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Stock Purchase Agreement

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Sectors: Manufacturing
Governing Law: Delaware, View Delaware State Laws
Effective Date: August 02, 1994
Related Agreement Types:
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EXHIBIT 10


Stock Purchase Agreement


among


Armco Inc.,


Armco Financial Services Corporation


and


Vik Brothers Insurance, Inc.


---------------------------


Dated as of August 2, 1994
---------------------------


Sale of Stock


of


Northwestern National Holding Company, Inc.
TABLE OF CONTENTS


Page


ARTICLE I. DEFINITION OF TERMS............................. 2


1. Certain Definitions......................... 2


1.1. Affiliate............................ 2
1.2. Annual Statement..................... 2
1.3. Business Day......................... 2
1.4. Closing and Closing Date............. 3
1.5. Closing Reserves..................... 3
1.6. Code................................. 3
1.7. Company.............................. 3
1.8. Consolidated Group................... 3
1.9. Escrow Account....................... 3
1.10. Existing Pledge...................... 3
1.11. Final Loss Amount.................... 3
1.12. Financial Statements................. 3
1.13. GAAP................................. 4
1.14. GAAP Financial Statement............. 4
1.15. GAAP Quarterly Statement............. 4
1.16. Hazardous Material................... 5
1.17. HSR Act.............................. 5
1.18. Insurance Subsidiary................. 5
1.19. knowledge............................ 5
1.20. Leased Real Property................. 5
1.21. Liens or Encumbrances................ 6
1.22. Material Adverse Effect.............. 6
1.23. 1992 Annual Statement................ 6
1.24. 1992 Consolidated Annual Statement... 6
1.25. NNIC................................. 6
1.26. Other Seller's Agreements............ 6
1.27. Owned Real Property.................. 6
1.28. Permitted Liens...................... 7
1.29. Person............................... 7
1.30. Pre-Closing Periods.................. 8
1.31. Property............................. 8
1.32. Purchase Price....................... 8
1.33. Purchaser Reinsurance Contracts...... 8
1.34. Quarterly Statement.................. 8
1.35. Shares............................... 8
1.36. Statutory Accounting Principles...... 9
1.37. subsidiary........................... 9
1.38. Tax or Taxes......................... 9
1.39. Tax Returns.......................... 9
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ARTICLE II. PURCHASE AND SALE OF SHARES................... 10


2.1. Purchase and Sale....................... 10
2.2. Purchase Price.......................... 10
2.3. Renewal Commission...................... 10
2.4. Statutory Surplus Adjustment............ 13
2.5. Certain Assumed Liabilities............. 18
2.6. Closing................................. 19
2.7. Transactions to be Effected at
Closing............................... 19


ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ARMCO........ 20


3. Representations and Warranties of Armco........ 20


3.1. Organization, Standing and Authority
of Armco............................... 20
3.2. Execution and Delivery.................. 21
3.3. Consents and Approvals.................. 22
3.4. No Breach............................... 22
3.5. Armco as Common Parent.................. 22
3.6. Brokerage............................... 23


ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER.... 23


4. Representations and Warranties of the Seller.. 23


4.1. Due Incorporation and Authority......... 23
4.2. Outstanding Capital Stock, Options or
Other Rights......................... 24
4.3. Transfer of the Shares.................. 25
4.4. Organization and Qualification.......... 26
4.5. No Violation of Company Instruments..... 26
4.6. Financial Statements.................... 27
4.7. Absence of Undisclosed Liabilities...... 28
4.8. Assets................................. 29
4.9. Events Since December 31, 1993......... 38
4.10. Insurance Claims and Assessments........ 40
4.11. Judgments, Decrees and Orders in
Restraint of Business................ 41
4.12. Litigation and Proceedings.............. 41
4.13. Permits, Licenses and Franchises........ 42
4.14. Relationships With Affiliates,
Officers and Directors............. 42
4.15. Labor Disputes; Compliance.............. 43
4.16. Other Sale Arrangement.................. 43
4.17. Employee Benefit Plans.................. 44
4.18. Questionable Payments................... 48
4.19. Consents................................ 48
4.20. Contracts and Binding Commitments....... 49
4.21. Threats of Cancellation................. 52
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4.22. Reinsurance............................. 53
4.23. Operations Insurance.................... 53
4.24. Taxes................................... 55
4.25. Accounts; Directors and Officers........ 59
4.26. Compliance with Applicable Law.......... 59
4.27. Conflict of Interest.................... 60
4.28. Broker's, Finder's or Similar Fees...... 60


ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.. 60


5. Representations and Warranties of the Purchaser.. 60


5.1. Due Incorporation and Authority......... 61
5.2. Consents................................ 62
5.3. No Breach............................... 62
5.4. Actions and Proceedings................. 63
5.5. Broker's, Finder's or Similar Fees...... 64
5.6. Purchase for Investment................. 64


ARTICLE VI. CONDUCT PENDING CLOSING DATE................... 65


6.1. Operations in the Ordinary Course....... 65
6.2. Restrictions............................ 66
6.3. Related Matters......................... 69
6.4. Sale of Portfolio Securities........... 69
6.5. Regulatory Filings...................... 70
6.6. Interim Financial Statements and
Reports............................... 70
6.7. Access to Properties, Books and
Records............................... 71
6.8. Replacement Insurance................... 72


ARTICLE VII. COVENANTS AND AGREEMENTS 72


7. Covenants and Agreements................ 72
7.1. Confidentiality; Return of Documents.... 72
7.2. Fees and Expenses....................... 73
7.3. Company Employee Benefit Plans.......... 74
7.4. Payment of Debts and Intercompany
Receivables........................... 75
7.5. Agreement Not to Compete................ 76
7.6. Taxes................................... 76
7.7. The Seller's Access to Records.......... 88
7.8. Future Assessments...................... 89
7.9. Disclaimer of Other Representations
and Warranties....................... 91
7.10. Further Assurances...................... 92
7.11. Proposition 103 and Other Excess
Profit Laws........................... 92
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7.12. Reinsurance............................. 93
7.13. Reinsurance Support..................... 94
7.14. Trademark Assignment.................... 94
7.15. Severance and Other Costs............... 95
7.16. Escrow Agreement........................ 95
7.17. Supplements to Schedules................ 96


ARTICLE VIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNITY.................................... 97


8.1. Survival of Representations and
Warranties and Indemnities.............. 97
8.2. Indemnity............................... 98


ARTICLE IX. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO
CLOSE........................................... 105


9.1. Covenants............................... 105
9.2. Governmental Consents................... 105
9.3. No Litigation........................... 106
9.4. Legislation............................. 106
9.5. Delivery of Documents................... 106
9.6. Opinion of Counsel...................... 106
9.7. Certified Resolutions................... 106
9.8. Continued Accuracy of Representations
and Warranties........................ 107
9.9. Other Approvals......................... 107
9.10. Other Consents.......................... 107
9.11. No Adverse Change....................... 108
9.12. Resignation of Directors................ 108
9.13. Release of Existing Pledge.............. 108


ARTICLE X. CONDITIONS TO THE OBLIGATION OF ARMCO AND THE SELLER
TO CLOSE....................................... 108


10.1. Covenants............................... 108
10.2. Governmental Consents................... 109
10.3. No Litigation........................... 109
10.4. Legislation............................. 109
10.5. Payment and Delivery of Documents....... 109
10.6. Opinion of Counsel...................... 110
10.7. Certified Resolutions................... 110
10.8. Continued Accuracy of Representations
and Warranties......................... 110
-iv-


ARTICLE XI.TERMINATION, AMENDMENT AND WAIVER................ 110


11.1. Termination............................. 110
11.2. Effect of Termination................... 112
11.3. Amendment............................... 112
11.4. Extension; Waiver....................... 112


ARTICLE XII. MISCELLANEOUS................................. 112


12.1. Notices................................. 112
12.2. Interpretation.......................... 113
12.3. Governing Law........................... 114
12.4. Publicity............................... 114
12.5. Assignment; Binding Effect.............. 114
12.6. Entire Agreement; Third Party
Beneficiaries.......................... 114
12.7. Construction............................ 115
12.8. Counterparts............................ 115
-v-


This STOCK PURCHASE AGREEMENT made and entered into this 2nd day of August, 1994 by and among Armco Inc., an Ohio corporation ("Armco"), Armco Financial Services Corporation, a Delaware corporation (the "Seller"), and Vik Brothers Insurance, Inc., an Indiana corporation (the "Purchaser"):


W I T N E S E T H


WHEREAS, Armco is the beneficial and record owner of all of the issued and outstanding shares of capital stock of the Seller; and


WHEREAS, the Seller is the beneficial and record owner of all of the issued and outstanding shares of common stock (the "Shares") of Northwestern National Holding Company, Inc., a Delaware corporation (the "Company"); and


WHEREAS, the Seller wishes to sell to the Purchaser and the Purchaser wishes to buy from the Seller the Shares on the terms and conditions set forth in this Stock Purchase Agreement (the "Agreement");


NOW, THEREFORE, in reliance upon the representations and warranties contained herein and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be bound, agree as follows:


ARTICLE I.
DEFINITION OF TERMS


1. Certain Definitions. As used in this Agreement,
------------------- the following terms have the following meanings unless the context requires otherwise:


1.1. "Affiliate" means a Person directly or indirectly
---------- controlling, controlled by or under common control with the Person of which it is an Affiliate. For the purposes of Section 4.17, "controlling, controlled by or under common control with" shall be determined under Section 414(b) and (c) of the Internal Revenue Code of 1986, as amended. The Company and its subsidiaries shall be considered Affiliates of the Seller with respect to the period ending on the Closing Date and Affiliates of the Purchaser with respect to the period commencing the day after the Closing Date for purposes of this Agreement.


1.2. "Annual Statement" for an Insurance Subsidiary
---------------- means the annual convention statement of such Insurance Subsidiary, relating to a specified year or date, prepared in accordance with Statutory Accounting Principles and filed by such Insurance Subsidiary with the insurance department of such Insurance Subsidiary's domiciliary state, including all notes, schedules and exhibits thereto.


1.3. "Business Day" means a day on which the Seller,
------------ the Purchaser and national banks doing business in New York City are open for business.
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1.4. "Closing" and "Closing Date" have the meanings
------- ------------ set forth in Section 2.6.


1.5. "Closing Reserves" has the meaning set forth in
---------------- Section 2.3


1.6. "Code" means the Internal Revenue Code of 1986,
---- as amended.


1.7. "Company" means Northwestern National Holding
-------- Company, Inc., a Delaware corporation.


1.8. "Consolidated Group" means the affiliated group
------------------ (as defined in Section 1504 of the Code) of corporations of which the Company is a member and of which Armco is the common parent.


1.9. "Escrow Account" has the meaning set forth in
-------------- Section 7.16.


1.10. "Existing Pledge" means the pledge and
--------------- assignment of the Shares to Northwestern National Insurance Company of Milwaukee, Wisconsin ("NNIC") as security for the payment by the Seller of certain promissory notes of the Seller, in the aggregate principal amount of $72.6 million, to NNIC.


1.11. "Final Loss Amount" has the meaning set forth in
----------------- Section 2.3.


1.12. "Financial Statements" means, collectively, the
------------------- 1993 GAAP Financial Statements, the 1992 Annual Statements, the


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1993 Annual Statements, the 1992 Consolidated Annual Statement and the 1993 Consolidated Annual Statement.


1.13. "GAAP" or "generally accepted accounting
---- ----------------------------- principles" means the accounting principles generally used and - ---------- recognized from time to time within the United States which have substantial support from authoritative agencies or bodies, including the Securities and Exchange Commission, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and general industry practice, which principles have been applied in a consistent manner throughout the periods involved.


1.14. "GAAP Financial Statement" means, as of a
------------------------ certain date or for a year ended on a certain date, the audited consolidated balance sheet of the Company and its subsidiaries as of such date and the audited consolidated statements of income, stockholder's equity and cash flows of the Company and its subsidiaries for the year ended on such date, including the related notes and auditor's report thereon.


1.15. "GAAP Quarterly Statement" means, as of a
------------------------ certain date or for a fiscal quarter ended on a certain date, the consolidated balance sheet of the Company and its subsidiaries as of such date and the consolidated statements of income, stockholder's equity and cash flows of the Company and it subsidiaries for the quarter ended on such date, including notes thereon.
-4-


1.16. "Hazardous Material" has the meaning set forth
------------------ in Section 4.8.


1.17. "HSR Act" means the Hart-Scott-Rodino Antitrust
------- Improvements Act of 1976, as amended, and the rules promulgated thereunder.


1.18. "Insurance Subsidiary" means each of
-------------------- Northwestern National Casualty Company, a Wisconsin stock insurance company ("NNCC"), Northwestern National Lloyds Insurance Company, a Texas Lloyds insurance company ("NNLC"), Northwestern National County Mutual Insurance Company, a Texas mutual insurance company ("NNCM"), NN Insurance Company, a Wisconsin stock insurance company ("NN Insurance"), Pacific National Insurance Company, a California stock insurance company ("PNIC"), Pacific Automobile Insurance Company, a California stock insurance company ("PAIC"), and Statesman Insurance Company, an Indiana stock insurance company ("Statesman").


1.19. "knowledge" means, with respect to the Seller
---------------- and the Company, the knowledge of the Seller's or the Company's current officers after having made due inquiry of the appropriate individuals employed by the Seller, the Company and the Company's subsidiaries.


1.20. "Leased Real Property" means all real property
-------------------- reflected in the Company's balance sheet included in its 1993 Consolidated Annual Statements as being leased by the Company or
-5-


one of its subsidiaries, a list of which is set forth in Schedule 1.20.


1.21. "Liens or Encumbrances" means any lien, pledge,
--------------------- mortgage, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other similar restriction or limitation.


1.22. "Material Adverse Effect" means an effect which
----------------------- is materially adverse to the business, financial condition or results of operations of the Company, any Insurance Subsidiary or any other material subsidiary of the Company.


1.23. "1992 Annual Statement" and "1993 Annual
--------------------- ------------ Statement" have the respective meanings set forth in Section 4.6. - ---------


1.24. "1992 Consolidated Annual Statement" and
---------------------------------- "1993 Consolidated Annual Statement" have the respective meanings ---------------------------------- set forth in Section 4.6.


1.25. "NNIC" has the meaning set forth in Section 7.13.
----


1.26. "Other Seller's Agreements" means each agreement
------------------------- to be executed in connection with the transactions contemplated hereunder to which Seller is a party.


1.27. "Owned Real Property" means all real property
------------------- reflected in the Company's balance sheet included in its 1993
-6-


Consolidated Annual Statement as being owned by the Company or one of its subsidiaries, which consists of the property located at 8450 Westfield Boulevard, Indianapolis, Indiana.


1.28. "Permitted Liens" means those Liens or
--------------- Encumbrances affecting real or personal property which (i) are listed in Schedule 1.28 or are otherwise approved in writing by Purchaser, (ii) are for taxes, assessments or other governmental charges, or the claims of materialmen, carriers, landlords or like persons, all of which are not yet due or payable or which are being contested in good faith by appropriate proceedings and for which an appropriate reserve has been established, (iii) are zoning, building or other similar governmental restrictions, (iv) are easements, covenants, rights-of-way or other similar restrictions, (v) arise in the ordinary course of business including, Liens or Encumbrances arising from pledges of securities required pursuant to state insurance law or insurance regulatory requirements or pertaining to funds held or deposits made for the benefit of ceding companies or retrocessionaires; provided that
-------- none of the items described above, together with all such other items, materially impairs the value or interferes with or prohibits the present use or operation of the Property by the Company or its subsidiaries.


1.29. "Person" means any individual, corporation,
------ partneship, firm, joint venture, association, joint stock
-7-


company, trust, unincorporated organization, governmental or regulatory authority or other entity.


1.30. "Pre-Closing Period" means all tax periods ending
------------------ on or before the Closing Date and, with respect to any tax period that includes but does not end on the Closing Date, the portion of such period that ends on and includes the Closing Date.


1.31. "Property" means real, personal or mixed property,
-------- tangible or intangible.


1.32. "Purchase Price" means the aggregate purchase
-------------- price described in Section 2.2.


1.33. "Purchaser Reinsurance Contracts" has the
------------------------------- meaning set forth in Section 2.3.


1.34. "Quarterly Statement" of an Insurance
------------------- Subsidiary, as of a certain date, or for a fiscal quarter ended on such date, means the quarterly convention statement prepared in accordance with Statutory Accounting Principles and filed by such Insurance Subsidiary with the insurance department of such Insurance Subsidiary's domiciliary state, including all notes, schedules and exhibits thereto.


1.35. "Shares" means all of the issued and outstanding
------ capital stock of Northwestern National Holding Company, Inc.
-8-


consisting of 1,000 shares of common stock, par value $10.00 per share.


1.36. "Statutory Accounting Principles" means the accounting
------------------------------- procedures and practices prescribed or permitted by the department of insurance of the state of domicile of an Insurance Subsidiary and used by that Insurance Subsidiary in the preparation of its 1993 Annual Statement and used by the Company in the preparation of the 1993 Consolidated Annual Statement.


1.37. "subsidiary" means a corporation of which 50% or
---------- more of the voting control is owned directly or indirectly by another entity.


1.38. "Tax" or "Taxes" means any Federal, state,
--- ----- local, foreign or other income, premium, profits, estimated, franchise, license, impost, transfer, sales, use, ad valorem, customs, payroll, withholding, employment, wage, occupation, value added, property (real or personal), excise or other taxes, fees, duties, assessments, withholdings or governmental charges of any nature (including interest, penalties or additions to such items).


1.39. "Tax Returns" means all returns, reports,
----------- estimates, declarations, information returns and statements of any nature regarding Taxes for any period required to be filed by Armco, the Seller, the Company or its subsidiaries and relating
-9-


to the income, properties or operations of the Company or its subsidiaries.


ARTICLE II.
PURCHASE AND SALE OF SHARES


2.1. Purchase and Sale. Upon the terms and subject to
----------------- the conditions set forth in this Agreement, the Seller shall sell, assign, transfer, convey and deliver to the Purchaser and the Purchaser shall purchase from the Seller, on the Closing Date, the Shares.


2.2. Purchase Price. The Purchase Price for the
-------------- Shares to be paid by the Purchaser at the Closing shall be $70 million less the $3.5 million paid with respect to the debt incurred in connection with the acquisition of Statesman, subject to the post-closing adjustments and payments set forth in Section 2.4 ("Purchase Price"), payable in the manner specified in Section 2.7.


2.3. Renewal Commission.
------------------


(a) Subject to the adjustments set forth below, the Purchaser agrees t
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