<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K/A
Amendment No. 1 to
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission file number 1-9828
December 31, 1999
GAINSCO, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1617013
(State of Incorporation) (IRS Employer
Identification No.)
500 Commerce Street
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 336-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock ($.10 par value) The New York Stock Exchange
PART I
ITEM 3. LEGAL PROCEEDINGS
GAINSCO, INC. ("GNA") was named a defendant in the proceedings styled
William Steiner v. Joseph D. Macchia, Joel C. Puckett, Daniel J. Coots and
GAINSCO, INC., filed on August 25, 1998 in the United States District Court for
the Northern District of Texas, Fort Worth Division (the "Trial Court"). In that
case, the plaintiff asserted claims on behalf of a putative class of persons who
purchased GNA's common stock between August 6, 1997 and July 16, 1998,
inclusive. The plaintiff asserted claims for damages under sections 10(b) and
20(a) of the Securities Exchange Act of 1934, alleging that GNA's financial
results did not reflect GNA's true financial position and results of
operations in accordance with generally accepted accounting principles in that
they understated reserves for claims and claim adjustment expenses. On March 31,
2000 the
<PAGE> 2
Trial Court dismissed plaintiff's amended class action complaint for failure to
state a claim upon which relief can be granted. To date the plaintiff has not
appealed the Trial Court's decision.
In the normal course of its operations, GNA and its subsidiaries
(collectively, the "Company") have been named as defendant in various legal
actions seeking payments for claims denied by the Company and other monetary
damages. In the opinion of the Company's management the ultimate liability, if
any, resulting from the disposition of these claims will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of GNA as
of April 15, 2000 is set forth below:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Joel C. Puckett 56 Chairman of the Board and Director
Glenn W. Anderson 47 President, Chief Executive Officer and Director
Richard M. Buxton 51 Senior Vice President
Daniel J. Coots 48 Senior Vice President, Chief Financial Officer
and Director
Carlos de la Torre 51 President, DLT Insurance Adjusters, Inc.
J. Landis Graham 45 Senior Vice President
McRae B. Johnston 49 President, National Specialty Lines, Inc.
Richard A. Laabs 44 Senior Vice President
Joseph W. Pitts 36 Senior Vice President
Stephen L. Porcelli 37 Senior Vice President
Carolyn E. Ray 47 Senior Vice President
Sam Rosen 64 Secretary and Director
J. Randall Chappel 32 Director
John C. Goff 43 Director
Robert J. McGee, Jr. 44 Director
Harden H. Wiedemann 45 Director
John H. Williams 65 Director
</TABLE>
2
<PAGE> 3
Joel C. Puckett has served as a director of the Company since 1979 and
as Chairman of the Board of Directors since April, 1998. Mr. Puckett is a
certified public accountant with offices located in Minneapolis, Minnesota. Mr.
Puckett has been engaged in the private practice of accounting since 1973.
Glenn W. Anderson has served as President, Chief Executive Officer and
as a director of the Company since April 1998. From 1996 to April 1998, Mr.
Anderson served as Executive Vice President of USF&G Corporation and as
President of the Commercial Insurance Group of United States Fidelity & Guaranty
Company. From 1993 to 1996, Mr. Anderson was a Senior Vice President of USF&G
Corporation. Mr. Anderson, a 1974 graduate of Stanford University, has been
engaged in the property and casualty insurance business since 1975.
Richard M. Buxton has served as Vice President of the Company since
December of 1996. In 1999, Mr. Buxton was promoted to Senior Vice President.
From 1986 to 1996 Mr. Buxton was with KN Energy, Inc. in the position of Vice
President of Strategic Planning and Financial Services.
Daniel J. Coots has served as Vice President and Chief Financial
Officer of the Company since 1987, and as a director of the Company since 1997.
In 1991 Mr. Coots was promoted to Senior Vice President. Mr. Coots has been
engaged in the property and casualty insurance business since 1983.
Carlos de la Torre joined the Company in October 1998 when the Company
acquired Lalande Group and since that time has served as President of DLT
Insurance Adjusters, Inc., a subsidiary of the Company. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Lalande Acquisition". Mr. de la Torre
is the founder of DLT Insurance Adjusters, Inc. and has served as President
since 1979. Mr. de la Torre has been engaged in the property and casualty
insurance business since 1970.
J. Landis Graham has served as Senior Vice President of the Company
since 1998. From 1993 to 1998, Mr. Graham served as Vice President of the
Company. From 1988 to 1993, Mr. Graham was with Maryland Casualty Company in the
position of Claim Manager. Mr. Graham has been engaged in the property and
casualty insurance business since 1976.
McRae B. Johnston joined the Company in October 1998 when the Company
acquired Lalande Group and since that time has served as President of National
Speciality Lines, Inc., a subsidiary of the Company. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Lalande Acquisition". Mr. Johnston is
co-founder of National Specialty Lines, Inc. and has served as President since
1989. Mr. Johnston has been engaged in the property and casualty insurance
business since 1976.
Richard A. Laabs has served as Vice President of the Company since June
of 1996. Mr. Laabs was promoted to Senior Vice President in 1999. From August of
1995 to May of 1996, Mr. Laabs served as Assistant Vice President of the
Company. From 1990 to 1995, Mr. Laabs was with Scottsdale Insurance Company in
the position of Senior Information Systems Services Director. Mr. Laabs has been
engaged in the property and casualty insurance business since 1978.
3
<PAGE> 4
Joseph W. Pitts has served as Vice President of the Company since
August of 1997. Mr. Pitts was promoted to Senior Vice President in 1999. From
1992 to 1997, Mr. Pitts was with USAA Group in the position of Actuary and
Manager. Mr. Pitts has been engaged in the property and casualty insurance
business since 1988.
Stephen L. Porcelli has served as Senior Vice President of the Company
since 1999. From 1994 to 1999 Mr. Porcelli was with TIG Insurance Company in the
position of Senior Vice President. Mr. Porcelli has been engaged in the property
and casualty insurance business since 1989.
Carolyn E. Ray has served as Senior Vice President of the Company since
1998. From 1986 to 1998, Ms. Ray served as Vice President of the Company. From
1984 to 1985, Ms. Ray served as Assistant Vice President of the Company. Ms. Ray
has been engaged in the property and casualty insurance business since 1976.
Sam Rosen has served as Secretary and as a director of the Company
since 1983. Mr. Rosen currently serves on the Board of Directors of Aztec
Manufacturing Co. (NYSE - AZZ). Mr. Rosen is a partner with the law firm of
Shannon, Gracey, Ratliff & Miller, L.L.P. He has been a partner in that firm or
its predecessors since 1966. That firm, or its predecessors, has provided
significant legal services for the Company since 1979.
J. Randall Chappel has served as a director of the Company since 1999.
Mr. Chappel is a principal of Goff Moore Strategic Partners, L.P. ("GMSP"), and
has been associated with Richard E. Rainwater and his affiliated companies since
1987. Mr. Chappel participated in the purchase of properties that led to the
creation of Crescent Real Estate Equities, Inc. (NYSE - CEI) ("Crescent"), as
well as other significant Rainwater investments. Mr. Chappel has been active in
the formation of G2 Opportunity Fund LP and various GMSP investments. Mr.
Chappel serves as a director of epicRealm, Inc. and of OpenConnect Systems
Incorporated, both of which are Dallas-based technology companies.
John C. Goff has served as a director of the Company since 1997. Mr.
Goff is President, Chief Executive Officer and Vice Chairman of the Board of
Crescent and is Managing Principal of GMSP. From 1987 to April 1994, Mr. Goff
served 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, including the initial public offering of
Crescent in May 1994. From inception through late 1996 he served as Chief
Executive Officer of Crescent and since late 1996 he has served as Vice Chairman
of the Board of Crescent. During June 1999, Mr. Goff resumed his role as
President and Chief Executive Officer of Crescent. Mr. Goff is also President,
Chief Executive Officer and Vice Chairman of the Board of Crescent Operating,
Inc., an investment company (NASDAQ - COPI), which was spun off from Crescent in
1997, and sits on the Boards of Texas Capital Bank and The Staubach Company.
Robert J. McGee, Jr. has served as a director of the Company since
1997. Mr. McGee has served since 1992 as Chairman of the Board and Chief
Executive Officer of KBK Capital Corporation (AMEX - KBK), a 36-year old
commercial finance company. From 1989 to 1992 Mr. McGee served as Chairman of
the Board and Chief Executive Officer of Texas Commerce Bank-Tarrant County and
Vice Chairman, Texas Commerce Bank, N.A.
Harden H. Wiedemann has served as a director of the Company since 1989.
Mr. Wiedemann has been Chairman and Chief Executive Officer of Assurance
Medical, Incorporated, a company providing independent oversight of drug
testing, since 1991.
4
<PAGE> 5
John H. Williams has served as a director of the Company since 1990.
Mr. Williams served, until his retirement on July 31, 1999, as a Senior Vice
President, Investments, of Everen Securities, Inc., and had been a principal of
that firm or its predecessors since May 1987. Prior to that time, Mr. Williams
was associated with Thomson McKinnon Securities, Inc. and its predecessors from
1967. Mr. Williams is currently managing his personal investments, and is a
director of Clear Channel Communications, Inc. (NYSE - CCU).
TERMS OF OFFICE
Executive officers serve at the pleasure of the Board of Directors.
Directors are elected annually by the shareholders to serve until the next
annual meeting of shareholders and until their respective successors are duly
elected and qualified. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Glenn W. Anderson Employment Agreement" regarding an employment
agreement between Glenn W. Anderson and the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Common Stock to file with the SEC and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock. Officers, directors and greater than ten-percent beneficial owners are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely upon a review of the Section 16(a) reports
furnished to it, the Company believes the persons who were required to file
Section 16(a) reports in respect to their Section 16(a) ownership of Common
Stock have filed on a timely basis all Section 16(a) reports required to be
filed by them, except that J. Randall Chappel failed to file a Form 5 with
respect to options granted to him by the Company in October 1999.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The individuals named below (the "Named Executives") include the
Company's chief executive officer and the other four most highly compensated
executive officers of the Company for the fiscal year ending December 31, 1999.
Information is provided for the fiscal years ending on December 31 of the three
years shown in the table below.
5
<PAGE> 6
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ----------------------------------------------------------------------------- ---------------------------------------
Securities
Other Annual Restricted Underlying All Other
NAME AND Salary Bonus Compensa- Stock Options/ LTIP Compensa-
PRINCIPAL POSITION Year ($) ($) tion($) Award(s)($) SARs(#) Payouts($) tion($)(4)
------------------ ---- ------- ------- ------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLENN W. ANDERSON 1999 340,000 240,000(1) - - - - -
President and Chief 1998 238,436(2) 195,000(2) 155,397(3) - 579,710 - -
Executive Officer 1997 - - - - - - -
RICHARD M. BUXTON 1999 158,500 53,000 - - - - -
Senior Vice President- 1998 156,000 54,700 - - 34,164 - -
Mergers and Acquisitions, 1997 149,519 47,366 - - 54,521(5) - -
Investor Relations
DANIEL J. COOTS 1999 147,500 37,000 - - - - -
Senior Vice President and 1998 140,173 36,500 - - 35,135 - -
Chief Financial Officer 1997 122,400 25,551 - - - - 13,893
J. LANDIS GRAHAM 1999 142,750 37,000 - - - - -
Senior Vice President- 1998 121,594 31,900 - - 19,567 - -
Claims 1997 97,910 14,064 - - - - 11,975
CAROLYN E. RAY 1999 142,750 37,000 - - - - -
Senior Vice President- 1998 123,361 31,900 - - 34,192 - -
Underwriting 1997 98,699 19,848 - - - - 13,843
</TABLE>
(1) Represents bonus for 1999 of $175,000 and $65,000 out of $260,000 first
year bonus provided in Mr. Anderson's employment agreement with the
Company described below under "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Glenn W. Anderson Employment Agreement" (the
"Anderson Employment Agreement").
(2) Represents pro rata portion in 1998 of $340,000 annual salary and
$195,000 out of $260,000 first year bonus provided in the Anderson
Employment Agreement.
(3) Amounts paid principally for relocation expenses under the Anderson
Employment Agreement.
(4) Amounts contributed to or accrued for the Named Executive under the GNA
401(k) Plan.
(5) These options were canceled in connection with a repricing of options
in 1998.
6
<PAGE> 7
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR GRANT DATE PRESENT
NAME GRANTED (#) FISCAL YEAR BASE PRICE ($/SH) EXPIRATION DATE VALUE ($/SH)
<S> <C> <C> <C> <C> <C>
GLENN W. ANDERSON
President and Chief Note: No stock options or stock appreciation rights were granted to any of the Named Executives in 1999.
Executive Officer
RICHARD M. BUXTON
Senior Vice President-
Mergers and Acquisitions,
Investor Relations
DANIEL J. COOTS
Senior Vice President and
Chief Financial Officer
J. LANDIS GRAHAM
Senior Vice President-
Claims
CAROLYN E. RAY
Senior Vice President-
Underwriting
</TABLE>
On March 3, 2000, options to purchase an aggregate of 308,326 shares of
Common Stock for $5.50 per share were granted to officers and employees of the
Company, including for the above-named persons options as follows: Glenn W.
Anderson, 50,000 shares; Richard M. Buxton, 19,000 shares; Daniel J. Coots,
15,000 shares; J. Landis Graham, 15,000 shares; and Carolyn E. Ray, 15,000
shares. The options expire March 2, 2010 and become vested and exercisable at
the rate of 20% on each of June 3, 2000 and March 3 of 2001, 2002, 2003 and
2004.
On March 20, 2000, Mr. Anderson was granted an option expiring March
19, 2010 to purchase 180,000 shares of Common Stock for $5.6875 per share. The
option becomes vested and exercisable in full on March 20, 2005, but terminates
in the event he owns less than 91,500 of the shares of Common Stock he owned on
the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table summarizes for each of the Named Executives the
number of stock options, if any, exercised during the fiscal year ended December
31, 1999, the aggregate dollar value, if any, realized upon exercise, the total
number of unexercised stock options held at December 31, 1999, if any, and the
aggregate dollar value of the unexercised options held at December 31, 1999, if
any. Value realized upon exercise, if any, is the difference between the fair
market value of the underlying stock on the exercise date and the exercise
7
<PAGE> 8
price of the option. Value of unexercised options at fiscal year-end is the
difference between the exercise price of the stock options and the fair market
value of the underlying stock at December 31, 1999, the latter of which was
$5.375 per share. These values, unlike the amounts, if any, set forth in the
column headed "Value Realized," have not been, and may never be, realized. The
options have not been, and may not be, exercised. Actual gains, if any, on
exercise will depend on the value of the Common Stock on the date of exercise.
There can be no assurance that the values shown will be realized.
AGGREGATED OPTION EXERCISES IN THE LAST
FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY
NAME EXERCISE (#) REALIZED ($) OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END ($)
---- ------------ ------------ ---------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
GLENN W. ANDERSON - - 579,710 - - -
President and Chief
Executive Officer
RICHARD M. BUXTON - - 27,332 6,832 - -
Senior Vice President-
Mergers and
Acquisitions, Investor
Relations
DANIEL J. COOTS - - 69,243(1) 7,027 $124,343 -
Senior Vice President and
Chief Financial Officer
J. LANDIS GRAHAM - - 15,654 3,913 - -
Senior Vice President-
Claims
CAROLYN E. RAY - - 66,412(2) 6,638 $126,219 -
Senior Vice President-
Underwriting
</TABLE>
(1) Options to purchase 37,398 shares are exercisable at approximately
$2.14 per share, options to purchase 3,737 shares are exercisable at
approximately $4.44 per share and options to purchase 28,108 shares are
exercisable at approximately $6.03 per share.
(2) Options to purchase 39,058 shares are exercisable at approximately
$2.14 per share and options to purchase 27,354 are exercisable at
approximately $6.03 per share.
8
<PAGE> 9
TEN YEAR OPTIONS/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL OPTION
UNDERLYING MARKET PRICE OF TERM REMAINING
OPTIONS/SARS STOCK AT TIME OF EXERCISE PRICE AT AT DATE OF
REPRICED OR REPRICING OR TIME OF REPRICING NEW EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) OR AMENDMENT($) PRICE($) AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
GLENN W. ANDERSON 07/24/98 579,710(a) 5.75 8.63 5.75 5 yrs
President and Chief
Executive Officer
RICHARD M. BUXTON 07/24/98 34,164 6.03 9.63 6.03 8.44 yrs
Senior Vice President-
Mergers and Acquisitions,
Investor Relations
DANIEL J. COOTS 07/24/98 35,135 6.03 10.63 6.03 7.75 yrs
Senior Vice President
and Chief Financial Officer
J. LANDIS GRAHAM 07/24/98 19,567 6.03 10.63 6.03 7.75 yrs
Senior Vice President-
Claims
CAROLYN E. RAY 07/24/98 34,192 6.03 10.63 6.03 7.75 yrs
Senior Vice President-
Underwriting
</TABLE>
(a) The actions taken with respect to Mr. Anderson's options were taken
pursuant to the Anderson Employment Agreement described below under
"ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Glenn W.
Anderson Employment Agreement" and were part of an inducement for him
to join the Company.
EMPLOYEE BENEFIT PLANS
At December 31, 1999, the Company had three plans under which options
could be granted: the 1990 Stock Option Plan ("90 Plan"), the 1995 Stock Option
Plan ("95 Plan") and the 1998 Long-Term Incentive Plan ("98 Plan"). Under the 90
Plan, all options available have been granted, are fully vested and, if not
exercised, will expire in the year 2000. The 95 Plan was approved by the
shareholders on May 10, 1996 and 1,071,000 shares are reserved for issuance
under this plan. Options granted under the 95 Plan have a maximum ten year term
and are exercisable at the rate of 20% immediately upon grant and 20% on each of
the first four anniversaries of the grant date. The 98 Plan was approved by the
shareholders on July 17, 1998, and the aggregate number of shares of common
stock that may be issued under the 98 Plan is limited to 1,000,000. Under the 98
Plan, stock options (including incentive stock options and non-qualified stock
options), stock appreciation rights and restricted stock awards may be made.
9
<PAGE> 10
The Company has a 401(k) Plan (the "401(k) Plan") to help eligible
employees build financial security for retirement and to help protect them and
their beneficiaries in the event of death or disability. Generally all employees
of the Company are eligible to participate in the 401(k) Plan. The Company and
the participant both make contributions to the 401(k) Plan. The 401(k) Plan
permits employees to direct that their accounts be invested in any of a number
of mutual funds, Common Stock or any other publicly traded securities.
COMPENSATION OF DIRECTORS
Each director of the Company who is not a full time employee of the
Company receives a quarterly retainer and a meeting fee for each in person
meeting, plus expenses incurred in attending meetings of the Board of Directors.
In 1998, each director received $2,000 as a quarterly retainer and $2,000 as a
meeting fee. In 1999 following the annual meeting of shareholders, the quarterly
retainer increased to $3,000, and it will increase to $4,000 per quarter
following the 2000 annual meeting of shareholders. Directors who are also full
time employees of the Company are not separately compensated for their service
as a director.
Mr. Joel C. Puckett was appointed non-executive Chairman of the Board
of the Company on April 20, 1998. For his services in this capacity, and in lieu
of the fees the other outside directors receive, Mr. Puckett receives a monthly
fee equivalent to 25% of the monthly base compensation of the Chief Executive
Officer or such greater amount as might result from the application of an hourly
formula. In 1998 and 1999, Mr. Puckett received $109,083 and $143,083,
respectively, for his service as Chairman of the Board. Mr. Puckett is not an
officer or employee of the Company.
Each current director who is not a full time employee of the Company
participated in the 95 Plan on a formula basis. Each such current director was
awarded options to purchase a minimum of 42,000 shares, plus 8,400 shares for
each year of service in excess of five years, up to a maximum of an additional
42,000 shares of Common Stock, at the market price on the date of grant.
One-fifth of those options become exercisable immediately and a like number
become exercisable on each anniversary of the grant date, if the optionee
continues to be a director on those dates. The 95 Plan was approved by the
shareholders on May 10, 1996.
CHANGE IN CONTROL AGREEMENTS
The Named Executives each have severance agreements which are
automatically extended for one additional year from each December 31st unless
sooner terminated by the Company. The severance agreements provide for the
payment of benefits if the Named Executive is actually or "constructively"
terminated following a change in control of the Company. A "change in control of
the Company" is generally deemed to occur if: (A) any person becomes the
beneficial owner of 25% or more of the Company's voting securities; (B) during a
two-year period the majority of the Board of Directors of the Company changes
without approval by two-thirds of the directors who either were directors at the
beginning of the period, or whose election was previously approved; (C) the
shareholders of the Company approve a merger or consolidation with another
company in which the Company's voting securities do not continue to represent at
least 75% of the surviving entity; or (D) the shareholders approve a
liquidation, sale or disposition of all or substantially all of the Company's
assets.
No benefits are payable if a Named Executive quits or is terminated for
cause and no benefits beyond those otherwise provided by the Company are
provided if a Named Executive is terminated by reason of death, disability or
retirement.
10
<PAGE> 11
If, within two years following a change in control, a Named Executive
is terminated by the Company for reasons other than cause, or if the Named
Executive terminates employment for "good reason," the Named Executive will be
paid a lump sum cash payment in an amount equal to two times the Named
Executive's base salary; provided, however, such payment shall not be less than
1.25 times the amount reported on the Named Executive's Form W-2 issued by the
Company with respect to the year preceding the date of actual or constructive
termination. In the event such payment would not be deductible, in whole or in
part, by the Company as a result of Section 280G of the Internal Revenue Code,
such payment shall be reduced to the extent necessary to make the entire payment
deductible. Under the terms of the Anderson Employment Agreement described above
under "Election of Directors - Certain Transactions," if Mr. Anderson is
terminated without cause, he will be entitled to the greater of, (i) the amount
he would be entitled to upon such termination under the Anderson Employment
Agreement in the absence of a change in control or (ii) the amount called for by
his change in control agreement.
The transactions with GMSP described below under "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Transactions with Goff Moore Strategic
Partners, L.P." constituted a "change in control of the Company" solely for
purposes of the severance agreements when GMSP became the beneficial owner of
25% or more of the Company's voting securities. However, no payments are due at
this time since no Named Executives were terminated by the Company, and no Named
Executives terminated employment for "good reason."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Robert J.
McGee, Jr., Harden Wiedemann, and John H. Williams, Chairman. J. Randall Chappel
and John C. Goff also served on the Compensation Committee for parts of 1999.
No executive officer of the Company served as a member of the
compensation committee of or as a director of another entity, one of whose
executive officers served on the Compensation Committee or the Board of
Directors of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 15, 2000, the number of
shares of Common Stock beneficially owned (as defined by the rules of the
Securities and Exchange Commission (the "SEC")) 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 Named Executive Officers for the year
ended December 31, 1999, and (iv) all of the executive officers of the Company
as a group.
11
<PAGE> 12
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership(1)
Name of Beneficial Owner --------------------------------------------
- ------------------------ Number Percent of
of Shares(2) Voting Stock(3)
------------ ---------------
<S> <C> <C>
Goff Moore Strategic Partners, L.P., John C. Goff and J. Randall 10,406,000(4) 34.4%
Chappel
I.G. Investment Management, Ltd. 1,924,800(5) 7.1%
The Millers Mutual Fire Insurance Company 1,559,900(6) 5.8%
Dimensional Fund Advisors, Inc. 1,472,753(7) 5.4%
Joseph D. Macchia 1,361,988(8) 5.0%
Glenn W. Anderson 702,110(9) 2.5%
Joel C. Puckett 496,821(10) 1.8%
Sam Rosen 243,172(11) *
Carolyn E. Ray 138,685(12) *
Daniel J. Coots 128,358(13) *
John H. Williams 62,562(14) *
Harden H. Wiedemann 54,265(15) *
Richard M. Buxton 48,021(16) *
J. Landis Graham 38,723(17) *
Robert J. McGee 33,600(18) *
Directors and executive officers as a group (17 persons) 12,428,516(19) 39.4%
</TABLE>
- -------------------------------
* Less than 1%
(1) On April 15, 2000, there were outstanding 20,919,833 shares of Common
Stock and 31,620 shares of Series A Convertible Preferred Stock (the
"Series A Preferred Stock"). The shares of Series A Preferred Stock
were convertible into an aggregate of 6,200,000 shares of Common Stock
and were held entirely by GMSP. Each share of Series A Preferred Stock
is entitled to vote on each matter on which the Common Stock may vote
and is entitled to one vote per share of Common Stock into which it is
convertible. Together these shares constituted all of the outstanding
shares entitled to vote on matters submitted for shareholder vote
(collectively, the "Voting Stock"). References herein to numbers of
shares of Voting Stock are references to the combined number of shares
of Common Stock outstanding on April 15, 2000 and the number of shares
of Common Stock then issuable upon conversion of the Series A Preferred
Stock. On April 15, 2000 there were 27,119,833 shares of Voting Stock
outstanding.
(2) Each person named below has the sole investment and voting power with
respect to all shares of Voting Stock shown as beneficially owned by
the person, except as otherwise indicated below. Under applicable SEC
rules, a person is deemed the "beneficial owner" of a security with
regard to which the person, directly or indirectly, has or shares (a)
the voting power, which includes the power to vote or direct the voting
of the security, or (b) the investment power, which includes the power
to dispose, or direct the disposition of the security, in each case
irrespective of the persons' economic interest in the security. Under
these SEC rules, a person is deemed to beneficially own securities
which the person has the right
12
<PAGE> 13
to acquire within sixty days (x) through the exercise of any option or
warrant or (y) through the conversion of another security.
(3) In determining the Percent of Voting Stock owned by a person, (a) the
numerator is the number of shares of Common Stock beneficially owned by
the person, including shares the beneficial ownership of which may be
acquired within sixty days upon the exercise of options or warrants or
conversion of convertible securities, and (b) the denominator is the
total of (i) the 27,119,833 aggregate of the 20,919,833 shares of
Common Stock outstanding on April 15, 2000 and 6,200,000 shares of
Common Stock then issuable upon conversion of the Series A Preferred
Stock and (ii) any shares of Common Stock which the person has the
right to acquire within sixty days upon the exercise of options or
warrants. Neither the numerator nor the denominator includes shares
which may be issued upon the exercise of any other options or warrants.
(4) Includes (a) 6,200,000 shares of Common Stock which GMSP may acquire
upon conversion of 31,620 shares of the Series A Preferred Stock, (b)
3,100,000 shares of Common Stock issuable upon exercise of presently
exercisable warrants to purchase shares of Common Stock, (c) 1,064,000
shares of Common Stock beneficially owned by GMSP, (d) 33,600 shares of
Common Stock that Mr. Goff has the right to acquire within 60 days
through exercise of options granted under the 95 Plan, and (e) 8,400
shares of Common Stock that Mr. Chappel has the right to acquire within
60 days through exercise of options granted under the 95 Plan. Mr. Goff
may be deemed the beneficial owner of the shares of Common Stock
beneficially owned by GMSP because he is a Managing Principal of GMSP,
is the owner of 82.3% of the limited partner interests in the limited
partnership that is the managing general partner of GMSP and of the
membership interests in the limited liability company which is its
general partner, and is a designee of GMSP on the Board of Directors of
the Company. Mr. Chappel disclaims any beneficial interest in the
shares of Common Stock beneficially owned by GMSP and Mr. Goff and is
associated with their shares only because he is a principal of GMSP and
one of its designees on the Board of Directors of the Company. See
"ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Transactions with Goff Moore Strategic Partners, L.P." for information
regarding GMSP and the relationship of Messrs. Goff and Chappel to
GMSP. The address of GMSP is 777 Main Street, Suite 2250, Fort Worth,
Texas 76102.
(5) Based on information set forth in a Schedule 13G/A, dated November 2,
1999, these shares were reported, as of June 4, 1999, to be
beneficially owned 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.
(6) Based on information set forth in a Schedule 13D, dated May 6, 1998,
these shares were reported, as of April 27, 1998, to be beneficially
owned 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.
(7) Based on information set forth in a Schedule 13G, dated February 4,
2000, these shares were reported, as of December 31, 1998, to be
beneficially owned 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.
(8) Based on information set forth in a Schedule 13D/A, dated September 13,
1999, these shares were reported, as of September 10, 1999, to be
beneficially owned 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.
(9) Includes 589,710 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 and the 98 Plan
and 900 shares of Common Stock held by the 401(k) Plan for the account
of Mr. Anderson as beneficiary.
(10) Includes 51,927 shares of Common Stock held by the Joel Puckett
Self-Employed Retirement Trust and 193,701 shares of Common Stock that
Mr. Puckett has the right to acquire within 60 days through the
exercise of options granted under the 90 Plan and 95 Plan.
13
<PAGE> 14
(11) 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 124,064 shares of Common Stock that
Mr. Rosen has the right to acquire within 60 days through the exercise
of options granted under the 90 Plan and 95 Plan. Mr. Rosen is a
partner in the law firm of Shannon, Gracey, Ratliff & Miller, L.L.P.
(12) Includes 11,695 shares of Common Stock held by the 401(k) Plan for the
account of Ms. Ray as beneficiary and 76,250 shares of Common Stock
that Ms. Ray has the right to acquire within 60 days through the
exercise of options granted under the 90 Plan, 95 Plan and 98 Plan.
(13) Includes 40,567 shares of Common Stock held by the 401(k) Plan for the
account of Mr. Coots as beneficiary and 79,270 shares of Common Stock
that Mr. Coots has the right to acquire within 60 days through the
exercise of options granted under the 90 Plan, 95 Plan and 98 Plan.
(14) Includes 42,000 shares of Common Stock that Mr. Williams has the right
to acquire within 60 days through the exercise of options granted under
the 90 Plan and 95 Plan.
(15) Includes 50,400 shares of Common Stock that Mr. Wiedemann has the right
to acquire within 60 days through the exercise of options granted under
the 90 Plan and 95 Plan.
(16) Includes 1,889 shares of Common Stock held by the 401(k) Plan for the
account of Mr. Buxton as beneficiary and 31,132 shares of Common Stock
that Mr. Buxton has the right to acquire within 60 days through the
exercise of options granted under the 95 Plan and 98 Plan.
(17) Includes 7,545 shares of Common Stock held by the 401(k) Plan for the
account of Mr. Graham as beneficiary and 30,876 shares of Common Stock
that Mr. Graham has the right to acquire within 60 days through the
exercise of options granted under the 90 Plan, 95 Plan and 98 Plan.
(18) Includes 33,600 shares of Common Stock that Mr. McGee has the right to
acquire within 60 days through the exercise of options granted under
the 90 Plan and 95 Plan.
(19) Includes (a) 63,360 shares of Common Stock held by the 401(k) Plan for
the account of executive officers, (b) 1,345,082 shares of Common Stock
that directors and executive officers of the Company have the right to
acquire within 60 days through the exercise of options granted under
the 90 Plan, 95 Plan and 98 Plan and pursuant to Mr. Anderson's
Employment Agreement with the Company, (c) 6,200,000 shares of Common
Stock which GMSP may acquire upon conversion of 31,620 shares of the
Series A Preferred Stock, (d) 3,100,000 shares of Common Stock issuable
upon exercise of presently exercisable warrants to purchase Common
Stock held by GMSP, and (e) 1,064,000 shares of Common Stock that GMSP
has advised the Company are beneficially owned by GMSP, of which Mr.
Goff is a managing principal and Mr. Chappel is a principal.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GLENN W. ANDERSON EMPLOYMENT AGREEMENT. On April 17, 1998 Mr. Anderson
assumed the position of President and Chief Executive Officer of the Company
under an employment agreement (the "Anderson Employment Agreement") negotiated
between Mr. Anderson and the outside directors prior to his agreeing to join the
Company. The Anderson Employment Agreement provided that Mr. Anderson was to
receive an annual base salary of $340,000 (of which $238,436 was paid in 1998),
a guaranteed first year bonus of $260,000 (of which $195,000 was accrued in 1998
and paid in 1999 and $65,000 was paid in 1999), payment of relocation expenses
and various other benefits aggregating $155,397 in 1998, and a non-qualified
stock option to purchase 579,710 shares of Common Stock at an exercise price
initially fixed at $8.625 per share. See "ITEM 11. EXECUTIVE COMPENSATION -
Summary Compensation Table." The Anderson Employment Agreement provided that, if
on any trading day within five business days after the public announcement of
the Company's results of operations for the quarter ended June 30, 1998, the
last reported sales price for the Common Stock on the New York Stock Exchange
was below the initial price, Mr.
14
<PAGE> 15
Anderson's option was to be canceled and replaced with a new option for the same
number of shares and with an exercise price equal to the lowest closing price
during that five day period. In accordance with those provisions, on July 24,
1998 Mr. Anderson was issued a replacement non-qualified stock option to
purchase 579,710 shares of Common Stock for $5.75, subject to typical
anti-dilution provisions. The options were fully vested and exercisable upon
grant and had a term of five years.
The Anderson Employment Agreement provided for an initial four year
term. On each anniversary of its making, the Anderson Employment Agreement
automatically extends for an additional one year period, unless either the
Company or Mr. Anderson delivers written notice to the other at least thirty
days prior to the anniversary. The Anderson Employment Agreement permits
termination of Mr. Anderson for cause with payment of salary accrued to the date
of termination. If Mr. Anderson's employment is terminated without cause, he
will be entitled to an amount equal to thirty-six times 150% of his then current
monthly rate of base salary. The Company also entered into a change in control
agreement with Mr. Anderson in substantially the same form as those entered into
with other executive officers of the Company. If Mr. Anderson is terminated
without cause, he will be entitled to the greater of (i) the amount he would be
entitled to upon such termination under the Anderson Employment Agreement in the
absence of a change in control or (ii) the amount called for by his change in
control agreement.
TRANSACTIONS WITH GOFF MOORE STRATEGIC PARTNERS, L.P. On October 4,
1999, the Company consummated the sale of shares of Series A Preferred Stock and
warrants to purchase Common Stock to GMSP pursuant to a Securities Purchase
Agreement ("Purchase Agreement") between the Company and GMSP dated effective
June 29, 1999 (the "GMSP Transaction"). At the closing, the Company sold to GMSP
for cash consideration of $31,620,000 (i) 31,620 shares of the Series A
Preferred Stock, which are convertible into shares of the Common Stock at a
conversion price of $5.10 per share (subject to adjustment), currently for a
total of 6,200,000 shares of Common Stock, (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), 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). At the closing, the Company and certain of the Company's
subsidiaries entered 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 Series A Preferred Stock issued to GMSP is presently convertible
into, and the Series A Warrant and Series B Warrant are presently exercisable
for, shares of Common Stock at the option of the holder. Assuming the Series A
Preferred Stock is fully converted and the Series A Warrant and Series B Warrant
are fully exercised on the Record Date, GMSP would own directly and have the
power to vote 10,164,000 shares of Common Stock (approximately 33.7% of the then
outstanding Common Stock). Each share of Series A Preferred Stock is entitled to
vote with the Common Stock as a single class on all matters for which the Common
Stock may vote on the basis of one vote per share of Common Stock into which it
is convertible. The shares underlying the Series A Warrant and the Series B
Warrant are not currently outstanding and do not have voting rights. The
Purchase Agreement generally prohibits GMSP, its affiliates, associates, and
employees from beneficially owning in the aggregate more than 35% of the
fully-diluted Common Stock, other than as a result of repurchases of stock by
the Company or pursuant to the acquisition of additional shares of Common Stock
pursuant to the Company's 1990 Stock Option Plan, 1995 Stock Option Plan, or
1998 Long-Term Incentive Plan.
15
<PAGE> 16
GMSP was formed in February 1998, to serve as the primary investment
vehicle for its 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 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 is a principal
of GMSP and has been associated with Mr. Rainwater and his affiliated companies
for 12 years. Mr. Goff owns approximately 82.3% of the limited partnership
interests of GMSP Operating Partners, L.P., the managing general partner of
GMSP. GMSP Operating Partners, L.P. owns approximately 7.8% of the partnership
interests of GMSP. Mr. Goff also owns all of the membership interests of GMSP,
L.L.C., the general partner of GMSP Operating Partners, L.P. GMSP, L.L.C. owns
1% of the partnership interests and is the general partner of GMSP Operating
Partners, L.P.
The Purchase Agreement provides that GMSP is entitled to designate two
directors as long as GMSP and its affiliates, associates and employees maintain
ownership of 75% of its current security holdings in the Company or 20% of the
fully diluted Common Stock, and one director by maintaining ownership of 50% of
its current security holdings or 5% of the fully diluted Common Stock. GMSP has
designated Messrs. Goff and Chappel as its representatives on the Board. Any
substitute for Messrs. Goff or Chappel must be acceptable to the members of the
Board not affiliated with GMSP, its affiliates, associates or employees.
Pursuant to the Purchase Agreement, the Company and each of its
insurance company subsidiaries entered into Investment Management Agreements
with GMSP which provide GMSP will manage the investments of the holding and
insurance company funds of the type listed under the categories "Investments" on
the Company's reports filed with the SEC. Under the Investment Management
Agreements, GMSP is to receive investment management 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. No fees are payable with respect to the
portions of the portfolio held in cash. Accrued fees are 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 the Investment
Management Agreements.
Pursuant to these Investment Management Agreements and with the
specific approval of the Investment Committee (which is comprised of four
directors who are not affiliated with GMSP), the Company has invested in
entities in which GMSP or its principals are affiliates or co-investors, and the
Company may continue this practice in the future. In November 1999, GNA agreed
to invest $2,000,000 in GNA Investments I, L.P., a Texas limited partnership, in
which GMSP has 1% general partner interest and GNA has 99% limited partner
interest, to serve as a conduit for co-investing with GMSP in private
transactions with early stage technology companies whose securities are
speculative and involve a high degree of risk, and in April 2000, GNA agreed to
increase its investment in this partnership to $5,000,000. In February and March
2000, the Company purchased in open market transactions common stock of Crescent
Real Estate Equities, Inc. ("CEI") at an aggregate cost of $2,522,820 and 7.50%
senior unsecured notes due September 15, 2007 of CEI's affiliate, Crescent Real
Estate Equities Limited Partnership, at an aggregate cost of $2,443,488. Mr.
Goff is President, Chief Executive Officer and a director of CEI. In April 2000,
the Company invested $1,006,494 in senior notes of Pioneer Natural Resources
Company, of which Mr. Rainwater, a limited partner of GMSP, is a director and
the beneficial owner of approximately 5.6% of the common stock.
16
<PAGE> 17
LALANDE GROUP ACQUISITION. On October 23, 1998, the Company completed
the acquisition of the Lalande Financial Group, Inc. ("Lalande Group"). The
Lalande Group includes National Specialty Lines, Inc. ("NSL") and DLT Insurance
Adjusters, Inc. ("DLT"). NSL is a managing general agency that markets
nonstandard personal auto insurance through approximately 800 retail agencies in
Florida. DLT is an automobile claims adjusting firm that provides claim services
on NSL produced business and to outside parties. The purchase price was for
$18,000,000 in cash paid at closing plus up to an additional $22,000,000 in cash
to be paid over approximately five years contingent upon the operating
performance of the Lalande Group. The Company will pay $2,000,000 of the
operating performance contingency in the second quarter of 2000.
Carlos de la Torre and McRae B. Johnston entered into employment
contracts with the Company upon consummation of the Company's acquisition of the
Lalande Group. They shared the major part of the consideration paid for the
Lalande Group.
AGREEMENT WITH CLIENTSOFT. Beginning in July, 1999 and as part of the
Company's initiative for linking its agents through a new Internet system, the
Company entered into arrangements with ClientSoft, Inc. for the development of
software for an Internet-based point of sale system to facilitate the Company's
independent agents' performance of functions such as quoting, rating,
application completion, policy underwriting and requesting reports. In 1999 the
Company paid approximately $193,000 to ClientSoft under these arrangements and
has budgeted spending an additional $1,000,000 for ClientSoft services in 2000.
Glenn W. Anderson, President, Chief Executive Officer and a director of the
Company, was a director of ClientSoft from December 13, 1999 to February 22,
2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORMS 8-K
(a)(3) The following additional exhibit, which is filed herewith, is added to
those previously filed with the Registrant's Form 10-K for 1999:
EXHIBIT NO. DOCUMENT
10.15 Amended and Restated Agreement of Limited
Partnership of GNA Investments I, L.P. dated
as of April 14, 2000 between the Registrant
and Goff Moore Strategic Partners, L.P.
("GMSP")
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GAINSCO, INC.
(Registrant)
/s/ Glenn W. Anderson
- ---------------------------------
By: Glenn W. Anderson, President
Date: April 28, 2000
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Joel C. Puckett* Chairman of the Board April 28, 2000
- ---------------------------
Joel C. Puckett
/s/ Glenn W. Anderson President, Chief Executive Officer April 28, 2000
- --------------------------- and Director
Glenn W. Anderson
/s/ Daniel J. Coots Senior Vice President, Chief April 28, 2000
- --------------------------- Financial Officer and Director
Daniel J. Coots
Sam Rosen* Secretary and Director April 28, 2000
- ---------------------------
Sam Rosen
J. Randall Chappel* Director April 28, 2000
- ---------------------------
J. Randall Chappel
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
John C. Goff* Director April 28, 2000
- ---------------------------
John C. Goff
Robert J. McGee, Jr.* Director April 28, 2000
- ---------------------------
Robert J. McGee, Jr.
Harden H. Wiedemann* Director April 28, 2000
- ---------------------------
Harden H. Wiedemann
John H. Williams* Director April 28, 2000
- ---------------------------
John H. Williams
</TABLE>
*By: /s/ Glenn W. Anderson
------------------------
Glenn W. Anderson,
Attorney-in-fact
Under Power of Attorney
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.15 Amended and Restated Agreement of Limited Partnership of GNA
Investments I, L.P. dated as of April 14, 2000 between the
Registrant and Goff Moore Strategic Partners, L.P. ("GMSP")
</TABLE>
<PAGE> 1
EXHIBIT 10.15
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GNA INVESTMENTS I, L. P.
(A TEXAS LIMITED PARTNERSHIP)
DATED AS OF APRIL 14, 2000
THE LIMITED PARTNERSHIP INTERESTS DESCRIBED HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAWS IN RELIANCE UPON EXEMPTIONS THEREFROM. THEY MAY NOT BE OFFERED FOR SALE,
SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND THE RESTRICTIONS ON TRANSFER SET
FORTH IN THIS AGREEMENT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I.
DEFINITIONS..............................................................................................1
1.1 Certain Definitions.............................................................................1
1.2 Terms Defined in Investment Management Agreement................................................5
ARTICLE II.
FORMATION................................................................................................6
2.1 Formation, Name and Principal Office............................................................6
2.2 Office and Agent for Service of Process.........................................................6
2.3 Purpose of the Partnership......................................................................6
2.4 Names and Addresses of the Partners.............................................................6
2.5 Term of the Partnership.........................................................................6
2.6 Required Documents..............................................................................7
ARTICLE III.
CAPITALIZATION...........................................................................................7
3.1 Prior Capital Contributions.....................................................................7
3.2 Additional Capital Contributions................................................................7
3.3 Withdrawal and Return on Capital................................................................8
3.4 Loans...........................................................................................8
3.5 Limitation of Liability.........................................................................8
ARTICLE IV.
ALLOCATIONS..............................................................................................8
4.1 Allocation of Net Income and Net Loss...........................................................8
4.2 Special Allocations.............................................................................8
4.3 Other Allocation Rules..........................................................................9
4.4 Allocations for Federal Income Tax Purposes.....................................................9
4.5 Withholding Taxes..............................................................................10
ARTICLE V.
DISTRIBUTIONS...........................................................................................10
5.1 Distributions..................................................................................10
ARTICLE VI.
ADMINISTRATIVE PROVISIONS...............................................................................11
6.1 Rights of the Limited Partner..................................................................11
6.2 Management by the General Partner..............................................................12
6.3 Powers of the General Partner..................................................................12
6.4 Limitations on Powers of the General Partner...................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
6.5 Other Ventures.................................................................................13
6.6 Duties with Respect to Investment Decisions....................................................14
6.7 Payment of Organization Costs and Expenses.....................................................15
6.8 Partner Compensation...........................................................................15
6.9 Filing of Tax Returns..........................................................................15
6.10 Tax Matters Partner............................................................................16
6.11 Records and Financial Statements...............................................................16
6.12 Tax Reports to Partners........................................................................17
6.13 Valuation of Partnership Assets................................................................18
6.14 Confidentiality................................................................................18
ARTICLE VII.
TRANSFER OF A PARTNERSHIP INTEREST; WITHDRAWALS.........................................................18
7.1 Transfers by the Limited Partner...............................................................18
7.2 Withdrawal by a Limited Partner................................................................19
7.3 Transfers by the General Partner...............................................................20
7.4 Withdrawal by the General Partner..............................................................20
ARTICLE VIII.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP..........................................................20
8.1 Dissolution Events.............................................................................20
8.2 Conversion of General Partner Interest to a Limited Partner Interest...........................20
8.3 Winding Up of the Partnership..................................................................20
8.4 Application of Proceeds of Liquidation.........................................................21
8.5 Restoration Obligation.........................................................................21
8.6 Timing of Liquidating Distributions............................................................21
8.7 Liquidating Trust..............................................................................21
ARTICLE IX.
LIABILITY AND INDEMNIFICATION OF THE GENERAL PARTNER...........................................22
9.1 Liability......................................................................................22
9.2 Indemnification................................................................................22
ARTICLE X.
GENERAL PROVISIONS......................................................................................22
10.1 Special Meetings...............................................................................22
10.2 Entire Agreement...............................................................................22
10.3 Amendments.....................................................................................22
10.4 Governing Law..................................................................................23
10.5 Severability...................................................................................23
10.6 Counterparts...................................................................................23
10.7 Survival of Rights.............................................................................23
10.8 Notices........................................................................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
10.9 Consents.......................................................................................23
10.10 No Partition...................................................................................23
10.11 Representations by Limited Partner.............................................................23
Attachments:
Schedule A Investment Criteria
Schedule B Names, Addresses, Aggregate Committed Capital
Contributions and Sharing Ratios
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GNA INVESTMENTS I, L. P.
(A TEXAS LIMITED PARTNERSHIP)
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"AGREEMENT") of GNA Investments I, L. P. a Texas limited partnership (the
"PARTNERSHIP"), is entered into as of April 14, 2000 by and among Goff Moore
Strategic Partners, L.P., a Texas limited partnership ("GMSP"), as the sole
General Partner, and GAINSCO, INC., a Texas corporation ("GNA") as the sole
Limited Partner.
WHEREAS, GNA and GMSP have heretofore entered into an Agreement of
Limited Partnership dated as of November 30, 1999 (the "ORIGINAL AGREEMENT") for
the Partnership and desire to amend and restate it to read in its entirety as
set forth below.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and in the Original Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, GMSP and GNA hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"ACT" means the Texas Revised Limited Partnership Act, as amended.
"AGREEMENT" has the meaning specified in the first paragraph hereof.
"ASSIGNEE" means a Person who has acquired all or a portion of the
Limited Partner's Interest in the Partnership, but who has not become a
Substitute Limited Partner.
"BANKRUPTCY" or "BANKRUPT" means, with respect to a Person, (i) the
making of a general assignment for the benefit of creditors, (ii) the entry of
an order for relief in any bankruptcy, reorganization or insolvency proceeding,
(iii) the filing or commencement by or against the Person of any application or
petition for the appointment of a trustee, receiver or other similar official
over the Person or any substantial part of the Person's assets, or of any
proceeding under any bankruptcy, insolvency or reorganization statute or under
any liquidation or other law relating to relief of debtors,
<PAGE> 6
unless, in the case of such an action or proceeding filed or commenced against
the Person without the Person's acquiescence or consent, the action or
proceeding is dismissed within ninety (90) days after the date of its filing or
commencement.
"BOOK BASIS" means, with respect to any Partnership asset, the asset's
adjusted basis for federal income tax purposes, except that (i) the initial Book
Basis of a Partnership asset contributed by a Partner to the Partnership shall
be the gross Fair Market Value of the asset on the date of contribution, as
determined by the Valuation Partner in accordance with Section 6.13; (ii) upon
the occurrence of a Revaluation Event, the Book Basis of each Partnership asset
shall be adjusted to its respective Fair Market Value on such date, as
determined by the Valuation Partner in accordance with Section 6.13; and (iii)
if the Book Basis of any Partnership asset has been determined pursuant to
subsection (i) or (ii) above, the Book Basis of the asset shall thereafter be
adjusted by depreciation, amortization or other cost recovery deductions
determined in accordance with the provisions of Treasury regulations Section
1.704-1(b)(2)(iv)(g)(3) in lieu of any depreciation, amortization or other cost
recovery deductions allowable for federal income tax purposes.
"CAPITAL ACCOUNT" means, for each Partner, a separate account that is:
(a) increased by (i) the amount of such Partner's Capital
Contributions and (ii) allocations of Net Income and items of Income to such
Partner pursuant to Article IV;
(b) decreased by (i) the amount of cash distributed to such
Partner by the Partnership, (ii) the Fair Market Value of any other property
distributed to such Partner by the Partnership (determined as of the date of
distribution, without regard to Code Section 7701(g), and net of liabilities
secured by such property that the Partner assumes or to which the Partner's
ownership of the property is subject), and (iii) allocations of Net Loss and
items of Loss to such Partner pursuant to Article IV; and
(c) otherwise adjusted so as to conform to the requirements of
Code Sections 704(b) and the Treasury regulations thereunder.
"CAPITAL CONTRIBUTIONS" means, for a Partner, the amount of cash and
the Fair Market Value, without regard to Code Section 7701(g), of any other
property (determined as of the date of contribution and net of liabilities
secured by such property that the Partnership assumes or to which the
Partnership's ownership of the property is subject) contributed by the Partner
to the capital of the Partnership. Unless otherwise permitted by the General
Partner, all Capital Contributions shall be made in cash.
"CODE" means the Internal Revenue Code of 1986, as amended.
"EXPENSES" of the Partnership means all direct, out-of-pocket costs and
expenses reasonably incurred either by the Partnership or by the General Partner
or an Affiliate thereof on behalf of the
2
<PAGE> 7
Partnership relating to (a) the fees and expenses associated with the
preparation of financial statements pursuant to Section 6.11 and the tax reports
described in Section 6.12, (b) the fees, costs and expenses incurred in
connection with investigating, negotiating, acquiring, holding, selling or
exchanging of Securities (including fees and expenses of lawyers, accountants,
consultants, brokerage fees, incentive fees or finder's fees, investment
banker's fees, commitment fees, underwriting discounts or sales fees), (c)
legal, audit and other expenses incurred in connection with the registration of
the offer and sale of Securities owned by the Partnership under the Securities
Act of 1933, as amended, and any applicable state or foreign securities laws,
and (d) other expenses described in Section 4(d) of the Investment Management
Agreement; provided, however, that in no event shall Expenses include any of the
following costs and expenses incurred by the Partnership or the General Partner
or any of its Affiliates: (i) the salaries, wages and employee benefits of all
officers, directors, and employees of the General Partner or an Affiliate
thereof, (ii) office rent, utility charges and equipment and furniture costs and
expenses, (iii) any other general, administrative and overhead expense,
including insurance premiums relating to the matters described in this clause
(iii) and the preceding clauses (i) and (ii), and (iv) amounts payable by the
Partnership (other than for the actual value of services rendered to or property
purchased by the Partnership) in consequence of any actual or alleged fraud,
negligence, breach of fiduciary duty, violation of any law, governmental rule or
regulation or other misconduct by the General Partner.
"FAIR MARKET VALUE" has the meaning specified in the Investment
Management Agreement in the case of Securities and, in the case of any other
asset, means the price that would obtain in a transaction between a willing
buyer and a willing seller in which neither party was under any compulsion to
enter into the transaction.
"FISCAL YEAR" means the period from January 1 through December 31 of
each year.
"GENERAL PARTNER" means GMSP or any other Person admitted to the
Partnership as a general partner pursuant to Section 7.3 or 8.1(c).
"GMSP" means Goff Moore Strategic Partners, L.P., a Texas limited
partnership.
"GNA" means GAINSCO, INC., a Texas corporation.
"INCOME" means, for each Fiscal Year, each item of income and gain as
determined, recognized and classified for federal income tax purposes, provided,
that (i) items of income or gain exempt from federal income tax shall be
included as items of Income, (ii) upon a disposition of any Partnership asset,
items of income or gain arising therefrom shall be computed by reference to the
asset's Book Basis on the date of disposition rather than the asset's adjusted
tax basis, (iii) upon a distribution of any Partnership asset, whether or not in
connection with the liquidation of the Partnership, any unrealized items of
income or gain inherent therein that have not previously been reflected in the
Partners' Capital Accounts shall be included as items of Income as if the asset
had been sold for its Fair Market Value on the date of its distribution, and
(iv) if the Book Basis of any
3
<PAGE> 8
Partnership asset is adjusted upwards upon the occurrence of a Revaluation
Event, the amount of the adjustment shall be included as an item of Income.
"INTEREST" means all of a Partner's interest in the Partnership,
including rights to distributions, allocations, information and reports, and to
vote, consent or approve.
"INTEREST RATE" means a varying rate per annum equal to the lesser of
(i) the "prime rate" as quoted by the Wall Street Journal (Southwest Edition)
from time to time or (ii) the maximum nonusurious rate permitted from time to
time by Applicable Law.
"INVESTMENT CRITERIA" has the meaning set forth in the second WHEREAS
clause of this Agreement.
"INVESTMENT MANAGEMENT AGREEMENT" means the Investment Management
Agreement dated as of October 4, 1999 between GNA and GMSP.
"LIMITED PARTNER" means GNA and any other Person admitted to the
Partnership as a limited partner or as a Substitute Limited Partner and which
has not withdrawn from the Partnership or transferred its entire Interest to a
Substitute Limited Partner pursuant to Article VII. Except where the context
requires otherwise, a reference in this Agreement to the "LIMITED PARTNER" shall
mean all of the Limited Partners of the Partnership at the time of
determination.
"LIQUIDATOR" means the General Partner unless another Person is
selected pursuant to Section 8.3.
"LOSS" means, for each Fiscal Year, each item of loss or deduction as
determined, recognized and classified for federal income tax purposes; provided
that (i) expenditures of the Partnership described in Code Section 705(a)(2)(B)
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
regulations Section 1.704-1(b)(2)(iv)(i) shall be included as items of Loss,
(ii) upon a disposition of any Partnership asset, items of loss or deduction
arising therefrom shall be computed by reference to the asset's Book Basis on
the date of disposition rather than the asset's adjusted tax basis, (iii) upon a
distribution of any Partnership asset, whether or not in connection with the
liquidation of the Partnership, any unrealized items of loss or deduction
inherent therein which have not previously been reflected in the Partners'
Capital Accounts shall be included as items of Loss as if the asset had been
sold for its Fair Market Value on the date of distribution, (iv) if the Book
Basis of any Partnership asset is adjusted downwards upon the occurrence of a
Revaluation Event, the amount of the adjustment shall be included as an item of
Loss, and (v) if the Book Basis of any Partnership asset differs from the
adjusted tax basis of the asset, items of depreciation, amortization or other
cost recovery deductions attributable to the asset shall be determined in
accordance with the provisions of Treasury regulations Section
1.704-1(b)(2)(iv)(g)(3) in lieu of any depreciation, amortization or other cost
recovery deductions allowable for federal income tax purposes.
4
<PAGE> 9
"NET INCOME" and "NET LOSS" mean, for each Fiscal Year, the positive or
negative difference, as the case may be, between all items of Income for such
year and all items of Loss for such year; provided, that Net Income or Net Loss
for each Fiscal Year shall be computed by excluding from such computation any
item of Income or Loss specially allocated to a Partner under Section 4.2.
"ORGANIZATION COSTS" shall mean all actual out-of-pocket legal fees,
costs and expenses of the General Partner and all filing fees payable to
governmental entities associated with the formation of the Partnership.
"PARTNER" means the General Partner or the Limited Partner as the
context requires. Except where the context requires otherwise, a reference in
this Agreement to the "PARTNERS" shall mean all of the Partners of the
Partnership at the time of determination.
"PARTNERSHIP" has the meaning set forth in the first paragraph hereof.
"REVALUATION EVENT" means any of the following: (i) the acquisition of
an additional Interest by any new or existing Partner in exchange for more than
a de minimis Capital Contribution, (ii) a distribution to one or more Partners
of more than a de minimis amount of money or other property as consideration for
all or part of the Partner's Interest, or (iii) the liquidation of the
Partnership within the meaning of Treasury regulations Section
1.704-1(b)(2)(ii)(g); provided, that the General Partner may elect, in its
discretion, to treat other events as Revaluation Events or to treat any of the
above named events as not constituting Revaluation Events to the extent the
General Partner determines doing or not doing so better reflects the economic
interests of the Partners in the Partnership.
"SHARING RATIOS" means, initially, the ratio of each Partner's initial
Capital Contribution to the total initial Capital Contributions of all Partners,
as reflected on Schedule B hereto. Upon the occurrence of a Revaluation Event,
the Sharing Ratios shall be redetermined by the General Partner based on the
ratio of each Partner's Capital Account balance (as adjusted to reflect the
Revaluation Event) to the total Capital Account balances (as adjusted to reflect
the Revaluation Event) of all Partners.
"SUBSTITUTE LIMITED PARTNER" means an Assignee of a Limited Partner's
Interest that becomes a Limited Partner and succeeds, to the extent of the
Interest assigned, to the rights and powers and becomes subject to the
restrictions and liabilities of the assignor Limited Partner.
"VALUATION PARTNER" has the meaning set forth in Section 6.13(a).
1.2 TERMS DEFINED IN INVESTMENT MANAGEMENT AGREEMENT. Unless otherwise
defined in this Agreement or the context otherwise requires, terms used but not
otherwise defined in this Agreement shall have the meanings specified in the
Investment Management Agreement. The terms whose meaning is so incorporated by
reference from the Investment Management Agreement include without limitation:
5
<PAGE> 10
Affiliate
Applicable Law
Associate
Confidential Information
GMSP Group
GMSP Principals
good faith
Governmental Authority
Person
Securities
ARTICLE II.
FORMATION
2.1 FORMATION, NAME AND PRINCIPAL OFFICE. The Partners formed the
Partnership on November 30, 1999 for the limited purpose and scope set forth in
this Agreement, and the Partners hereby enter into this Agreement for the
purpose of amending and restating the Original Agreement in its entirety. The
Partnership shall be a limited partnership and, except as provided herein, shall
be governed by the Act. The name of the Partnership shall be "GNA Investments I,
L.P." The address of the principal office of the Partnership shall be 777 Main
Street, Suite 2250, Fort Worth, Texas 76102 or, upon notice to the Limited
Partner, at such other place as may be designated by the General Partner.
2.2 OFFICE AND AGENT FOR SERVICE OF PROCESS. The Partnership shall have
a principal office located within the State of Texas at which shall be
maintained records and documents of the Partnership as required under Section
1.07 of the Act. Unless otherwise designated by the General Partner as provided
in the Act, the registered agent for service of process on the Partnership shall
be J. Randall Chappel and the street address of the registered office of the
Partnership shall be 777 Main Street, Suite 2250, Fort Worth, Texas 76102.
2.3 PURPOSE OF THE PARTNERSHIP. The purpose of the Partnership shall be
to acquire, hold for investment, and distribute or otherwise dispose of
Securities which meet the Investment Criteria at the time of acquisition.
2.4 NAMES AND ADDRESSES OF THE PARTNERS. The name and address of each
Partner shall be set forth on Schedule B.
2.5 TERM OF THE PARTNERSHIP. The Partnership commenced on November 30,
1999 and, unless the Partnership is earlier dissolved pursuant to Article VIII,
shall continue until the close of business on November 30, 2010 or until the
close of business on such later date as is provided for in a consent executed by
the General Partner and the Limited Partner.
6
<PAGE> 11
2.6 REQUIRED DOCUMENTS.
(a) Partnership Documents. The General Partner filed the
Certificate of Limited Partnership of the Partnership with the Secretary of
State of the State of Texas on November 30, 1999, and shall cause any other
documents required to be filed, recorded or amended in connection with the
formation or operation of the Partnership pursuant to the laws of the State of
Texas or any other jurisdiction in which the Partnership's business is
conducted.
(b) Other Documents. The Limited Partner shall execute and
acknowledge as requested by the General Partner such documents as may be
necessary or desirable to (i) comply with legal requirements applicable to the
formation of the Partnership or the operation of the Partnership's business, or
(ii) otherwise give effect to the terms of this Agreement.
(c) Special Power of Attorney. The Limited Partner hereby
grants to the General Partner a special power of attorney (with full rights of
assignment) irrevocably appointing the General Partner as the Limited Partner's
attorney-in-fact with power and authority to execute and acknowledge, in the
Limited Partner's name and on its behalf, any document described in Section
2.6(a) or (b). Such special power of attorney is coupled with an interest and
shall not be revoked by the death or disability of any Limited Partner.
ARTICLE III.
CAPITALIZATION
3.1 PRIOR CAPITAL CONTRIBUTIONS. Each Partner has heretofore made
Capital Contributions as are reflected in the books and records of the
Partnership in the ratio specified for that Partner on Schedule B.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) General. Except as otherwise provided in Section 3.2(b) or
(c) or any nonvariable provision of the Act, no Partner shall be permitted or
required to make any additional Capital Contributions to the Partnership.
(b) Required Additional Capital Contributions. In the event
that the General Partner determines that the Partnership needs additional
capital to acquire additional Securities, for the payment of Partnership
Expenses or for any other proper Partnership purpose, the General Partner may
from time to time request additional Capital Contributions by the Limited
Partner not to exceed its Aggregate Committed Capital Contribution set forth on
Schedule B, and the Limited Partner shall make the requested additional Capital
Contribution not later than the later of (i) the fifth (5th) business day after
its receipt of the request therefor or (ii) the date specified in the request.
The General Partner shall make additional Capital Contributions from time to
time to the extent necessary to cause its aggregate Capital Contributions to
equal 1.01% of the aggregate Capital Contributions of the Limited Partner.
7
<PAGE> 12
(c) Voluntary Additional Capital Contributions. If the General
Partner determines that the Partnership needs additional capital to acquire
additional Securities, for the payment of Partnership Expenses or for any other
proper Partnership purpose after the Partnership's expenditure of the Aggregate
Committed Capital Contributions set forth on Schedule B, the General Partner may
so notify the Limited Partner and permit voluntary additional Capital
Contributions by the Limited Partner. The General Partner shall make additional
Capital Contributions from time to time to the extent necessary to cause its
aggregate Capital Contributions to equal 1.01% of the aggregate Capital
Contributions of the Limited Partner.
3.3 WITHDRAWAL AND RETURN ON CAPITAL. Except as otherwise specifically
provided in this Agreement, no Partner shall (i) have the right or power to
withdraw all or any portion of its Capital Contributions without the prior
consent of the General Partner or (ii) be entitled to receive any return on any
portion of its Capital Contributions or Capital Account. Under circumstances
involving a return of any Capital Contribution, no Partner shall have the right
to receive property other than cash.
3.4 LOANS. No Partner shall be required to lend any money to the
Partnership or to guarantee any Partnership indebtedness. Any loan by a Partner
or an Affiliate or Associate of a Partner to the Partnership shall be on
commercially reasonable terms and shall bear interest at the Interest Rate.
Loans by a Partner to the Partnership shall not be considered Capital
Contributions.
3.5 LIMITATION OF LIABILITY. Except as otherwise provided by the Act or
Section 3.2, a Limited Partner shall have no liability as a Partner. A Partner
that receives a distribution (i) in violation of this Agreement or (ii) which is
required to be returned to the Partnership under the Act shall return the
distribution immediately upon demand therefor by the other Partner. A Partner
obligated to return property may, at its option, return cash equal to the Fair
Market Value of the property on the date of such return.
ARTICLE IV.
ALLOCATIONS
4.1 ALLOCATION OF NET INCOME AND NET LOSS. For each Fiscal Year or
period thereof, after first giving effect to the special allocations set forth
in Section 4.2, Net Income or Net Loss, as applicable, shall be allocated to the
Partners in proportion to their Sharing Ratios.
4.2 SPECIAL ALLOCATIONS. For each Fiscal Year or period thereof, the
following items of Income and Loss shall be specially allocated to the Partners
as follows, before allocations of Net Income or Net Loss are made pursuant to
Section 4.1:
(a) If a Partner unexpectedly receives any adjustment,
allocation or distribution described in Treasury regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain (including gross
income) shall be specially allocated to the Partner in an amount and manner
sufficient to eliminate, to the extent required by the Treasury regulations, the
deficit balance in the Partner's
8
<PAGE> 13
Capital Account as quickly as possible. This Section 4.2(a) shall be interpreted
consistently with Treasury regulations Section 1.704-1(b)(2)(ii)(d).
(b) To the extent an adjustment to the adjusted tax basis of
any Partnership asset under Code Sections 734(b) or 743(b) is required to be
taken into account in determining Capital Accounts under Treasury regulations
Section 1.704-1(b)(2)(iv)(m), the amount of the Capital Account adjustment shall
be included in determining items of Income or Loss and treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) and shall be specially allocated to
the Partners consistent with the manner in which their Capital Accounts are
required to be adjusted by such Treasury regulation.
(c) To minimize any distortions in the manner that the
Partners would have shared distributions if the special allocations required by
Section 4.2(a) and Section 4.2(b) (the "REGULATORY ALLOCATIONS") had not been
part of this Agreement, the General Partner may specially allocate to the
Partners offsetting items of Income or Loss so that the net amounts allocated to
each Partner pursuant to Sections 4.1 and Section 4.2 will, to the extent
possible, equal the net amounts that would have been allocated to each Partner
pursuant to Section 4.1 if the Regulatory Allocations had not been part of this
Agreement.
4.3 OTHER ALLOCATION RULES.
(a) To reflect any varying Interests during a Fiscal Year, Net
Income and Net Loss and items of Income and Loss shall be determined by the
General Partner on a daily, monthly or other basis using any convention or
method permitted under Code Section 706 and the Treasury regulations thereunder.
(b) If the Partnership borrows money or property on a
nonrecourse basis, the General Partner, in consultation with the Partnership's
tax advisors, shall modify the allocation provisions of this Article IV to the
minimum extent necessary to ensure that allocations relating to such nonrecourse
borrowing are respected for federal income tax purposes while preserving the
underlying economic objectives of the Partners as reflected in this Agreement.
4.4 ALLOCATIONS FOR FEDERAL INCOME TAX PURPOSES.
(a) Subject to Section 4.4(b), for each Fiscal Year or period
thereof, all items of taxable income, gain, loss and deduction of the
Partnership, determined solely for federal income tax purposes, shall be
allocated to the Partners in the same manner as each correlative item of Income
and Loss and Net Income and Net Loss is allocated pursuant to the provisions of
Sections 4.1, 4.2 and 4.3.
(b) In accordance with Code Section 704(c) and the Treasury
regulations thereunder, items of income, gain, loss and deduction with respect
to any Partnership asset with a Book Basis that differs from its adjusted tax
basis shall, solely for federal income tax purposes, be
9
<PAGE> 14
allocated among the Partners so as to take account of such difference at the
time it arose. Unless otherwise approved by the Partners, such allocations shall
be made utilizing the "Traditional Method with Curative Allocations" set forth
in Treasury regulations Section 1.704-3(c).
(c) Allocations pursuant to this Section 4.4 are solely for
federal income tax purposes and shall not affect the determination of the
Partners' Capital Accounts.
4.5 WITHHOLDING TAXES. The Partnership shall withhold taxes from
distributions to, and allocations among, the Partners to the extent required by
law (as determined by the General Partner in its sole discretion). Any amount so
withheld by the Partnership with regard to a Partner shall be treated for
purposes of this Agreement as an amount actually distributed to such Partner in
accordance with the provisions of Article V. An amount shall be considered
withheld by the Partnership if, and at the time, remitted to a Governmental
Authority without regard to whether such remittance occurs at the same time as
the distribution or allocation to which it relates; provided, that an amount
actually withheld from a specific distribution or designated by the General
Partner as withheld from a specific allocation shall be treated as if
distributed at the time such distribution or allocation occurs. To the extent
operation of the foregoing provisions of this Section 4.5 would create or
increase a deficit balance in a Partner's Capital Account, the amount of the
deemed distribution shall instead be treated as a loan by the Partnership to
such Partner, which loan shall bear interest at the Interest Rate.
ARTICLE V.
DISTRIBUTIONS
5.1 DISTRIBUTIONS.
(a) Operating Distributions. The General Partner may, from
time to time and in its sole discretion, cause the Partnership to distribute
cash or property (including Securities) to the Partners. All distributions
pursuant to this Section 5.1(a) shall be made to the Partners in proportion to
their Sharing Ratios.
(b) Liquidating Distributions. Notwithstanding the provisions
of Section 5.1(a), cash or property of the Partnership available for
distribution upon the dissolution of the Partnership (including cash or property
received upon the sale or other disposition of assets in anticipation of or in
connection with such dissolution) shall be distributed in accordance with the
provisions of Section 8.4.
(c) Limitation on Distributions. The General Partner shall use
its best efforts to ensure that no distribution shall be made to a Partner
pursuant to Section 5.1(a) or (b) if and to the extent that such distribution
would:
(i) create or increase a deficit balance in a
Partner's Capital Account;
10
<PAGE> 15
(ii) cause the Partnership to be insolvent; or
(iii) render the Limited Partner liable for a return
of such distribution under the Act.
ARTICLE VI.
ADMINISTRATIVE PROVISIONS
6.1 RIGHTS OF THE LIMITED PARTNER.
(a) No Management. The Limited Partner shall take no part in
the management or control (within the meaning of the Act) of the Partnership's
business and shall have no right or authority to act for the Partnership or to
vote on Partnership matters other than as specifically set forth in this
Agreement or as required under the Act.
(b) Outside Activities. The Limited Partner may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership. Neither the Partnership nor any of the Partners have any
rights by virtue of this Agreement in any business venture of any other Partner.
(c) Return of Capital. The Limited Partner is not entitled to
the withdrawal or return of its Capital Contribution, except to the extent, if
any, that distributions are made pursuant to this Agreement or upon termination
of the Partnership.
(d) Information. In addition to other rights provided by this
Agreement, the Investment Management Agreement or by Applicable Law, the Limited
Partner has the following rights relating to the Partnership:
(i) The Limited Partner has the right to inspect and
copy any of the Partnership's books for a proper purpose related to its interest
in the Partnership whenever circumstances render it just and reasonable, but
such inspection and copying is at the Limited Partner's own expense.
(ii) The Limited Partner has the right for a proper
purpose related to such Person's interest in the Partnership to have on demand
true and full information of all things affecting the Partnership and a formal
accounting of Partnership affairs whenever circumstances render it just and
reasonable, but the furnishing of such information or conducting such accounting
is at the Limited Partner's own expense.
(iii) The Limited Partner has the right, upon
notifying the General Partner of a proper purpose related to the Limited
Partner's interests in the Partnership, to have furnished to it, at its expense,
a copy of the names and amounts in interest of all Partners as of the date
specified in its written request.
11
<PAGE> 16
(iv) The Limited Partner has the right to have, on
demand and without charge, true copies of: (i) this Agreement, the Certificate
of Limited Partnership and all amendments or restatements thereof; and (ii) any
of the tax returns of the Partnership.
6.2 MANAGEMENT BY THE GENERAL PARTNER. The General Partner shall devote
such time and attention, and shall diligently perform those duties as are
reasonably necessary to manage effectively the Partnership's business; provided,
that to the extent not inconsistent with the foregoing requirements of this
Section 6.2 or the Investment Management Agreement, the General Partner shall be
permitted to conduct other affairs as described in Section 6.5.
6.3 POWERS OF THE GENERAL PARTNER. Subject to the provisions of the
Act, this Agreement and the Investment Management Agreement, the General Partner
shall have the exclusive power to perform all acts associated with the
management and operation of the Partnership including, without limitation, the
right to:
(a) Receive, buy, sell, exchange, trade and otherwise deal in
and with Securities and other property of the Partnership;
(b) Acquire Securities on the basis of investment
representations and subject to transfer restrictions;
(c) Make all decisions with respect to the voting of
Partnership Securities;
(d) Cause the Partnership to enter into, make and perform such
contracts, agreements and other undertakings, and to do such other acts, as it
may deem necessary or advisable for, or as may be incidental to, the conduct of
the business of the Partnership;
(e) Open, conduct business regarding, draw checks or other
payment orders upon, and close cash, checking, custodial or similar accounts
with banks or brokers on behalf of the Partnership and pay the customary fees
and charges applicable to transactions in respect of all such accounts; and
(f) Assume and exercise all powers and responsibilities
granted a general partner by the laws of the State of Texas.
Without limitation upon the foregoing, any contract, agreement, deed, lease,
note or other document or instrument executed on behalf of the Partnership by
the General Partner shall be deemed to have been duly executed, the Limited
Partner's signature shall not be required in connection with the foregoing, and
third parties shall be entitled to rely upon the General Partner's authority
under the provisions of this sentence without otherwise ascertaining that the
requirements of this Agreement have been satisfied.
12
<PAGE> 17
6.4 LIMITATIONS ON POWERS OF THE GENERAL PARTNER. The General Partner,
without the prior consent of the Limited Partner, shall have no authority to:
(a) Perform any act in contravention of this Agreement or the
Investment Management Agreement or, subject to the provisions of Sections 6.5
and 6.6, any act which is detrimental to or incompatible with the business of
the Partnership;
(b) Possess Partnership property, or assign its General
Partner's rights in specific Partnership property, for other than a Partnership
purpose;
(c) Admit a Person as an additional General Partner of the
Partnership;
(d) Receive any compensation or benefit from any issuer of any
Securities held by the Partnership or any of its Affiliates or Associates that
is not shared pro rata with the Partnership in accordance with the amount
invested, other than as specifically permitted pursuant to Section 6.5(b);
(e) Cause the Partnership to make any borrowings for the
purpose of acquiring or carrying Securities, provided that any Partner may
advance funds to the Partnership in accordance with Section 3.4 for the purpose
of permitting the Partnership to meet its obligations to pay Expenses;
(f) Invest any Partnership funds in Securities of an issuer in
which the General Partner or any member of the GMSP Group is an investor on a
basis different from that on which the Partnership invests;
(g) Cause the Partnership to enter into any agreement that
would commit the Partnership to purchase Securities that are not fully paid and
non-assessable at the time of purchase or that would commit the Partnership to
make future "follow-on" investments in issuers in addition to the Securities
acquired pursuant to a specific purchase agreement; or
(h) Commit the Partnership to pay any net profits interest or
convey any participation or other contingent interest in Partnership Securities
to any investment banker, broker, finder or other person on account of the
Partnership's investment in such Securities.
6.5 OTHER VENTURES.
(a) The Limited Partner (i) acknowledges that the General
Partner and its Affiliates, Associates, partners, officers, directors, agents
and employees are or may be involved in other financial, investment and
professional activities, including, but not limited to, management of other
investment funds, purchases and sales of Securities (including, without
limitation, venture capital and leveraged buy-out investment Securities),
investment and management counseling, and serving as officers, directors,
advisors and agents of other companies; and (ii) agrees that the General Partner
and its Affiliates, Associates, partners, officers, directors, agents and
employees may engage for their
13
<PAGE> 18
own accounts and for the accounts of others in any such ventures and activities
as and to the full extent provided in this Agreement and in Section 5 of the
Investment Management Agreement.
(b) No provision of this Agreement or the Investment
Management Agreement shall be construed to preclude the partners, Affiliates or
employees of the General Partner from acting as a director or officer (or any
similar capacity) to any corporation, partnership, trust or other business
entity in which the Partnership has acquired Securities, or from receiving
compensation or profit therefor. In connection with the foregoing, the Partners
contemplate that partners, Affiliates or employees of the General Partner may
serve on the board of directors of companies in which the Partnership acquires
Securities, and any compensation received by such persons in connection with
such service on the board of directors of any such company, which compensation
is consistent with the compensation payable to other members of any such board
of directors, will not be payable to the Partnership or deemed a reduction from
the fees payable to the General Partner pursuant to the Investment Management
Agreement and is specifically authorized by the terms of this Agreement.
6.6 DUTIES WITH RESPECT TO INVESTMENT DECISIONS.
(a) The Limited Partner recognizes that the Partnership will
participate with the General Partner as a co-investor in the acquisition of
certain Securities to the extent that the General Partner determines in its sole
discretion, provided that the General Partner shall have no obligation to offer
to the Partnership any particular co-investment opportunity in each Security
acquired by the General Partner that otherwise satisfies the Investment
Criteria. In the event that the General Partner does permit the Partnership to
co-invest with the General Partner, the amount of any such co-investment will be
set by the General Partner in its sole discretion, and the decision of the
General Partner shall be final. The terms of any co-investment by the
Partnership shall be on terms identical to or substantially similar and no less
favorable in any material respect than the terms of the investment made by the
General Partner. No such decisions by the General Partner shall be considered a
breach of this Agreement or its fiduciary duties to the Limited Partner or a
breach of the Investment Management Agreement. Furthermore, to the extent that
any decisions made pursuant to this Section 6.6(a) are deemed to involve an
actual or potential conflict of interest, such conflict of interest is hereby
specifically authorized pursuant to Section 5(b) of the Investment Management
Agreement.
(b) The Limited Partner recognizes that decisions concerning
investments and potential investments that meet the Investment Criteria involve
the exercise of judgment, are highly speculative and could involve the complete
loss of the Partnership's investment, and agrees that Investment Management
Agreement, as specifically modified by this Agreement, establishes the
parameters of the General Partner's duties and responsibilities with respect
thereto.
(c) The Partners also recognize that the General Partner in
its sole discretion may offer co-investment opportunities to its partners, its
designated Affiliates and/or any other person that the General Partner shall
determine in its sole discretion in the same manner as the Partnership will
co-invest with the General Partner. It is the intention of the General Partner
to so offer co-investment opportunities, when practicable and feasible, with
respect to each investment made by the Partnership,
14
<PAGE> 19
provided that the General Partner shall be under no obligation to do so. The
amount of any such co-investment will be set by the General Partner in its sole
discretion, subject to acceptance by the potential investor.
6.7 PAYMENT OF ORGANIZATION COSTS AND EXPENSES.
(a) The Partnership shall pay, or shall reimburse the General
Partner or any Affiliate thereof for its payment of, Organization Costs.
(b) The Partnership shall pay, or shall reimburse the General
Partner or any Affiliate thereof for its payment of, all Expenses.
(c) To the extent any Expenses or other costs are attributable
to any of the Partnership and other co-investors (including the General Partner
investing for its own account), such costs shall be allocated among such
entities based on their respective (i) interests in such Securities if such
Expenses are attributable to such Securities, or (ii) aggregate amounts of
capital agreed to be contributed and/or loaned to them by their respective
partners and Affiliates if such costs are not attributable to any specific
acquisition of Securities.
(d) Other than the compensation payable pursuant to Section 4
of the Investment Management Agreement (as described in Section 6.8 below) and
for the payment of Expenses described in above in this Section 6.7, the General
Partner shall not be entitled to any other payments from the Partnership or the
Limited Partner for its services as the General Partner of the Partnership.
6.8 PARTNER COMPENSATION. No Partner shall be entitled to any
compensation for services provided by such Partner to, or for the benefit of,
the Partnership, except that the General Partner may receive and retain
compensation as provided in the Investment Management Agreement, and the Limited
Partner's Sharing Ratio of Securities acquired by the Partnership shall be taken
into consideration in calculating the compensation payable to the General
Partner pursuant to Section 4 of the Investment Management Agreement as if such
Securities were owned directly by the Limited Partner.
6.9 FILING OF TAX RETURNS. The General Partner shall prepare and file,
or cause to be prepared and filed, a federal information tax return in
compliance with Code Section 6031 and all other returns or reports required to
be filed by the Partnership by any foreign, federal, state and local tax
authorities.
6.10 TAX MATTERS PARTNER.
(a) General. The General Partner is hereby designated the "tax
matters partner" of the Partnership within the meaning of Code Section
6231(a)(7). Except as specifically provided in the Code and the regulations
issued thereunder, the General Partner in its sole discretion shall have
15
<PAGE> 20
exclusive authority to act for or on behalf of the Partnership with regard to
tax matters, including, without limitation, the authority to make (or decline to
make) any available tax elections.
(b) Notice of Inconsistent Treatment of Partnership Item. No
Partner shall file a notice with the Internal Revenue Service under Code Section
6222(b) in connection with such Partner's intention to treat an item on such
Partner's federal income tax return in a manner which is inconsistent with the
treatment of such item on the Partnership's federal income tax return unless
such Partner has, not less than thirty (30) days prior to the filing of such
notice, provided the General Partner with a copy of the notice and thereafter in
a timely manner provides such other information related thereto as the General
Partner shall reasonably request.
(c) Notice of Settlement Agreement. Any Partner entering into
a settlement agreement with the Secretary of the Treasury which concerns a
Partnership item shall notify the other Partner of such settlement agreement and
its terms within sixty (60) days from the date thereof.
6.11 RECORDS AND FINANCIAL STATEMENTS.
(a) The General Partner shall cause the Partnership to
maintain or cause to be maintained true and proper books, records, reports, and
accounts in which shall be entered all transactions of the Partnership. Such
books, records, reports and accounts shall be located at the principal place of
business of the Partnership and shall be available to any Partner for inspection
and copying during reasonable business hours.
(b) The books and records of the Partnership may in the
Limited Partner's discretion and at its expense be audited annually by an
independent accounting firm selected by the Limited Partner from time to time.
For purposes of determining and maintaining the Partners' Capital Accounts, the
books of account of the Partnership shall be maintained in accordance with
federal income tax principles (adjusted as provided in this Agreement) and the
accrual method of accounting. Additionally, the General Partner shall cause the
Partnership's financial books and records to be maintained in compliance with
GAAP.
(c) Within a reasonable time after each Fiscal Year, a copy of
the following shall be mailed or otherwise furnished to each Partner and shall
include (i) a balance sheet of the Partnership, (ii) income and cash flow
statements of the Partnership, (iii) a statement of changes in the Partners'
Capital Account balances from the last day of the prior Fiscal Year, and (iv) if
applicable, the report of the results of the examination by the Partnership's
independent auditors.
(d) Upon completion of any valuation of the Partnership's
assets in accordance with the provisions of Section 6.13, the Valuation Partner
shall furnish to each Partner a statement showing (i) the net worth of the
Partnership and the Fair Market Value of each Partnership asset and (ii) the
Capital Account balance of such Partner.
16
<PAGE> 21
(e) The General Partner shall keep or cause to be kept the
following records at the principal office of the Partnership or make them
available at that office within five days after the date of receipt of a written
request therefor pursuant to Section 6.1:
(i) a current list that states (w) the name and
mailing address of each Partner, separately identifying in alphabetical order
each general partner and limited partner; (x) the last known street address of
the business or residence of each general partner; (y) the percentage or other
interest in the Partnership owned by each partner; and (z) the names of the
partners who are members of each specified class or group established pursuant
to this Agreement;
(ii) copies of the Partnership's federal, state, and
local information or income tax returns for each of the Partnership's six most
recent tax years;
(iii) a copy of this Agreement and the Certificate of
Limited Partnership, all amendments or restatements, executed copies of any
powers of attorney under which this Agreement, the Certificate of Limited
Partnership, and all amendments or restatements to this Agreement and the
Certificate have been executed, and copies of any document that creates, in the
manner provided by this Agreement, classes or groups of partners;
(iv) a written statement of: (x) the amount of the
cash contribution and a description and statement of the agreed value of any
other contribution made by each Partner, and the amount of the cash contribution
and a description and statement of the agreed value of any other contribution
that the Partner has agreed to make in the future as an additional contribution;
and (y) the date on which each Partner in the Partnership became a Partner; and
(v) books and records of account of the Partnership.
Any records maintained by the Partnership in the regular course of its business
may be kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics, computer disks, or any other information storage device, if the
records so kept are convertible into clearly legible written form within a
reasonable period of time. The names, the business, residence, or mailing
addresses, and the capital contributions to the Partnership of the Partners are
as shown on the books and records of the Partnership.
6.12 TAX REPORTS TO PARTNERS. Within ninety (90) days after the end of
each Fiscal Year, the Partnership shall prepare and mail, or cause to be
prepared and mailed, to each Partner and, to the extent necessary, to each
former Partner (or its legal representative), a report setting forth in
sufficient detail information which will enable the Partner or former Partner
(or its legal representative) to prepare their respective federal income tax
returns in accordance with the laws, rules and regulations then prevailing.
17
<PAGE> 22
6.13 VALUATION OF PARTNERSHIP ASSETS.
(a) The General Partner (or the Liquidator, if appropriate,
either being the "VALUATION PARTNER") shall value the Partnership's assets upon
(i) the occurrence of any Revaluation Event and (ii) whenever otherwise required
by this Agreement or determined by the Valuation Partner in its sole discretion.
(b) In determining the value of Partnership property or a
Partner's Interest, or in any accounting among the Partners:
(i) No value shall be placed on the goodwill, going
concern value, name, records, files, statistical data or similar assets of the
Partnership not normally reflected in the Partnership's accounting records, but
there shall be taken into consideration any items of income earned but not yet
received, expenses incurred but not yet paid, liabilities fixed or contingent,
and prepaid expenses to the extent not otherwise reflected in the books of
account as well as the Fair Market Value of options or commitments to purchase
or sell Securities pursuant to agreements entered into on or prior to the
valuation date; and
(ii) Securities held by the Partnership shall be
valued at their Fair Market Value as defined in the Investment Management
Agreement.
6.14 CONFIDENTIALITY. The Partners acknowledge and agree that all
Confidential Information provided to or by them in respect of the Partnership
shall be kept confidential as provided in Section 11 of the Investment
Management Agreement.
ARTICLE VII.
TRANSFER OF A PARTNERSHIP INTEREST; WITHDRAWALS
7.1 TRANSFERS BY THE LIMITED PARTNER.
(a) The Limited Partner may transfer its Interest only with
the prior consent of the General Partner, which consent shall not unreasonably
be withheld.
(b) No Assignee of the Limited Partner shall become a
Substitute Limited Partner without the consent of the General Partner, which
consent shall not unreasonably be withheld.
(c) Notwithstanding any other provision hereof, any successor
to all or a portion of the Limited Partner's Interest shall be bound by the
provisions of this Agreement. Prior to recognizing any transfer in accordance
with this Article VII, the General Partner may require the transferring Limited
Partner to execute and acknowledge an instrument of assignment in form and
substance reasonably satisfactory to the General Partner and may require the
Assignee to execute an amendment to this Agreement and to assume all obligations
of the assigning Limited Partner. An Assignee who is not a Partner at the time
of the transfer shall be entitled to the allocations and
18
<PAGE> 23
distributions attributable to the Interest assigned to it and to transfer and
assign such Interest in accordance with the terms of this Agreement; provided,
that such Assignee shall not be entitled to the other rights of a Limited
Partner unless and until such Assignee becomes a Substitute Limited Partner.
Notwithstanding the foregoing, the Partnership and the General Partner shall
incur no liability for allocations and distributions made in good faith to the
transferring Limited Partner until a written instrument of assignment (as
approved by the General Partner) has been received by the Partnership and
recorded on its books and the effective date of the assignment has passed.
7.2 WITHDRAWAL BY A LIMITED PARTNER.
(a) The Interest of a Limited Partner may not be withdrawn
from the Partnership in whole or in part, other than with the consent of the
General Partner, which consent shall not unreasonably be withheld.
(b) In the event of the withdrawal of the Limited Partner, the
General Partner, with the approval of the Limited Partner which shall not
unreasonably be withheld, shall provide for payment to the withdrawing Limited
Partner for its withdrawn Interest by either of the following alternatives:
(i) The General Partner may cause the Partnership to
distribute to the withdrawing Limited Partner an amount equal to any positive
balance in the withdrawing Limited Partner's Capital Account. The General
Partner may cause the Partnership to make the distribution in respect of any
portion of the Interest of a withdrawing Limited Partner in cash or in kind;
provided, that unless the withdrawing Limited Partner otherwise consents, the
withdrawing Limited Partner shall not be required to receive an in kind
distribution of any asset which exceeds the portion of such asset that would
have been distributed to the withdrawing Limited Partner if the Partnership had
dissolved on the effective date of the withdrawal and undivided interests in all
Partnership assets were distributed to the Partners pro rata in proportion to
their respective interest in the liquidation proceeds under Section. 8.4. If a
distribution is to be made in kind and if such distribution cannot be made in
full because of restrictions on the transfer of Securities or for any other
reason, the distribution may be delayed until an effective transfer and
distribution may be made, and Securities for transfer in respect of the
withdrawing Limited Partner's Interest shall be designated as such. The
designated Securities may nevertheless be sold by the General Partner, provided
that the General Partner remits the cash proceeds therefrom to the withdrawing
Limited Partner.
(ii) The General Partner may sell the Interest of the
withdrawing Limited Partner for cash and remit the proceeds of such sale to the
withdrawing Limited Partner. The sale price for the Interest of the withdrawing
Limited Partner shall be an amount equal to the lesser of: (1) the withdrawing
Limited Partner's positive Capital Account balance, if any; or (2) the
withdrawing Limited Partner's aggregate Capital Contributions.
19
<PAGE> 24
(iii) If only a portion of the Limited Partner's
Interest is withdrawn, payment under the foregoing provisions of this Section
7.2(b) shall be adjusted to provide for payment only in connection with such
withdrawn Interest.
7.3 TRANSFERS BY THE GENERAL PARTNER. The General Partner shall not
transfer its Interest as General Partner without the prior consent of the
Limited Partner, which consent may be granted or withheld in the Limited
Partners's sole discretion.
7.4. WITHDRAWAL BY THE GENERAL PARTNER. The General Partner may
withdraw as a General Partner at any time upon thirty (30) days' prior written
notice to the Limited Partner.
ARTICLE VIII.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.1 DISSOLUTION EVENTS. The Partnership shall be dissolved only upon
the occurrence of any of the following events:
(a) Expiration of the Partnership term as provided in Section
2.5;
(b) the agreement of the General Partner and the Limited
Partner to dissolve the Partnership;
(c) the Bankruptcy, dissolution, termination of existence or
occurrence of any other event of withdrawal of a General Partner within the
meaning of Section 4.02 of the Act, unless (i) there remains at least one
General Partner that continues the Partnership's business, or (ii) within ninety
(90) days after the event of withdrawal, the Limited Partner agrees in writing
to continue the Partnership's business and to the appointment, effective as of
the date of the event of withdrawal, of one or more new General Partners; or
(d) the entry of a decree of judicial dissolution under
Section 8.02 of the Act.
8.2 CONVERSION OF GENERAL PARTNER INTEREST TO A LIMITED PARTNER
INTEREST. Unless otherwise determined by the Limited Partner, if the Partnership
is continued and not wound up on the occurrence of an event of withdrawal of a
General Partner within the meaning of Section 4.02 of the Act, the Interest of
the withdrawn General Partner shall automatically be converted to a Limited
Partner Interest effective as of the date of the event of withdrawal; provided,
that this Section 8.2 shall not be construed to preclude or to be in lieu of any
cause of action the Partnership or the other Partner may have as a result of a
General Partner's wrongful withdrawal.
8.3 WINDING UP OF THE PARTNERSHIP. Upon the occurrence of an event of
dissolution, the Partnership shall continue solely for the purposes of winding
up its business and affairs in an orderly manner, liquidating its assets and
satisfying the claims of its creditors and Partners, and no Partner shall take
any action that is inconsistent with such. To the extent consistent with the
20
<PAGE> 25
foregoing, this Agreement shall continue in effect until the Partnership's
property has been distributed or applied in satisfaction of Partnership
liabilities and a certificate of cancellation has been filed for the Partnership
pursuant to the Act. The General Partner or, if the General Partner has
withdrawn, a liquidator or liquidating committee appointed by the Limited
Partner (in either case, the "LIQUIDATOR") shall be responsible for winding up
the Partnership. The Liquidator shall cause the Partnership's property to be
liquidated as promptly as is consistent with obtaining the Fair Market Value
thereof; provided, that (a) the Liquidator may distribute any assets of the
Partnership in kind and subject to any indebtedness secured thereby (except that
in kind distributions shall be subject to the provisions of Section 7.2(b)(i)),
and (b) the Liquidator may, in its sole and absolute discretion, retain and
distribute as collected any deferred payment obligation owed to the Partnership.
The Liquidator shall have all of the powers of the General Partner to the extent
consistent with the Liquidator's obligations and shall be entitled to the
benefit of the provisions of Article IX during the winding up.
8.4 APPLICATION OF PROCEEDS OF LIQUIDATION. During or upon completion
of the winding up, the proceeds of liquidation and other assets of the
Partnership shall be applied and distributed in one or more installments in the
following order and priority:
(a) to the payment, or provision for payment, of the Expenses
of winding up;
(b) to the payment, or provision for payment, of creditors of
the Partnership (including Partners other than in respect of distributions) in
the order of priority provided by law;
(c) to the establishment of any reserves deemed necessary or
appropriate by the Liquidator to provide for contingent or unforeseen
liabilities of the Partnership; and
(d) the balance (including reductions in reserves established
pursuant to Section 8.4(c)) shall be distributed to the Partners in accordance
with the positive balances of their Capital Accounts, determined after taking
into account all Capital Account adjustments for the current and all prior
periods.
8.5 RESTORATION OBLIGATION. No Partner shall have an obligation to
restore any deficit balance in its Capital Account.
8.6 TIMING OF LIQUIDATING DISTRIBUTIONS. To the extent reasonably
practicable, the distributions described in Section 8.4(d), if any, shall be
made to the Partners before the end of the taxable year in which the Partnership
is liquidated (within the meaning of Treasury regulations Section
1.704-1(b)(2)(iv)(g)(3)) or, if later, within ninety (90) days after the date of
such liquidation.
8.7 LIQUIDATING TRUST. In the discretion of the Liquidator, all or any
proportionate part of the distributions that would otherwise be made to the
Partners pursuant to Section 8.4(d) may be distributed to a trust established by
the Liquidator for the benefit of the Partners and for the purposes of
liquidating Partnership assets, collecting amounts owed to the Partnership or
paying any contingent
21
<PAGE> 26
or unforeseen obligations of the Partnership. The assets of such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the trustee (who may or may not be the Liquidator or an Affiliate of the
Liquidator), in the same proportions as the amounts distributed to such trust by
the Partnership would otherwise have been distributed to them pursuant to
Section 8.4(d).
ARTICLE IX.
LIABILITY AND INDEMNIFICATION OF THE GENERAL PARTNER
9.1 LIABILITY.
(a) The liability of the General Partner, its officers,
directors and employees, and other members of the GMSP Group in respect of their
actions under this Agreement shall be limited as and to the extent provided in
Section 9 of the Investment Management Agreement.
(b) All debts and obligations of the Partnership shall be paid
or discharged first with the assets of the Partnership (including Capital
Contributions from the Partners), and the General Partner shall not be obligated
to pay or discharge any such debt or obligation with its personal assets unless
the General Partner is required to do so pursuant to the Act or other applicable
law and to the extent that the documents creating such debts or obligations do
not otherwise release the General Partner from such obligation.
9.2 INDEMNIFICATION. The Partnership shall indemnify and hold harmless
the General Partner and the GMSP Principals in respect of their actions under
this Agreement as and to the extent provided in the Investment Management
Agreement.
ARTICLE X.
GENERAL PROVISIONS
10.1 SPECIAL MEETINGS. Subject to the provisions of the Act and subject
to the right of any Partner to waive notice of any meeting, the General Partner
may call a special meeting of all Partners at any reasonable time upon not less
than ten (10) nor more than sixty (60) days notice.
10.2 ENTIRE AGREEMENT. This Agreement and the Investment Management
Agreement contain the entire understanding among the Partners and supersede any
prior written or oral agreement between them respecting the Partnership. There
are no representations, agreements, arrangements, or understandings, oral or
written, among the Partners relating to the Partnership which are not fully
expressed in this Agreement or the Investment Management Agreement.
10.3 AMENDMENTS. This Agreement is subject to amendment only with the
consent of the General Partner and the Limited Partner.
22
<PAGE> 27
10.4 GOVERNING LAW. All questions with respect to the interpretation of
this Agreement and the rights and liabilities of the Partners shall be governed
by the laws of the State of Texas without regard to conflict of laws principles.
10.5 SEVERABILITY. If any one or more of the provisions of this
Agreement is determined to be invalid or unenforceable, such provision or
provisions shall be deemed severable from the remainder of this Agreement and
shall not cause the invalidity or unenforceability of the remainder of this
Agreement.
10.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and when so executed, all of such counterparts shall constitute a
single instrument binding upon all parties notwithstanding the fact that all
parties are not signatory to the original or to the same counterpart.
10.7 SURVIVAL OF RIGHTS. Subject to the restrictions against
unauthorized assignment or transfer set forth in this Agreement, the provisions
of this Agreement shall inure to the benefit of and be binding upon each Partner
and such Partner's heirs, devised, legatees, personal representatives,
successors, and assigns.
10.8 NOTICES. Any notice required or permitted to be given under this
Agreement or the Act shall be in writing and shall be deemed duly given when as
provided in Section 13 of the Investment Management Agreement.
10.9 CONSENTS. All consents, agreements and approvals provided for or
permitted by this Agreement shall be in writing and signed copies thereof shall
be retained with the books of the Partnership.
10.10 NO PARTITION. Except as otherwise permitted by this Agreement, no
Partner shall have the right, and each Partner does hereby agree that it shall
not seek, to cause a partition of the Partnership's property whether by court
action or otherwise.
10.11 REPRESENTATIONS BY LIMITED PARTNER. The Limited Partner hereby
represents and warrants that, with respect to its Interest: (i) it is acquiring
or has acquired such Interest for purposes of investment only, for its own
account, and not with a view to resell or distribute the same or any part
thereof; and (ii) no other Person has any interest in such Interest or in the
rights of the Limited Partner under this Agreement. The Limited Partner also
represents and warrants to the Partnership and the other Partners that it
acknowledges that the Securities that may be purchased by the Partnership will
be speculative in nature and that it has the business and financial knowledge
and experience necessary to acquire its Interest in the amount of its Capital
Contributions to the Partnership on the terms contemplated herein and that it
has the ability to bear the risks of such investment (including the risk of
sustaining a complete loss of all such Capital Contributions) without the need
for the investor protections provided by the registration requirements of the
Securities Act of 1933, as amended.
23
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GENERAL PARTNER:
GOFF MOORE STRATEGIC PARTNERS, L.P.
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
LIMITED PARTNER:
GAINSCO, INC.
By: /s/ Glenn W. Anderson
--------------------------------------
Glenn W. Anderson, President
24
<PAGE> 29
SCHEDULE A
INVESTMENT CRITERIA
The General Partner shall seek investments for the Partnership in
issuers related in any manner to the technology industry.
The Partnership will invest in the Securities of issuers only in the
event that the General Partner is also acquiring Securities of such issuers for
its own account in the same transaction.
The Partnership shall not invest more than $500,000 in Securities of
any particular issuer.
The Partnership shall not invest more than $250,000 in any initial
investment in Securities of any particular issuer.
Partnership investments will be highly speculative with a view towards
generating high rates of return.
The Partnership expects to invest in Securities in private transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended. Such Securities will typically have significant restrictions on
transfer, including restrictions imposed by contract and applicable securities
laws.
Partnership investments will be made in issuers in various stages in
the venture capital financing process, including seed, early or late round
financings.
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
AGGREGATE COMMITTED
CAPITAL CONTRIBUTION SHARING RATIOS
-------------------- --------------
<S> <C> <C>
GENERAL PARTNER:
Goff Moore Strategic Partners, L.P. $ 50,505 1%
777 Main Street, Suite 2250
Fort Worth, Texas 76102
LIMITED PARTNER:
GAINSCO, INC. 5,000,000 99%
500 Commerce Street
Fort Worth, Texas 76102-5439
====================================================================================================================
Total Aggregate General and $ 5,050,505 100%
Limited Partner Contributions
</TABLE>
