SecProbe.io

CORRESP
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corresp

Byron F. Egan

(214) 953-5727

began@jw.com

VIA FEDERAL EXPRESS

November 17, 2004

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Mail Stop 3-09

    Attn:

    Mr. Jeffrey Riedler

    Assistant Director

    c/o Mr. Gregory S. Belliston

    Re:

    GAINSCO, INC.

    First Amendment to Preliminary Proxy Statement on Schedule 14A

    Filed November 17, 2004

    File No. 1-09828

Ladies and Gentlemen:

On behalf of GAINSCO, INC., a Texas corporation (the “Company”), filed herewith
is a first amended Schedule 14A including an amended preliminary proxy
statement relating to a Special Meeting of Shareholders of the Company to be
held on December 22, 2004 (the “Proxy Statement”) that is intended to be
responsive to the comments contained in the staff’s letter (the “Comment
Letter”) dated November 4, 2004, regarding the Schedule 14A filing initially
made by the Company on October 5, 2004. A marked copy of the Proxy Statement
(reflecting changes from the filing made on October 5, 2004) is also enclosed
herewith.

The enclosed Proxy Statement indicates that the date of the Special Meeting has
been moved back to December 22, 2004. To hold the meeting on that date, the
Company needs to begin mailing on November 24, 2004. We would be appreciative
if the staff could complete its review of this filing in time for us to meet
that November 24, 2004 mailing date. It is important to the Company that the
shareholders vote on the transactions, and that they be closed, in 2004.

The following responses indicate, where applicable, the additions or revisions
that have been included in the amended preliminary Proxy Statement filed
herewith in response to the staff’s comments. The responses are numbered to
correspond to the numbers assigned in the Comment Letter. Capitalized terms
used in this response letter but not defined herein have the meanings assigned
to such terms in the Proxy Statement, and, unless otherwise indicated, page
references in the Company’s response below are to pages in the marked copy of
the Proxy Statement.

Securities and Exchange Commission

November 17, 2004

Page 2

General

    1.

    The Company inserted the information required by Item 3 of Schedule 14A
on page 9 of the amended Proxy Statement. The Company inserted the
information required by Item 23 of Schedule 14A on
page 112 of the amended
Proxy Statement.

    2.

    Rule 13e-3 under the Exchange Act is not applicable to the contemplated
transactions, and the transactions are not the first step toward delisting
the Common Stock. As described on page 68 of the Proxy Statement, the
Common Stock was delisted by the New York Stock Exchange on April 14, 2002
because (as previously disclosed) the trading price for the Common Stock
had fallen below $1.00 for the requisite period and the Company did not
meet the quantitative criteria for continued NYSE listing. The Common
Stock is now quoted on the OTC Bulletin Board, and none of the
contemplated transactions is expected to affect its eligibility for
continued quotation on the OTC Bulletin Board. As the Company has only
227 shareholders of record (see page 69 of the Proxy Statement), the
Company has been eligible under Exchange Act Rule 12g-4 to terminate its
registration under Section 12(g) of the Exchange Act and cease filing
periodic reports and proxy materials with the SEC, but has chosen to
remain a reporting company.

    Further, the contemplated transactions are intended to maintain the
Company’s status as a reporting company whose securities are publicly
traded, although market forces will determine the nature of the trading
market, if any, for the Common Stock. Each of the recapitalization
agreements provides that at least until the second anniversary of the
closing date the Common Stock will continue to be registered under
Section 12(g) of the Exchange Act and the Company will continue to file
reports on Form 10-K, 10-Q and 8-K and proxy materials with the SEC. See
pages 79 and 80, 86 and 91 of the Proxy Statement. These provisions of the
recapitalization agreements should preclude the occurrence of a Rule
13e-3 transaction for at least two years after the closing.

    None of the effects described in Rule 13e-3(a)(ii) necessary for a Rule
13e-3 transaction to exist would occur as a result of consummation of the
transactions contemplated by the Proposals. Rule 13e-3(a)(ii)(A) is not
applicable because none of the Preferred Stock is subject to Section
12(g) or 15(d) of the Exchange Act, the Common Stock is already held of
record by less than 300 persons and the recapitalization will not reduce
the Common Stock ownership of any shareholder. Rule 13e-3(a)(ii)(B) is
not applicable because the Company’s Common Stock will continue to be
eligible to be quoted on the OTC Bulletin Board. Because the
transactions described in the Company’s Proxy Statement would not result
in either of the effects described in Rule 13e-3(a)(3)(ii), the
transactions would not result in a Rule 13e-3 transaction as defined in
Rule 13e-3, and Rule 13e-3 is inapplicable.

    3.

    The Company has amended the Proxy Statement to unbundle both proposals so
that investors will have the opportunity to vote separately on all six
components of the original proposals. The parties to the recapitalization
and employment agreements have conditioned completion of these now
separated six proposals on approval of all six such

Securities and Exchange Commission

November 17, 2004

Page 3

    proposals. The Company also added a new proposal on
pages 103 and 104 of the
amended Proxy Statement regarding adjournments.

    The Company determined that it is unnecessary to solicit shareholder
votes regarding the resignation of Hugh M. Balloch from the Board, which
would reduce the number of directors in office from eight to seven. Mr.
Balloch’s resignation does not change the number of directors and only
leaves a vacancy which the Board has no current plans to fill. Two
designees of GMSP currently serve on the Board – Mr. Balloch and John C.
Goff. Following the closing of the recapitalization transactions, GMSP
would be entitled to designate Mr. Goff to serve on the Board (or if he
ceases to serve on the Board, another GMSP designee), and only for so
long as the GMSP Group owns at least 20% of the Voting Stock.

    Further, the GMSP Exchange Agreement, the Stallings Investment Agreement
and the Reis Investment Agreement each require the Company to observe and
comply with the NYSE Rules described on pages 79 and 80, 86, and 91,
including NYSE Rule 303A.01, which requires NYSE listed companies to have
a majority of independent directors. The easiest way for the Company to
comply with NYSE Rule 303A.01 is for one member of the Company’s Board of
Directors who does not meet the NYSE independence standard to resign from
the Company’s Board of Directors. Because following the closing of the
recapitalization transactions GMSP would no longer have the contractual
right to designate two members of the Board, and because GMSP would
designate Mr. Goff to serve on the Board (or if he ceases to serve on the
Board, another GMSP designee), Mr. Balloch is expected to resign from the
Company’s Board of Directors to cause the Board to consist of a majority
of NYSE independent directors so the Company can begin compliance with
NYSE Rule 303A.01.

    Mr. Balloch is not being removed from the Board of Directors, which would
require corporate action not associated with his resignation. The Board
currently has no plans to replace Mr. Balloch or to reduce the number of
directors on its Board. However, even if the Company does eventually
determine to reduce the number of directors on its Board, the Company’s
shareholders do not have the right under the Company’s bylaws to vote
regarding whether to reduce the number of directors from eight to seven.
That power is reserved to the Company’s Board of Directors under Section
3.03 of the Company’s bylaws, which states, “The number of directors may
be increased or decreased from time to time by resolution adopted by the
board of directors, but no increase shall have the effect of shortening
the term of any incumbent director.” The amended Proxy Statement
clarifies that the number of directors comprising the Board is not being
reduced. See page 2 of the President’s letter and
pages 14 and 27 of the Proxy Statement.

Shareholder Letter

    4.

    Throughout the Proxy Statement the Company has referenced the $2 million
of estimated transaction costs whenever the amount of cash expected from
the transaction is discussed.

Securities and Exchange Commission

November 17, 2004

Page 4

Purpose of and Reason for the Restructuring, page 2

    5.

    The Company has amended pages 2 and 31-32 of the Proxy Statement to
comply with the staff’s request by disclosing that calling the Series A
Preferred Stock for redemption satisfied a condition to GMSP’s obligations
to make an additional cash investment in Preferred Stock in 2001 and
explaining the background of the 2001 transaction.

The Recapitalization, page 3

    6.

    The Company has disclosed the negotiated price per share inherent in the
recapitalization throughout the Proxy Statement.

Termination of the Recapitalization Agreements; Nonsolicitation, page 7

    7.

    The Company has revised the Proxy Statement to clarify, whenever the
obligation of the Series A Preferred Stock to vote on an as converted
basis in proportion to the votes of all shares of Common Stock for two
years after the closing of the recapitalization transactions is discussed,
that such proportional vote will have no effect on the outcome of any
proposal submitted to the holders of the Common Stock during such two year
period. See pages 4, 10, 15, 17 and 82.

Shareholder Vote to Approve the Recapitalization Proposal and the Employment
Agreements Proposal, page 8

    8.

    None of the proposals is assured of receiving Shareholder Approval.
Shareholder Approval refers to the approval of a matter by the affirmative
vote of both (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 Special
Meeting and voting for or against, or expressly abstaining from voting on,
the applicable Proposal 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 Special
Meeting and voting for or against the applicable Proposal. GMSP and the
Company’s directors and executive officers as a group make up less than
the majority vote required in clause (i), and they are excluded from
voting under clause (ii) because they are Interested Shareholders. GMSP
and the Company’s directors and executive officers as a group also make up
less than the majority vote required to approve the adjournments proposal.
The Company knows of no other shareholders who have committed to vote in
favor of the proposals.

    9.

    The Company has amended the Proxy statement to include on pages 8 and 26
the percentages of the Voting Stock represented by the Series A Preferred
Stock and the Series B Preferred Stock.

Securities and Exchange Commission

November 17, 2004

Page 5

How was the exchange rate for the Series A Preferred Stock determined? page
12

    10.

    The Company has amended the Proxy Statement to include the disclosure
that its stock price as of August 27, 2004, the day before the
announcement of the recapitalization, was $0.67. See page 14 of the
amended Proxy Statement.

    11.

    The Company has amended the Proxy Statement to include the estimated book
value per share. See page 14 of the amended Proxy Statement.

Why are the Proposals being submitted for approval by our shareholders? page
15

    12.

    The Company has amended the Proxy Statement to state whether the Board
might go forward with the transactions even if the transactions do not
receive Shareholder Approval. See pages 17 and 21 of the amended Proxy
Statement.

What are the U.S. Federal income tax consequences of the restructuring to
me? page 19

    13.

    The Company has received a tax opinion from KPMG LLP. The Company has
amended its disclosure on page 21 to reflect that fact and the opinion of
KPMG is attached as Appendix VIII.

The Participants; Interest of Certain Person In Matters to Be Acted Upon,
page 24

    14.

    The Company has amended its disclosure on pages 27–29 of the Proxy
Statement to include the information required by Item 5 of Schedule 14A.

Background of the Recapitalization, page 30

    15.

    The Company has amended its disclosure on page 35 of the Proxy Statement
to explain why the acquisition the Company was considering “never
developed to the point that it was ready for Special Committee
consideration.”

    16.

    The Company has amended its disclosure on page 36 of the Proxy Statement
to discuss the significance of A.M. Best ratings and whether the Company
is currently being considered for a ratings downgrade.

    17.

    The Company has amended its disclosure on page 37 of the Proxy
Statement to include discussion of the services Jackson Walker provided to
Crescent Real Estate Equities and Texas Capital Bancshares, and has
included discussion regarding the reason these services did not conflict
with the services provided to the Special Committee.

    18.

    The Company has amended its disclosure on page 38 of the Proxy Statement
to discuss Houlihan’s view regarding the December 2nd proposal.

    19.

    The Company has amended its disclosure on page 39 of the Proxy Statement
to discuss the reasons the negotiations with GMSP had been unsuccessful
and the information presented to the Audit Committee and its impact on the
recapitalization.

Securities and Exchange Commission

November 17, 2004

Page 6

    20.

    The Company has amended its disclosure on page 41 of the Proxy Statement
to clarify the Special Committee’s rationale behind hiring additional or
replacement counsel.

    21.

    We are furnishing the “board book” that Sanders Morris Harris furnished
to Board members in connection with the transactions under the separate
cover. See response to Comment 23 in respect of the independent
compensation consultant.

    22.

    The Special Committee did not share its valuation analyses with GMSP.
The Company has disclosed this fact in the amended Proxy Statement on page
41.

    23.

    We are aware of the existence of Rule 436 “Consents Required in Special
Cases,” which applies to registration statements. However, we have found
no Exchange Act rule or guideline that requires the identification of an
independent compensation consultant or that its report be included in a
proxy statement. Notwithstanding the foregoing, the Company has requested
the written consent of the independent compensation consultant.

    The independent compensation consultant has informed us that it approves
the disclosure in the preliminary Proxy Statement regarding its report,
but refuses to consent to the inclusion of its name or its report in the
proxy statement or any other publicly available filing with the SEC. The
consultant advises us that its refusal is based on its national policy as
adopted by its board of directors. As a result, the Company respectfully
advises the staff that it is unable to obtain and include such a consent.

    Further information regarding this matter is being furnished under
separate cover.

    24.

    The Company has determined that the limited general agency agreement
entered into on September 30, 2004 between the Company and the entity
involved in the earlier general agency opportunity is immaterial in size
and nature, and does not rise to a level requiring disclosure in the Proxy
Statement. The Company disclosed the agreement in the Proxy Stat