SECURITIES EXCHANGE AGREEMENT

Exhibit 10.1

SECURITIES EXCHANGE AGREEMENT

     This SECURITIES EXCHANGE AGREEMENT (this “ Agreement ”), dated as of August 27, 2004, between GAINSCO, INC., a Texas corporation (“ GNAC ”), and Goff Moore Strategic Partners, L.P., a Texas limited partnership (“ GMSP ”):

     WHEREAS, GMSP is the holder of (i) 31,620 shares of Series A Preferred Stock; (ii) the Series A Warrant; (iii) the Series B Warrant; and (iv) the Series C Preferred Stock;

     WHEREAS, on March 23, 2001, the Series A Preferred Stock was called for redemption so that on January 1, 2006 GNAC would be obligated to pay $31,620,000 to the holder of the Series A Preferred Stock, subject to certain conditions;

     WHEREAS, GNAC and GMSP desire that 13,500 shares of Series A Preferred Stock instead be exchanged for shares of Common Stock on the terms and conditions set forth below, and that such exchange qualify as a “recapitalization”, and therefore not give rise to the recognition of gain or loss, for federal income tax purposes; and

     WHEREAS, GNAC and GMSP desire that the remaining 18,120 shares of Series A Preferred Stock remain outstanding but that certain of the designations, rights and preferences of the Series A Preferred Stock be amended as set forth herein.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, GNAC and GMSP hereby agree as follows:

ARTICLE I.
DEFINITIONS AND USAGE

      1.1 Definitions. As used in this Agreement, the following terms have the following meanings:

     “ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly, through one or more intermediaries controls, is controlled by or is under common control with such specified Person. For this purpose the term “ control” (including the terms “ controlling ”, “ controlled by ” and “ under common control with ”) shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract, or otherwise.

     “ Agreement ” has the meaning set forth in the first paragraph hereof.

     “ 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, with respect to any Person, (i) any corporation or entity (other than GNAC or a Subsidiary of GNAC in the case of Associates of GMSP) of which such Person is an officer or partner

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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 spouse, who has the same home as such Person or who is a director or officer of GNAC or any of its Subsidiaries.

     “ Board ” means the board of directors of GNAC.

     “ 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 Dallas, Texas and New York, New York.

     “ Capitalization Date ” has the meaning set forth in Section 4.2.

     “ Closing ” has the meaning set forth in Section 3.1.

     “ Closing Date ” has the meaning set forth in Section 3.2.

     “ Code ” means the Internal Revenue Code of 1986, as amended.

     “ Common Stock ” means the common stock, par value $.10 per share, of GNAC.

     “ Compensation Committee ” means the Compensation Committee of the Board, consisting of Sam Rosen, Harden H. Wiedemann and John H. Williams, or any successor committee comprised of independent directors (within the meaning of Section 303A of the NYSE Listed Company Manual) of GNAC.

     “ Confidential Information ” means information received at any time by GMSP from GNAC that is not generally known or which would logically be considered confidential or proprietary, or which would do GNAC harm if divulged, or which is marked “Confidential Information.”

     “ Damages ” has the meaning set forth in Section 10.2.

     “ Defeasance ” has the meaning set forth in Section 6.6(c).

     “ Demand Registration ” has the meaning set forth in Section 6.4(a).

     “ Encumbrances ” means liens, charges, pledges, options, mortgages, deeds of trust, security interests, claims, restrictions (whether on voting, sale, transfer, disposition, or otherwise), easements, and other encumbrances of every type and description, whether imposed by law, agreement, understanding, or otherwise, other than restrictions imposed under applicable securities laws.

     “ Environmental Law ” means any law, regulation, decree, judgment, permit or authorization relating to the environment, including, without limitation, pollution, contamination, cleanup and protection of the environment.

     “ Environmental Liabilities and Costs ” means all damages, penalties or cleanup costs assessed or levied pursuant to any Environmental Law.

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     “ Equity Securities ” means any capital stock of GNAC, any securities directly or indirectly convertible into, or exercisable or exchangeable for any capital stock of GNAC, or any right, option, warrant or other security which, with the payment of additional consideration, the expiration of time or the occurrence of any event shall give the holder thereof the right to acquire any capital stock of GNAC or any security convertible into or exercisable or exchangeable for, any capital stock of GNAC.

     “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and all of the rules and regulations promulgated thereunder.

     “ ERISA Affiliate ” means any trade or business, whether or not incorporated, which together with a Person and its Subsidiaries would be deemed a “controlled group” within the meaning of Section 4001(a)(14) of ERISA.

     “ Exchange ” has the meaning set forth in Section 2.1.

     “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

     “ Exchange Securities ” has the meaning set forth in Section 2.1(a).

     “ Fairness Opinion ” has the meaning set forth in Section 7.3.

     “ Final Date” means February 1, 2005.

     “ 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, and expressly includes GMSP’s partners and the partners of the general partner of GMSP (including any of them who receive GNAC securities from GMSP, directly or indirectly, and whether during or after the termination of their relationship with GMSP).

     “ GMSP Material Adverse Effect ” means any condition, circumstance or development having a material adverse effect on the ability of GMSP to consummate the Transactions.

     “ GMSP Representative ” has the meaning set forth in Section 6.4(a).

     “ GNAC ” has the meaning set forth in the introductory paragraph of this Agreement.

     “ GNAC Annual Statements ” has the meaning set forth in Section 4.9.

     “ GNAC Applicable Insurance Department ” means as to (i) the GNAC Insurance Subsidiary located in Oklahoma, the Oklahoma Department of Insurance, and (ii) the GNAC Insurance Subsidiary located in Texas, the Texas Department of Insurance.

     “ GNAC Authorizations ” has the meaning set forth in Section 4.7.

     “ GNAC Business ” means the business conducted by GNAC and GNAC Subsidiaries taken as a whole.

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     “ GNAC Disclosure Letter ” means the disclosure letter delivered by GNAC to GMSP concurrently with the execution and delivery of this Agreement.

     “ GNAC Employee Benefit Plans ” has the meaning set forth in Section 4.20(a).

     “ GNAC 2003 Form 10-K Report ” means the Form 10-K Report filed by GNAC with the SEC for GNAC’s fiscal year ended December 31, 2003.

     “ GNAC Financial Statements ” has the meaning set forth in Section 4.10.

     “ GNAC Insurance Subsidiaries ” means MGA Insurance Company, Inc., a Texas corporation; and General Agents Insurance Company of America, Inc., an Oklahoma corporation.

     “ GNAC Material Adverse Effect ” means any condition, circumstance or development having (i) an adverse effect on the ability to conduct business, the financial condition, reserves, or the results of operations of GNAC and its Subsidiaries, in each case that is material to GNAC and its Subsidiaries taken as a whole, or (ii) a material adverse effect on the ability of GNAC to consummate the Transactions; provided that GNAC Material Adverse Effect does not include any such condition, circumstance or development which generally adversely affects the U.S. economy, U.S. securities markets or the insurance industry or to the extent it is attributable to (x) the accretion of discount, or the declaration or payment of dividends, on Preferred Stock, (y) expenses incurred by GNAC in respect of the Transactions, or (z) changes in accumulated comprehensive income (loss) attributable to realized or unrealized gains or losses on securities; and provided further that a decrease (excluding amounts attributable to items referenced in clauses (x), (y) or (z) of the foregoing proviso) of the total shareholders’ equity of GNAC below the amount thereof at June 30, 2004 reflected in the GNAC Financial Statements would be material for the purposes of defining GNAC Material Adverse Effect.

     “ GNAC Material Contracts ” means:

     “ GNAC Options ” means options granted under any of the GNAC Stock Plans and related option agreements.

     “ GNAC Pension Plan ” has the meaning set forth in Section 4.20(d).

     “ GNAC Quarterly Statement ” has the meaning set forth in Section 4.9.

     “ GNAC Required Consents ” has the meaning set forth in Section 4.6(c).

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     “ GNAC Required Statutory Approvals ” has the meaning set forth in Section 4.5.

     “ GNAC SEC Documents ” has the meaning set forth in Section 4.10.

     “ GNAC Shareholder Approval ” means approval of the Exchange by (i) the holders of not less than a majority of the outstanding Voting Stock (including shares of Voting Stock held by Interested Shareholders) present in person or by proxy at the Shareholder Meeting and voting for or against, or expressly abstaining from voting on, the Exchange and (ii) the holders of not less than a majority of the outstanding Common Stock (excluding all shares of Voting Stock held by Interested Shareholders) present in person or by proxy at the Shareholder Meeting and voting for or against the Exchange.

     “ GNAC Significant Subsidiaries ” means the GNAC Insurance Subsidiaries; National Specialty Lines, Inc., a Florida corporation; DLT Insurance Adjusters, Inc., a Florida corporation; and GAINSCO Service Corp., a Texas corporation.

     “ GNAC Stock Plans ” means GNAC’s 1990 and 1995 Stock Option Plans and GNAC’s 1998 Long-Term Incentive Plan.

     “ GNAC Subsidiaries ” means the Subsidiaries of GNAC.

     “ GNAC Subsidiary Securities ” has the meaning set forth in Section 4.4.

     “ good faith ”, when used in respect of any action, means that the action was taken (i) with honesty of intention, (ii) without knowledge of circumstances which ought to put the Person taking such action on inquiry, and (iii) without intention to take any improper 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.

     “ Interested Shareholder ” means (i) GMSP, (ii) Stallings, (iii) any director or executive officer (as defined in Rule 3b-7 under the Exchange Act) of GNAC, or (iv) any Affiliate or Associate of any Person referenced in clauses (i), (ii) or (iii).

     “ Investment Management Agreements ” means the respective Investment Management Agreements dated October 4, 1999 between GNAC and each of the GNAC Insurance Subsidiaries, on the one hand, and GMSP, on the other hand, as amended, modified or supplemented through the date of this Agreement.

     “ IRS ” means the Internal Revenue Service .

     “ Material Activity ” has the meaning set forth in Section 6.4(d).

     “ Material Adverse Market Condition ” shall mean the occurrence of any of the following: (i) a general moratorium in commercial banking activities in the State of Texas has been declared by either Federal or Texas State authorities; (ii) a reduction of more than 30% in the Standard & Poor’s 500 Index from the amount thereof at the close of business on the date of this Agreement; or (iii) the formal declaration by the United States of a national emergency or war.

     “ NYSE ” means the New York Stock Exchange.

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     “ Permitted Assignee ” has the meaning set forth in Section 11.3.

     “ Permitted Encumbrances ” means (i) liens for Taxes not yet due and payable; (ii) mechanics’, carriers’, workers’, repairers’ and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of the obligor; (iii) liens arising in the ordinary course of business incident to the purchase and sale of securities and other investments or the holding thereof by banks, brokerage firms, custodians and intermediaries for the benefit of GNAC or its Subsidiaries; (iv) exceptions which do not materially affect the use or occupancy of the real property covered thereby; and (v) such other recorded liens, imperfections in title, charges, easements, restrictions and encumbrances which do not materially affect the use or occupancy of the property.

     “ Person ” means any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including any Governmental Authority.

     “ Preferred Stock ” means the authorized preferred stock, par value $100.00 per share, of GNAC.

     “ Preferred Preemptive Rights ” means the preemptive rights of the holders of the Series A Preferred Stock and Series C Preferred Stock under the Prior Agreements and the rights of Stallings and his assigns under the Securities Purchase Agreement dated as of February 26, 2001 between Stallings and GNAC (as amended by the First Amendment to Securities Purchase Agreement dated as of March 23, 2001).

     “ Prior Agreements” means the Prior Series A Agreements and the Prior Series C Agreement.

     “ Prior Series A Agreements ” means (i) the Securities Purchase Agreement dated June 29, 1999 between GMSP and GNAC; and (ii) the letter dated March 23, 2001 from GNAC to GMSP concerning the redemption of the Series A Preferred Stock.

     “ Prior Series C Agreement ” means the Securities Purchase Agreement dated as of February 26, 2001 between GMSP and GNAC (as amended by the First Amendment to Securities Purchase Agreement dated as of March 23, 2001).

     “ Proceedings ” means all complaints, claims, prosecutions, indictments, proceedings, actions, suits, investigations, and inquiries by or before any arbitrator or Governmental Authority, whether civil, criminal, administrative, arbitrative or investigative.

     “ Proxy Statement ” has the meaning set forth in Section 5.8.

     “ Registration Expenses ” has the meaning set forth in Section 6.4(f).

     “ Registration Statement ” has the meaning set forth in Section 6.4(b).

     “ Reis ” means James R. Reis.

     “ Reis Investment Agreement ” means the Stock Investment Agreement of even date herewith between Reis LLC and GNAC.

     “ Reis LLC ” means First Western Capital, LLC, an Arizona limited liability company of which Reis is the sole member and manager.

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     “ SAP ” means the insurance accounting practices required or permitted by the GNAC Applicable Insurance Department applicable to the specified Person(s) consistently applied by such Person(s).

     “ SEC ” means the Securities and Exchange Commission.

     “ Securities Act ” means the Securities Act of 1933, as amended.

     “ Series A Preferred Stock ” means the Series A Convertible Preferred Stock, par value $100.00 per share, of GNAC.

     “ Series A Warrant” means the Series A Warrant expiring October 4, 2004 to purchase an aggregate of 1,550,000 shares of Common Stock at an exercise price of $2.25 per share.

     “ Series B Preferred Stock ” means the Series B Convertible Redeemable Preferred Stock, par value $100.00 per share, of GNAC.

     “ Series B Warrant ” means the Series B Warrant expiring October 4, 2006 to purchase an aggregate of 1,550,000 shares of Common Stock at an exercise price of $2.5875 per share.

     “ Series C Preferred Stock ” means the Series C Redeemable Preferred Stock, par value $100.00 per share, of GNAC.

     “ Shareholder Meeting ” means the special meeting of the holders of the GNAC’s Common Stock at which the Transactions are submitted to shareholders for their approval.

     “ Special Committee ” means the Special Committee of the Board, consisting of Harden H. Wiedemann, John H. Williams and Joel C. Puckett, and of which Sam Rosen is an advisory member, or any successor committee comprised of independent and disinterested directors of GNAC.

     “ Stallings ” means Robert W. Stallings.

     “ Stallings Investment Agreement ” means the Stock Investment Agreement of even date herewith between Stallings and GNAC.

     “ Subsidiary ” means, with respect to any Person, any corporation or other entity (including partnerships and other business associations) in which the Person directly or indirectly owns at least a majority of the outstanding voting securities or other equity interests having the power, under ordinary circumstances, to elect a majority of the directors, or otherwise to direct the management and policies, of such corporation or other entity.

     “ Superior Proposal ” has the meaning set forth in Section 6.6(b).

     “ Survival Date ” has the meaning set forth in Section 10.1.

     “ Taxes ” means all federal, state, local and foreign income, franchise, property, sales, use, excise and other taxes, including without limitation obligations for withholding taxes from payments due or made to any other Person and any interest, penalties or additions to taxes.

     “ Tax Returns ” means all original and amended returns, declarations, certifications, statements, notices, elections, estimates, reports, claims for refund and information returns relating to or required to be filed or maintained in connection with any Tax, together with all schedules and attachments thereto.

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      “TBCA ” means the Texas Business Corporation Act, as amended.

     “ Third Party Transaction ” means any transaction between GNAC or any of its Subsidiaries and any Person or Persons other than any member of the GMSP Group, Reis or Stallings (i) that would involve the acquisition, directly or indirectly, by such Person or Persons in the aggregate of (x) Equity Securities that would represent 10% or more, or the right to acquire 10% or more, of the Common Stock of GNAC outstanding on the date hereof, (y) any other class or classes or series of Equity Securities, or (z) assets of GNAC (including the capital stock of any Subsidiaries of GNAC) or any of its Subsidiaries that generate or constitute more than 10% of the revenues, income or assets of GNAC and its Subsidiaries, or (ii) that by its terms would prevent the consummation of the Transactions.

     “ Transactions ” means the Exchange and the other transactions contemplated by this Agreement.

     “ Transaction Proposal ” has the meaning set forth in Section 6.6(a).

     “ U.S. ” means the United States of America.

     “ Voting Stock ” means the outstanding shares of capital stock entitled to vote in the election of directors of GNAC, including the Common Stock, the Series A Preferred Stock and the Series B Preferred Stock. References in this Agreement to numbers of shares of Voting Stock are references to the combined number of shares of Common Stock outstanding on the date of determination and the number of shares of Common Stock then issuable upon conversion of the Series A Preferred Stock and the Series B Preferred Stock. On the date of this Agreement there were 28,703,069 shares of Voting Stock outstanding and entitled to vote generally.

      1.2 Usage . In this Agreement, unless a clear contrary intention appears:

           (a)  the singular number includes the plural number and vice versa;

           (b)  reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

           (c)  reference to any gender includes each other gender or, in the case of an entity, the neuter;

           (d)  reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

           (e)  reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any law means that provision of such law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;

           (f)  “hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision thereof;

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           (g)  “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term;

           (h)  “or” is used in the inclusive sense of “and/or”;

           (i)  with respect to the determination of any period of time, “from” means “from and including” and “to” means “to but excluding”;

           (j)  references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto;

           (k)  captions in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions of this Agreement, nor in any way affect any such provisions; and

           (l)  all accounting terms not defined in this Agreement shall have the respective meanings determined under GAAP.

ARTICLE II.
TERMS OF THE TRANSACTION

      2.1 The Exchange .

         (a)  At the Closing, and on the terms and subject to the conditions set forth in this Agreement, (i) GNAC shall issue and deliver to GMSP 19,125,612 shares of Common Stock (the “ Exchange Securities ”) and (ii) in exchange for the Exchange Securities GMSP shall deliver to GNAC 13,500 shares of Series A Preferred Stock (the “ Exchange ”).

         (b)  The 13,500 shares of Series A Preferred Stock received by GNAC in the Exchange shall be cancelled.

ARTICLE III.
CLOSING AND CLOSING DATE

      3.1 The Closing . The closing of the Transactions (the “ Closing ”) shall take place (i) at the offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202 at 10:00 a.m., local time, on the third Business Day following the satisfaction or waiver (subject to Applicable Law) of each of the conditions to the obligations of the parties set forth in Articles VII and VIII hereof, or (ii) at such other time or place or on such other date as the parties hereto shall agree.

      3.2 Closing Date . The date on which the Closing is required to take place is herein referred to as the “ Closing Date ”. All Closing transactions shall be deemed to have occurred simultaneously.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF GNAC

     GNAC represents and warrants to GMSP the following:

      4.1 Organization and Qualification. Each of GNAC and the GNAC Significant Subsidiaries is a corporation or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, and has corporate or other power and

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authority to own all of its properties and assets and to carry on its business as now being conducted. Each of GNAC and the GNAC Significant Subsidiaries is duly qualified and in good standing to transact business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be in good standing or to be duly qualified would not, individually or in the aggregate, have or reasonably be expected to have a GNAC Material Adverse Effect.

      4.2 Capitalization. The authorized capital stock of GNAC consists of 250,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the close of business on June 30, 2004 (the “ Capitalization Date ”): 21,169,736 shares of Common Stock were issued and outstanding; 31,620 shares of Series A Preferred Stock were issued and outstanding; 3,000 shares of Series B Preferred Stock were issued and outstanding; 3,000 shares of Series C Preferred Stock were issued and outstanding; 844,094 shares of Common Stock were held in GNAC’s treasury; there were outstanding GNAC Options with respect to 723,268 shares of Common Stock and (excluding the Series A Warrant and the Series B Warrant) there was one warrant outstanding issued to Stallings with respect to 1,050,000 shares of Common Stock and having an exercise price equal to $2.25 per share. Since the Capitalization Date, except as disclosed in Section 4.2 of the GNAC Disclosure Letter, GNAC (i) has not issued any shares of Common Stock other than upon the exercise or vesting of GNAC Options outstanding on such date as set forth in Section 4.2 of the GNAC Disclosure Letter; (ii) has not granted any options or rights to purchase or acquire shares of Common Stock under the GNAC Stock Plans or otherwise; and (iii) has not split, combined or reclassified any of its shares of capital stock. All of the outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable and, except for the Preferred Preemptive Rights, are free of preemptive rights. Except as disclosed in this Section 4.2 or in Section 4.2 of the GNAC Disclosure Letter or in the GNAC 2003 Form 10-K Report, there are no outstanding Equity Securities. Except as disclosed in Section 4.2 of the GNAC Disclosure Letter, there are no outstanding obligations of GNAC or any Subsidiary to repurchase, redeem or otherwise acquire any Equity Securities.

      4.3 Authority Relative to This Agreement .

           (a)  GNAC has all requisite power and authority to enter into this Agreement and, subject to the GNAC Shareholder Approval, the GNAC Required Statutory Approvals and the GNAC Required Consents, to consummate the Transactions. The execution and delivery of this Agreement and, subject to GNAC Shareholder Approval, the consummation by GNAC of the Transactions have been duly authorized by all necessary corporate action on the part of GNAC, including that the directors of GNAC (other than Hugh M. Balloch, John C. Goff, and Stallings) have unanimously approved and authorized the consummation of the Transactions by GNAC. This Agreement has been duly and validly executed and delivered by GNAC and, assuming the due authorization, execution and delivery hereof by GMSP, constitutes the valid and binding obligation of GNAC, enforceable against GNAC in accordance with its terms, except as would be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies, including specific performance, may be subject to the discretion of any court before which any proceeding therefor may be brought.

      (b)  When issued and delivered pursuant to this Agreement against payment therefor, the Exchange Securities will have been duly authorized, issued and delivered and will constitute valid and legally binding obligations of GNAC entitled to the benefits provided therein. When issued and delivered pursuant to the Agreement against payment therefor, the Exchange Securities will be fully paid and nonassessable. Except for the Preferred Preemptive Rights (which have been waived), the issuance of the Exchange Securities will not be subject to any preemptive or similar rights.

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      4.4 Subsidiaries . GNAC owns, directly or indirectly, of record all the outstanding shares of capital stock of each of its Subsidiaries, free and clear of any Encumbrance of any kind, and there are no irrevocable proxies with respect to any such shares. Except for securities owned by GNAC or as disclosed in this Section or in Section 4.4 of the GNAC Disclosure Letter or the GNAC SEC Documents, there are no outstanding (i) shares of capital stock or other voting securities of any Subsidiary of GNAC; (ii) securities of GNAC or any of its Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any such Subsidiary; or (iii) options or other rights to acquire from GNAC or any of its Subsidiaries, or other obligations of GNAC or any of its Subsidiaries to issue, any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable for any capital stock, voting securities or ownership interests in, any of the Subsidiaries of GNAC, or to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment (the items in clauses (i), (ii) and (iii) being referred to collectively as “ GNAC Subsidiary Securities ”). There are no outstanding obligations of GNAC or any of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding GNAC Subsidiary Securities. Except to the extent that any of the GNAC Significant Subsidiaries is a “significant subsidiary” as such term is used in Rule 1-02(w) of Regulation S-X as promulgated under the Securities Act, GNAC does not have a “significant subsidiary” as such term is used in Rule 1-02(w) of Regulation S-X as promulgated under the Securities Act.

      4.5 Statutory Approvals . Except for filings under the Exchange Act, with the GNAC Applicable Insurance Departments and as otherwise set forth in Section 4.5 of the GNAC Disclosure Letter or otherwise contemplated by this Agreement, no declaration, filing or registration with, or notice to or authorization, consent or approval of any Governmental Authority is necessary for the execution and delivery of this Agreement by GNAC or the consummation by GNAC of the Transactions, the failure to obtain, make or give which could reasonably be expected to have a GNAC Material Adverse Effect (the “ GNAC Required Statutory Approvals ”), it being understood that references in this Agreement to “obtaining” such GNAC Required Statutory Approvals shall mean making such declarations, filings or registrations; giving such notice; obtaining such consents or approvals; and having such waiting periods expire as are necessary to avoid a violation of law.

      4.6 Non-Contravention . Subject to obtaining the GNAC Required Statutory Approvals and the receipt of the GNAC Shareholder Approval, the execution and delivery of this Agreement by GNAC do not, and the consummation of the Transactions will not, result in any violation by GNAC or any of its Subsidiaries under any provisions of:

           (a)  the Articles of Incorporation, Bylaws or similar governing documents of GNAC or any of its Subsidiaries;

           (b)  any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority applicable to GNAC or any of its Subsidiaries or any of their respective properties or assets; or

           (c)  subject to obtaining the third-party consents or other approvals set forth in Section 4.6 of the GNAC Disclosure Letter (the “ GNAC Required Consents ”), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, GNAC Employee Benefit Plan, lease or other instrument, obligation or agreement of any kind to which GNAC or any of its Subsidiaries is now a party or by which it or any of its properties or assets may be bound or affected;

excluding from the foregoing clauses (b) and (c) such violations as could not, in the aggregate, reasonably be expected to have a GNAC Material Adverse Effect.

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      4.7 Authorizations . Except as described in Section 4.7 of the GNAC Disclosure Letter or the GNAC SEC Documents, GNAC and each of the GNAC Insurance Subsidiaries have obtained all licenses, certificates of authority, permits, authorizations, orders and approvals of, and have made all registrations or filings with, all Governmental Authorities as required in connection with the conduct of its business as currently conducted, and with respect to which a failure to so obtain would have a GNAC Material Adverse Effect (collectively, the “ GNAC Authorizations ”). All such GNAC Authorizations are valid and in full force and effect. Except as would not cause a GNAC Material Adverse Effect, no notice that GNAC or any of the GNAC Insurance Subsidiaries is in violation of any such GNAC Authorization has been received by GNAC or any of the GNAC Insurance Subsidiaries, or to the knowledge of GNAC, recorded or published, and no Proceeding is pending or, to the knowledge of GNAC threatened, to revoke or limit any of them such as reasonably would be expected to cause a GNAC Material Adverse Effect.

      4.8 Compliance with Laws . Except as set forth in the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, and in addition to the representations and warranties contained in Section 4.7 relating to GNAC Authorizations, to the knowledge of GNAC, GNAC and its Subsidiaries are in compliance with all Applicable Laws applicable to GNAC and its Subsidiaries, the failure to comply with which, individually or in the aggregate, could reasonably be expected to have a GNAC Material Adverse Effect. Furthermore, except as is disclosed in the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, or as would not cause a GNAC Material Adverse Effect, to the knowledge of GNAC, neither GNAC nor any of its Subsidiaries has received any notice alleging non-compliance with any of the aforementioned Applicable Laws.

      4.9 Statutory Financial Statements . GNAC has heretofore made (or will make prior to Closing) available to GMSP copies of the annual statements of the GNAC Insurance Subsidiaries as filed with the GNAC Applicable Insurance Department (the “ GNAC Annual Statements ”) for the years ended December 31, 2001, 2002, and 2003 and copies of the quarterly statement of the GNAC Insurance Subsidiaries to the GNAC Applicable Insurance Department for the quarter ended June 30, 2004 (and any subsequent quarterly statements filed between the date hereof and the Closing Date) (the “ GNAC Quarterly Statement ”). The balance sheets of each of the GNAC Insurance Subsidiaries as of December 31, 2003, and the related statements of income and cash flow for the year then ended, included in the GNAC Annual Statement for the year ended December 31, 2003, were prepared in conformity with SAP, except as otherwise noted therein, for the period covered thereby and fairly present the statutory financial position of such GNAC Insurance Subsidiary as at the date thereof and the results of operations and cash flow of such GNAC Insurance Subsidiary for the period then ended. The balance sheets of the GNAC Insurance Subsidiaries and the related statements of income and cash flow included in the GNAC Quarterly Statements were prepared in conformity with SAP applicable to interim financial statements consistently applied during the period involved, except as otherwise noted therein, subject to normal year-end adjustments, and fairly present the statutory financial position of such GNAC Insurance Subsidiary as at the dates thereof and the results of operations and cash flow of such GNAC Insurance Subsidiary for the periods then ended. Without limiting the generality of the foregoing and subject to the cautionary statements regarding reserves contained under “BUSINESS—Unpaid Claims and Claim Adjustment Expenses” and elsewhere in the GNAC 2003 Form 10-K Report, the reserves carried on the GNAC Annual Statement for the year ended December 31, 2003 and the GNAC Quarterly Statement for the payment of estimated claims and claim adjustment expenses for both reported and unreported claims were (i) reported in accordance with SAP and (ii) believed by GNAC at that time to be adequate to cover the amounts GNAC expected the GNAC Insurance Subsidiaries to pay on incurred claims based on facts and circumstances then known. The admitted assets of each GNAC Insurance Subsidiary as determined under Applicable Laws are in an amount at least equal to the minimum amounts required by Applicable Laws.

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      4.10 GNAC SEC Documents and GNAC Financial Statements . Except as set forth in Section 4.10 of the GNAC Disclosure Letter or as could not reasonably be expected to have a GNAC Material Adverse Effect, GNAC and the GNAC Insurance Subsidiaries have timely filed all reports, registration statements proxy statements, and other filings, together with any amendments required to be made with respect thereto, that were required to be filed with the SEC after December 31, 2000 and prior to the date of this Agreement (collectively, the “ GNAC SEC Documents ”). GNAC has or will have made available to GMSP prior to the Closing copies of each registration statement, offering circular, report, definitive proxy statement, information statement, and correspondence filed, furnished or submitted by it with or to the SEC with respect to periods since January 1, 2001 through the date of this Agreement, and will promptly provide GMSP with each such registration statement, offering circular, report, definitive proxy statement, information statement, and correspondence filed, furnished or submitted by it with or to the SEC after the date hereof, each in the form (including exhibits and any amendments thereto) filed with the SEC.

     As of their respective dates, and except as set forth in Section 4.10 of the GNAC Disclosure Letter, each of the GNAC SEC Documents, including the financial statements, exhibits and schedules thereto, filed or circulated prior to the date hereof complied (and each of the documents filed by GNAC with the SEC after the date of this Agreement will comply) in all material respects as to form with applicable federal securities laws and did not (or, in the case of documents filed after the date of this Agreement, will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

     Each of GNAC’s consolidated statements of condition or balance sheets included in or incorporated by reference into the GNAC SEC Documents, including the related notes and schedules, fairly presented in accordance with GAAP the consolidated financial position of GNAC and its Subsidiaries as of the date of such statement of condition or balance sheet and each of the consolidated statements of income, cash flows and shareholders’ equity included in or incorporated by reference into GNAC SEC Documents, including any related notes and schedules (collectively, the foregoing financial statements and related notes and schedules are referred to as the “ GNAC Financial Statements ”), fairly presented the consolidated results of operations, cash flows and shareholders’ equity, as the case may be, of GNAC and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited interim statements, to normal year-end audit adjustments and the absence of certain notes), in each case in accordance with GAAP except as may be noted therein or in Section 4.10 of the GNAC Disclosure Letter.

      4.11 Investments . Except as disclosed in Section 4.11 of the GNAC Disclosure Letter or the GNAC SEC Documents, GNAC and each of its Subsidiaries has good and marketable title, free and clear of all Encumbrances other than Permitted Encumbrances, to all of its investment assets reflected in the GNAC Quarterly Statement for June 30, 2004, or acquired after June 30, 2004, other than investment assets that (i) have been sold or disposed of in the normal course of business or (ii) have been pledged for the benefit of policyholders in accordance with the requirements of state Governmental Authorities. All such investments are properly treated and valued as admitted assets in accordance with the regulations of the GNAC Applicable Insurance Department and the National Association of Insurance Commissioners.

      4.12 Absence of Changes . Except as contemplated by this Agreement or as set forth in the GNAC Disclosure Letter or the GNAC SEC Documents, since December 31, 2003, the GNAC Business has been operated in the ordinary and usual course and neither GNAC nor any of any of its Subsidiaries has entered into any agreement that would require GNAC or any of its Subsidiaries to operate the GNAC Business other than in the ordinary and usual course.

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      4.13 No Undisclosed Liabilities . To the knowledge of GNAC, none of GNAC or any of its Subsidiaries has any liabilities or obligations except (i) as and to the extent set forth in the GNAC Financial Statements or contemplated in the notes thereto or in the GNAC SEC Documents, (ii) liabilities and obligations incurred in the ordinary course of business since the date of the GNAC Financial Statements, (iii) as would not have a GNAC Material Adverse Effect, (iv) as part of the transactions contemplated in this Agreement, the Stallings Investment Agreement or the Reis Investment Agreement, or (v) as set forth in the GNAC Disclosure Letter.

      4.14 Litigation . Except as set forth in Section 4.14 of the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, as of the date of this Agreement there are no Proceedings pending or, to the knowledge of GNAC, threatened, against GNAC or any of its Subsidiaries, which (i) have, or, if adversely determined, could reasonably be expected to have a GNAC Material Adverse Effect, (ii) state a claim against GNAC or its officers or directors for a violation of securities laws, or (iii) seek specifically to prevent, restrict or delay consummation of the Transactions or fulfillment of any of the conditions of this Agreement. Except as set forth in Section 4.14 of the GNAC Disclosure Letter or the GNAC SEC Documents or the GNAC Financial Statements, there are no orders, writs, injunctions, judgments, and decrees of any Governmental Authority outstanding against GNAC or any of its Subsidiaries, except for such orders, writs, injunctions, judgments and decrees as could not individually or in the aggregate reasonably be expected to have a GNAC Material Adverse Effect. Except for regular periodic assessments in the ordinary course of business or assessments based on developments which are publicly known within the insurance industry, to the knowledge of GNAC, no claim or assessment is pending or threatened against any GNAC Insurance Subsidiary by (i) any state insurance guaranty associations in connection with such association’s fund relating to insolvent insurers or (ii) any assigned risk plan or other involuntary market plan which if determined adversely could, individually or in the aggregate, be reasonably expected to result in a cost to GNAC or any of its Subsidiaries of an amount in excess of $500,000, which in either case individually or in the aggregate could reasonably be expected to have a GNAC Material Adverse Effect.

      4.15 Insurance Business . All policies of insurance issued by the GNAC Insurance Subsidiaries and in force on the date hereof are, and on the Closing Date will be, to the extent required by Applicable Law, in all material respects on forms approved by applicable insurance regulatory authorities or which have been filed with and not objected to by such authorities within the period provided for such objection, except as could not reasonably be expected to have a GNAC Material Adverse Effect. Any premium rates required to be filed with or approved by insurance regulatory authorities have been so filed or approved and the premiums charged conform thereto in all material respects, except as could not reasonably be expected to have a GNAC Material Adverse Effect.

      4.16 Regulatory Filings . GNAC has heretofore made available to GMSP all material registrations, filings or submissions (other than policy filings or rate filings) made by or on behalf of GNAC or any of the GNAC Insurance Subsidiaries with or to any insurance regulatory authority and all reports of examination issued by any insurance regulatory authority since January 1, 2000. Except as disclosed in Section 4.16 of the GNAC Disclosure Letter, GNAC and the GNAC Insurance Subsidiaries have filed all reports, statements, documents, registrations, filings or submissions required to be filed with any Governmental Authority, except with respect to which the failure to file individually or in the aggregate does not adversely affect their respective licenses or authority as an insurance company in any jurisdiction or does not otherwise have a GNAC Material Adverse Effect. All such registrations, filings and submissions were in material compliance with applicable law when filed, and no material deficiencies have been asserted with respect thereto.

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      4.17 Reinsurance, Coinsurance and Underwriting Management .

           (a)  Except as set forth in Section 4.17 of the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, (i) none of the GNAC Insurance Subsidiaries, nor to the knowledge of GNAC, any other party thereto, is in default in any material respect under any material coinsurance, reinsurance, excess insurance, ceding of insurance, assumption of insurance, facultative or indemnification insurance treaties, agreements or arrangements, including any treaty, agreement or arrangement by, with or through a reinsurance broker or intermediary, (ii) all such treaties, agreements or arrangements are in full force and effect, (iii) GNAC has no knowledge that any such treaties, agreements or arrangements will not be renewed on acceptable terms that are at least as favorable to GNAC as the terms as they exist on the date of this Agreement, (iv) no such treaty, agreement or arrangement contains any provision to the effect that the other party thereto may terminate the treaty or agreement by reason of the Transactions, and (v) to the knowledge of GNAC there is no reason to believe that the financial condition of any other party to any such treaty, agreement or arrangement is impaired such that a default thereunder may reasonably be anticipated.

           (b)  Except as set forth in Section 4.17 of the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, (i) GNAC has no knowledge that any other party to any material agreements to which GNAC or any of its Subsidiaries is or was a party pursuant to which GNAC or any of its Subsidiaries served or serves as, or received or receives services from, a managing general agent, underwriting manager, third party administrator or risk manager or pursuant to which any of them continues to be obligated to provide any services, intends to terminate or does not intend to renew any such agreement on substantially the same terms as presently exist, except those agreements which have terminated but for which GNAC or any of its Subsidiaries maintains servicing obligations, (ii) all such material agreements are in full force and effect, (iii) neither GNAC nor any of its Subsidiaries, nor to the knowledge of GNAC, any other party thereto, is in default as to any provision of any such agreement, (iv) no such agreement contains any provision to the effect that the other party thereto may terminate the agreement by reason of the Transactions, and (v), to the knowledge of GNAC, there is no reason to believe that the financial condition of any other party to any such agreement is impaired such that a default thereunder may reasonably be anticipated.

      4.18 Labor Matters .

           (a)  There are no labor unions or other organizations representing, purporting to represent or attempting to represent any employees of GNAC or its Subsidiaries.

           (b)  Except as set forth in Section 4.18 of the GNAC Disclosure Letter or the GNAC SEC Documents or GNAC Financial Statements, there are no controversies pending or, to the knowledge of GNAC, threatened between GNAC or any of its Subsidiaries and any of its employees, except as could not be reasonably be expected to have a GNAC Material Adverse Effect.

      4.19 Environmental Compliance . Except as disclosed in Section 4.19 of the GNAC Disclosure Letter or the GNAC SEC Documents, to the knowledge of GNAC, (i) the assets, properties, businesses and operations of GNAC and its Subsidiaries are in compliance with applicable Environmental Laws, except for such instances of non-compliance as would not individually or in the aggregate have a GNAC Material Adverse Effect; (ii) GNAC and its Subsidiaries have obtained and, as currently operating are in compliance with, all permits necessary for any Environmental Law for the conduct of the business and operations of GNAC and its Subsidiaries in the manner now conducted, except for such instances of non-compliance as would not individually or in the aggregate have a GNAC Material Adverse Effect; and (iii) neither GNAC nor any of its Subsidiaries nor any of their respective assets, properties, businesses or operations has received or is subject to any outstanding order, decree, judgment, complaint, agreement,

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claim, citation, notice, or proceeding indicating that GNAC or any of its Subsidiaries is or may be liable for (A) a violation of any Environmental Law or (B) any Environmental Liabilities and Costs, except, in each case, for such liabilities as would not individually or in the aggregate have a GNAC Material Adverse Effect.

      4.20 Employee Benefit Plans .

           (a)  Section 4.20(a) of the GNAC Disclosure Letter includes a complete list of all material employee benefit plans, contracts, programs, policies, practices, and other arrangements providing benefits to any employee or former employee or beneficiary or dependent thereof, sponsored or maintained by GNAC or its Subsidiaries or to which GNAC or its Subsidiaries contribute or are obligated to contribute (collectively, “ GNAC Employee Benefit Plans ”). “ GNAC Employee Benefit Plans” includes all employee welfare benefit plans within the meaning of Section 3(1) of ERISA and all employee pension benefit plans within the meaning of Section 3(2) of ERISA. Except as set forth in Section 4.20(a) of the GNAC Disclosure Letter, GNAC or its Subsidiaries may amend or terminate any GNAC Employee Benefit Plan without incurring any material liability thereunder.

           (b)  With respect to each GNAC Employee Benefit Plan, there has been made (or will be made prior to the Closing) available to GMSP a true, correct and complete copy of: (i) all plan documents, trust agreements, and insurance contracts and other agreements relating to funding vehicles; (ii) the three most recent annual reports on Form 5500 and accompanying schedules, if any, filed with the IRS; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any, filed with the IRS; and (v) the most recent determination letter, if any, issued by the IRS. All financial statements for each GNAC Employee Benefit Plan have been prepared in all material respects in compliance with applicable regulations under ERISA.

           (c)  All GNAC Employee Benefit Plans which are “employee benefit plans,” as defined in Section 3(3) of ERISA, in all material respects are in compliance with and have been administered in compliance with all applicable requirements of law, including the Code and ERISA, and all unpaid contributions required to be made to each such plan under the terms of such plan, ERISA or the Code as of the date hereof have been fully reflected in the appropriate GNAC Financial Statements except where the failure to do so could not reasonably be expected to have a GNAC Material Adverse Effect. There is no lien arising under ERISA against any of the assets of GNAC or any of its Subsidiaries. There are no threatened or pending claims by or on behalf of the GNAC Employee Benefit Plans, or by any participant therein, alleging a breach or breaches of fiduciary duties or violations of Applicable Laws which could result in liability on the part of GNAC, its officers or directors, or such GNAC Employee Benefit Plans under ERISA or any other Applicable Law, and to the knowledge of GNAC, there is no basis for any such claim.

           (d)  Section 4.20(d) of the GNAC Disclosure Letter identifies each GNAC Employee Benefit Plan that is intended to be a “qualified plan” satisfying the requirements of Section 401(a) of the Code (a “ GNAC Pension Plan ”). A favorable IRS determination letter as to the qualification of each GNAC Pension Plan under Section 401(a) of the Code has been issued and remains in effect and the related trust has been determined to be exempt from taxation under Section 501(a) of the Code and any amendment made or event relating to such GNAC Pension Plan subsequent to the date of such determination letter has not adversely affected the qualified status of such GNAC Pension Plan. No issue concerning qualification of any GNAC Pension Plan is pending before or, to the knowledge of GNAC, threatened by, the IRS. Each GNAC Pension Plan has been administered in accordance with its terms, except for those terms which are inconsistent with the changes required by the Code and any regulations and rulings promulgated thereunder for which changes are not yet required to be made, in which case each GNAC Pension Plan has been administered in accordance with the provisions of the Code and such

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regulations and rulings, and neither GNAC and its Subsidiaries, nor any fiduciary of any GNAC Pension Plan has done anything which would adversely affect the qualified status of any GNAC Pension Plan or related trust. GNAC and its Subsidiaries have performed all obligations required to be performed by them under, and are not in default under or in violation of, the terms of any of the GNAC Employee Benefit Plans in any manner that could reasonably be expected to have a GNAC Material Adverse Effect. None of GNAC or its Subsidiaries or any other “disqualified person” (as defined in Section 4975 of the Code) or “party-in-interest” (as defined in Section 3(14) of ERISA) has engaged in any “prohibited transaction” (as such term is defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any GNAC Employee Benefit Plan (or its related trust), GNAC or its Subsidiaries or any officer, director or employee of GNAC or its Subsidiaries to the tax or penalty imposed under Section 4975 of the Code or Section 502(i) of ERISA; and, to the knowledge of GNAC, all “fiduciaries,” as defined in Section 3(21) of ERISA, with respect to the GNAC Employee Benefit Plans have complied in all material respects with the requirements of Section 404 of ERISA.

           (e)  None of the GNAC Employee Benefit Plans is subject to Section 412 of the Code. None of GNAC, its Subsidiaries or ERISA Affiliates maintains, or has any liability with respect to, a GNAC Pension Plan that is subject to Title IV of ERISA.

           (f)  GNAC and its Subsidiaries have no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA, and at no expense to GNAC or its Subsidiaries.

      4.21 Tax Matters . GNAC and each of its Subsidiaries has filed all Tax Returns required to be filed by it, or requests for extensions to file such Tax Returns have been timely filed and granted and have not expired, except for such failures to file as would not individually or in the aggregate have a GNAC Material Adverse Effect. GNAC and each of its Subsidiaries has paid (or GNAC has paid on its behalf) or made provision for all Taxes shown as due on such Tax Returns. The most recent GNAC F