction of the
Company that such tax has been paid.
(f) Issuance of Shares. The Company covenants and agrees that all shares of
Common Stock that may be issued upon exercise of the conversion rights of shares
of Series A Preferred Stock will, upon issuance, be fully-paid and
nonassessable.
(g) Listing. The Company will endeavor to make the shares of stock that may
be issued upon exercise of the conversion rights of shares of Series A Preferred
Stock eligible for trading upon
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<PAGE> 110
any national securities exchange, or any automated quotation system of a
registered securities association, upon and through which the Common Stock shall
then be traded prior to such delivery.
(h) Conversion at Company's Option. After June 30, 2005, the Company shall
have the right and option, at any time within five (5) business days after any
date on which the Current Market Price of the Common Stock is equal to or
greater than $7.65, to convert all outstanding shares of Series A Preferred
Stock into Common Stock at the Conversion Price in effect on the date the
Company determines to exercise such right by giving notice of such conversion to
the holders of the Series A Preferred Stock not later than five (5) days
following the date of such determination.
(i) Board Determination. Any determination that the Company or the Board
makes pursuant to this Section 6 is conclusive.
SECTION 7. Voting Rights.
(a) Generally. The holders of the Series A Preferred Stock shall be
entitled to vote on all matters for which holders of' the Common Stock may vote
and shall be entitled to one vote per share of Common Stock into which the
Series A Preferred Stock then held is convertible at the record date for the
determination of shareholders entitled to vote on such matter, or if no such
record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. For the purposes of this paragraph, the
Series A Preferred Stock and the Common Stock and any other stock having similar
voting rights shall vote as one class. The holders of shares of the Series A
Preferred Stock shall not be entitled to vote as a class on any matters except
as required by law.
(b) Amendments. So long as any shares of the Series A Preferred Stock are
outstanding, the Company shall not, without the affirmative vote of the holders
of shares representing at least two-thirds of the Series A Preferred Stock
outstanding on the record date for such meeting and present in person or by
proxy, adopt any amendment to its Articles of Incorporation if such amendment
would (i) increase the authorized number of shares of Series A Preferred Stock,
or (ii) change any of the rights or preferences of the then outstanding Series A
Preferred Stock.
SECTION 8. Action by Consent. Any action required or permitted to be taken
at any meeting of the holders of the Series A Preferred Stock may be taken
without such a meeting if a consent or consents in writing, setting forth the
actions so taken, is signed by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock.
SECTION 9. Preemptive Rights. The holders of the Series A Preferred Stock
will have no preemptive rights whatsoever except as may be set forth in a
separate written instrument executed by the Company and one or more holders of
the Series A Preferred Stock.
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<PAGE> 111
SECTION 10. Redemption Rights.
(a) Optional Redemption.
(i) The Series A Preferred Stock is not redeemable prior to June 30,
2005.
(ii) On and after June 30, 2005, the Series A Preferred Stock is
redeemable, in whole at any time or from time to time in part, at
the option of the Company at a redemption price equal to the
Liquidation Value.
(b) Effects. At the close of business on the business day immediately
preceding the date fixed for redemption, the rights of holders of shares of
Series A Preferred Stock to convert such shares into Common Stock of the Company
shall expire. Upon the redemption date, the holders of the shares of Series A
Preferred Stock called for redemption shall cease to be shareholders with
respect to such shares and shall have no interest in or claim against the
Company with respect to such shares except only the right to receive the
applicable Liquidation Value.
(c) Procedure. If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares to be so redeemed shall be chosen
pro rata or by lot; provided, however, that the Company may elect to redeem all
of the Series A Preferred Stock of any holder who after the redemption of part
of his Series A Preferred Stock would hold less than 100 shares of Series A
Preferred Stock. The Company may deposit the aggregate Liquidation Value for all
shares of Series A Preferred Stock called for redemption prior to the date fixed
for redemption in a trust with any commercial bank in Fort Worth or Dallas,
Texas having a capital and surplus of more than $100,000,000. If such deposit is
made, then from and after the date so fixed for redemption holders of Series A
Preferred Stock called for redemption shall cease to be shareholders in respect
of the shares so called for redemption, all dividends on the shares of Series A
Preferred Stock so called for redemption shall cease to accrue, such shares
shall no longer be transferrable on the books of the Company, and such holders
shall have no interest in or claim against the Company, and such holders shall
have no interest in or claim against the Company with respect to such shares
except the right to receive payment of the Liquidation Value upon surrender of
their certificates. The Board may cause the stock transfer books of the Company
to be closed as to the shares so called for redemption. If the holder of shares
of Series A Preferred Stock which have been called for redemption shall not,
within two years after the redemption date, claim the redemption funds, then
such funds will be paid over to the Company.
(d) Notice. Notice of the redemption of any shares of Series A Preferred
Stock shall be mailed by first-class mail to each holder of record of shares of
Series A Preferred Stock to be redeemed at the address of each such holder shown
on the Company's stock transfer books, not less than 60 days prior to the date
fixed for redemption (but no failure to mail such notice or any defect therein
or in the mailing thereof shall affect the validity of the proceedings for such
redemption except as to any holder to whom the Company has failed to mail such
notice and who has no knowledge of such redemption or except as to the holder
whose notice was defective and who had
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<PAGE> 112
no knowledge of such redemption). If less than all the shares owned by a holder
are to be redeemed, the notice shall specify the number of shares and the
certificate numbers thereof which are to be redeemed. Upon mailing any such
notice of redemption, the Company shall become obligated to redeem at the time
of redemption specified therein all shares called for redemption. In case less
than all the shares represented by any certificate are redeemed pursuant to this
Section, a new certificate to the Company or any person designated by the Board
to serve as its agent for such purpose, be issued to the holder thereof
representing the unredeemed shares without cost to such holder.
(e) Restoration. Upon redemption of shares of Series A Preferred Stock ,
the shares so redeemed shall have the status of authorized but unissued shares
of Preferred Stock but shall not be reissued as shares of Series A Preferred
Stock.
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<PAGE> 113
IN WITNESS WHEREOF, this Statement of Resolution is executed on behalf of
the Company by its President and attested by its Secretary this _______day of
_____________, 1999.
GAINSCO, INC.
By:
-----------------------------
President
9
<PAGE> 114
EXHIBIT D
(FORM OF SERIES A WARRANT)
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS
AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE RIGHT TO SELL OR OTHERWISE TRANSFER THIS WARRANT IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT DATED JUNE 29, 1999,
BETWEEN THE COMPANY AND THE INITIAL BUYER OF THE WARRANT, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. THIS WARRANT
MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT AND IN THIS WARRANT, AND NO SALE OR TRANSFER
OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS
SHALL HAVE BEEN COMPLIED WITH.
-----------------------------------------------
GAINSCO, INC.
(Incorporated under the laws of the State of Texas)
Void after 5:00 p.m., Fort Worth, Texas time,
on _______________, 2004
No. A-1 Right to Purchase
1,550,000 Shares
SERIES A COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Goff Moore Strategic Partners,
L.P., a Texas limited partnership (the "Holder"), or registered assigns, is
entitled to purchase from GAINSCO, INC., a Texas corporation (the "Company"), at
any time or from time to time during the period specified in Paragraph 2 hereof,
one million five hundred fifty thousand (1,550,000) fully paid and nonassessable
shares of the Company's Common Stock, par value $0.10 per share (the "Common
Stock"), at an exercise price per share of $6.375 (the "Exercise Price"). The
term "Warrant Shares", as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof.
SERIES A WARRANT - PAGE 1
<PAGE> 115
This Warrant is one of two Warrants (the "Warrants") issued pursuant
to, and is subject to all terms, provisions, and conditions contained in, that
certain Securities Purchase Agreement dated June 29, 1999 (the "Purchase
Agreement"), by and between the Company and the Holder. This Warrant is subject
to the following additional terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Fort Worth, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), during the Exercise Period (as
defined in Paragraph 2), and upon payment to the Company of the Exercise Price
for the Warrant Shares specified in said Exercise Agreement, which such payment
shall be made (i) in cash or by certified or official bank check, or (ii) by
surrender of shares of Common Stock owned by the holder hereof (the "Payment
Shares"), the aggregate Current Market Price of which shall be credited against
the Exercise Price; provided, however, that in lieu of actually tendering the
Payment Shares, the holder hereof may make a constructive exchange by
relinquishing a number of Warrant Shares ("Constructive Exchange") represented
by the then exercisable portion of this Warrant. The holder hereof shall notify
the Company in writing of any election to pay all or a portion of the Exercise
Price using a Constructive Exchange. Such notice shall specify the number of
Payment Shares to be used in the Constructive Exchange. Upon receipt of such
notice and the required information referred to herein, the Company shall
confirm ownership of the Payment Shares by reference to Company records. Upon
such confirmation, the Company shall treat the Payment Shares as being
constructively exchanged, and accordingly, the Company shall issue to the holder
hereof a net number of shares of Common Stock equal to (i) the number of shares
subject to the exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The holder hereof may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein. The Company shall not be
required to issue fractional Warrant Shares upon any exercise of the Warrant,
but instead shall pay to the holder of this Warrant the cash value of any such
fractional Warrant Shares. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or its designee as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in said Exercise
Agreement, shall be delivered to the holder hereof within a reasonable time, not
exceeding ten business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be
reasonably requested by the holder hereof, shall, unless the Warrant Shares
evidenced by such certificate have previously been registered under the
Securities Act of 1933, as amended (the "Securities Act") be imprinted with a
restrictive legend substantially similar to the legend appearing on the face of
this Warrant, and shall be registered in the name of said holder or such other
name as shall be designated by said holder. If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of said certificates, deliver to
said holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised, which Warrant shall be
imprinted on its face with the same legend appearing on the face of this
Warrant. The Company shall pay all taxes and other expenses and charges payable
in connection with the preparation, execution, and delivery of stock
certificates (and any new Warrants) pursuant to this Paragraph 1 except that, in
case such stock certificates shall be registered in a name or names other than
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable in connection with the execution and delivery of such
stock certificates shall
SERIES A WARRANT - PAGE 2
<PAGE> 116
be paid by the holder hereof to the Company at the time of the delivery of such
stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time during the period commencing on _______________, 1999 and ending at
5:00 p.m. Fort Worth, Texas time, on ________________, 2004 (the "Exercise
Period").
3. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares
of Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect;
(ii) before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the shares of
Common Stock so receivable, the Company will take all such corporate
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common
Stock at such adjusted Exercise Price upon the exercise of this
Warrant; and
(iii) the Company will not take any action which results in
any adjustment of the Exercise Price if the total number of shares of
Common Stock issuable after the action upon the exercise of this
Warrant would exceed the total number of shares of Common Stock then
authorized by the Company's charter and available for issuance upon
such exercise.
4. ADJUSTMENTS TO EXERCISE PRICE. The Exercise Price in effect at any
time shall be subject to adjustment as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
SERIES A WARRANT - PAGE 3
<PAGE> 117
(v) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the holder of this Warrant may receive the number of shares of
capital stock of the Company upon the exercise hereof which the holder would
have owned immediately following such action if the holder had executed the
Warrant immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If, after an adjustment, the holder of this Warrant upon exercise
hereof may receive shares of two or more classes of capital stock of the
Company, the Company shall determine the allocation of the adjusted Exercise
Price between the classes of capital stock. After such allocation the Exercise
Price of each class of capital stock thereafter shall be subject to adjustment
on terms comparable to those applicable to Common Stock in this Paragraph.
(b) ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes any rights
or warrants to all holders of its Common Stock entitling them for a period
expiring within 90 days after the record date for the determination of
shareholders entitled to receive the rights or warrants to purchase shares of
Common Stock at a price per share less than the Current Market Price per share
on that record date, the Exercise Price shall be adjusted in accordance with the
following formula:
N x P
-------
C x O + M
-------
C' = O + N
where:
C'= the adjusted Exercise Price.
C = the current Exercise Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of Common
Stock offered.
P = the offering price per share of the
additional shares.
M = the Current Market Price per share of Common
Stock on the record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights are
exercisable not all warrants or rights shall have been exercised, the Exercise
Price shall be immediately readjusted to what it would have been if "N" in the
above formula had been the number of shares actually issued.
SERIES A WARRANT - PAGE 4
<PAGE> 118
This subsection does not apply to any rights or other securities issued
under or in respect of any rights plan or poison pill adopted by the Company.
(c) ADJUSTMENT FOR OTHER DISTRIBUTIONS. In case the Company at any time
after the date hereof during the course of a calendar year shall declare, order,
pay or make any dividend(s) or other distribution(s) payable in cash to all
holders of the Common Stock exceeding (in the aggregate) $.14 per share of
outstanding Common Stock (proportionately adjusted to reflect any stock
dividends, splits or combinations), the Exercise Price shall be adjusted in
accordance with the formula:
C = C - D
where:
C = the adjusted Exercise Price.
C = the current Exercise Price.
D = the amount by which the cash dividend(s) or distribution(s)
for the given calendar year exceeds (in the aggregate) $.14
per share of outstanding Common Stock (proportionately
adjusted to reflect any stock dividends, splits or
combinations)
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
(d) CURRENT MARKET PRICE. In Paragraphs 4(b) and 4(c), the "Current
Market Price" per share of Common Stock on any date is the average of Quoted
Prices of the Common Stock during the two trading weeks before the date in
question. In the absence of one or more such quotations the Company shall
determine the current market price on the basis of such quotations as it
considers appropriate. As used herein, the "Quoted Price" of the Common Stock is
the last reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices regular
way for such day, in each case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading, the last sale price regular way for the Common
Stock as published by NASDAQ or if such last price is not so published by NASDAQ
or if no such sale takes place on such day, the mean between the closing bid and
asked prices for the Common Stock as published by NASDAQ or in the absence of
any of the foregoing, the fair market value as determined by the Board of
Directors.
(e) WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in the Exercise
Price need be made unless the adjustment would require an increase or decrease
of at least one percent (1%) in the Exercise Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Paragraph shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for rights
to purchase Common Stock pursuant to a Company plan for reinvestment of
dividends. No adjustment need be made
SERIES A WARRANT - PAGE 5
<PAGE> 119
for a change in the par value or no par value of the Common Stock. To the extent
the Warrant becomes exercisable for cash, no adjustment need be made thereafter
as to the cash. Interest will not accrue on the cash.
(g) NOTICE OF ADJUSTMENT. Whenever the Exercise Price is adjusted, the
Company shall promptly mail to the holder of this Warrant a notice and
description of the adjustment.
(h) NOTICE OF CERTAIN TRANSACTIONS. If there is a liquidation or
dissolution of the Company, or in the event of any Fundamental Change
Transaction (as defined in paragraph 4(i) below), or in the event of the
declaration of any dividend or distribution, the Company shall mail to the
holder of this Warrant a notice thereof stating the proposed effective date of
such event. The Company shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the validity of
the transaction.
(i) FUNDAMENTAL CHANGE TRANSACTION. In case at any time after the date
hereof a purchase, tender, or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock, or the Company is otherwise a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the Company's assets, liquidation, or recapitalization of the Common Stock)
which is to be effected in such a way that as a result of such transaction or
offer (x) the holders of Common Stock (or any other securities of the Company
then issuable upon the exercise of this Warrant) shall be entitled to receive
stock or other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), or (y) the Common Stock
ceases to be a publicly traded security either listed on the New York Stock
Exchange, the NASDAQ National Market System or the American Stock Exchange or
any successor thereto or comparable system (each such transaction being herein
called a "Fundamental Change Transaction"), then, as a condition of such
Fundamental Change Transaction, lawful and adequate provision shall be made
whereby the holder of this Warrant shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other securities)
purchasable immediately before such transaction upon the exercise hereof, such
stock or other securities or property (including cash) as may be issuable or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock (or such other securities) purchasable immediately before such
transaction upon the exercise hereof, had such Fundamental Change Transaction
not taken place. In any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
Fundamental Change Transaction any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price). In
the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Common Stock in respect of the number of shares of Common Stock outstanding
immediately prior to such consolidation or merger, then the Exercise Price in
effect immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Common Stock. The Company shall not effect any such
Fundamental Change Transaction unless prior to or simultaneously with the
consummation thereof the
SERIES A WARRANT - PAGE 6
<PAGE> 120
successor corporation or entity (if other than the Company) resulting from such
consolidation or merger or the corporation or entity purchasing such assets and
any other corporation or entity the shares of stock or other securities or
property of which are receivable thereupon by the holder of this Warrant shall
expressly assume, by written instrument executed and delivered (and satisfactory
in form) to the holder of this Warrant, (i) the obligation to deliver to such
holder such stock or other securities or property as, in accordance with the
foregoing provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(j) PAR VALUE. Before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value (if any) of the Common
Stock deliverable upon exercise of this Warrant, the Company will take any
corporate action which may, in the opinion of its counsel be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock at such adjusted Exercise Price.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board, the other provisions of this Paragraph 4 are not strictly
applicable or if strictly applicable would not fairly protect the exercise
rights of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board shall make such adjustment, if
any, on a basis consistent with such essential intent and principles, necessary
to preserve, without dilution, the rights of the holder of this Warrant;
provided, that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this Paragraph 4.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any warrant or
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
SERIES A WARRANT - PAGE 7
<PAGE> 121
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT; REGISTRATION RIGHTS.
(a) WARRANT TRANSFERABLE. This Warrant may not be transferred or
assigned except in accordance with the provisions of the Purchase Agreement. The
transfer of this Warrant and all rights hereunder, in whole or in part, is
registrable at the office or agency of the Company referred to in Paragraph 7(e)
hereof by the holder hereof in person or by his duly authorized attorney, upon
surrender of this Warrant properly endorsed. Upon any transfer of this Warrant
to any person, other than a person who is at that time a holder of other
Warrants, the Company shall have the right to require the holder and the
transferee to make customary representations to the extent reasonably necessary
to assure that the transfer will comply with the Securities Act and any
applicable state securities laws. Each holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner and holder hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant and to the registration of transfer hereof on the books of the Company;
but until due presentment for registration of transfer on such books the Company
may treat the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to be imprinted with the same legend appearing on the face of this
Warrant and to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender. For purposes
hereof, the term "Warrant" shall be deemed to include any and all such
replacement Warrants, whether issued pursuant to this subparagraph (b) or any
other Paragraph hereof.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly cancelled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal office in
Fort Worth, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
SERIES A WARRANT - PAGE 8
<PAGE> 122
(f) REGISTRATION RIGHTS. The issuance of any Warrant Shares required to
be reserved for purposes of exercise of this Warrant and the public distribution
of such Warrant Shares are entitled to the benefits of the registration rights
set forth in the Purchase Agreement.
8. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the address
shown for such holder on the books of the Company, or at such other address as
shall have been furnished to the Company by notice from such holder. All
notices, requests, and other communications required or permitted to be given or
delivered hereunder to the Company shall be in writing, and shall be personally
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, to the office of the Company at 500 Commerce Street, Fort Worth,
Texas, 76102-5439, Attention: Chief Executive Officer, or at such other address
as shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
telegram or telex, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail as provided above.
All notices, requests, and other communications shall be deemed to have been
given either at the time of the delivery thereof to (or the receipt by, in the
case of a telegram or telex) the person entitled to receive such notice at the
address of such person for purposes of this Paragraph 8, or, if mailed, at the
completion of the third full day following the time of such mailing thereof to
such address, as the case may be.
9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF TEXAS, WITHOUT REGARD TO ANY CHOICE OF
LAW PRINCIPLES OF SUCH STATE.
10. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific enforcement of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall, to the extent provided
in Section 4(e), be binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the Company's assets.
SERIES A WARRANT - PAGE 9
<PAGE> 123
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this _____ day of __________, 1999.
GAINSCO, INC.
By:
----------------------------------
Name:
-------------------------
SERIES A WARRANT - PAGE 10
<PAGE> 124
FORM OF EXERCISE AGREEMENT
Dated: _____________, _______
To:
Attention:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase ______ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant (in cash or by certified or official bank check in the
amount of $____________) held by the undersigned and any applicable taxes
payable by undersigned. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the name on
the face of the attached Warrant or with the name of the
assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
SERIES A WARRANT - PAGE 11
<PAGE> 125
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights represented by and under the attached Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints _______________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _______________, _______
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
SERIES A WARRANT - PAGE 12
<PAGE> 126
EXHIBIT E
(Form of Series B Warrant)
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS
AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THE RIGHT TO SELL OR OTHERWISE TRANSFER THIS WARRANT IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT DATED JUNE 29, 1999,
BETWEEN THE COMPANY AND THE INITIAL BUYER OF THE WARRANT, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. THIS WARRANT MAY
NOT BE SOLD OR TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT AND IN THIS WARRANT, AND NO SALE OR TRANSFER OF
THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL
HAVE BEEN COMPLIED WITH.
-----------------------------------------------
GAINSCO, INC.
(Incorporated under the laws of the State of Texas)
Void after 5:00 p.m., Fort Worth, Texas time,
on , 2006
---------------
No. B-1 Right to Purchase
1,550,000 Shares
SERIES B COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Goff Moore Strategic Partners,
L.P., a Texas limited partnership (the "Holder"), or registered assigns, is
entitled to purchase from GAINSCO, INC., a Texas corporation (the "Company"), at
any time or from time to time during the period specified in Paragraph 2 hereof,
one million five hundred fifty thousand (1,550,000) fully paid and nonassessable
shares of the Company's Common Stock, par value $0.10 per share (the "Common
Stock"), at an exercise price per share of $8.50 (the "Exercise Price"). The
term "Warrant Shares", as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof.
SERIES B WARRANT - PAGE 1
<PAGE> 127
This Warrant is one of two Warrants (the "Warrants") issued pursuant
to, and is subject to all terms, provisions, and conditions contained in, that
certain Securities Purchase Agreement dated June 29, 1999 (the "Purchase
Agreement"), by and between the Company and the Holder. This Warrant is subject
to the following additional terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Fort Worth, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), during the Exercise Period (as
defined in Paragraph 2), and upon payment to the Company of the Exercise Price
for the Warrant Shares specified in said Exercise Agreement, which such payment
shall be made (i) in cash or by certified or official bank check, or (ii) by
surrender of shares of Common Stock owned by the holder hereof (the "Payment
Shares"), the aggregate Current Market Price of which shall be credited against
the Exercise Price; provided, however, that in lieu of actually tendering the
Payment Shares, the holder hereof may make a constructive exchange by
relinquishing a number of Warrant Shares ("Constructive Exchange") represented
by the then exercisable portion of this Warrant. The holder hereof shall notify
the Company in writing of any election to pay all or a portion of the Exercise
Price using a Constructive Exchange. Such notice shall specify the number of
Payment Shares to be used in the Constructive Exchange. Upon receipt of such
notice and the required information referred to herein, the Company shall
confirm ownership of the Payment Shares by reference to Company records. Upon
such confirmation, the Company shall treat the Payment Shares as being
constructively exchanged, and accordingly, the Company shall issue to the holder
hereof a net number of shares of Common Stock equal to (i) the number of shares
subject to the exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The holder hereof may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein. The Company shall not be
required to issue fractional Warrant Shares upon any exercise of the Warrant,
but instead shall pay to the holder of this Warrant the cash value of any such
fractional Warrant Shares. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or its designee as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in said Exercise
Agreement, shall be delivered to the holder hereof within a reasonable time, not
exceeding ten business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be
reasonably requested by the holder hereof, shall, unless the Warrant Shares
evidenced by such certificate have previously been registered under the
Securities Act of 1933, as amended (the "Securities Act") be imprinted with a
restrictive legend substantially similar to the legend appearing on the face of
this Warrant, and shall be registered in the name of said holder or such other
name as shall be designated by said holder. If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of said certificates, deliver to
said holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised, which Warrant shall be
imprinted on its face with the same legend appearing on the face of this
Warrant. The Company shall pay all taxes and other expenses and charges payable
in connection with the preparation, execution, and delivery of stock
certificates (and any new Warrants) pursuant to this Paragraph 1 except that, in
case such stock certificates shall be registered in a name or names other than
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable in connection with the execution and delivery of such
stock certificates shall
SERIES B WARRANT - PAGE 2
<PAGE> 128
be paid by the holder hereof to the Company at the time of the delivery of such
stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time during the period commencing on _______________, 1999 and ending at
5:00 p.m. Fort Worth, Texas time, on ________________, 2006 (the "Exercise
Period").
3. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares of
Common Stock receivable upon the exercise of this Warrant above the
Exercise Price then in effect;
(ii) before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the shares of
Common Stock so receivable, the Company will take all such corporate
action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Exercise Price upon the exercise of this
Warrant; and
(iii) the Company will not take any action which results in any
adjustment of the Exercise Price if the total number of shares of
Common Stock issuable after the action upon the exercise of this
Warrant would exceed the total number of shares of Common Stock then
authorized by the Company's charter and available for issuance upon
such exercise.
4. ADJUSTMENTS TO EXERCISE PRICE. The Exercise Price in effect at any
time shall be subject to adjustment as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
SERIES B WARRANT - PAGE 3
<PAGE> 129
(v) issues by reclassification of its Common Stock any
shares of its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the holder of this Warrant may receive the number of shares of
capital stock of the Company upon the exercise hereof which the holder would
have owned immediately following such action if the holder had executed the
Warrant immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If, after an adjustment, the holder of this Warrant upon exercise
hereof may receive shares of two or more classes of capital stock of the
Company, the Company shall determine the allocation of the adjusted Exercise
Price between the classes of capital stock. After such allocation the Exercise
Price of each class of capital stock thereafter shall be subject to adjustment
on terms comparable to those applicable to Common Stock in this Paragraph.
(b) ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes any rights
or warrants to all holders of its Common Stock entitling them for a period
expiring within 90 days after the record date for the determination of
shareholders entitled to receive the rights or warrants to purchase shares of
Common Stock at a price per share less than the Current Market Price per share
on that record date, the Exercise Price shall be adjusted in accordance with the
following formula:
N x P
-------
C x O + M
---------
C' = O + N
where:
C' = the adjusted Exercise Price.
C = the current Exercise Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of Common
Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock on
the record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights are
exercisable not all warrants or rights shall have been exercised, the Exercise
Price shall be immediately readjusted to what it would have been if "N" in the
above formula had been the number of shares actually issued.
SERIES B WARRANT - PAGE 4
<PAGE> 130
This subsection does not apply to any rights or other securities issued
under or in respect of any rights plan or poison pill adopted by the Company.
(c) ADJUSTMENT FOR OTHER DISTRIBUTIONS. In case the Company at any time
after the date hereof during the course of a calendar year shall declare, order,
pay or make any dividend(s) or other distribution(s) payable in cash to all
holders of the Common Stock exceeding (in the aggregate) $.14 per share of
outstanding Common Stock (proportionately adjusted to reflect any stock
dividends, splits or combinations), the Exercise Price shall be adjusted in
accordance with the formula:
C' = C - D
where:
C' = the adjusted Exercise Price.
C = the current Exercise Price.
D = the amount by which the cash dividend(s) or distribution(s) for the
given calendar year exceeds (in the aggregate) $.14 per share of
outstanding Common Stock (proportionately adjusted to reflect any
stock dividends, splits or combinations)
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
(d) CURRENT MARKET PRICE. In Paragraphs 4(b) and 4(c), the "Current
Market Price" per share of Common Stock on any date is the average of Quoted
Prices of the Common Stock during the two trading weeks before the date in
question. In the absence of one or more such quotations the Company shall
determine the current market price on the basis of such quotations as it
considers appropriate. As used herein, the "Quoted Price" of the Common Stock is
the last reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices regular
way for such day, in each case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading, the last sale price regular way for the Common
Stock as published by NASDAQ or if such last price is not so published by NASDAQ
or if no such sale takes place on such day, the mean between the closing bid and
asked prices for the Common Stock as published by NASDAQ or in the absence of
any of the foregoing, the fair market value as determined by the Board of
Directors.
(e) WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in the Exercise
Price need be made unless the adjustment would require an increase or decrease
of at least one percent (1%) in the Exercise Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Paragraph shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for rights
to purchase Common Stock pursuant to a Company plan for reinvestment of
dividends. No adjustment need be made
SERIES B WARRANT - PAGE 5
<PAGE> 131
for a change in the par value or no par value of the Common Stock. To the extent
the Warrant becomes exercisable for cash, no adjustment need be made thereafter
as to the cash. Interest will not accrue on the cash.
(g) NOTICE OF ADJUSTMENT. Whenever the Exercise Price is adjusted, the
Company shall promptly mail to the holder of this Warrant a notice and
description of the adjustment.
(h) NOTICE OF CERTAIN TRANSACTIONS. If there is a liquidation or
dissolution of the Company, or in the event of any Fundamental Change
Transaction (as defined in paragraph 4(i) below), or in the event of the
declaration of any dividend or distribution, the Company shall mail to the
holder of this Warrant a notice thereof stating the proposed effective date of
such event. The Company shall mail the notice at least 15 days before such date.
Failure to mail the notice or any defect in it shall not affect the validity of
the transaction.
(i) FUNDAMENTAL CHANGE TRANSACTION. In case at any time after the date
hereof a purchase, tender, or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock, or the Company is otherwise a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the Company's assets, liquidation, or recapitalization of the Common Stock)
which is to be effected in such a way that as a result of such transaction or
offer (x) the holders of Common Stock (or any other securities of the Company
then issuable upon the exercise of this Warrant) shall be entitled to receive
stock or other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), or (y) the Common Stock
ceases to be a publicly traded security either listed on the New York Stock
Exchange, the NASDAQ National Market System or the American Stock Exchange or
any successor thereto or comparable system (each such transaction being herein
called a "Fundamental Change Transaction"), then, as a condition of such
Fundamental Change Transaction, lawful and adequate provision shall be made
whereby the holder of this Warrant shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other securities)
purchasable immediately before such transaction upon the exercise hereof, such
stock or other securities or property (including cash) as may be issuable or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock (or such other securities) purchasable immediately before such
transaction upon the exercise hereof, had such Fundamental Change Transaction
not taken place. In any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
Fundamental Change Transaction any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price). In
the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Common Stock in respect of the number of shares of Common Stock outstanding
immediately prior to such consolidation or merger, then the Exercise Price in
effect immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Common Stock. The Company shall not effect any such
Fundamental Change Transaction unless prior to or simultaneously with the
consummation thereof the
SERIES B WARRANT - PAGE 6
<PAGE> 132
successor corporation or entity (if other than the Company) resulting from such
consolidation or merger or the corporation or entity purchasing such assets and
any other corporation or entity the shares of stock or other securities or
property of which are receivable thereupon by the holder of this Warrant shall
expressly assume, by written instrument executed and delivered (and satisfactory
in form) to the holder of this Warrant, (i) the obligation to deliver to such
holder such stock or other securities or property as, in accordance with the
foregoing provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(j) PAR VALUE. Before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value (if any) of the Common
Stock deliverable upon exercise of this Warrant, the Company will take any
corporate action which may, in the opinion of its counsel be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock at such adjusted Exercise Price.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board, the other provisions of this Paragraph 4 are not strictly
applicable or if strictly applicable would not fairly protect the exercise
rights of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board shall make such adjustment, if
any, on a basis consistent with such essential intent and principles, necessary
to preserve, without dilution, the rights of the holder of this Warrant;
provided, that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this Paragraph 4.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any warrant or
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
SERIES B WARRANT - PAGE 7
<PAGE> 133
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT; REGISTRATION RIGHTS.
(a) WARRANT TRANSFERABLE. This Warrant may not be transferred or
assigned except in accordance with the provisions of the Purchase Agreement. The
transfer of this Warrant and all rights hereunder, in whole or in part, is
registrable at the office or agency of the Company referred to in Paragraph 7(e)
hereof by the holder hereof in person or by his duly authorized attorney, upon
surrender of this Warrant properly endorsed. Upon any transfer of this Warrant
to any person, other than a person who is at that time a holder of other
Warrants, the Company shall have the right to require the holder and the
transferee to make customary representations to the extent reasonably necessary
to assure that the transfer will comply with the Securities Act and any
applicable state securities laws. Each holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner and holder hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant and to the registration of transfer hereof on the books of the Company;
but until due presentment for registration of transfer on such books the Company
may treat the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to be imprinted with the same legend appearing on the face of this
Warrant and to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender. For purposes
hereof, the term "Warrant" shall be deemed to include any and all such
replacement Warrants, whether issued pursuant to this subparagraph (b) or any
other Paragraph hereof.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly cancelled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal office in
Fort Worth, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
SERIES B WARRANT - PAGE 8
<PAGE> 134
(f) REGISTRATION RIGHTS. The issuance of any Warrant Shares required to
be reserved for purposes of exercise of this Warrant and the public distribution
of such Warrant Shares are entitled to the benefits of the registration rights
set forth in the Purchase Agreement.
8. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the address
shown for such holder on the books of the Company, or at such other address as
shall have been furnished to the Company by notice from such holder. All
notices, requests, and other communications required or permitted to be given or
delivered hereunder to the Company shall be in writing, and shall be personally
delivered, or shall be sent by certified or registered mail, postage prepaid and
addressed, to the office of the Company at 500 Commerce Street, Fort Worth,
Texas, 76102-5439, Attention: Chief Executive Officer, or at such other address
as shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
telegram or telex, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail as provided above.
All notices, requests, and other communications shall be deemed to have been
given either at the time of the delivery thereof to (or the receipt by, in the
case of a telegram or telex) the person entitled to receive such notice at the
address of such person for purposes of this Paragraph 8, or, if mailed, at the
completion of the third full day following the time of such mailing thereof to
such address, as the case may be.
9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF TEXAS, WITHOUT REGARD TO ANY CHOICE OF
LAW PRINCIPLES OF SUCH STATE.
10. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific enforcement of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall, to the extent provided
in Section 4(e), be binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the Company's assets.
SERIES B WARRANT - PAGE 9
<PAGE> 135
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this _____ day of __________, 1999.
GAINSCO, INC.
By:
-------------------------------------------
Name:
------------------------------------
SERIES B WARRANT - PAGE 10
<PAGE> 136
FORM OF EXERCISE AGREEMENT
Dated: ,
------------- -------
To:
Attention:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase ______ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant (in cash or by certified or official bank check in the
amount of $____________) held by the undersigned and any applicable taxes
payable by undersigned. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the
name on the face of the attached Warrant or with the
name of the assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
SERIES B WARRANT - PAGE 11
<PAGE> 137
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights represented by and under the attached Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints _______________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ,
--------------- -------
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
SERIES B WARRANT - PAGE 12
<PAGE> 138
EXHIBIT F
OPINION OF JACKSON WALKER L.L.P.
___________, 1999
Goff Moore Strategic Partners, L.P.
777 Main Street, Suite 2250
Fort Worth, Texas 76102
Gentlemen:
This opinion is furnished to you pursuant to Section 8.3 of the
Securities Purchase Agreement, dated as of June ___, 1999 (the "Purchase
Agreement"), between GAINSCO, INC., a Texas corporation ("GNA"), and Goff Moore
Strategic Partners, L.P., a Texas limited partnership ("Buyer"). Capitalized
terms defined in the Purchase Agreement are used herein with the same meaning
unless otherwise defined herein.
DOCUMENTS EXAMINED
In our capacity as special counsel for GNA, we have examined the
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents:
(a) Purchase Agreement;
(b) the Statement of Resolution adopted by the Board of Directors
of GNA (the "Board") on __________ and filed with the
Secretary of State of Texas on _________ (the "Statement of
Resolution") to designate and establish the series of
Preferred Stock of GNA designated "Series A Convertible
Preferred Stock" (the "Series A Shares");
(c) Investment Management Agreement dated as of ____________
between Buyer and GNA;
(d) Investment Management Agreements between Buyer and each of GNA
and the GNA Insurance Subsidiaries;
(e) Series A Warrant dated___________between GNA and Buyer
entitling Buyer to purchase 1,550,000 shares of Common Stock
for $6.375 per share, as subject to adjustment as set forth
therein (the "Series A Warrant"); and
(f) Series B Warrant dated___________between GNA and Buyer
entitling Buyer to purchase 1,550,000 shares of Common Stock
for $8.50 per share, as subject to
<PAGE> 139
adjustment as set forth
therein (the "Series B Warrant") (the Series A Warrant and the
Series B Warrant collectively, the "Warrants").
As used herein, (x) "Ancillary Documents" means the documents
referenced in clauses (c) through (f) above; (y) "GNA Documents" means,
collectively, the Purchase Agreement and the Ancillary Documents to which GNA is
a party; and (z) "Material Adverse Effect" means a material adverse effect on
(A) the business, operations, affairs, financial condition, assets or properties
of GNA and its Subsidiaries taken as a whole, or (B) the validity of the
Purchase Agreement, the Series A Shares or any of the Ancillary Documents.
In addition, we have examined and relied upon (i) certificates
delivered pursuant to Sections 7.8, 8.5 and 8.12 of the Purchase Agreement and
(ii) such certificates of public officials and other certificates and
instruments as we have deemed relevant and necessary as a basis for our opinion
hereinafter set forth. As to matters of fact material to our opinion, we have,
when relevant facts were not independently established, relied upon certificates
of representatives of GNA and upon representations and warranties set forth in
the Purchase Agreement or the Ancillary Documents, and have not conducted any
special inquiry or investigation in respect of such matters.
ASSUMPTIONS
In rendering this opinion, we have assumed with your consent and
without any independent investigation, all of the following:
(i) the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted as certified, conformed or photostatic
copies;
(ii) the Purchase Agreement and the Ancillary Documents will be
performed strictly in accordance with the terms thereof;
(iii) the representations and warranties as to factual matters
contained in the Purchase Agreement and the Ancillary Documents are true and
correct;
(iv) Buyer is an "accredited investor" (as defined in Rule 501 under
the Securities Act);
(v) GNA has made no offer to sell the Securities by means of any
"general solicitation" or otherwise not in compliance with Rule 502(c) under the
Securities Act; and
(vi) no offer or sale of the Securities has been made in any state
other than the State of Texas.
OPINIONS
Based upon the foregoing and having due regard for the legal
considerations we deem relevant, and subject to the further qualifications and
limitations hereinafter set forth, we are of the opinion that:
2
<PAGE> 140
1. GNA is a corporation duly incorporated, validly existing and in good
standing under the Texas Business Corporation Act, as amended (the "TBCA"), and
has full corporate power and authority under the TBCA to enter into and perform
the GNA Documents.
2. The GNA Documents have been duly authorized by all necessary
corporate action on the part of GNA, executed and delivered by GNA, and
constitute valid and binding obligations of GNA enforceable by Buyer in
accordance with their respective terms.
3. The execution, delivery and performance by GNA of the GNA Documents
will not, to our knowledge, (i) conflict with or result in a violation of the
Articles of Incorporation or Bylaws of GNA, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any Governmental Authority applicable to GNA or any of its
Subsidiaries in any respect that would have a Material Adverse Effect, (iii)
violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to GNA or any of its Subsidiaries in any
respect that would have a Material Adverse Effect, or (iv) require GNA or any of
its Subsidiaries to obtain any consent, approval or authorization of, or to
effect registration, filing or declaration with, any Governmental Authority,
where the failure to do so would have a Material Adverse Effect.
4. The Series A Shares to be issued to Buyer have been duly authorized
for such issuance pursuant to the Purchase Agreement and the Ancillary Documents
and, when issued and delivered by GNA upon payment of the Purchase Price, will
be validly issued, fully paid and nonassessable; the shares of Common Stock
issuable upon conversion of the Series A Shares have been validly authorized and
reserved for issuance upon such conversion and, when issued upon conversion of
the Series A Shares in accordance with the terms thereof, will be validly
issued, fully paid and nonassessable; and neither the issuance of the Series A
Shares under the Purchase Agreement nor any issuance of shares of Common Stock
upon conversion of the Series A Shares is subject to any preemptive rights.
5. The Warrants to be issued to Buyer pursuant to the Purchase
Agreement have been duly authorized for such issuance pursuant to the Purchase
Agreement, and, when issued and delivered by GNA upon the payment of the
Purchase Price in accordance with the Purchase Agreement, will be validly
issued, fully paid and nonassessable and will constitute the legal, valid and
binding obligations of GNA, enforceable against GNA in accordance with their
respective terms; the shares of Common Stock issuable upon exercise of the
Warrants have been duly and validly reserved by GNA for issuance upon exercise
of the Warrants and, when paid for and delivered upon exercise of the Warrants
in accordance with the terms of the Warrants, will be validly issued, fully paid
and nonassessable, and will not have been issued in violation of or subject to
any preemptive rights.
6. The certificates representing the Series A Shares and the Warrants
delivered at the Closing pursuant to the Purchase Agreement are in due and
proper form.
7. The Statement of Resolution has been duly adopted by the Board, has
been duly filed with the Secretary of State of Texas so as to constitute a valid
amendment to the Restated Articles of Incorporation of GNA, and is in full force
and effect.
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<PAGE> 141
FURTHER QUALIFICATIONS AND LIMITATIONS
The opinions expressed above are expressly subject to the following
qualifications and limitations:
(a) The enforceability of the Purchase Agreement, the Statement of
Resolution and the Ancillary Documents may be limited by (i) applicable
bankruptcy, insolvency, reorganization, arrangement, fraudulent transfer or
conveyance, moratorium or other laws affecting creditors' rights, and (ii)
general equity principles and limitations on the availability of equitable
remedies, as such, in connection with the enforcement of rights granted under
such documents, including but not limited to specific performance, or as to the
effects of the application of principles of equity (regardless of whether
enforcement is considered in proceedings in law or in equity). We express no
opinion as to (x) the specific remedy that any Governmental Authority might
grant in connection with the enforcement of rights under the Purchase Agreement,
the Statement of Resolution or the Ancillary Documents or (y) the effect of any
antitrust, environmental, securities or tax laws of the United States, the State
of Texas or any other state.
(b) We express no opinion herein as to the validity or enforceability
of (i) any provisions purporting to entitle a party to indemnification in
respect of any matters arising in whole or in part by reason of any illegal,
wrongful or negligent act or omission of such party, (ii) any provisions that
purport to restrict access to or waive remedies or defenses, to waive any rights
to notices or to establish evidentiary standards, (iii) any provisions relating
to choice of law, liquidated damages, waivers, releases, suretyship defenses,
delays or omissions of enforcement of rights or remedies, severability, consent
judgments or summary proceedings, (iv) any provisions purporting to irrevocably
appoint attorneys-in-fact or other agents, (v) any provisions purporting to
restrict or limit transfer, alienation or encumbrancing of property, (vi) any
provisions that relate to submissions to jurisdiction, waivers or ratifications
of future acts, the rights of third parties or transferability of assets which
by their nature are nontransferable, (vii) provisions that contain any agreement
to agree, (viii) provisions that purport to negate or control over present or
future laws which are contrary to such provisions, or (ix) provisions that
contain any covenant or agreement not to compete, or be employed or associated
with any Person which is in competition, with any other Person.
(c) Whenever any opinion expressed herein with respect to the existence
or absence of facts is qualified by the phrase "to our knowledge," such phrase
indicates that (i) no information has come to the attention of any partner or
associate of this firm who has devoted substantive attention to the transactions
contemplated by the Purchase Agreement and the Ancillary Documents that has
given any such person actual knowledge of the existence of such facts, (ii) we
have not undertaken any independent investigation to determine the existence or
absence of such facts and (iii) no inference as to our knowledge of the
existence of such facts should be drawn from the fact of our representation of
GNA or our expression of such opinion.
(d) We are members of the Bar of the State of Texas. This opinion
relates only to the laws of the State of Texas and the federal laws of the
United States, and we express no opinion with regard to any matters that may be
governed or affected by any other laws.
4
<PAGE> 142
(e) This opinion is limited solely to the matters stated herein and no
opinion is to be inferred or may be implied beyond the matters expressly stated
herein.
The opinions expressed herein are solely for your benefit in connection
with the transactions contemplated by the Purchase Agreement and the Ancillary
Documents and may not be used or relied upon by any other person or entity or
for any other purpose whatsoever. The opinions expressed herein are as of the
date first set forth above, and we do not assume or undertake any responsibility
or obligation to supplement or to update such opinions to reflect any facts or
circumstances which may hereafter come to our attention or any changes in the
laws which may hereafter occur.
Very truly yours,
5
<PAGE> 143
EXHIBIT G
AMENDMENT NO. 4
TO
RIGHTS AGREEMENT
AMENDMENT NO. 4 TO RIGHTS AGREEMENT, dated as of ________, 1999 (the
"Amendment"), between GAINSCO, INC., a Texas corporation (the "Company"), and
Continental Stock Transfer & Trust Company (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement dated as of March 3, 1988 (as subsequently amended, the "Rights
Agreement") (terms defined in the Rights Agreement are used herein with the same
meaning unless otherwise defined herein);
WHEREAS, the Company and Goff Moore Strategic Partners, L.P., a Texas
limited partnership ("GMSP"), have entered into a Securities Purchase Agreement
dated as of June ___, 1999; and
WHEREAS, the Board of Directors of the Company has authorized and
directed that the Rights Agreement be amended as hereinafter set forth:
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
SECTION 1. The definition of Acquiring Person in the Rights Agreement
is hereby amended to read in its entirety as follows:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
20% or more of the Common Stock then outstanding, but shall not include
(i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or of any Subsidiary of the Company or an
entity holding shares of Common Stock for, or pursuant to the terms of,
any such plan or (iv) any GMSP Entity until the GMSP Exclusion
Termination Date. For purposes of this Agreement, any calculation of
the number of shares of Common Stock outstanding at any particular
time, including for purposes of determining the particular percentage
of such outstanding shares of Common Stock of which any
6
<PAGE> 144
Person is the Beneficial Owner, shall be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of the dividend. As used in
this Agreement, (i) "GMSP" means Goff Moore Strategic Partners, a Texas
limited partnership, (ii) "GMSP Entity" means one or more of GMSP and
any Affiliate or Associate of GMSP (individually or collectively),
(iii) "Securities Purchase Agreement" means the Securities Purchase
Agreement dated June ___, 1999, between the Company and GMSP, and (iv)
"GMSP Exclusion Termination Date" means the earlier to occur of (A) the
termination (other than pursuant to the successful consummation of the
transactions contemplated thereby) of the Securities Purchase Agreement
and (B) such time as one or more of the GMSP Entities (individually or
collectively) become(s) the Beneficial Owner of more than 35% of the
Common Stock then outstanding (other than to the extent that any GMSP
Entity becomes the Beneficial Owner of more than 35% of the Common
Stock then outstanding (i) as a direct result of the repurchase or
purchase by the Company or any Subsidiary of the Company of Common
Stock or securities convertible into or exchangeable or exercisable for
Common Stock, unless thereafter any GMSP Entity purchases additional
shares of Common Stock, or (ii) as a result of acquiring Beneficial
Ownership of additional shares of Common Stock pursuant to any stock
option or other employee benefit plan of the Company).
SECTION 2. Except as expressly amended hereby, the Rights Agreement is
hereby ratified and confirmed and shall remain in full force and effect.
2
<PAGE> 145
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: GAINSCO, INC.
By By
---------------------------------- -----------------------------------
Name: Name:
--------------------------- --------------------------------
Title: Title:
-------------------------- -------------------------------
Attest: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By By
---------------------------------- -----------------------------------
Name: Name:
--------------------------- --------------------------------
Title: Title:
-------------------------- -------------------------------
3
<PAGE> 146
APPENDIX II
OPINION
OF
WASSERSTEIN PERELLA & CO., INC.
<PAGE> 147
June 29, 1999
Board of Directors
GAINSCO, INC.
500 Commerce Street
Fort Worth, TX 76102
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to GAINSCO, INC. (the "Company") with respect to the
consideration to be received pursuant to the terms of the Securities Purchase
Agreement, dated as of June 29, 1999 (the "Purchase Agreement"), by and between
the Company and Goff Moore Strategic Partners, L.P. ("GMSP"). The Purchase
Agreement provides for, among other things, the acquisition by purchaser for
cash of 31,620 shares of Series A Convertible Preferred Stock (the "Convertible
Preferred") of the Company, warrants to purchase 1,550,000 shares of common
stock, par value $.10 per share ("Common Stock"), at a price of $6.375 per share
and warrants to purchase 1,550,000 shares of Common Stock at a price of $8.50
(collectively, the "Warrants"; the Warrants, collectively with the Convertible
Preferred, hereinafter referred to as the "Securities") for an aggregate cash
consideration of $31,620,000 (the "Transaction"). The terms and conditions of
the Transaction are set forth in more detail in the Purchase Agreement.
In connection with rendering our opinion, we have reviewed the Purchase
Agreement, the Investment Management Agreement to be entered into by GMSP with
the Company and its insurance company subsidiaries, the Warrants, and certain
other draft agreements and documents related to the Transaction, and for
purposes hereof, we have assumed that the final form of these documents will not
differ in any material respect from the drafts provided to us. We have also
reviewed and analyzed certain publicly available business and financial
information relating to the Company for recent years and interim periods to
date. We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets. We have also performed such other financial
studies, analyses, and investigations and reviewed such other information as we
considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to or discussed with us or publicly available,
and we have not assumed any responsibility for independent verification of any
of such information. We have not reviewed any of the books and records of the
Company, or assumed any responsibility for conducting a physical inspection of
the properties or facilities of the Company, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of the Company,
and no such independent valuation or appraisal was provided to us. We also have
assumed that obtaining all regulatory and other approvals and third party
consents required for consummation of the Transaction will not have an adverse
impact on the Company and we have assumed that the
<PAGE> 148
Board of Directors
June 29, 1999
Page 2
transactions described in the Purchase Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. We have also assumed that the purchase price
payable pursuant to Section 2.2 of the Purchase Agreement is in the form of
cash. While WP&Co. did not independently value the benefits to be derived by the
Company from the Investment Management Agreement, in formulating our opinion we
relied on Management's assessment of the strategic benefit to be derived from
such agreement. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof. We are not expressing any opinion herein as to the prices at
which any securities of the Company will actually trade at any time.
In formulating our opinion, we relied on the fact that the Company's
decision to enter into the Purchase Agreement was preceded by the Company's
announcement on August 28, 1998 that its Board of Directors had decided to
pursue strategic alternatives, including a possible sale of the Company, and a
ten month process in which proposals for a business combination or other
transaction were solicited by or on behalf of the Company from over 70 potential
parties, including parties the Company believed were logical parties for a
business combination with the Company. It should be noted, however, that in the
context of our engagement by the Company, we were not authorized to and did not
solicit indications of interest by third parties in an investment in the Company
similar to that embodied by the Purchase Agreement.
In the ordinary course of our business, we may actively trade the debt
and equity securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
We have acted as financial advisor to the Company in connection with
the proposed Transaction and will receive customary fees for providing such
services, as well as a fee for rendering this opinion. In addition, we have
performed various investment banking services for the Company in the past and
have received customary fees for rendering such services.
Our opinion addresses only the fairness from a financial point of view
to the Company of the consideration to be received by the Company pursuant to
the Purchase Agreement, and we do not express any views on any other term of the
Transaction. Specifically, our opinion does not address the Company's underlying
business decision to effect the transactions contemplated by the Purchase
Agreement. Our opinion does not address the relative merits of the Transaction
versus an alternative transaction or business strategy.
It is understood that this letter is for the benefit and use of the
Board of Directors of the Company in its consideration of the Transaction and
except for inclusion in its entirety in any registration statement or proxy
statement required to be circulated to shareholders of the Company relating to
the Transaction, may not be
<PAGE> 149
Board of Directors
June 29, 1999
Page 3
quoted, referred to or reproduced at any time or in any manner without our prior
written consent. This opinion does not constitute a recommendation to any
shareholder or as to how such holder should vote with respect to the
Transaction, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that as of the
date hereof the consideration to be received by the Company pursuant to the
Purchase Agreement is fair to the Company from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC
<PAGE> 150
- --------------------------------------------------------------------------------
GAINSCO, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON __________, 1999
P
R The undersigned hereby appoints Joel C. Puckett, Glenn W. Anderson and
O Daniel J. Coots, and each of them, proxies, with full power of
X substitution and with discretionary authority, to vote all shares of Common
Y Stock that the undersigned is entitled to vote at the Special Meeting of
Shareholders of GAINSCO, INC. to be held on _____________, 1999, at
______________________, at 10:00 a.m., or at any adjournment thereof,
hereby revoking any proxy heretofore given.
The Board of Directors recommends that shareholders vote FOR the Purchase
Agreement Proposal.
(USE ONLY FOR CHANGE OF ADDRESS)
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(if you have written in the above space, please mark the corresponding
box on the reverse side of this card)
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN, AND IN THE ABSENCE OF SPECIFIC DIRECTIONS TO THE CONTRARY, THIS
PROXY WILL BE VOTED FOR THE PURCHASE AGREEMENT PROPOSAL.
The undersigned hereby acknowledges receipt of the Notice of the
aforesaid Special Meeting.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
<PAGE> 151
- --------------------------------------------------------------------------------
1. Approval of Purchase Agreement Proposal.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Change
of [ ]
Address
Signature(s) Date
----------------------------------------------- ------
Signature(s) Date
----------------------------------------------- ------
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
<PAGE> 152
VOTE BY INTERNET OR TELEPHONE
QUICK *** EASY *** IMMEDIATE
GAINSCO, INC.
o You can now vote your shares electronically through the internet or the
telephone.
o This eliminates the need to return the proxy card.
o Your electronic vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, dated and returned the
proxy card.
TO VOTE YOUR PROXY BY INTERNET
WWW.xxxxxxxxxxxxx.COM
Have your proxy card in hand when you access the above website. You will be
prompted to enter the company number, proxy number and account number to create
an electronic ballot. Follow the prompts to vote your shares.
TO VOTE YOUR PROXY BY MAIL
Mark, sign and date your proxy card above, detach it and return it in the
postage-paid envelope provided.
TO VOTE YOUR PROXY BY PHONE
1-800-293-8533
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter the company number, proxy number
and account number. Follow the voting instructions to vote your shares.
PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED
ELECTRONICALLY OR TELEPHONICALLY
