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EXHIBIT 10.11
INVESTMENT MANAGEMENT AGREEMENT
FOR
MGA INSURANCE COMPANY, INC.
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into
this 4th day of October, 1999, by and between ▇▇▇▇ ▇▇▇▇▇ Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and MGA Insurance Company, Inc., a
Texas corporation ("GNA"), an indirect subsidiary of GAINSCO, INC. ("Parent").
WHEREAS, GNA is a regulated insurance company;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager with
respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA, Parent or
a Subsidiary of GNA or Parent) of which such Person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of GNA or any
of its Subsidiaries.
"Board" means the board of directors of GNA.
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"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day " means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit with a
financial institution.
"Cause" means that GMSP has committed or engaged in (i) any malfeasance,
bad faith or negligence in respect of GMSP's material duties pursuant to this
Agreement; (ii) any commission of any fraud by GMSP; (iii) any conviction or
indictment of or plea of no contest to any felony by GMSP or any member of the
GMSP Group; (iv) any violation of the provisions of the U. S. federal securities
laws or state securities laws by GMSP or any GMSP Principal; or (v) any material
breach by GMSP of its obligations (including, without limitation, its
obligations to observe and comply with the provisions of the Policy Letter)
under, or its representations or warranties in, this Agreement if such breach
continues for more than 10 days after GMSP receives written notice, specifying
such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members of
which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA or
received by GNA from GMSP that is not generally known or which would logically
be considered confidential or proprietary, or which would do GNA or GMSP, as
applicable, harm if divulged, or which is marked "Confidential Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests of
any Person, any Securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock or other equity interests of
any Person, or any right, option, warrant or other Security which, with the
payment of additional consideration, the expiration of time or the occurrence of
any event shall give the holder thereof the right to acquire any capital stock
or other equity interests of any Person or any Security convertible into or
exercisable or exchangeable for, any capital stock or other equity interests of
any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
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of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm desiGNAted by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean ▇▇▇▇ ▇. ▇▇▇▇, J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and any other
Persons employed by or otherwise affiliated with GMSP or its general partner who
have access to information regarding particular Securities being considered for
purchase or sale by GNA. The parties recognize that the limited partners of GMSP
as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department " means the Texas Department of
Insurance.
"GNA Entities" means GAINSCO, INC., a Texas corporation; GNA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to Parent and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally.
"good faith", when used in respect of any action, means that the action was
taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
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"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
Moody's Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates falling
before, on or after the Year 2000; or (b) accurately record, store, retrieve and
process data input and date information.
"Parent" has the meaning set forth in the first paragraph hereof.
"Person" means any individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including any
Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio " means those investments held by GNA in Securities of the type
more particularly described under the category "Investments" in Parent's
periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations, and
inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and
services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June 29, 1999, between GMSP and Parent.
"Short Term Debt" means any note, draft, ▇▇▇▇ of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including partnerships and other business associations) in which the
Person directly or indirectly owns at least a majority of the outstanding voting
Securities or other equity interests having the power, under ordinary
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"U.S." means the United States of America.
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"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to serve,
as investment manager with respect to the Portfolio on the terms and conditions
hereinafter set forth:
(a) The investment policies and all other actions of the Portfolio are
and shall at all times be subject to the oversight and direction of the
Committee. GMSP shall manage the Portfolio in accordance with the investment
objectives and policies set forth in the letter (the "Policy Letter") heretofore
delivered to GMSP by GNA. GNA may amend or supplement the contents of the Policy
Letter, including the investment criteria and other instructions set forth
therein, in whole or in part and at any time and from time to time; provided,
however, that no amendment or supplement shall be binding upon GMSP until GMSP
is notified of the amendment or supplement; and provided further, that in the
event that an amended or supplemented Policy Letter shall require GMSP to make
any changes in the manner in which GMSP has performed its services pursuant to
this Agreement, GMSP shall have a reasonable time period to comply with such
changes. GMSP shall periodically evaluate the provisions of the Policy Letter
and provide GNA with any recommendations for the amendment or supplementation of
the provisions of the Policy Letter that GMSP deems advisable for the benefit of
GNA. To the extent that the provisions of the Policy Letter, as the same may be
amended or supplemented from time to time, conflict with the provisions of this
Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the oversight
and direction of the Committee, GMSP shall have authority to make all specific
investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its obligations
under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during the term
of this Agreement a qualified investment portfolio manager reasonably acceptable
to GNA, who shall have the primary responsibilities of coordinating all aspects
of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP currently is
not registered as an (i) investment adviser under the Investment Advisers Act of
1940, as amended, and all other Applicable Laws or (ii) a broker or dealer under
the Securities Exchange Act of 1934, as amended, and all other Applicable Laws.
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with respect
to the assets in and investment performance of the Portfolio. The reports shall
include such financial information in such format as GNA may reasonably request
in connection with the administration of the Portfolio and a record of all
transactions effected during the interim period from the preceding report,
including the price per Security, the broker or dealer executing the transaction
and the commissions paid. The reports shall be made with such frequency, but not
less often than within 20 days following the end of each calendar month, as
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GNA may reasonably request in connection with the administration of the
Portfolio; provided that the late delivery of a complete report no more than one
time in any three-year period with respect to any particular Security in the
Portfolio shall not constitute a Breach of this Agreement if (i) the delay was
caused by the failure of an unaffiliated Person in providing information to GMSP
that had been timely requested by GMSP, (ii) any portion of the report that is
not dependent upon the unaffiliated Person is delivered to GNA by GMSP on a
timely basis, and (iii) GMSP uses its commercially reasonable efforts to cause
such late report to be delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized representatives
reasonable access to the GMSP Principals, GMSP's offices and other facilities,
and all books, records and other documents of GMSP relating to the Portfolio or
this Agreement and (ii) permit GNA and its authorized representatives to make
such inspections and copies of all books, records and other documents as they
may reasonably require to verify the accuracy of any report furnished pursuant
to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the assets in
the Portfolio at the end of each calendar month, and shall be calculated at the
end of each calendar month based upon the actual number of days elapsed during
the calendar month, during which this Agreement is in effect over a year of 365
days. Within fifteen (15) days after the end of each calendar month, GNA shall
pay to GMSP the Fees earned with respect to the preceding calendar month. In the
event of termination prior to the end of a calendar month, GNA will pay to GMSP
a prorated portion of the Fees based upon the Fair Market Value of the assets in
the Portfolio at the time of termination. No other fees, charges or assessments
shall be payable by GNA to or for the benefit of GMSP or any member of the GMSP
Group with respect to the services performed by GMSP pursuant to this Agreement,
provided that GNA shall have the responsibility to reimburse GMSP for GMSP's
payment of any amounts described pursuant to Section 4(d) below. There shall not
be any annual reconciliation, adjustment or other "true-up" at the end of each
calendar year.
(c) GMSP shall be solely responsible for all of its general and
administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall
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consist of all costs and expenses in connection with the provision of office
space and facilities, equipment and personnel for servicing the investments of
the Portfolio and the salaries and fees of all personnel employed by GMSP
performing services relating to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the following
costs and expenses related to GMSP's performance of its duties pursuant to this
Agreement that are reasonable and payable to Persons not affiliated with the
GMSP Group:
(i) brokerage commissions and other costs, fees and expenses
incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected pursuant to Section
2(b);
(iii) costs related to third party Proceedings involving GNA's
ownership of Securities pursuant to this Agreement, directly or indirectly,
including, without limitation, attorneys' fees incurred in connection therewith
(but excluding all costs related to Proceedings or other disputes between GNA
and GMSP or any member of the GMSP Group or which constitute Cause);
(iv) interest on and fees and expenses arising out of all
borrowings made by GNA with respect to the purchase of Securities, including,
but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied against GNA;
and
(vi) any other expense, whether ordinary or extraordinary, that
is determined by the Committee to be appropriate for GNA to pay pursuant to this
Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP may
give preference, and may cause GNA to pay higher negotiated commission rates, to
unaffiliated brokers which, in addition to having the capacity of obtaining the
best price for the Security itself and of executing the order with speed,
efficiency and confidentiality, also provide Research to GMSP or GNA. Research
furnished by brokers through whom Securities transactions are effected may be
used by GMSP in servicing all of its accounts, and there shall be no reduction
in the compensation of GMSP hereunder as a consequence of its receipt of such
Research. In the allocation of brokerage, however, GMSP must determine in good
faith, and demonstrate to GNA upon request, that the amount of the commission is
reasonable in relation to the value of the brokerage services and Research
provided by the broker, viewed in terms of either the particular transaction or
GMSP's overall responsibilities with respect to the Portfolio. In the allocation
of brokerage for the Portfolio, GMSP shall be subject always to Applicable Law
and such policies and requirements that the Committee may adopt or approve as
reflected in the Policy Letter.
(f) In the event that, in any calendar month, the aggregate amount of
Fees (as such term is defined in the respective GNA Investment Management
Agreements) paid to GMSP by the GNA Entities pursuant to the GNA Investment
Management Agreements is less than $75,000, GNA shall pay to GMSP an amount
equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
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5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be exclusive, and
GMSP shall be free to engage in any other business or to render similar services
to others. GMSP and any member of the GMSP Group may engage independently or
with others, for its or their own accounts and for the accounts of others, in
other business ventures and activities of every nature and description,
including, without limitation, purchasing, selling or holding Securities for the
account of any other Person or for its or his own account, including Securities
included within the Portfolio or eligible for investment pursuant to this
Agreement; provided, that the management of such entities and accounts do not
interfere with the performance of their obligations and duties to GNA pursuant
to this Agreement. GNA shall not have any rights or obligations by virtue of
this Agreement in and to such independent ventures and activities or the income
or profits derived therefrom. The foregoing notwithstanding, without the prior
written consent of GNA in a specific case, GMSP shall at all times adhere, and
cause the members of the GMSP Group or the GMSP Principals, as the case may be,
to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group shall act,
either as principal or agent, on the opposite side of any transaction in which
GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times (A) place
the interests of GNA before such member's personal transactional interests; (B)
conduct all personal transactions in Securities in such a manner as to avoid any
actual or potential conflict of interest or abuse of such Person's position of
trust and confidence in relation to GNA; and (C) promptly disclose to GNA all
personal transactions made by or on behalf of such Person in Securities which
are or were at any time during the preceding two years in the Portfolio or
issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of interest
which is not specifically authorized by or pursuant to this Agreement, GMSP
shall submit such issue to the Committee for prior approval, and shall take such
actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by any
member of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA at any
time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP at any
time after the third anniversary hereof;
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(d) by GNA, at any time, immediately upon written notice to GMSP
following (i) the good faith determination by both the Committee and two-thirds
of the members of the Board (excluding members of the Board desiGNAted for
election by GMSP or its successors in interest under the Securities Purchase
Agreement or otherwise affiliated with GMSP) that an event that constitutes
Cause has occurred and is continuing beyond any applicable period for notice and
opportunity to cure or (ii) the commencement by a Governmental Authority of any
Proceeding alleging any matter which, if proven, would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event that GNA
defaults in the performance of any of its material obligations hereunder and
such default continues for not less than 10 days after GNA receives notice of
such default; provided, however, that in the event that such default is of a
nature that it cannot, with due diligence, be cured within 10 days, GMSP may not
terminate this Agreement so long as GNA begins to cure such default within 10
days and thereafter diligently pursues such cure to completion.
Termination of this Agreement shall not terminate GMSP's obligations under
Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly existing and
in good standing under the Texas Revised Limited Partnership Act, as amended,
and has the power and authority to own all of its properties and assets and to
carry on its business as now being conducted. GMSP is duly qualified and in good
standing (to the extent applicable) to transact business in each jurisdiction in
which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GMSP Material Adverse Effect.
(b) GMSP has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GMSP
do not and will not result in any violation by GMSP under any provisions of:
(i) the partnership agreement or similar governing documents of
GMSP;
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(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which GMSP is now a party or by which it
or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of GMSP,
threatened against GMSP that questions the validity of this Agreement or any
action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will continue to be
(i) either exempt from registration or duly registered as an investment adviser
under the Investment Advisers Act of 1940 and all Applicable Laws and (ii)
qualified and eligible to manage the Portfolio under the statutes and
regulations administered by the GNA Applicable Insurance Department, provided
that GNA shall inform GMSP immediately in the event that GNA becomes aware of
any changes in the qualification and eligibility requirements with respect to
such statutes and regulations. GMSP will provide prompt written notice to GNA if
GMSP ceases to be so registered or qualified or becomes aware of any fact, event
or circumstance which will or is reasonably likely to cause it to cease to be so
registered or qualified.
(g) Taken in the aggregate, the factual information (including,
without limitation, information regarding its knowledge, investment experience
and investment track record) furnished by GMSP to GNA subsequent to May 11, 1999
in writing for purposes of this Agreement did not contain untrue statements of
material facts, or omit to state material facts necessary to make the statements
made not misleading in the light of the circumstances under which they were
made, as of the date as of which such information is dated. All financial
forecasts prepared and furnished by GMSP to GNA subsequent to May 11, 1999 were
prepared in good faith on the basis of assumptions believed to be reasonable and
data, information, tests or conditions believed to be valid or accurate or to
exist at the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned or used
by GMSP or used and operated by third parties on behalf of GMSP, which performs
or is or may be required to perform functions involving dates or the computation
of dates, or containing date related data, has the programming, design and
performance capabilities to ensure that:
(i) it will not suffer any Malfunction that would reasonably be
expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at the end of
the twentieth century or the input, processing, storage or use of dates up to
and including December 31, 2001, (A) be adversely affected, (B) require changes
in inputting or operating practices, (C) produce invalid or incorrect output or
results, (D) cause any abnormal ending scenario, or (E) suffer any diminution in
functionality or performance that, in any of the above, could reasonably be
expected to have a GMSP Material Adverse Effect.
INVESTMENT MANAGEMENT AGREEMENT 10
11
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is an insurance company duly organized and validly existing
under the laws of the State of Texas, and has the power and authority to own all
of its properties and assets and to carry on its business as now being
conducted. GNA is duly qualified and in good standing to transact business in
each jurisdiction in which the performance of its obligations hereunder require
such qualification except where the failure to be duly qualified or in good
standing would not have or reasonably be expected to have a GNA Material Adverse
Effect.
(b) GNA has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GNA. This Agreement has been duly and validly executed and
delivered by GNA and, assuming the due authorization, execution and delivery
hereof by GMSP, constitutes the valid and binding obligation of GNA, enforceable
against GNA in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GNA
do not and will not result in any violation by GNA under any provisions of:
(i) articles of incorporation or similar governing documents of
GNA;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which GNA is now a party or by which it
or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
(e) There is no Proceeding pending, or to the knowledge of GNA,
threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of entering into
this Agreement.
INVESTMENT MANAGEMENT AGREEMENT 11
12
(g) No part of the funds to be used to purchase and hold Securities or
to pay any amounts pursuant to this Agreement constitutes an asset of any
employee benefit plan within the meaning of Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and GNA is not a "benefit
plan investor" (as such term is defined in 29 C.F.R. ss.2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of the GMSP Group shall be liable for
any loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and the GMSP
Principals from and against any and all claims, actions, causes of action,
demands, losses, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred by any of them, directly or indirectly,
by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and its
Affiliates, Associates, directors, officers and employees from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
of them, directly or indirectly, by reason of or resulting from any Breach by
GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under Section 10(a)
or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such Section, give written notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability
INVESTMENT MANAGEMENT AGREEMENT 12
13
that it may have to any indemnified party except to the extent the indemnifying
party demonstrates that the defense of such action is prejudiced thereby. In
case any such action shall be brought against an indemnified party and it shall
give written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to assume) the
defense of such action, the indemnified party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
indemnifying party. If the action is asserted against both the indemnifying
party and the indemnified party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the indemnifying
party and the indemnified party, the indemnifying party shall be responsible for
paying for separate counsel for the indemnified party; provided, however, that
if there is more than one indemnified party, the indemnifying party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the indemnified parties, regardless of the number of indemnified parties. The
indemnifying party shall have no liability with respect to any compromise or
settlement of any action effected without its written consent (which shall not
be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder shall be
deemed to have been given if (i) delivered personally or by documented courier
or delivery service, (ii) transmitted by facsimile or (iii) mailed by registered
or certified mail (return receipt requested and postage prepaid) to the
following listed Persons at the addresses and facsimile numbers specified below,
or to such other Persons, addresses or facsimile numbers as a party entitled to
notice shall give, in the manner hereinabove described, to the others entitled
to notice:
If to GMSP, to: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
INVESTMENT MANAGEMENT AGREEMENT 13
14
If to GNA, to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
19. TIME OF ESSENCE. With regard to all dates and time periods set forth in
this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
INVESTMENT MANAGEMENT AGREEMENT 14
15
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
16
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be executed
all as of the day and year first above written.
MGA INSURANCE COMPANY, INC.
a Texas corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its general partner
By: GMSP, L.L.C., its general partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Managing Principal
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Principal
INVESTMENT MANAGEMENT AGREEMENT 16
17
INVESTMENT MANAGEMENT AGREEMENT
FOR
GENERAL AGENTS INSURANCE COMPANY OF AMERICA, INC.
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into
this 4th day of October, 1999, by and between ▇▇▇▇ ▇▇▇▇▇ Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and General Agents Insurance Company
of America, Inc., an Oklahoma corporation ("GNA"), a subsidiary of GAINSCO, INC.
("Parent").
WHEREAS, GNA is a regulated insurance company;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager with
respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA, Parent
or a Subsidiary of GNA or Parent) of which such Person is an officer or partner
or is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of GNA or any
of its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT 1
18
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit with
a financial institution.
"Cause" means that GMSP has committed or engaged in (i) any malfeasance,
bad faith or negligence in respect of GMSP's material duties pursuant to this
Agreement; (ii) any commission of any fraud by GMSP; (iii) any conviction or
indictment of or plea of no contest to any felony by GMSP or any member of the
GMSP Group; (iv) any violation of the provisions of the U. S. federal securities
laws or state securities laws by GMSP or any GMSP Principal; or (v) any material
breach by GMSP of its obligations (including, without limitation, its
obligations to observe and comply with the provisions of the Policy Letter)
under, or its representations or warranties in, this Agreement if such breach
continues for more than 10 days after GMSP receives written notice, specifying
such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members
of which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA or
received by GNA from GMSP that is not generally known or which would logically
be considered confidential or proprietary, or which would do GNA or GMSP, as
applicable, harm if divulged, or which is marked "Confidential Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests of
any Person, any Securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock or other equity interests of
any Person, or any right, option, warrant or other Security which, with the
payment of additional consideration, the expiration of time or the occurrence of
any event shall give the holder thereof the right to acquire any capital stock
or other equity interests of any Person or any Security convertible into or
exercisable or exchangeable for, any capital stock or other equity interests of
any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
INVESTMENT MANAGEMENT AGREEMENT 2
19
of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm desiGNAted by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean ▇▇▇▇ ▇. ▇▇▇▇, J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and any
other Persons employed by or otherwise affiliated with GMSP or its general
partner who have access to information regarding particular Securities being
considered for purchase or sale by GNA. The parties recognize that the limited
partners of GMSP as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the Oklahoma Department of
Insurance.
"GNA Entities" means GAINSCO, INC., a Texas corporation; MGA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Invest ment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to Parent and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally.
"good faith", when used in respect of any action, means that the action
was taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
INVESTMENT MANAGEMENT AGREEMENT 3
20
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
▇▇▇▇▇'▇ Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates
falling before, on or after the Year 2000; or (b) accurately record, store,
retrieve and process data input and date information.
"Parent" has the meaning set forth in the first paragraph hereof.
"Person" means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
any Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA in Securities of the type
more particularly described under the category "Investments" in Parent's
periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations, and
inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and
services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June 29, 1999, between GMSP and Parent.
"Short Term Debt" means any note, draft, ▇▇▇▇ of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or other
entity (including partnerships and other business associations) in which the
Person directly or indirectly owns at least a majority of the outstanding voting
Securities or other equity interests having the power, under ordinary
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"U.S." means the United States of America.
INVESTMENT MANAGEMENT AGREEMENT 4
21
"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to serve,
as investment manager with respect to the Portfolio on the terms and conditions
hereinafter set forth:
(a) The investment policies and all other actions of the Portfolio are
and shall at all times be subject to the oversight and direction of the
Committee. GMSP shall manage the Portfolio in accordance with the investment
objectives and policies set forth in the letter (the "Policy Letter") heretofore
delivered to GMSP by GNA. GNA may amend or supplement the contents of the Policy
Letter, including the investment criteria and other instructions set forth
therein, in whole or in part and at any time and from time to time; provided,
however, that no amendment or supplement shall be binding upon GMSP until GMSP
is notified of the amendment or supplement; and provided further, that in the
event that an amended or supplemented Policy Letter shall require GMSP to make
any changes in the manner in which GMSP has performed its services pursuant to
this Agreement, GMSP shall have a reasonable time period to comply with such
changes. GMSP shall periodically evaluate the provisions of the Policy Letter
and provide GNA with any recommendations for the amendment or supplementation of
the provisions of the Policy Letter that GMSP deems advisable for the benefit of
GNA. To the extent that the provisions of the Policy Letter, as the same may be
amended or supplemented from time to time, conflict with the provisions of this
Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the oversight
and direction of the Committee, GMSP shall have authority to make all specific
investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its obligations
under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during the term
of this Agreement a qualified investment portfolio manager reasonably acceptable
to GNA, who shall have the primary responsibilities of coordinating all aspects
of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP currently is
not registered as an (i) investment adviser under the Investment Advisers Act of
1940, as amended, and all other Applicable Laws or (ii) a broker or dealer under
the Securities Exchange Act of 1934, as amended, and all other Applicable Laws.
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with respect
to the assets in and investment performance of the Portfolio. The reports shall
include such financial information in such format as GNA may reasonably request
in connection with the administration of the Portfolio and a record of all
transactions effected during the interim period from the preceding report,
including the price per Security, the broker or dealer executing the transaction
and the commissions paid. The reports shall be made with such frequency, but not
less often than within 20 days following the end of each calendar month, as
INVESTMENT MANAGEMENT AGREEMENT 5
22
GNA may reasonably request in connection with the administration of the
Portfolio; provided that the late delivery of a complete report no more than one
time in any three-year period with respect to any particular Security in the
Portfolio shall not constitute a Breach of this Agreement if (i) the delay was
caused by the failure of an unaffiliated Person in providing information to GMSP
that had been timely requested by GMSP, (ii) any portion of the report that is
not dependent upon the unaffiliated Person is delivered to GNA by GMSP on a
timely basis, and (iii) GMSP uses its commercially reasonable efforts to cause
such late report to be delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized representatives
reasonable access to the GMSP Principals, GMSP's offices and other facilities,
and all books, records and other documents of GMSP relating to the Portfolio or
this Agreement and (ii) permit GNA and its authorized representatives to make
such inspections and copies of all books, records and other documents as they
may reasonably require to verify the accuracy of any report furnished pursuant
to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the assets in
the Portfolio at the end of each calendar month, and shall be calculated at the
end of each calendar month based upon the actual number of days elapsed during
the calendar month, during which this Agreement is in effect over a year of 365
days. Within fifteen (15) days after the end of each calendar month, GNA shall
pay to GMSP the Fees earned with respect to the preceding calendar month. In the
event of termination prior to the end of a calendar month, GNA will pay to GMSP
a prorated portion of the Fees based upon the Fair Market Value of the assets in
the Portfolio at the time of termination. No other fees, charges or assessments
shall be payable by GNA to or for the benefit of GMSP or any member of the GMSP
Group with respect to the services performed by GMSP pursuant to this Agreement,
provided that GNA shall have the responsibility to reimburse GMSP for GMSP's
payment of any amounts described pursuant to Section 4(d) below. There shall not
be any annual reconciliation, adjustment or other "true-up" at the end of each
calendar year.
(c) GMSP shall be solely responsible for all of its general and
administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall
INVESTMENT MANAGEMENT AGREEMENT 6
23
consist of all costs and expenses in connection with the provision of office
space and facilities, equipment and personnel for servicing the investments of
the Portfolio and the salaries and fees of all personnel employed by GMSP
performing services relating to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the following
costs and expenses related to GMSP's performance of its duties pursuant to this
Agreement that are reasonable and payable to Persons not affiliated with the
GMSP Group:
(i) brokerage commissions and other costs, fees and expenses
incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected pursuant to Section
2(b);
(iii) costs related to third party Proceedings involving GNA's
ownership of Securities pursuant to this Agreement, directly or indirectly,
including, without limitation, attorneys' fees incurred in connection therewith
(but excluding all costs related to Proceedings or other disputes between GNA
and GMSP or any member of the GMSP Group or which constitute Cause);
(iv) interest on and fees and expenses arising out of all
borrowings made by GNA with respect to the purchase of Securities, including,
but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied against GNA;
and
(vi) any other expense, whether ordinary or extraordinary, that is
determined by the Committee to be appropriate for GNA to pay pursuant to this
Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP may
give preference, and may cause GNA to pay higher negotiated commission rates, to
unaffiliated brokers which, in addition to having the capacity of obtaining the
best price for the Security itself and of executing the order with speed,
efficiency and confidentiality, also provide Research to GMSP or GNA. Research
furnished by brokers through whom Securities transactions are effected may be
used by GMSP in servicing all of its accounts, and there shall be no reduction
in the compensation of GMSP hereunder as a consequence of its receipt of such
Research. In the allocation of brokerage, however, GMSP must determine in good
faith, and demonstrate to GNA upon request, that the amount of the commission is
reasonable in relation to the value of the brokerage services and Research
provided by the broker, viewed in terms of either the particular transaction or
GMSP's overall responsibilities with respect to the Portfolio. In the allocation
of brokerage for the Portfolio, GMSP shall be subject always to Applicable Law
and such policies and requirements that the Committee may adopt or approve as
reflected in the Policy Letter.
(f) In the event that, in any calendar month, the aggregate amount of
Fees (as such term is defined in the respective GNA Investment Management
Agreements) paid to GMSP by the GNA Entities pursuant to the GNA Investment
Management Agreements is less than $75,000, GNA shall pay to GMSP an amount
equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
INVESTMENT MANAGEMENT AGREEMENT 7
24
5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be exclusive, and
GMSP shall be free to engage in any other business or to render similar services
to others. GMSP and any member of the GMSP Group may engage independently or
with others, for its or their own accounts and for the accounts of others, in
other business ventures and activities of every nature and description,
including, without limitation, purchasing, selling or holding Securities for the
account of any other Person or for its or his own account, including Securities
included within the Portfolio or eligible for investment pursuant to this
Agreement; provided, that the management of such entities and accounts do not
interfere with the performance of their obligations and duties to GNA pursuant
to this Agreement. GNA shall not have any rights or obligations by virtue of
this Agreement in and to such independent ventures and activities or the income
or profits derived therefrom. The foregoing notwithstanding, without the prior
written consent of GNA in a specific case, GMSP shall at all times adhere, and
cause the members of the GMSP Group or the GMSP Principals, as the case may be,
to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group shall act,
either as principal or agent, on the opposite side of any transaction in which
GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times (A) place the
interests of GNA before such member's personal transactional interests; (B)
conduct all personal transactions in Securities in such a manner as to avoid any
actual or potential conflict of interest or abuse of such Person's position of
trust and confidence in relation to GNA; and (C) promptly disclose to GNA all
personal transactions made by or on behalf of such Person in Securities which
are or were at any time during the preceding two years in the Portfolio or
issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of interest
which is not specifically authorized by or pursuant to this Agreement, GMSP
shall submit such issue to the Committee for prior approval, and shall take such
actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by any
member of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA at any
time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP at any
time after the third anniversary hereof;
INVESTMENT MANAGEMENT AGREEMENT 8
25
(d) by GNA, at any time, immediately upon written notice to GMSP
following (i) the good faith determination by both the Committee and two-thirds
of the members of the Board (excluding members of the Board desiGNAted for
election by GMSP or its successors in interest under the Securities Purchase
Agreement or otherwise affiliated with GMSP) that an event that constitutes
Cause has occurred and is continuing beyond any applicable period for notice and
opportunity to cure or (ii) the commencement by a Governmental Authority of any
Proceeding alleging any matter which, if proven, would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event that GNA
defaults in the performance of any of its material obligations hereunder and
such default continues for not less than 10 days after GNA receives notice of
such default; provided, however, that in the event that such default is of a
nature that it cannot, with due diligence, be cured within 10 days, GMSP may not
terminate this Agreement so long as GNA begins to cure such default within 10
days and thereafter diligently pursues such cure to completion.
Termination of this Agreement shall not terminate GMSP's obligations
under Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly existing and
in good standing under the Texas Revised Limited Partnership Act, as amended,
and has the power and authority to own all of its properties and assets and to
carry on its business as now being conducted. GMSP is duly qualified and in good
standing (to the extent applicable) to transact business in each jurisdiction in
which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GMSP Material Adverse Effect.
(b) GMSP has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GMSP
do not and will not result in any violation by GMSP under any provisions of:
(i) the partnership agreement or similar governing documents of
GMSP;
INVESTMENT MANAGEMENT AGREEMENT 9
26
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GMSP is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of GMSP,
threatened against GMSP that questions the validity of this Agreement or any
action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will continue to be
(i) either exempt from registration or duly registered as an investment adviser
under the Investment Advisers Act of 1940 and all Applicable Laws and (ii)
qualified and eligible to manage the Portfolio under the statutes and
regulations administered by the GNA Applicable Insurance Department, provided
that GNA shall inform GMSP immediately in the event that GNA becomes aware of
any changes in the qualification and eligibility requirements with respect to
such statutes and regulations. GMSP will provide prompt written notice to GNA if
GMSP ceases to be so registered or qualified or becomes aware of any fact, event
or circumstance which will or is reasonably likely to cause it to cease to be so
registered or qualified.
(g) Taken in the aggregate, the factual information (including,
without limitation, information regarding its knowledge, investment experience
and investment track record) furnished by GMSP to GNA subsequent to May 11, 1999
in writing for purposes of this Agreement did not contain untrue statements of
material facts, or omit to state material facts necessary to make the statements
made not misleading in the light of the circumstances under which they were
made, as of the date as of which such information is dated. All financial
forecasts prepared and furnished by GMSP to GNA subsequent to May 11, 1999 were
prepared in good faith on the basis of assumptions believed to be reasonable and
data, information, tests or conditions believed to be valid or accurate or to
exist at the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned or used
by GMSP or used and operated by third parties on behalf of GMSP, which performs
or is or may be required to perform functions involving dates or the computation
of dates, or containing date related data, has the programming, design and
performance capabilities to ensure that:
(i) it will not suffer any Malfunction that would reasonably be
expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at the end of the
twentieth century or the input, processing, storage or use of dates up to and
including December 31, 2001, (A) be adversely affected, (B) require changes in
inputting or operating practices, (C) produce invalid or incorrect output or
results, (D) cause any abnormal ending scenario, or (E) suffer any diminution in
functionality or performance that, in any of the above, could reasonably be
expected to have a GMSP Material Adverse Effect.
INVESTMENT MANAGEMENT AGREEMENT 10
27
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is an insurance company duly organized and validly existing
under the laws of the State of Oklahoma, and has the power and authority to own
all of its properties and assets and to carry on its business as now being
conducted. GNA is duly qualified and in good standing to transact business in
each jurisdiction in which the performance of its obligations hereunder require
such qualification except where the failure to be duly qualified or in good
standing would not have or reasonably be expected to have a GNA Material Adverse
Effect.
(b) GNA has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GNA. This Agreement has been duly and validly executed and
delivered by GNA and, assuming the due authorization, execution and delivery
hereof by GMSP, constitutes the valid and binding obligation of GNA, enforceable
against GNA in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GNA
do not and will not result in any violation by GNA under any provisions of:
(i) articles of incorporation or similar governing documents of
GNA;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which GNA is now a party or by which it or any of
its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
(e) There is no Proceeding pending, or to the knowledge of GNA,
threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of entering into
this Agreement.
INVESTMENT MANAGEMENT AGREEMENT 11
28
(g) No part of the funds to be used to purchase and hold Securities or
to pay any amounts pursuant to this Agreement constitutes an asset of any
employee benefit plan within the meaning of Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and GNA is not a "benefit
plan investor" (as such term is defined in 29 C.F.R. ss.2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of the GMSP Group shall be liable for
any loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and the GMSP
Principals from and against any and all claims, actions, causes of action,
demands, losses, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred by any of them, directly or indirectly,
by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and its
Affiliates, Associates, directors, officers and employees from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
of them, directly or indirectly, by reason of or resulting from any Breach by
GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under Section
10(a) or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such Section, give written notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability
INVESTMENT MANAGEMENT AGREEMENT 12
29
that it may have to any indemnified party except to the extent the indemnifying
party demonstrates that the defense of such action is prejudiced thereby. In
case any such action shall be brought against an indemnified party and it shall
give written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to assume) the
defense of such action, the indemnified party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
indemnifying party. If the action is asserted against both the indemnifying
party and the indemnified party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the indemnifying
party and the indemnified party, the indemnifying party shall be responsible for
paying for separate counsel for the indemnified party; provided, however, that
if there is more than one indemnified party, the indemnifying party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the indemnified parties, regardless of the number of indemnified parties. The
indemnifying party shall have no liability with respect to any compromise or
settlement of any action effected without its written consent (which shall not
be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder shall
be deemed to have been given if (i) delivered personally or by documented
courier or delivery service, (ii) transmitted by facsimile or (iii) mailed by
registered or certified mail (return receipt requested and postage prepaid) to
the following listed Persons at the addresses and facsimile numbers specified
below, or to such other Persons, addresses or facsimile numbers as a party
entitled to notice shall give, in the manner hereinabove described, to the
others entitled to notice:
If to GMSP, to: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
INVESTMENT MANAGEMENT AGREEMENT 13
30
If to GNA, to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
19. TIME OF ESSENCE. With regard to all dates and time periods set forth
in this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
INVESTMENT MANAGEMENT AGREEMENT 14
31
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
32
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be
executed all as of the day and year first above written.
GENERAL AGENTS INSURANCE COMPANY
OF AMERICA, INC.,
an Oklahoma corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its
general partner
By: GMSP, L.L.C., its general partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Managing Principal
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Principal
INVESTMENT MANAGEMENT AGREEMENT 16
33
INVESTMENT MANAGEMENT AGREEMENT
FOR
GAINSCO, INC.
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into
this 4th day of October, 1999, by and between ▇▇▇▇ ▇▇▇▇▇ Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and GAINSCO, INC., a Texas
corporation ("GNA").
WHEREAS, GNA is a holding company whose subsidiaries are regulated
insurance companies;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager with
respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA or a
Subsidiary of GNA) of which such Person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of any class of Equity
Securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
Person, or any relative of such Person, or any relative of such spouse, who has
the same home as such Person or who is a director or officer of GNA or any of
its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT 1
34
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit with a
financial institution.
"Cause" means that GMSP has committed or engaged in (i) any malfeasance,
bad faith or negligence in respect of GMSP's material duties pursuant to this
Agreement; (ii) any commission of any fraud by GMSP; (iii) any conviction or
indictment of or plea of no contest to any felony by GMSP or any member of the
GMSP Group; (iv) any violation of the provisions of the U. S. federal securities
laws or state securities laws by GMSP or any GMSP Principal; or (v) any material
breach by GMSP of its obligations (including, without limitation, its
obligations to observe and comply with the provisions of the Policy Letter)
under, or its representations or warranties in, this Agreement if such breach
continues for more than 10 days after GMSP receives written notice, specifying
such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members of
which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA or
received by GNA from GMSP that is not generally known or which would logically
be considered confidential or proprietary, or which would do GNA or GMSP, as
applicable, harm if divulged, or which is marked "Confidential Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests of
any Person, any Securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock or other equity interests of
any Person, or any right, option, warrant or other Security which, with the
payment of additional consideration, the expiration of time or the occurrence of
any event shall give the holder thereof the right to acquire any capital stock
or other equity interests of any Person or any Security convertible into or
exercisable or exchangeable for, any capital stock or other equity interests of
any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
INVESTMENT MANAGEMENT AGREEMENT 2
35
of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm designated by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean ▇▇▇▇ ▇. ▇▇▇▇, J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and any other
Persons employed by or otherwise affiliated with GMSP or its general partner who
have access to information regarding particular Securities being considered for
purchase or sale by GNA. The parties recognize that the limited partners of GMSP
as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the Oklahoma Department of
Insurance and the Texas Department of Insurance.
"GNA Entities" means GAINSCO, INC., a Texas corporation; MGA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to GNA and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally provided, that no
change in the prices at which the Common Stock is quoted or traded on the NYSE
or otherwise shall be a GNA Material Adverse Effect
INVESTMENT MANAGEMENT AGREEMENT 3
36
"good faith", when used in respect of any action, means that the action was
taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
Moody's Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates falling
before, on or after the Year 2000; or (b) accurately record, store, retrieve and
process data input and date information.
"Person" means any individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including any
Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA at the holding company
level in Securities of the type more particularly described under the category
"Investments" in GNA's periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations, and
inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and
services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June 29, 1999, between GMSP and GAINSCO, INC.
"Short Term Debt" means any note, draft, ▇▇▇▇ of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary " means, with respect to any Person, any corporation or other
entity (including partnerships and other business associations) in which the
Person directly or indirectly owns at least a majority of the outstanding voting
Securities or other equity interests having the power, under ordinary
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
INVESTMENT MANAGEMENT AGREEMENT 4
37
"U.S." means the United States of America.
"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to serve,
as investment manager with respect to the Portfolio on the terms and conditions
hereinafter set forth:
(a) The investment policies and all other actions of the Portfolio are
and shall at all times be subject to the oversight and direction of the
Committee. GMSP shall manage the Portfolio in accordance with the investment
objectives and policies set forth in the letter (the "Policy Letter") heretofore
delivered to GMSP by GNA. GNA may amend or supplement the contents of the Policy
Letter, including the investment criteria and other instructions set forth
therein, in whole or in part and at any time and from time to time; provided,
however, that no amendment or supplement shall be binding upon GMSP until GMSP
is notified of the amendment or supplement; and provided further, that in the
event that an amended or supplemented Policy Letter shall require GMSP to make
any changes in the manner in which GMSP has performed its services pursuant to
this Agreement, GMSP shall have a reasonable time period to comply with such
changes. GMSP shall periodically evaluate the provisions of the Policy Letter
and provide GNA with any recommendations for the amendment or supplementation of
the provisions of the Policy Letter that GMSP deems advisable for the benefit of
GNA. To the extent that the provisions of the Policy Letter, as the same may be
amended or supplemented from time to time, conflict with the provisions of this
Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the oversight
and direction of the Committee, GMSP shall have authority to make all specific
investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its obligations
under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during the term
of this Agreement a qualified investment portfolio manager reasonably acceptable
to GNA, who shall have the primary responsibilities of coordinating all aspects
of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP currently is
not registered as an (i) investment adviser under the Investment Advisers Act of
1940, as amended, and all other Applicable Laws or (ii) a broker or dealer under
the Securities Exchange Act of 1934, as amended, and all other Applicable Laws.
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with respect
to the assets in and investment performance of the Portfolio. The reports shall
include such financial information in such format as GNA may reasonably request
in connection with the administration of the Portfolio and a record of all
transactions effected during the interim period from the preceding report,
including the price per
INVESTMENT MANAGEMENT AGREEMENT 5
38
Security, the broker or dealer executing the transaction and the commissions
paid. The reports shall be made with such frequency, but not less often than
within 20 days following the end of each calendar month, as GNA may reasonably
request in connection with the administration of the Portfolio; provided that
the late delivery of a complete report no more than one time in any three-year
period with respect to any particular Securities in the Portfolio shall not
constitute a Breach of this Agreement if (i) the delay was caused by the failure
of an unaffiliated Person in providing information to GMSP that had been timely
requested by GMSP, (ii) any portion of the report that is not dependent upon the
unaffiliated Person is delivered to GNA by GMSP on a timely basis, and (iii)
GMSP uses its commercially reasonable efforts to cause such late report to be
delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized representatives
reasonable access to the GMSP Principals, GMSP's offices and other facilities,
and all books, records and other documents of GMSP relating to the Portfolio or
this Agreement and (ii) permit GNA and its authorized representatives to make
such inspections and copies of all books, records and other documents as they
may reasonably require to verify the accuracy of any report furnished pursuant
to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the assets in
the Portfolio at the end of each calendar month, and shall be calculated at the
end of each calendar month based upon the actual number of days elapsed during
the calendar month, during which this Agreement is in effect over a year of 365
days. Within fifteen (15) days after the end of each calendar month, GNA shall
pay to GMSP the Fees earned with respect to the preceding calendar month. In the
event of termination prior to the end of a calendar month, GNA will pay to GMSP
a prorated portion of the Fees based upon the Fair Market Value of the assets in
the Portfolio at the time of termination. No other fees, charges or assessments
shall be payable by GNA to or for the benefit of GMSP or any member of the GMSP
Group with respect to the services performed by GMSP pursuant to this Agreement,
provided that GNA shall have the responsibility to reimburse GMSP for GMSP's
payment of any amounts described pursuant to Section 4(d) below. There shall not
be any annual reconciliation, adjustment or other "true-up" at the end of each
calendar year.
INVESTMENT MANAGEMENT AGREEMENT 6
39
(c) GMSP shall be solely responsible for all of its general and
administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall consist of all costs
and expenses in connection with the provision of office space and facilities,
equipment and personnel for servicing the investments of the Portfolio and the
salaries and fees of all personnel employed by GMSP performing services relating
to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the following
costs and expenses related to GMSP's performance of its duties pursuant to this
Agreement that are reasonable and payable to Persons not affiliated with the
GMSP Group:
(i) brokerage commissions and other costs, fees and expenses
incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected pursuant to Section
2(b);
(iii) costs related to third party Proceedings involving GNA's
ownership of Securities pursuant to this Agreement, directly or indirectly,
including, without limitation, attorneys' fees incurred in connection therewith
(but excluding all costs related to Proceedings or other disputes between GNA
and GMSP or any member of the GMSP Group or which constitute Cause);
(iv) interest on and fees and expenses arising out of all
borrowings made by GNA with respect to the purchase of Securities, including,
but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied against GNA;
and
(vi) any other expense, whether ordinary or extraordinary, that
is determined by the Committee to be appropriate for GNA to pay pursuant to this
Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP may
give preference, and may cause GNA to pay higher negotiated commission rates, to
unaffiliated brokers which, in addition to having the capacity of obtaining the
best price for the Security itself and of executing the order with speed,
efficiency and confidentiality, also provide Research to GMSP or GNA. Research
furnished by brokers through whom Securities transactions are effected may be
used by GMSP in servicing all of its accounts, and there shall be no reduction
in the compensation of GMSP hereunder as a consequence of its receipt of such
Research. In the allocation of brokerage, however, GMSP must determine in good
faith, and demonstrate to GNA upon request, that the amount of the commission is
reasonable in relation to the value of the brokerage services and Research
provided by the broker, viewed in terms of either the particular transaction or
GMSP's overall responsibilities with respect to the Portfolio. In the allocation
of brokerage for the Portfolio, GMSP shall be subject always to Applicable Law
and such policies and requirements that the Committee may adopt or approve as
reflected in the Policy Letter.
(f) In the event that, in any calendar month, the aggregate amount of
Fees (as such term is defined in the respective GNA Investment Management
Agreements) paid to GMSP by the GNA Entities pursuant to the GNA Investment
Management Agreements is less than $75,000, GNA shall pay to GMSP an amount
equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
INVESTMENT MANAGEMENT AGREEMENT 7
40
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be exclusive, and
GMSP shall be free to engage in any other business or to render similar services
to others. GMSP and any member of the GMSP Group may engage independently or
with others, for its or their own accounts and for the accounts of others, in
other business ventures and activities of every nature and description,
including, without limitation, purchasing, selling or holding Securities for the
account of any other Person or for its or his own account, including Securities
included within the Portfolio or eligible for investment pursuant to this
Agreement; provided, that the management of such entities and accounts do not
interfere with the performance of their obligations and duties to GNA pursuant
to this Agreement. GNA shall not have any rights or obligations by virtue of
this Agreement in and to such independent ventures and activities or the income
or profits derived therefrom. The foregoing notwithstanding, without the prior
written consent of GNA in a specific case, GMSP shall at all times adhere, and
cause the members of the GMSP Group or the GMSP Principals, as the case may be,
to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group shall act,
either as principal or agent, on the opposite side of any transaction in which
GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times (A) place
the interests of GNA before such member's personal transactional interests; (B)
conduct all personal transactions in Securities in such a manner as to avoid any
actual or potential conflict of interest or abuse of such Person's position of
trust and confidence in relation to GNA; and (C) promptly disclose to GNA all
personal transactions made by or on behalf of such Person in Securities which
are or were at any time during the preceding two years in the Portfolio or
issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of interest
which is not specifically authorized by or pursuant to this Agreement, GMSP
shall submit such issue to the Committee for prior approval, and shall take such
actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by any
member of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA at any
time after the third anniversary hereof;
INVESTMENT MANAGEMENT AGREEMENT 8
41
(c) by GNA upon not less than 90 days written notice to GMSP at any
time after the third anniversary hereof;
(d) by GNA, at any time, immediately upon written notice to GMSP
following (i) the good faith determination by both the Committee and two-thirds
of the members of the Board (excluding members of the Board designated for
election by GMSP or its successors in interest under the Securities Purchase
Agreement or otherwise affiliated with GMSP) that an event that constitutes
Cause has occurred and is continuing beyond any applicable period for notice and
opportunity to cure or (ii) the commencement by a Governmental Authority of any
Proceeding alleging any matter which, if proven, would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event that GNA
defaults in the performance of any of its material obligations hereunder and
such default continues for not less than 10 days after GNA receives notice of
such default; provided, however, that in the event that such default is of a
nature that it cannot, with due diligence, be cured within 10 days, GMSP may not
terminate this Agreement so long as GNA begins to cure such default within 10
days and thereafter diligently pursues such cure to completion.
Termination of this Agreement shall not terminate GMSP's obligations under
Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly existing and
in good standing under the Texas Revised Limited Partnership Act, as amended,
and has the power and authority to own all of its properties and assets and to
carry on its business as now being conducted. GMSP is duly qualified and in good
standing (to the extent applicable) to transact business in each jurisdiction in
which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GMSP Material Adverse Effect.
(b) GMSP has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
as described in the Securities Purchase Agreement or with any GNA Applicable
Insurance Department.
INVESTMENT MANAGEMENT AGREEMENT 9
42
(d) The execution, delivery and performance of this Agreement by GMSP
do not and will not result in any violation by GMSP under any provisions of:
(i) the partnership agreement or similar governing documents of
GMSP;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which GMSP is now a party or by which it
or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of GMSP,
threatened against GMSP that questions the validity of this Agreement or any
action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will continue to be
(i) either exempt from registration or duly registered as an investment adviser
under the Investment Advisers Act of 1940 and all Applicable Laws and (ii)
qualified and eligible to manage the Portfolio under the statutes and
regulations administered by the GNA Applicable Insurance Departments, provided
that GNA shall inform GMSP immediately in the event that GNA becomes aware of
any changes in the qualification and eligibility requirements with respect to
such statutes and regulations. GMSP will provide prompt written notice to GNA if
GMSP ceases to be so registered or qualified or becomes aware of any fact, event
or circumstance which will or is reasonably likely to cause it to cease to be so
registered or qualified.
(g) Taken in the aggregate, the factual information (including,
without limitation, information regarding its knowledge, investment experience
and investment track record) furnished by GMSP to GNA subsequent to May 11, 1999
in writing for purposes of this Agreement did not contain untrue statements of
material facts, or omit to state material facts necessary to make the statements
made not misleading in the light of the circumstances under which they were
made, as of the date as of which such information is dated. All financial
forecasts prepared and furnished by GMSP to GNA subsequent to May 11, 1999 were
prepared in good faith on the basis of assumptions believed to be reasonable and
data, information, tests or conditions believed to be valid or accurate or to
exist at the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned or used
by GMSP or used and operated by third parties on behalf of GMSP, which performs
or is or may be required to perform functions involving dates or the computation
of dates, or containing date related data, has the programming, design and
performance capabilities to ensure that:
(i) it will not suffer any Malfunction that would reasonably be
expected to have a GMSP Material Adverse Effect; and
INVESTMENT MANAGEMENT AGREEMENT 10
43
(ii) it will not, as a result of the date change at the end of
the twentieth century or the input, processing, storage or use of dates up to
and including December 31, 2001, (A) be adversely affected, (B) require changes
in inputting or operating practices, (C) produce invalid or incorrect output or
results, (D) cause any abnormal ending scenario, or (E) suffer any diminution in
functionality or performance that, in any of the above, could reasonably be
expected to have a GMSP Material Adverse Effect.
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is a corporation duly organized and validly existing under the
laws of the State of Texas, and has the power and authority to own all of its
properties and assets and to carry on its business as now being conducted. GNA
is duly qualified and in good standing to transact business in each jurisdiction
in which the performance of its obligations hereunder require such qualification
except where the failure to be duly qualified or in good standing would not have
or reasonably be expected to have a GNA Material Adverse Effect.
(b) GNA has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GNA. This Agreement has been duly and validly executed and
delivered by GNA and, assuming the due authorization, execution and delivery
hereof by GMSP, constitutes the valid and binding obligation of GNA, enforceable
against GNA in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with any GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement by GNA
do not and will not result in any violation by GNA under any provisions of:
(i) articles of incorporation or similar governing documents of
GNA;
(ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which GNA is now a party or by which it
or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
(e) There is no Proceeding pending, or to the knowledge of GNA,
threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this
INVESTMENT MANAGEMENT AGREEMENT 11
44
Agreement except as could not, in the aggregate, reasonably be expected to have
a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of entering into
this Agreement.
(g) No part of the funds to be used to purchase and hold Securities or
to pay any amounts pursuant to this Agreement constitutes an asset of any
employee benefit plan within the meaning of Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and GNA is not a "benefit
plan investor" (as such term is defined in 29 C.F.R. ss.2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of GMSP Group shall be liable for any
loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and the GMSP
Principals from and against any and all claims, actions, causes of action,
demands, losses, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees and expenses) (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred by any of them, directly or indirectly,
by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and its
Affiliates, Associates, directors, officers and employees from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
of them, directly or indirectly, by reason of or resulting from any Breach by
GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount
INVESTMENT MANAGEMENT AGREEMENT 12
45
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(c) Promptly after receipt by an indemnified party under Section 10(a)
or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such Section, give written notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability that it may have to any indemnified party except
to the extent the indemnifying party demonstrates that the defense of such
action is prejudiced thereby. In case any such action shall be brought against
an indemnified party and it shall give written notice to the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. If the
indemnifying party elects to assume the defense of such action, the indemnified
party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof. If the indemnifying party elects not to
assume (or fails to assume) the defense of such action, the indemnified party
shall be entitled to assume the defense of such action with counsel of its own
choice, at the expense of the indemnifying party. If the action is asserted
against both the indemnifying party and the indemnified party and there is a
conflict of interests which renders it inappropriate for the same counsel to
represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder shall be
deemed to have been given if (i) delivered personally or by documented courier
or delivery service, (ii) transmitted by facsimile or (iii) mailed by registered
or certified mail (return receipt requested and postage prepaid) to the
following listed Persons at the addresses and facsimile numbers specified below,
or to such other Persons, addresses
INVESTMENT MANAGEMENT AGREEMENT 13
46
or facsimile numbers as a party entitled to notice shall give, in the manner
hereinabove described, to the others entitled to notice:
If to GMSP, to: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to GNA, to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
INVESTMENT MANAGEMENT AGREEMENT 14
47
19. TIME OF ESSENCE. With regard to all dates and time periods set forth in
this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
48
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be executed
all as of the day and year first above written.
GAINSCO, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇ ▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its general partner
By: GMSP, L.L.C., its general partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Managing Principal
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Principal
INVESTMENT MANAGEMENT AGREEMENT 16
49
INVESTMENT MANAGEMENT AGREEMENT
FOR
GAINSCO COUNTY MUTUAL INSURANCE COMPANY
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into
this 4th day of October, 1999, by and between ▇▇▇▇ ▇▇▇▇▇ Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and GAINSCO COUNTY MUTUAL INSURANCE
COMPANY ("GNA"), a Texas county mutual insurance company which on October 13,
1996 entered into a management contract with GAINSCO Services Corp., a Texas
corporation which is wholly-owned subsidiary of GAINSCO, INC. ("Parent") and
owns the charter of GNA.
WHEREAS, GNA is a regulated insurance company;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager
with respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA, Parent
or a Subsidiary of GNA or Parent) of which such Person is an officer or partner
or is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of GNA or any
of its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT
1
50
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit
with a financial institution.
"Cause" means that GMSP has committed or engaged in (i) any
malfeasance, bad faith or negligence in respect of GMSP's material duties
pursuant to this Agreement; (ii) any commission of any fraud by GMSP; (iii) any
conviction or indictment of or plea of no contest to any felony by GMSP or any
member of the GMSP Group; (iv) any violation of the provisions of the U. S.
federal securities laws or state securities laws by GMSP or any GMSP Principal;
or (v) any material breach by GMSP of its obligations (including, without
limitation, its obligations to observe and comply with the provisions of the
Policy Letter) under, or its representations or warranties in, this Agreement if
such breach continues for more than 10 days after GMSP receives written notice,
specifying such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members
of which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA
or received by GNA from GMSP that is not generally known or which would
logically be considered confidential or proprietary, or which would do GNA or
GMSP, as applicable, harm if divulged, or which is marked "Confidential
Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests
of any Person, any Securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock or other equity interests of
any Person, or any right, option, warrant or other Security which, with the
payment of additional consideration, the expiration of time or the occurrence of
any event shall give the holder thereof the right to acquire any capital stock
or other equity interests of any Person or any Security convertible into or
exercisable or exchangeable for, any capital stock or other equity interests of
any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
INVESTMENT MANAGEMENT AGREEMENT
2
51
of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm designated by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean ▇▇▇▇ ▇. ▇▇▇▇, J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and any
other Persons employed by or otherwise affiliated with GMSP or its general
partner who have access to information regarding particular Securities being
considered for purchase or sale by GNA. The parties recognize that the limited
partners of GMSP as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the Texas Department of
Insurance.
"GNA Entities" means GAINSCO, INC., a Texas corporation; MGA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; and General Agents Insurance Company of America,
Inc., an Oklahoma corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to Parent and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally.
"good faith", when used in respect of any action, means that the action
was taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
INVESTMENT MANAGEMENT AGREEMENT
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52
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
Moody's Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates
falling before, on or after the Year 2000; or (b) accurately record, store,
retrieve and process data input and date information.
"Parent" has the meaning set forth in the first paragraph hereof.
"Person" means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
any Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA in Securities of the
type more particularly described under the category "Investments" in Parent's
periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations,
and inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and
services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June 29, 1999, between GMSP and Parent.
"Short Term Debt" means any note, draft, ▇▇▇▇ of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or
other entity (including partnerships and other business associations) in which
the Person directly or indirectly owns at least a majority of the outstanding
voting Securities or other equity interests having the power, under ordinary
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"U.S." means the United States of America.
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"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to
serve, as investment manager with respect to the Portfolio on the terms and
conditions hereinafter set forth:
(a) The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the oversight and direction
of the Committee. GMSP shall manage the Portfolio in accordance with the
investment objectives and policies set forth in the letter (the "Policy Letter")
heretofore delivered to GMSP by GNA. GNA may amend or supplement the contents of
the Policy Letter, including the investment criteria and other instructions set
forth therein, in whole or in part and at any time and from time to time;
provided, however, that no amendment or supplement shall be binding upon GMSP
until GMSP is notified of the amendment or supplement; and provided further,
that in the event that an amended or supplemented Policy Letter shall require
GMSP to make any changes in the manner in which GMSP has performed its services
pursuant to this Agreement, GMSP shall have a reasonable time period to comply
with such changes. GMSP shall periodically evaluate the provisions of the Policy
Letter and provide GNA with any recommendations for the amendment or
supplementation of the provisions of the Policy Letter that GMSP deems advisable
for the benefit of GNA. To the extent that the provisions of the Policy Letter,
as the same may be amended or supplemented from time to time, conflict with the
provisions of this Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the
oversight and direction of the Committee, GMSP shall have authority to make all
specific investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its
obligations under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during
the term of this Agreement a qualified investment portfolio manager reasonably
acceptable to GNA, who shall have the primary responsibilities of coordinating
all aspects of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP
currently is not registered as an (i) investment adviser under the Investment
Advisers Act of 1940, as amended, and all other Applicable Laws or (ii) a broker
or dealer under the Securities Exchange Act of 1934, as amended, and all other
Applicable Laws.
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with
respect to the assets in and investment performance of the Portfolio. The
reports shall include such financial information in such format as GNA may
reasonably request in connection with the administration of the Portfolio and a
record of all transactions effected during the interim period from the preceding
report, including the price per Security, the broker or dealer executing the
transaction and the commissions paid. The reports shall be made with such
frequency, but not less often than within 20 days following the end of each
calendar month, as
INVESTMENT MANAGEMENT AGREEMENT
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54
GNA may reasonably request in connection with the administration of the
Portfolio; provided that the late delivery of a complete report no more than one
time in any three-year period with respect to any particular Security in the
Portfolio shall not constitute a Breach of this Agreement if (i) the delay was
caused by the failure of an unaffiliated Person in providing information to GMSP
that had been timely requested by GMSP, (ii) any portion of the report that is
not dependent upon the unaffiliated Person is delivered to GNA by GMSP on a
timely basis, and (iii) GMSP uses its commercially reasonable efforts to cause
such late report to be delivered as promptly as practicable.
(b) GMSP shall (i) afford GNA and its authorized
representatives reasonable access to the GMSP Principals, GMSP's offices and
other facilities, and all books, records and other documents of GMSP relating to
the Portfolio or this Agreement and (ii) permit GNA and its authorized
representatives to make such inspections and copies of all books, records and
other documents as they may reasonably require to verify the accuracy of any
report furnished pursuant to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the
assets in the Portfolio at the end of each calendar month, and shall be
calculated at the end of each calendar month based upon the actual number of
days elapsed during the calendar month, during which this Agreement is in effect
over a year of 365 days. Within fifteen (15) days after the end of each calendar
month, GNA shall pay to GMSP the Fees earned with respect to the preceding
calendar month. In the event of termination prior to the end of a calendar
month, GNA will pay to GMSP a prorated portion of the Fees based upon the Fair
Market Value of the assets in the Portfolio at the time of termination. No other
fees, charges or assessments shall be payable by GNA to or for the benefit of
GMSP or any member of the GMSP Group with respect to the services performed by
GMSP pursuant to this Agreement, provided that GNA shall have the responsibility
to reimburse GMSP for GMSP's payment of any amounts described pursuant to
Section 4(d) below. There shall not be any annual reconciliation, adjustment or
other "true-up" at the end of each calendar year.
(c) GMSP shall be solely responsible for all of its general
and administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall
INVESTMENT MANAGEMENT AGREEMENT
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55
consist of all costs and expenses in connection with the provision of office
space and facilities, equipment and personnel for servicing the investments of
the Portfolio and the salaries and fees of all personnel employed by GMSP
performing services relating to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the
following costs and expenses related to GMSP's performance of its duties
pursuant to this Agreement that are reasonable and payable to Persons not
affiliated with the GMSP Group:
(i) brokerage commissions and other costs, fees and
expenses incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected
pursuant to Section 2(b);
(iii) costs related to third party Proceedings
involving GNA's ownership of Securities pursuant to this Agreement, directly or
indirectly, including, without limitation, attorneys' fees incurred in
connection therewith (but excluding all costs related to Proceedings or other
disputes between GNA and GMSP or any member of the GMSP Group or which
constitute Cause);
(iv) interest on and fees and expenses arising out of
all borrowings made by GNA with respect to the purchase of Securities,
including, but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied
against GNA; and
(vi) any other expense, whether ordinary or
extraordinary, that is determined by the Committee to be appropriate for GNA to
pay pursuant to this Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP
may give preference, and may cause GNA to pay higher negotiated commission
rates, to unaffiliated brokers which, in addition to having the capacity of
obtaining the best price for the Security itself and of executing the order with
speed, efficiency and confidentiality, also provide Research to GMSP or GNA.
Research furnished by brokers through whom Securities transactions are effected
may be used by GMSP in servicing all of its accounts, and there shall be no
reduction in the compensation of GMSP hereunder as a consequence of its receipt
of such Research. In the allocation of brokerage, however, GMSP must determine
in good faith, and demonstrate to GNA upon request, that the amount of the
commission is reasonable in relation to the value of the brokerage services and
Research provided by the broker, viewed in terms of either the particular
transaction or GMSP's overall responsibilities with respect to the Portfolio. In
the allocation of brokerage for the Portfolio, GMSP shall be subject always to
Applicable Law and such policies and requirements that the Committee may adopt
or approve as reflected in the Policy Letter.
(f) In the event that, in any calendar month, the aggregate
amount of Fees (as such term is defined in the respective GNA Investment
Management Agreements) paid to GMSP by the GNA Entities pursuant to the GNA
Investment Management Agreements is less than $75,000, GNA shall pay to GMSP an
amount equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
INVESTMENT MANAGEMENT AGREEMENT
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5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be
exclusive, and GMSP shall be free to engage in any other business or to render
similar services to others. GMSP and any member of the GMSP Group may engage
independently or with others, for its or their own accounts and for the accounts
of others, in other business ventures and activities of every nature and
description, including, without limitation, purchasing, selling or holding
Securities for the account of any other Person or for its or his own account,
including Securities included within the Portfolio or eligible for investment
pursuant to this Agreement; provided, that the management of such entities and
accounts do not interfere with the performance of their obligations and duties
to GNA pursuant to this Agreement. GNA shall not have any rights or obligations
by virtue of this Agreement in and to such independent ventures and activities
or the income or profits derived therefrom. The foregoing notwithstanding,
without the prior written consent of GNA in a specific case, GMSP shall at all
times adhere, and cause the members of the GMSP Group or the GMSP Principals, as
the case may be, to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group
shall act, either as principal or agent, on the opposite side of any transaction
in which GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times
(A) place the interests of GNA before such member's personal transactional
interests; (B) conduct all personal transactions in Securities in such a manner
as to avoid any actual or potential conflict of interest or abuse of such
Person's position of trust and confidence in relation to GNA; and (C) promptly
disclose to GNA all personal transactions made by or on behalf of such Person in
Securities which are or were at any time during the preceding two years in the
Portfolio or issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of
interest which is not specifically authorized by or pursuant to this Agreement,
GMSP shall submit such issue to the Committee for prior approval, and shall take
such actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by
any member of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence
on the date of this Agreement and shall continue until terminated:
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA
at any time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP
at any time after the third anniversary hereof;
INVESTMENT MANAGEMENT AGREEMENT
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57
(d) by GNA, at any time, immediately upon written notice to
GMSP following (i) the good faith determination by both the Committee and
two-thirds of the members of the Board (excluding members of the Board
designated for election by GMSP or its successors in interest under the
Securities Purchase Agreement or otherwise affiliated with GMSP) that an event
that constitutes Cause has occurred and is continuing beyond any applicable
period for notice and opportunity to cure or (ii) the commencement by a
Governmental Authority of any Proceeding alleging any matter which, if proven,
would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event
that GNA defaults in the performance of any of its material obligations
hereunder and such default continues for not less than 10 days after GNA
receives notice of such default; provided, however, that in the event that such
default is of a nature that it cannot, with due diligence, be cured within 10
days, GMSP may not terminate this Agreement so long as GNA begins to cure such
default within 10 days and thereafter diligently pursues such cure to
completion.
Termination of this Agreement shall not terminate GMSP's obligations
under Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information , terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly
existing and in good standing under the Texas Revised Limited Partnership Act,
as amended, and has the power and authority to own all of its properties and
assets and to carry on its business as now being conducted. GMSP is duly
qualified and in good standing (to the extent applicable) to transact business
in each jurisdiction in which the performance of its obligations hereunder
require such qualification except where the failure to be duly qualified or in
good standing would not have or reasonably be expected to have a GMSP Material
Adverse Effect.
(b) GMSP has all requisite power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to
or authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement
by GMSP do not and will not result in any violation by GMSP under any provisions
of:
(i) the partnership agreement or similar governing
documents of GMSP;
INVESTMENT MANAGEMENT AGREEMENT
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58
(ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which GMSP is now a party or
by which it or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of
GMSP, threatened against GMSP that questions the validity of this Agreement or
any action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will
continue to be (i) either exempt from registration or duly registered as an
investment adviser under the Investment Advisers Act of 1940 and all Applicable
Laws and (ii) qualified and eligible to manage the Portfolio under the statutes
and regulations administered by the GNA Applicable Insurance Department,
provided that GNA shall inform GMSP immediately in the event that GNA becomes
aware of any changes in the qualification and eligibility requirements with
respect to such statutes and regulations. GMSP will provide prompt written
notice to GNA if GMSP ceases to be so registered or qualified or becomes aware
of any fact, event or circumstance which will or is reasonably likely to cause
it to cease to be so registered or qualified.
(g) Taken in the aggregate, the factual information
(including, without limitation, information regarding its knowledge, investment
experience and investment track record) furnished by GMSP to GNA subsequent to
May 11, 1999 in writing for purposes of this Agreement did not contain untrue
statements of material facts, or omit to state material facts necessary to make
the statements made not misleading in the light of the circumstances under which
they were made, as of the date as of which such information is dated. All
financial forecasts prepared and furnished by GMSP to GNA subsequent to May 11,
1999 were prepared in good faith on the basis of assumptions believed to be
reasonable and data, information, tests or conditions believed to be valid or
accurate or to exist at the time such forecasts were prepared.
(h) All of the equipment, Software and computer hardware owned
or used by GMSP or used and operated by third parties on behalf of GMSP, which
performs or is or may be required to perform functions involving dates or the
computation of dates, or containing date related data, has the programming,
design and performance capabilities to ensure that:
(i) it will not suffer any Malfunction that would
reasonably be expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at
the end of the twentieth century or the input, processing, storage or use of
dates up to and including December 31, 2001, (A) be adversely affected, (B)
require changes in inputting or operating practices, (C) produce invalid or
incorrect output or results, (D) cause any abnormal ending scenario, or (E)
suffer any diminution in functionality or performance that, in any of the above,
could reasonably be expected to have a GMSP Material Adverse Effect.
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8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is an insurance company duly organized and validly
existing under the laws of the State of Texas, and has the power and authority
to own all of its properties and assets and to carry on its business as now
being conducted. GNA is duly qualified and in good standing to transact business
in each jurisdiction in which the performance of its obligations hereunder
require such qualification except where the failure to be duly qualified or in
good standing would not have or reasonably be expected to have a GNA Material
Adverse Effect.
(b) GNA has all requisite power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GNA. This Agreement has been duly and validly executed and
delivered by GNA and, assuming the due authorization, execution and delivery
hereof by GMSP, constitutes the valid and binding obligation of GNA, enforceable
against GNA in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to
or authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
as described in the Securities Purchase Agreement or with the GNA Applicable
Insurance Department.
(d) The execution, delivery and performance of this Agreement
by GNA do not and will not result in any violation by GNA under any provisions
of:
(i) articles of incorporation or similar governing
documents of GNA;
(ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which GNA is now a party or
by which it or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
(e) There is no Proceeding pending, or to the knowledge of
GNA, threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and
business matters that it is capable of evaluating the risks and merits of
entering into this Agreement.
INVESTMENT MANAGEMENT AGREEMENT
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(g) No part of the funds to be used to purchase and hold
Securities or to pay any amounts pursuant to this Agreement constitutes an asset
of any employee benefit plan within the meaning of Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and GNA is not a
"benefit plan investor" (as such term is defined in 29 C.F.R. Section
2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of the GMSP Group shall be liable for
any loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and
the GMSP Principals from and against any and all claims, actions, causes of
action, demands, losses, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by any of them, directly or
indirectly, by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and
its Affiliates, Associates, directors, officers and employees from and against
any and all Damages asserted against, resulting to, imposed upon, or incurred by
any of them, directly or indirectly, by reason of or resulting from any Breach
by GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under
Section 10(a) or (b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof, but the failure so to notify the indemnifying
party shall not relieve it of any liability
INVESTMENT MANAGEMENT AGREEMENT
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that it may have to any indemnified party except to the extent the indemnifying
party demonstrates that the defense of such action is prejudiced thereby. In
case any such action shall be brought against an indemnified party and it shall
give written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to assume) the
defense of such action, the indemnified party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
indemnifying party. If the action is asserted against both the indemnifying
party and the indemnified party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the indemnifying
party and the indemnified party, the indemnifying party shall be responsible for
paying for separate counsel for the indemnified party; provided, however, that
if there is more than one indemnified party, the indemnifying party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the indemnified parties, regardless of the number of indemnified parties. The
indemnifying party shall have no liability with respect to any compromise or
settlement of any action effected without its written consent (which shall not
be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder
shall be deemed to have been given if (i) delivered personally or by documented
courier or delivery service, (ii) transmitted by facsimile or (iii) mailed by
registered or certified mail (return receipt requested and postage prepaid) to
the following listed Persons at the addresses and facsimile numbers specified
below, or to such other Persons, addresses or facsimile numbers as a party
entitled to notice shall give, in the manner hereinabove described, to the
others entitled to notice:
If to GMSP, to: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
INVESTMENT MANAGEMENT AGREEMENT
13
62
If to GNA, to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
19. TIME OF ESSENCE. With regard to all dates and time periods set
forth in this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
INVESTMENT MANAGEMENT AGREEMENT
14
63
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
[Intentionally Left Blank]
INVESTMENT MANAGEMENT AGREEMENT
15
64
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be
executed all as of the day and year first above written.
GAINSCO SERVICES CORP.,
a Texas corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its general partner
By: GMSP, L.L.C., its general partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Managing Principal
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Principal
INVESTMENT MANAGEMENT AGREEMENT
16
65
INVESTMENT MANAGEMENT AGREEMENT
FOR
MIDWEST CASUALTY INSURANCE COMPANY
THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement") is entered into
this 1st day of January, 2000, by and between ▇▇▇▇ ▇▇▇▇▇ Strategic Partners,
L.P., a Texas limited partnership ("GMSP"), and Midwest Casualty Insurance
Company, a North Dakota insurance corporation ("GNA"), an indirect subsidiary of
GAINSCO, INC. ("Parent").
WHEREAS, GNA is a regulated insurance company;
WHEREAS, GNA desires to appoint GMSP to serve as investment manager
with respect to certain investments held by it; and
WHEREAS, GMSP is willing to provide investment advisory services to GNA
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GMSP and GNA hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly, through one or more intermediaries controls, is
controlled by or is under common control with such specified Person. For this
purpose the term "control" (including the terms "controlling", "controlled by"
and "under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person whether through the ownership of voting Securities, by contract, or
otherwise.
"Agreement" has the meaning set forth in the first paragraph hereof.
"Applicable Law" means any statute, law, rule, policy, guideline, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Authority to which a specified Person or property is subject.
"Associate" means (i) any corporation or entity (other than GNA, Parent
or a Subsidiary of GNA or Parent) of which such Person is an officer or partner
or is, directly or indirectly, the beneficial owner of 10 percent or more of any
class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of GNA or any
of its Subsidiaries.
"Board" means the board of directors of GNA.
INVESTMENT MANAGEMENT AGREEMENT 1
66
"Breach" means any violation or breach of, any misrepresentation or
inaccuracy in, any default under, or any failure to perform or comply with any
representation, warranty, covenant, obligation, or other provision of this
Agreement.
"Business Day" means any day other than a Saturday or Sunday on which
national banks are open for business in Fort Worth, Texas and New York, New
York.
"Cash" means any currency or immediately available funds on deposit
with a financial institution.
"Cause" means that GMSP has committed or engaged in (i) any
malfeasance, bad faith or negligence in respect of GMSP's material duties
pursuant to this Agreement; (ii) any commission of any fraud by GMSP; (iii) any
conviction or indictment of or plea of no contest to any felony by GMSP or any
member of the GMSP Group; (iv) any violation of the provisions of the U. S.
federal securities laws or state securities laws by GMSP or any GMSP Principal;
or (v) any material breach by GMSP of its obligations (including, without
limitation, its obligations to observe and comply with the provisions of the
Policy Letter) under, or its representations or warranties in, this Agreement if
such breach continues for more than 10 days after GMSP receives written notice,
specifying such breach with particularity and demanding cure, from GNA.
"Committee" means the Board's Investment Committee, none of the members
of which shall be members of the GMSP Group.
"Confidential Information" means information received by GMSP from GNA
or received by GNA from GMSP that is not generally known or which would
logically be considered confidential or proprietary, or which would do GNA or
GMSP, as applicable, harm if divulged, or which is marked "Confidential
Information."
"Damages" has the meaning set forth in Section 10.
"Equity Securities" means any capital stock or other equity interests
of any Person, any Securities directly or indirectly convertible into, or
exercisable or exchangeable for any capital stock or other equity interests of
any Person, or any right, option, warrant or other Security which, with the
payment of additional consideration, the expiration of time or the occurrence of
any event shall give the holder thereof the right to acquire any capital stock
or other equity interests of any Person or any Security convertible into or
exercisable or exchangeable for, any capital stock or other equity interests of
any Person.
"Fair Market Value" means as to any Securities on any date, (a) if such
Securities are listed or admitted to trading on any national securities exchange
on any such trading day, the amount equal to the last sale price of such
Securities, regular way settlement, on such dates or, if no such sale takes
place on a date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which such Securities are then listed or admitted to trading, (b) if
such Securities are not then listed or admitted to trading on any national
securities exchange but are reported through the automated quotation system of a
registered securities association, the last trading price of such Securities on
such dates, or if there shall have been no trading on a date, the average of the
closing bid and asked prices of such Securities on such date as shown by such
automated quotation system or (c) if such Securities are not then so listed,
admitted to trading or reported, the value determined by GMSP subject to review
and approval by the Committee, which valuation shall be equal to (i) cost or
(ii) in the event that either GMSP or the Committee determine that there has
been a material change in the value of such Securities since the date of
acquisition of such Securities, such other valuation as is reflective of the
value
INVESTMENT MANAGEMENT AGREEMENT 2
67
of such Securities; provided, however, that, if GMSP and the Committee are
unable to agree on such fair market value, such Securities shall be valued by
such nationally recognized independent public accounting firm or investment
banking firm designated by the Committee and reasonably acceptable to GMSP. Any
such third-party valuation shall be final and binding on the parties and
enforceable in accordance with the provisions of the Texas General Arbitration
Act, and the costs and expenses thereof shall be shared equally by GMSP and GNA.
"Fees" has the meaning set forth in Section 4.
"GAAP" means generally accepted accounting principles for financial
reporting in the U.S., consistently applied.
"GMSP" has the meaning set forth in the introductory paragraph of this
Agreement.
"GMSP Group" means GMSP together with its Affiliates, Associates and
employees, including without limitation GMSP's partners, the partners of the
general partner of GMSP and the GMSP Principals.
"GMSP Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability of GMSP to conduct business,
the financial condition or the results of operations of GMSP that is material to
GMSP or as to the ability of GMSP to perform its obligations pursuant to this
Agreement, excluding any such condition, circumstance or development which
adversely affects the U.S. economy, financial markets or the insurance industry
generally.
"GMSP Principals" shall mean ▇▇▇▇ ▇. ▇▇▇▇, J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and any
other Persons employed by or otherwise affiliated with GMSP or its general
partner who have access to information regarding particular Securities being
considered for purchase or sale by GNA. The parties recognize that the limited
partners of GMSP as of the date hereof are not GMSP Principals.
"GNA" has the meaning set forth in the introductory paragraph of this
Agreement.
"GNA Applicable Insurance Department" means the Insurance Department
of North Dakota.
"GNA Entities" means GAINSCO, INC., a Texas corporation; GNA Insurance
Company, Inc., a Texas corporation; GAINSCO County Mutual Insurance Company, a
Texas mutual insurance company; General Agents Insurance Company of America,
Inc., an Oklahoma corporation and Midwest Casualty Insurance Company, a North
Dakota insurance corporation.
"GNA Investment Management Agreements" means the Investment Management
Agreements of even date herewith between GMSP and each of the GNA Entities,
including this Agreement.
"GNA Material Adverse Effect" means any condition, circumstance or
development having an adverse effect on the ability to conduct business, the
financial condition or the results of operations of GNA and its Subsidiaries
that is material to Parent and its Subsidiaries taken as a whole or as to the
ability of GNA to perform its obligations pursuant to this Agreement, excluding
any such condition, circumstance or development which adversely affects the U.S.
economy, financial markets or insurance industry generally.
INVESTMENT MANAGEMENT AGREEMENT 3
68
"good faith", when used in respect of any action, means that the action
was taken with (i) honesty of intention, (ii) freedom from knowledge of
circumstances which ought to put the Person taking such action on inquiry or
negligence, and (iii) intention to abstain from taking any unconscientious
advantage of another.
"Governmental Authority" means any U.S. federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Investment Grade Debt Obligations" means any interest bearing debt
obligations issued by any Person, including a Governmental Authority, rated at
least "B minus" or the equivalent thereof by Standard & Poor's Corporation or
▇▇▇▇▇'▇ Investor's Service, Inc.
"Malfunction" means any failure to: (a) accurately recognize dates
falling before, on or after the Year 2000; or (b) accurately record, store,
retrieve and process data input and date information.
"Parent" has the meaning set forth in the first paragraph hereof.
"Person" means any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
any Governmental Authority.
"Policy Letter" has the meaning set forth in Section 2.
"Portfolio" means those investments held by GNA in Securities of the
type more particularly described under the category "Investments" in Parent's
periodic filings with the SEC.
"Proceedings" means all proceedings, actions, suits, investigations,
and inquiries by or before any arbitrator or Governmental Authority.
"Research" means research, statistical and similar information and
services.
"SEC" means the Securities and Exchange Commission.
"Security" means any capital stock, partnership interest, membership
interest, subscription, certificate of trust or other ownership interest,
warrant, bond, note, debenture, or other debt or equity interest of any Person
commonly known as a "security," and all rights and options relating to any of
the foregoing, regardless of whether traded on a national securities exchange;
but shall not include Cash Equivalents.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated June 29, 1999, between GMSP and Parent.
"Short Term Debt" means any note, draft, ▇▇▇▇ of exchange, or similar
security which has a maturity at the time of issuance of not exceeding nine (9)
months exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
"Subsidiary" means, with respect to any Person, any corporation or
other entity (including partnerships and other business associations) in which
the Person directly or indirectly owns at least a majority of the outstanding
voting Securities or other equity interests having the power, under ordinary
INVESTMENT MANAGEMENT AGREEMENT 4
69
circumstances, to elect a majority of the directors, or otherwise to direct the
management and policies, of such corporation or other entity.
"U.S." means the United States of America.
"Year 2000" means the calendar year 2000 A.D.
2. INVESTMENT MANAGER. GNA hereby retains GMSP, and GMSP agrees to
serve, as investment manager with respect to the Portfolio on the terms and
conditions hereinafter set forth:
(a) The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the oversight and direction
of the Committee. GMSP shall manage the Portfolio in accordance with the
investment objectives and policies set forth in the letter (the "Policy Letter")
heretofore delivered to GMSP by GNA. GNA may amend or supplement the contents of
the Policy Letter, including the investment criteria and other instructions set
forth therein, in whole or in part and at any time and from time to time;
provided, however, that no amendment or supplement shall be binding upon GMSP
until GMSP is notified of the amendment or supplement; and provided further,
that in the event that an amended or supplemented Policy Letter shall require
GMSP to make any changes in the manner in which GMSP has performed its services
pursuant to this Agreement, GMSP shall have a reasonable time period to comply
with such changes. GMSP shall periodically evaluate the provisions of the Policy
Letter and provide GNA with any recommendations for the amendment or
supplementation of the provisions of the Policy Letter that GMSP deems advisable
for the benefit of GNA. To the extent that the provisions of the Policy Letter,
as the same may be amended or supplemented from time to time, conflict with the
provisions of this Agreement, the provisions of this Agreement shall control.
(b) GNA will retain ownership and control of the assets in the
Portfolio at all times. The assets shall be held for the benefit of GNA solely
at one or more financial institutions or other locations specified from time to
time in the Policy Letter.
(c) Subject to the provisions of the Policy Letter and the
oversight and direction of the Committee, GMSP shall have authority to make all
specific investment decisions with respect to the assets in the Portfolio.
(d) GMSP shall exercise its discretion and discharge its
obligations under this Agreement in compliance with all Applicable Laws.
(e) GMSP shall employ and dedicate to GNA continuously during
the term of this Agreement a qualified investment portfolio manager reasonably
acceptable to GNA, who shall have the primary responsibilities of coordinating
all aspects of the day-to-day investment activities of the Portfolio.
(f) GNA acknowledges that GMSP has informed GNA that GMSP
currently is not registered as an (i) investment adviser under the Investment
Advisers Act of 1940, as amended, and all other Applicable Laws or (ii) a broker
or dealer under the Securities Exchange Act of 1934, as amended, and all other
Applicable Laws.
INVESTMENT MANAGEMENT AGREEMENT 5
70
3. REPORTS.
(a) GMSP shall provide to GNA periodic financial reports with
respect to the assets in and investment performance of the Portfolio. The
reports shall include such financial information in such format as GNA may
reasonably request in connection with the administration of the Portfolio and a
record of all transactions effected during the interim period from the preceding
report, including the price per Security, the broker or dealer executing the
transaction and the commissions paid. The reports shall be made with such
frequency, but not less often than within 20 days following the end of each
calendar month, as GNA may reasonably request in connection with the
administration of the Portfolio; provided that the late delivery of a complete
report no more than one time in any three-year period with respect to any
particular Security in the Portfolio shall not constitute a Breach of this
Agreement if (i) the delay was caused by the failure of an unaffiliated Person
in providing information to GMSP that had been timely requested by GMSP, (ii)
any portion of the report that is not dependent upon the unaffiliated Person is
delivered to GNA by GMSP on a timely basis, and (iii) GMSP uses its commercially
reasonable efforts to cause such late report to be delivered as promptly as
practicable.
(b) GMSP shall (i) afford GNA and its authorized
representatives reasonable access to the GMSP Principals, GMSP's offices and
other facilities, and all books, records and other documents of GMSP relating to
the Portfolio or this Agreement and (ii) permit GNA and its authorized
representatives to make such inspections and copies of all books, records and
other documents as they may reasonably require to verify the accuracy of any
report furnished pursuant to Section 3(a).
4. COMPENSATION; EXPENSES.
(a) For services performed by GMSP, GNA agrees to pay to GMSP
investment management fees (the "Fees") equal on an annual basis to (i) 30 basis
points multiplied by the Fair Market Value with respect to any portion of the
Portfolio invested in Short Term Debt or Investment Grade Debt Obligations at
the end of a given calendar month or during a majority of the days in the given
calendar month and (ii) 100 basis points multiplied by the Fair Market Value
with respect to any portion of the Portfolio invested in Equity Securities or
other alternative investments in Securities which are not Investment Grade Debt
Obligations. The Fees otherwise payable with respect to any calendar month (or
prorated portion thereof) shall be reduced by an amount equal to the sum of (i)
the amount of fees, commissions and expenses paid by or on behalf of GNA to any
investment or mutual fund from which any member of the GMSP Group is eligible to
receive compensation or profits plus (ii) the amount of any fees paid by or on
behalf of GNA to or accrued for the benefit of any member of the GMSP Group
under Rule 12b-1 promulgated under the Investment Company Act of 1940, as
amended, plus (iii) the amount of any finder's fees, brokerage commissions or
other benefit or compensation paid by or on behalf of GNA to or accrued for the
benefit of any member of the GMSP Group in connection with any transaction in
Securities pursuant to this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (x) no Fees shall be payable with respect to any
portion of the Portfolio invested in Cash during a majority of the days in the
given calendar month and (y) the Committee and GMSP may agree upon a different
Fee structure for special situations.
(b) The Fees shall be based on the Fair Market Value of the
assets in the Portfolio at the end of each calendar month, and shall be
calculated at the end of each calendar month based upon the actual number of
days elapsed during the calendar month, during which this Agreement is in effect
over a year of 365 days. Within fifteen (15) days after the end of each calendar
month, GNA shall pay to GMSP the Fees earned with respect to the preceding
calendar month. In the event of termination prior to the end of a calendar
month, GNA will pay to GMSP a prorated portion of the Fees based upon the Fair
Market
INVESTMENT MANAGEMENT AGREEMENT 6
71
Value of the assets in the Portfolio at the time of termination. No other fees,
charges or assessments shall be payable by GNA to or for the benefit of GMSP or
any member of the GMSP Group with respect to the services performed by GMSP
pursuant to this Agreement, provided that GNA shall have the responsibility to
reimburse GMSP for GMSP's payment of any amounts described pursuant to Section
4(d) below. There shall not be any annual reconciliation, adjustment or other
"true-up" at the end of each calendar year.
(c) GMSP shall be solely responsible for all of its general
and administrative costs and expenses incurred in connection with performing its
duties and obligations under this Agreement, which shall consist of all costs
and expenses in connection with the provision of office space and facilities,
equipment and personnel for servicing the investments of the Portfolio and the
salaries and fees of all personnel employed by GMSP performing services relating
to research, statistical and investment activities.
(d) GNA shall be responsible for, and pay directly, the
following costs and expenses related to GMSP's performance of its duties
pursuant to this Agreement that are reasonable and payable to Persons not
affiliated with the GMSP Group:
(i) brokerage commissions and other costs, fees and
expenses incurred in the purchase and sale of Securities;
(ii) fees and expenses of custodians selected
pursuant to Section 2(b);
(iii) costs related to third party Proceedings
involving GNA's ownership of Securities pursuant to this Agreement, directly or
indirectly, including, without limitation, attorneys' fees incurred in
connection therewith (but excluding all costs related to Proceedings or other
disputes between GNA and GMSP or any member of the GMSP Group or which
constitute Cause);
(iv) interest on and fees and expenses arising out of
all borrowings made by GNA with respect to the purchase of Securities,
including, but not limited to, the arranging thereof;
(v) taxes, fees or other governmental charges levied
against GNA; and
(vi) any other expense, whether ordinary or
extraordinary, that is determined by the Committee to be appropriate for GNA to
pay pursuant to this Agreement.
(e) In discharging its duties pursuant to this Agreement, GMSP
may give preference, and may cause GNA to pay higher negotiated commission
rates, to unaffiliated brokers which, in addition to having the capacity of
obtaining the best price for the Security itself and of executing the order with
speed, efficiency and confidentiality, also provide Research to GMSP or GNA.
Research furnished by brokers through whom Securities transactions are effected
may be used by GMSP in servicing all of its accounts, and there shall be no
reduction in the compensation of GMSP hereunder as a consequence of its receipt
of such Research. In the allocation of brokerage, however, GMSP must determine
in good faith, and demonstrate to GNA upon request, that the amount of the
commission is reasonable in relation to the value of the brokerage services and
Research provided by the broker, viewed in terms of either the particular
transaction or GMSP's overall responsibilities with respect to the Portfolio. In
the allocation of brokerage for the Portfolio, GMSP shall be subject always to
Applicable Law and such policies and requirements that the Committee may adopt
or approve as reflected in the Policy Letter.
INVESTMENT MANAGEMENT AGREEMENT 7
72
(f) In the event that, in any calendar month, the aggregate
amount of Fees (as such term is defined in the respective GNA Investment
Management Agreements) paid to GMSP by the GNA Entities pursuant to the GNA
Investment Management Agreements is less than $75,000, GNA shall pay to GMSP an
amount equal to the product of (i) the quotient of the Fair Market Value of the
Portfolio divided by the Fair Market Value of all of the Portfolios (as such
term is defined in the respective GNA Investment Management Agreements) of all
of the GNA Entities, multiplied by (ii) an amount equal to the difference
between $75,000 and the sum of the aggregate Fees paid to GMSP by all of the GNA
Entities with respect to such calendar month.
5. ACTIVITIES OF GMSP.
(a) The services of GMSP to GNA are not deemed to be
exclusive, and GMSP shall be free to engage in any other business or to render
similar services to others. GMSP and any member of the GMSP Group may engage
independently or with others, for its or their own accounts and for the accounts
of others, in other business ventures and activities of every nature and
description, including, without limitation, purchasing, selling or holding
Securities for the account of any other Person or for its or his own account,
including Securities included within the Portfolio or eligible for investment
pursuant to this Agreement; provided, that the management of such entities and
accounts do not interfere with the performance of their obligations and duties
to GNA pursuant to this Agreement. GNA shall not have any rights or obligations
by virtue of this Agreement in and to such independent ventures and activities
or the income or profits derived therefrom. The foregoing notwithstanding,
without the prior written consent of GNA in a specific case, GMSP shall at all
times adhere, and cause the members of the GMSP Group or the GMSP Principals, as
the case may be, to adhere, to the following:
(i) Neither GMSP nor any member of the GMSP Group
shall act, either as principal or agent, on the opposite side of any transaction
in which GNA or the Portfolio is involved.
(ii) GMSP and each GMSP Principal shall at all times
(A) place the interests of GNA before such member's personal transactional
interests; (B) conduct all personal transactions in Securities in such a manner
as to avoid any actual or potential conflict of interest or abuse of such
Person's position of trust and confidence in relation to GNA; and (C) promptly
disclose to GNA all personal transactions made by or on behalf of such Person in
Securities which are or were at any time during the preceding two years in the
Portfolio or issued by Persons whose Securities are in the Portfolio.
(b) On any issue involving an actual or potential conflict of
interest which is not specifically authorized by or pursuant to this Agreement,
GMSP shall submit such issue to the Committee for prior approval, and shall take
such actions, if any, as are determined by the Committee to be necessary or
appropriate to ameliorate the conflict of interest. If GMSP carries out the
actions specified by the Committee in respect of a matter giving rise to a
conflict of interest, neither GMSP nor any member of the GMSP Group shall have
any liability to GNA in respect of actions taken in good faith by them as a
consequence of the approval by the Committee.
(c) GMSP shall be liable for any breach of this Section 5 by
any member of the GMSP Group as if GMSP had committed such breach.
6. DURATION AND TERMINATION. The term of this Agreement shall commence
on the date of this Agreement and shall continue until terminated:
INVESTMENT MANAGEMENT AGREEMENT 8
73
(a) by the written agreement of GNA and GMSP;
(b) by GMSP upon not less than 90 days written notice to GNA
at any time after the third anniversary hereof;
(c) by GNA upon not less than 90 days written notice to GMSP
at any time after the third anniversary hereof;
(d) by GNA, at any time, immediately upon written notice to
GMSP following (i) the good faith determination by both the Committee and
two-thirds of the members of the Board (excluding members of the Board
designated for election by GMSP or its successors in interest under the
Securities Purchase Agreement or otherwise affiliated with GMSP) that an event
that constitutes Cause has occurred and is continuing beyond any applicable
period for notice and opportunity to cure or (ii) the commencement by a
Governmental Authority of any Proceeding alleging any matter which, if proven,
would constitute Cause.
(e) by GMSP upon not less than 10 days notice in the event
that GNA defaults in the performance of any of its material obligations
hereunder and such default continues for not less than 10 days after GNA
receives notice of such default; provided, however, that in the event that such
default is of a nature that it cannot, with due diligence, be cured within 10
days, GMSP may not terminate this Agreement so long as GNA begins to cure such
default within 10 days and thereafter diligently pursues such cure to
completion.
Termination of this Agreement shall not terminate GMSP's obligations
under Section 3 to furnish reports concerning facts and circumstances prior to
termination or under Section 11 to maintain the confidentiality of Confidential
Information, terminate GNA's obligations to pay fees earned by GMSP prior to
the date of termination, or terminate either party's obligations to indemnify
the other party pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF GMSP.
(a) GMSP is a limited partnership duly organized, validly
existing and in good standing under the Texas Revised Limited Partnership Act,
as amended, and has the power and authority to own all of its properties and
assets and to carry on its business as now being conducted. GMSP is duly
qualified and in good standing (to the extent applicable) to transact business
in each jurisdiction in which the performance of its obligations hereunder
require such qualification except where the failure to be duly qualified or in
good standing would not have or reasonably be expected to have a GMSP Material
Adverse Effect.
(b) GMSP has all requisite power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GMSP. This Agreement has been duly and validly executed and
delivered by GMSP and, assuming the due authorization, execution and delivery
hereof by GNA, constitutes the valid and binding obligation of GMSP, enforceable
against GMSP in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
INVESTMENT MANAGEMENT AGREEMENT 9
74
(c) No declaration, filing or registration with, or notice to
or authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GMSP other than
with the GNA Applicable Insurance Department.
(d) The execution, delivery and performance of this Agreement
by GMSP do not and will not result in any violation by GMSP under any provisions
of:
(i) the partnership agreement or similar governing
documents of GMSP;
(ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to GMSP or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which GMSP is now a party or
by which it or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect;
(e) There is no Proceeding pending, or to the knowledge of
GMSP, threatened against GMSP that questions the validity of this Agreement or
any action to be taken by GMSP in connection with this Agreement except as could
not, individually or in the aggregate, reasonably be expected to have a GMSP
Material Adverse Effect.
(f) GMSP is, and during the term of this Agreement will
continue to be (i) either exempt from registration or duly registered as an
investment adviser under the Investment Advisers Act of 1940 and all Applicable
Laws and (ii) qualified and eligible to manage the Portfolio under the statutes
and regulations administered by the GNA Applicable Insurance Department,
provided that GNA shall inform GMSP immediately in the event that GNA becomes
aware of any changes in the qualification and eligibility requirements with
respect to such statutes and regulations. GMSP will provide prompt written
notice to GNA if GMSP ceases to be so registered or qualified or becomes aware
of any fact, event or circumstance which will or is reasonably likely to cause
it to cease to be so registered or qualified.
(g) Taken in the aggregate, the factual information
(including, without limitation, information regarding its knowledge, investment
experience and investment track record) furnished by GMSP to GNA in writing for
purposes of this Agreement did not contain untrue statements of material facts,
or omit to state material facts necessary to make the statements made not
misleading in the light of the circumstances under which they were made, as of
the date as of which such information is dated. All financial forecasts prepared
and furnished by GMSP to GNA were prepared in good faith on the basis of
assumptions believed to be reasonable and data, information, tests or conditions
believed to be valid or accurate or to exist at the time such forecasts were
prepared.
(h) All of the equipment, Software and computer hardware owned
or used by GMSP or used and operated by third parties on behalf of GMSP, which
performs or is or may be required to perform functions involving dates or the
computation of dates, or containing date related data, has the programming,
design and performance capabilities to ensure that:
INVESTMENT MANAGEMENT AGREEMENT 10
75
(i) it will not suffer any Malfunction that would
reasonably be expected to have a GMSP Material Adverse Effect; and
(ii) it will not, as a result of the date change at
the end of the twentieth century or the input, processing, storage or use of
dates up to and including December 31, 2001, (A) be adversely affected, (B)
require changes in inputting or operating practices, (C) produce invalid or
incorrect output or results, (D) cause any abnormal ending scenario, or (E)
suffer any diminution in functionality or performance that, in any of the above,
could reasonably be expected to have a GMSP Material Adverse Effect.
8. REPRESENTATIONS AND WARRANTIES OF GNA.
(a) GNA is an insurance company duly organized and validly
existing under the laws of the State of North Dakota, and has the power and
authority to own all of its properties and assets and to carry on its business
as now being conducted. GNA is duly qualified and in good standing to transact
business in each jurisdiction in which the performance of its obligations
hereunder require such qualification except where the failure to be duly
qualified or in good standing would not have or reasonably be expected to have a
GNA Material Adverse Effect.
(b) GNA has all requisite power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of GNA. This Agreement has been duly and validly executed and
delivered by GNA and, assuming the due authorization, execution and delivery
hereof by GMSP, constitutes the valid and binding obligation of GNA, enforceable
against GNA in accordance with its terms, except as would be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought.
(c) No declaration, filing or registration with, or notice to
or authorization, consent or approval of any Governmental Authority is necessary
for the execution, delivery and performance of this Agreement by GNA other than
with the GNA Applicable Insurance Department.
(d) The execution, delivery and performance of this Agreement
by GNA do not and will not result in any violation by GNA under any provisions
of:
(i) articles of incorporation or similar governing
documents of GNA;
(ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to GNA or any of its properties or assets; or
(iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which GNA is now a party or
by which it or any of its properties or assets may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations as could
not, in the aggregate, reasonably be expected to have a GNA Material Adverse
Effect.
INVESTMENT MANAGEMENT AGREEMENT 11
76
(e) There is no Proceeding pending, or to the knowledge of
GNA, threatened against GNA that questions the validity of this Agreement or any
action to be taken by GNA in connection with this Agreement except as could not,
in the aggregate, reasonably be expected to have a GNA Material Adverse Effect.
(f) GNA has such knowledge and experience in financial and
business matters that it is capable of evaluating the risks and merits of
entering into this Agreement.
(g) No part of the funds to be used to purchase and hold
Securities or to pay any amounts pursuant to this Agreement constitutes an asset
of any employee benefit plan within the meaning of Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and GNA is not a
"benefit plan investor" (as such term is defined in 29 C.F.R.
ss.2510.3-101(f)(2)).
9. LIABILITY. It is recognized that decisions concerning investments or
potential investments involve the exercise of judgment and the risk of loss. To
the extent permitted by Applicable Law, neither GMSP nor any of its officers,
directors, or employees nor other members of the GMSP Group shall be liable for
any loss suffered by GNA on account of such investments, or any act taken or
omission made in good faith under this Agreement. For purposes of the foregoing
sentence, no action or omission by GMSP shall be considered to have been made
"in good faith" if GMSP was negligent, violated any law, or made any
misrepresentation (whether affirmatively or by omission).
10. INDEMNIFICATION.
(a) GNA shall indemnify, defend, and hold harmless GMSP and
the GMSP Principals from and against any and all claims, actions, causes of
action, demands, losses, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by any of them, directly or
indirectly, by reason of or resulting from (i) any Breach by GNA of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto or (ii) any Proceeding brought against any of them by a Person other than
GNA or any of its Affiliates, Associates or shareholders in respect of any
action taken in good faith on behalf of GNA in the course of the performance of
GMSP's duties under this Agreement; provided, however, that GNA shall indemnify,
defend, and hold harmless GMSP and the GMSP Principals from and against any
reasonable expenses incurred by such Person(s) in connection with a Proceeding
brought against any of them by any of GNA's shareholders if such Person(s) is
wholly successful, on the merits or otherwise, in the defense of such
Proceeding, and provided, further, that GNA's obligation to indemnify, defend
and hold harmless as provided in this Section 10(a) shall not apply to the first
$750,000 in the aggregate of claims hereunder (other than claims for expenses in
defending a Proceeding for which the Person is entitled to indemnification under
clause (ii) of this Section) and provided, further, that such $750,000 amount
shall be reduced dollar-for-dollar by an amount equal to the cumulative
aggregate of all claims made under one or more of the GNA Investment Management
Agreements.
(b) GMSP shall indemnify, defend, and hold harmless GNA and
its Affiliates, Associates, directors, officers and employees from and against
any and all Damages asserted against, resulting to, imposed upon, or incurred by
any of them, directly or indirectly, by reason of or resulting from any Breach
by GMSP of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto; provided, however, that GMSP's obligation to
indemnify, defend and hold harmless as provided in this Section 10(b) shall not
apply
INVESTMENT MANAGEMENT AGREEMENT 12
77
to the first $750,000 in the aggregate of claims hereunder and provided,
further, that such $750,000 amount shall be reduced dollar-for-dollar by an
amount equal to the cumulative aggregate of all claims made under one or more of
the GNA Investment Management Agreements.
(c) Promptly after receipt by an indemnified party under
Section 10(a) or (b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof, but the failure so to notify the indemnifying
party shall not relieve it of any liability that it may have to any indemnified
party except to the extent the indemnifying party demonstrates that the defense
of such action is prejudiced thereby. In case any such action shall be brought
against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the indemnifying party and the indemnified party
and there is a conflict of interests which renders it inappropriate for the same
counsel to represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
11. CONFIDENTIALITY. Each of GMSP and GNA shall keep all Confidential
Information in confidence, and shall not disclose said information to any other
party other than such party's employees, advisors, attorneys and accountants,
who will be advised of the confidential nature of information. Each party shall
protect the Confidential Information with the same degree of care as such party
normally uses in the protection of its confidential and proprietary information.
Each party further agrees not to use Confidential Information for any purpose
except in connection with the performance of its duties under this Agreement.
The restrictions set forth herein shall not apply with respect to Confidential
Information which (i) is already generally available to the public when received
by such party; (ii) becomes available to the public through no fault of any
member of the GMSP Group or GNA, as applicable; or (iii) is required to be
disclosed by Applicable Law or a Governmental Authority.
12. INSURANCE. GMSP shall maintain at all times during the term of this
Agreement fiduciary liability insurance of the type customary for investment
managers in similar situations naming GNA as an insured with such limits, terms,
conditions and "tail" provisions as are reasonably acceptable to GNA and GMSP
and shall provide GNA with complete copies of all binders and other policy
information. GMSP also shall obtain and maintain a fidelity bond in the amount
of not less than $5,000,000 and otherwise containing terms and conditions
reasonably acceptable to GNA. In the event that any such policy or bond is
canceled or suspended, GMSP promptly shall notify GNA in writing.
13. NOTICES. All notices required to be given in writing hereunder
shall be deemed to have been given if (i) delivered personally or by documented
courier or delivery service, (ii) transmitted by facsimile or (iii) mailed by
registered or certified mail (return receipt requested and postage prepaid) to
the following
INVESTMENT MANAGEMENT AGREEMENT 13
78
listed Persons at the addresses and facsimile numbers specified below, or to
such other Persons, addresses or facsimile numbers as a party entitled to notice
shall give, in the manner hereinabove described, to the others entitled to
notice:
If to GMSP, to: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to GNA, to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If given personally or by documented courier or delivery service, a notice shall
be deemed to have been given when it is received. If transmitted by facsimile, a
notice shall be deemed to have been given on the date received, if electronic
confirmation of receipt occurs during normal business hours on a Business Day,
and otherwise, on the first Business Day following electronic confirmation of
receipt. If given by mail, it shall be deemed to have been given on the third
Business Day following the day on which it was posted.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
15. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by GMSP to GNA pursuant to this Agreement are being provided as an
independent contractor. Nothing contained in this Agreement shall constitute or
be construed to be or create a general partnership or joint venture between GMSP
and GNA or their respective successors or assigns.
16. BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by either of the parties hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person other than the parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
17. INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. For purposes of this Agreement, the words "includes" and
"including" shall mean "including without limitation" and the word "or" is used
in the inclusive sense. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
18. SEVERABILITY. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be illegal or unenforceable under the applicable laws or regulations without
affecting the validity of the remaining provisions of the Agreement.
INVESTMENT MANAGEMENT AGREEMENT 14
79
19. TIME OF ESSENCE. With regard to all dates and time periods set
forth in this Agreement, time is of the essence.
20. NO WAIVER OF PRIVILEGE. Neither GNA nor GMSP nor any of their
respective subsidiaries or affiliates waives any attorney-client, work product
or other privilege with respect to any information furnished pursuant to this
Agreement.
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
22. COUNTERPARTS. This Agreement may be executed by the parties hereto
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
INVESTMENT MANAGEMENT AGREEMENT 15
80
IN WITNESS WHEREOF, GMSP and GNA have caused this Agreement to be
executed all as of the day and year first above written.
MIDWEST CASUALTY INSURANCE COMPANY
a North Dakota insurance corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
a Texas limited partnership
By: GMSP Operating Partners, L.P., its
general partner
By: GMSP, L.L.C., its general partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Managing Principal
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Principal
INVESTMENT MANAGEMENT AGREEMENT 16