UNITRIN, INC.

1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

Amended and Restated

 

1. Purpose.

The purpose of this 1995 Non-Employee Director Stock Option Plan ("Plan") of
Unitrin, Inc. ("Company") is to encourage ownership in the Company by
non-employee directors of the Company and to attract and retain qualified
non-employee personnel to serve as directors of the Company.

2. Administration.

The Plan will be administered by a committee or committees (which term includes
subcommittees) consisting of two or more persons appointed by the Board of
Directors of the Company. The composition of any committee responsible for
administration of the Plan shall comply with the applicable requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). Members of a
committee will serve for such term as the Board of Directors may determine,
subject to removal by the Board of Directors at any time. With respect to any
matter, the term "Committee" refers to the committee that has been delegated
authority with respect to such matter.

Subject to the provisions of the Plan, the Committee shall have authority: (i)
to construe and interpret the Plan; (ii) to define the terms used herein; (iii)
to prescribe, amend and rescind rules and regulations relating to the Plan; (iv)
to make such changes to the Plan as may become necessary or advisable to comply
with the Exchange Act or other legal requirements; and (v) to make all other
determinations necessary or advisable for the administration of the Plan. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants in the Plan and their legal representatives and
beneficiaries.

3. Shares Subject to the Plan.

The shares to be offered under the Plan shall consist of authorized but unissued
shares or treasury shares of the Company's common stock ("Common Stock") and,
subject to adjustment as provided in paragraph 13 hereof, the aggregate amount
of Common Stock which may be subject to options granted pursuant to paragraphs
5a, 5b and 5c hereunder ("Options") shall not exceed 400,000 shares. If any
Option granted under the Plan shall expire or terminate for any reason, without
having been exercised or vested in full, as the case may be, the unpurchased
shares subject thereto shall again be available for Options to be granted under
the Plan. Options granted under the Plan will not be qualified as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"). All Options granted under the Plan shall be granted on or
before August 2, 2015, except for restorative options which may continue to be
granted after August 2, 2015 until the expiration dates of the original options
to which such restorative options relate, subject to the limitation in the last
sentence of paragraph 5f.

4. Eligibility.

Each director of the Company who first becomes a director after November 1, 1993
and is not an employee of the Company or any subsidiary of the Company and each
director who has retired as an employee of the Company or a subsidiary of the
Company shall be eligible to participate in the Plan ("Eligible Directors").
Each Option granted under the Plan shall be governed by an agreement in such
form as the Committee shall from time to time approve.

5. Stock Option Grants.

a. Initial Option Grants.

An Option covering 4,000 shares of Common Stock shall be granted to such
director on the date that he or she first becomes an Eligible Director.

b. Annual Option Grants.

An Option covering 4,000 shares of Common Stock will be granted to each Eligible
Director automatically at the conclusion of each Company Annual Meeting.

c. Duration of Options.

Subject to paragraph 9, below, each Option granted pursuant to this paragraph 5
and all rights associated therewith shall expire ten years from the date of
grant.

d. Purchase Price.

The purchase price of the stock covered by each Option shall be the fair market
value (as defined in paragraph 6) of a share of Common Stock as of the date of
the grant of such Option.

e. Exercise of Options

.

Options granted hereunder shall be exercisable during an Option holder's
lifetime only by the Option holder or by his or her guardian or legal
representative. Each Option granted under this Plan shall be exercisable in full
one year after the date of the grant. No Option may be exercised for a fraction
of a share and no partial exercise of any Option may be for less than: (i) one
hundred (100) shares; or (ii) the total number of shares then eligible for
exercise, if less than one hundred (100) shares.

Each Option holder or his or her guardian or legal representative who desires to
exercise an Option shall give advance written notice of such exercise to the
Company in such form as may be prescribed from time to time by the Committee.
Before shares will be issued in connection with an Option exercise, the purchase
price for the shares shall be paid in full by: (i) cash or check payable to the
order of the Company; (ii) Constructive or Actual Delivery of Mature Shares;
(iii) wire transfer to an account specified by the Company or (iv) any
combination of the foregoing. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their fair market value
determined in accordance with paragraph 6 hereof.

For purposes hereof:

(a) the term "Constructive or Actual Delivery" means either: (i) presentation to
the Company of a recent brokerage account statement or other written evidence
satisfactory to the Committee evidencing beneficial ownership by an Eligible
Director of shares of Common Stock other than shares held in 401(k), pension,
IRA or similar accounts; or (ii) physical delivery of certificates evidencing
shares of Common Stock, properly indorsed for transfer to the Company or with an
appropriately executed stock power; and

(b) the term "Mature Shares" means shares of Common Stock that satisfy the
following requirements: (i) have been owned by a Participant free of any
encumbrances, vesting requirements or similar restrictions for at least six (6)
months; and (ii) have not been exchanged or surrendered by Constructive or
Actual Delivery in full or partial payment of the Exercise Price and/or the
related tax withholding obligations arising out of an Option exercise within the
previous six months.

Subject to the remaining provisions of this paragraph 5f, if (i) an Eligible
Director elects to pay some or all of the exercise price of an Option granted on
or after May 3, 2000 (the "Underlying Option") by Constructive or Actual
Delivery of Mature Shares, and (ii) for Options under original grants made on or
after February 1, 2006, and for Restorative Options (as defined below) relating
to such original grants, the fair market value of a share of Common Stock on the
exercise date exceeds the exercise price of a share of Common Stock subject to
the Underlying Option by at least the percentage set forth in the Option
agreement, then such Eligible Director shall be granted an Option to purchase
shares of Common Stock equal to the number of Mature Shares used by Constructive
or Actual Delivery to pay the exercise price (a "Restorative Option"). The
exercise price of a Restorative Option shall be equal to one hundred percent
(100%) of the fair market value of the Common Stock on the date the Underlying
Option is exercised. The Restorative Option shall be fully vested beginning six
months after the date of its grant and shall expire on the expiration date of
the Underlying Option. All other terms of the Restorative Option shall be
identical to the terms of the Underlying Option. No Restorative Option shall be
granted if, on the date of exercise of the Underlying Option, (i) such Option
would be scheduled to expire within the period set forth in the Option
agreement, or if not specified in the Option Agreement, within six months, or
(ii) for Options under original grants made on or after February 1, 2006, and
for Restorative Options relating to such original grants, the share price of the
Common Stock does not meet the appreciation requirement described above.

6. Fair Market Value of Common Stock.

For purposes of the Plan, the fair market value of a share of Common Stock shall
be determined by reference to the closing price on the New York Stock Exchange
(or the principal stock exchange or market on which the Common Stock is then
listed) or, if the Common Stock is not then listed on a stock exchange or
market, by reference to the mean between the bid and asked price of a share as
supplied by the National Association of Securities Dealers (or its successor in
function), in each case as reported by The Wall Street Journal, for the date on
which the Option is granted or exercised, as the case may be, or if such date is
not a business day, for the business day immediately preceding such date or, if
for any reason no such price is available for such date, then by reference to
the most recent closing price or the mean between the bid and asked price of a
share for the last date on which the Common Stock was traded.

7. Withholding Tax.

Upon the exercise of Options issued hereunder, the Company shall have the right
to require the Option holder to pay the Company the amount of taxes, if any,
which the Company may be required to withhold with respect to such shares.

8.

Transferability.

Options granted hereunder shall not be transferable, other than by will or the
laws of descent and distribution, except to the extent transfer is: (i)
permitted by Rule 16b-3 of the Exchange Act; and (ii) approved by the Committee.
Subject to the foregoing, Options shall not be assigned, pledged or otherwise
encumbered by the holder thereof, either voluntarily or by operation of law.

9. Termination of Directorship.

All rights of a director in an Option, to the extent that the Option has not
been exercised, shall terminate three months after the date of the termination
of his or her services as a director for any reason other than: (i) the death of
the director; (ii) cessation of services as a director because the individual,
although nominated by the Board of Directors, is not elected by the shareholders
to the Board of Directors; or (iii) retirement because of total and permanent
disability as defined in Section 22(e)(3) of the Code (collectively,
"Termination Events"). If a director ceases to be a director of the Company
because of a Termination Event, his or her unvested Options shall vest
immediately. All vested Options shall expire twelve months after the date of a
Termination Event.

 

10. No

Right to Continue as a Director.

Neither the Plan nor the granting of an Option under the Plan shall constitute
or be evidence of any agreement or understanding that any director has a right
to continue as a director for any period of time or at any particular rate of
compensation.

11. Restrictions on Disposition of Shares.

Each Option shall provide that the holder, by accepting such Option, represents
and agrees, for the Option holder and the Option holder's permitted transferees,
that none of the shares acquired upon exercise of such Option will be acquired
with a view towards any sale, transfer or distribution of said shares in
violation of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, or any applicable "blue sky" laws, and the
holder of such Option shall furnish evidence satisfactory to the Company
(including a written and signed representation) to that effect in form and
substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation by such person of the Securities Act of
1933, as amended, or state blue sky law.

12. Privileges of Stock Ownership.

No Option holder shall have any of the rights or privileges of a shareholder of
the Company in respect of any shares of Common Stock issuable with respect to
such Option until such shares shall have been issued and delivered (i) to the
Option holder in the form of certificates, (ii) to a brokerage or other account
for the benefit of the Option holder either in certificate form or via "DWAC" or
similar electronic means, or (iii) to a book entry or direct registration
account in the name of the Option holder. No shares shall be issued and
delivered upon the exercise of an Option unless and until there shall have been
full compliance with all applicable requirements of the Securities Act of 1933,
as amended (whether by registration or satisfaction of exemption conditions),
all applicable listing requirements of the New York Stock Exchange or any
national securities exchange on which shares of the same class are then listed
and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.

13. Adjustments.

If the outstanding shares of the Common Stock are increased, decreased, changed
into or exchanged for a different number or kind of shares or securities of the
Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised Options, which shall have been granted prior to any such change, and
to the number of shares covered by initial and annual Option grants under
paragraph 5, shall likewise be made. Any such adjustment in the outstanding
Options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Options but with a corresponding adjustment in
the price for each share or other unit of security covered by the Option. Share
amounts specified in paragraphs 3, 5a and 5b of this Amended and Restated Plan
have been restated in accordance with this paragraph 13 to reflect the Company's
2-for-1 stock split effective March 26, 1999.

Upon the dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation of the Company with one or more corporations as a result
of which the Company is not the surviving corporation, or upon a sale of
substantially all the property or more than eighty percent (80%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and all Options theretofore granted shall immediately become
exercisable.

No fractional shares of stock shall be issued under the Plan on any such
adjustment.

14. Amendment and Termination of Plan.

The Board of Directors may at any time terminate the Plan. The Board of
Directors may also at any time amend the terms of the Plan, provided that no
such amendment shall become effective without the approval of the Company's
shareholders if such approval is required in order to comply with Rule 16b-3 of
the Exchange Act or any other applicable law or regulation. Notwithstanding the
foregoing, Plan provisions relating to the amount, price and timing of Options
may be amended only by action of the shareholders, but not more than once every
six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended, or the rules in effect
thereunder.

The Committee may from time to time increase or decrease the six-month holding
periods specified in the definition of "Mature Shares" in Section 5f above: (i)
to satisfy applicable legal or accounting requirements; (ii) to secure
advantageous treatment for the Company or the Participants under any provision
of law or any accounting rule, pronouncement or interpretation applicable to
financial statements prepared on the basis of accounting principles generally
accepted in the United States; or (iii) for any reason determined by the
Committee to be in the best interests of the Company or the Participants and not
inconsistent with any applicable legal or accounting requirements. The Committee
may eliminate such holding periods in the event that there are no legal or
accounting requirements that they be imposed or if there is no longer any
advantage to the Company or the Participants that they be imposed and such
elimination is otherwise consistent with applicable legal and accounting
requirements. The Committee may also reinstate holding periods in order to
satisfy applicable legal or accounting requirements or to secure advantageous
treatment for the Company or the Participants of the type contemplated in this
paragraph.

Notwithstanding the foregoing, no amendment or termination of the Plan by the
Board, and no change related to holding periods made by the Committee pursuant
to the foregoing paragraph, shall in any way adversely affect the rights of a
holder of any outstanding Option or restorative option subsequently granted in
connection with the exercise of an outstanding Option without the prior written
consent of such Option holder.