Buy-Out Agreement (2004)Full Document 

Start of Preview
                               BUY-OUT AGREEMENT

         This Agreement is entered into as of August 20, 2004, by and among
Lumbermens Mutual Casualty Company, an Illinois mutual insurance company
("Lumbermens"), American Motorists Insurance Company, an Illinois stock
insurance company, American Manufacturers Mutual Insurance Company, an Illinois
mutual insurance company, American Protection Insurance Company, an Illinois
stock insurance company, and Kemper Lloyds Insurance Company, a Texas Lloyds
company (individually, Lumbermens and each of the other companies identified
above are referred to herein as a "Kemper Company" and, collectively, as the
"Kemper Companies"), Unitrin, Inc., a Delaware corporation ("Unitrin"), Unitrin
Services Company, an Illinois corporation ("USC"), Trinity Universal Insurance
Company, a Texas stock insurance company ("Trinity") and those of other
subsidiaries and affiliates of Trinity not named in this paragraph that are
also signatories to this Agreement (individually, Trinity and each of such
other subsidiaries and affiliates are referred to herein as a "Trinity Company"
and, collectively, as the "Trinity Companies").

         WHEREAS, Trinity, USC and the Kemper Companies have entered into an
Asset Purchase Agreement, dated as of April 19, 2002 (the "Asset Purchase
Agreement"), pursuant to which Trinity and USC acquired certain assets of, and
assumed control over, certain business operations of the Kemper Companies
formerly known as the Individual and Family Group business unit and currently
operated by the Trinity Companies as the Kemper Auto and Home unit ("KAH"),
which underwrites, administers and sells certain types of personal lines
property and casualty insurance policies ("Policies");

         WHEREAS, Unitrin and Lumbermens have entered into a Stock Purchase
Agreement, dated as of April 19, 2002 (the "Stock Purchase Agreement") pursuant
to which Unitrin acquired all of the issued and outstanding capital stock of
the Kemper Enterprise Group, Inc. (currently known as Kemper Auto and Home
Group, Inc.), including certain of its subsidiaries engaged in the
underwriting, administering and selling of certain Policies via the Internet
("Kemper Direct");

         WHEREAS, certain Trinity Companies and the Kemper Companies have
entered into a Policy Conversion Agreement, dated as of June 28, 2002 (the
"Policy Conversion Agreement"), pursuant to which such Trinity Companies
acquired the right to replace the Kemper Companies upon renewal of certain
Policies underwritten on and after the Conversion Date (as defined in the
Policy Conversion Agreement), while the Kemper Companies retained all
liabilities associated with both Policies that were issued by any Kemper
Company through KAH prior to the Conversion Date and certain other Policies
that have been or will be issued or renewed on Kemper Company paper on and
after the Conversion Date for a Kemper Company's own account (collectively, all
such Policies are referred to hereinafter as "Kemper Policies");

         WHEREAS, Trinity and the Kemper Companies have entered into an
Administrative Services Agreement, dated as of June 28, 2002 (the "Services
Agreement"), pursuant to which Trinity provides administrative and claims
services to Kemper with respect to the Kemper Policies;

         WHEREAS, certain Trinity Companies and the Kemper Companies have
entered into an Amended and Restated Reinsurance Agreement, dated as of June 6,
2003 (the "Reinsurance Agreement"), pursuant to which Trinity reinsures on an
indemnity reinsurance basis certain Policies issued on Kemper Company paper on
and after the Conversion Date (the "Ceded Policies"), and provides
administrative services for such Ceded Policies;

         WHEREAS, Trinity and Lumbermens have entered into a Transition
Bridging Agreement, dated June 28, 2002 (the "Transition Agreement"), pursuant
to which the Kemper Companies have provided certain services for KAH and Kemper
Direct during a transition period following the closing of the acquisition
transactions contemplated by the Asset Purchase Agreement and the Stock
Purchase Agreement;

         WHEREAS, Trinity and Lumbermens have entered into an Employee
Agreement, dated June 28, 2002 (the "Employee Agreement"), pursuant to which
the Kemper Companies provided Trinity with certain employees who furnished
certain services to KAH and Kemper Direct during a transition period following
the closing of the acquisition transactions contemplated by the Asset Purchase
Agreement and the Stock Purchase Agreement;

         WHEREAS, pursuant to the Policy Conversion Agreement, certain Trinity
Companies are obligated to pay the Kemper Companies certain commissions and
contingent bonus commissions (collectively, the "Commissions") with respect to
certain Policies produced on behalf of KAH or marketed, underwritten, issued
and administered by Kemper Direct;

         WHEREAS, pursuant to the Reinsurance Agreement, certain Trinity
Companies are obligated to reimburse the Kemper Companies for certain premium
taxes, policy fees and assessments incurred by the Kemper Companies with
respect to the Ceded Policies (the "Reimbursement Obligations");

         WHEREAS, pursuant to the Services Agreement, the Kemper Companies are
obligated to pay Trinity certain fees in compensation for services provided to
the Kemper Companies by Trinity with respect to the Kemper Policies (the
"Service Fees");

         WHEREAS, pursuant to the Stock Purchase Agreement, Lumbermens is
obligated to pay Unitrin certain reserve adjustments under the Stock Purchase
Agreement;

         WHEREAS, pursuant to the Employee Agreement, the parties have
disagreed about Trinity's obligation to reimburse Lumbermens for the cost of
certain pension benefits, but in the interest of settling the dispute, Trinity
agrees subject to the terms and conditions of this Agreement to reimburse
Lumbermens for the cost of certain pension benefits with respect to the
employees provided to Trinity pursuant to such Agreement (the "Pension Costs");

         WHEREAS, the Commissions owed to the Kemper Companies are presently
being paid as earned over a period extending to 2008;

         WHEREAS, the Kemper Companies would benefit from the current receipt
of potential future Commission obligations that will come due from the Trinity
Companies;

         WHEREAS, the parties have agreed upon an estimate of such future
Commission obligations, and the Trinity Companies are willing to pay such
estimated obligations in a lump sum to the Kemper Companies;

         WHEREAS, the parties therefore wish to effect a final settlement of
all obligations with respect to the payment of Commissions, Service Fees,
certain reserve adjustments under the Stock Purchase Agreement and Pension
Costs and certain Reimbursement Obligations; and

         WHEREAS, the Trinity Companies wish to purchase from Lumbermens an
extension of the term of the current license to a one hundred-year license to
use the Kemper Brands (as defined in the Asset Purchase Agreement) in
connection with the promotion and conduct of personal lines property and
casualty insurance business, and Lumbermens wishes to provide the Trinity
Companies with such a license on the terms and conditions set forth herein.

         NOW, THEREFORE, the parties, in consideration of the foregoing
premises, the mutual agreements and covenants contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:

                                  ARTICLE I
                                  ---------
                             SETTLEMENT AND RELEASE
                             ----------------------

         Section 1.1. Settlement_Payment. On August 31, 2004 or such other date
as the parties may mutually agree (the "Closing Date") and subject to the
satisfaction or waiver of all conditions to closing set forth in Sections 4.1
and 4.2 of this Agreement, Trinity shall pay Lumbermens for the benefit of all
of the Kemper Companies a Net Settlement Amount of $31,929,734 in immediately
available funds. The Net Settlement Amount is comprised of:

         (a) $13,003,892 in full satisfaction of all obligations of the Trinity
Companies that are parties to the Policy Conversion Agreement to pay
commissions pursuant to Section 7.1 thereof, plus

         (b) $18,444,530 in full satisfaction of all obligations of such
Trinity Companies to pay bonus commissions pursuant to Section 7.2 of the
Policy Conversion Agreement, plus

         (c) $4,036,377 in full satisfaction of all obligations of the Trinity
Companies that are parties to the Reinsurance Agreement to reimburse the Kemper
Companies pursuant to Section VIII.B(1) thereof, the Trinity Companies hereby
agreeing that they will not write greater than $3.0 million of premium on the
Kemper Companies' paper on or after July 1, 2004, plus

         (d) $798,300 in full satisfaction of Trinity's agreement to reimburse
Lumbermens for certain pension costs pursuant to Section 7 of the Employee
Agreement, plus

End of Preview