Document:

exv10w3w5

 

EXHIBIT 10.3.5

FIRST AMENDMENT AND WAIVER

TO

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT 

(Guaranteed Line)

     This First Amendment and Waiver to Amended and Restated Loan and Security Agreement is entered
into as of May 2, 2007 (the “Amendment”), by and between COMERICA BANK (“Bank”), ALLIANCE
CONSULTING GROUP ASSOCIATES, INC. (“Consulting”) and ALLIANCE HOLDINGS, INC., (“Holdings”;
Consulting and Holdings are referred to herein individually as a “Borrower” and collectively, the
“Borrowers”).

RECITALS

     Borrowers and Bank are parties to that certain Amended and Restated Loan and Security
Agreement dated as of February 28 , 2007 (the “Agreement”). The parties desire to amend the
Agreement in accordance with the terms of this Amendment.

     NOW, THEREFORE, the parties agree as follows:

     1. The following defined term is amended to read as follows:

          “Revolving Line” means a credit extension of up to Seven Million Five Hundred Thousand Dollars
($7,500,000).

     2. Section 6.8 of the Agreement is amended to read as follows:

6.8 Profitability. As of the last day of each month, Borrowers on a
consolidated basis shall maintain pre-tax profit as indicated for the three months
immediately preceding each date of measurement:

	 	 	 
	Period Measured	 	Pre-tax Profit (Loss)
	April 30, 2007
	 	($1,150,000)
	May 31, 2007
	 	($850,000)
	June 30, 2007
	 	($750,000)
	July 31, 2007
	 	($500,000)
	August 31, 2007
	 	($250,000)
	September 30, 2007
	 	$1
	October 31, 2007
	 	$1
	November 30, 2007
	 	$1
	December 31, 2007
	 	$250,000
	January 31, 2008 and thereafter
	 	To be determined based on FY 08 forecast

     3. The reference in Section 6.9 to “October 31, 2007” is amended to read “December 31, 2007”.

     4. Bank waives Borrower’s failure to comply with Section 6.8 of the Agreement for the month
ending March 31, 2007.

     5. The Compliance Certificate is revised to be in substantially the form of attached Exhibit D.

     6. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as
defined in the Agreement. The Agreement, as amended hereby, shall be and remains in full force and
effect in accordance with its terms and hereby is ratified and confirmed in all respects. Except
as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not
operate as a waiver of, or as an amendment of, any right,

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power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Each
Borrower ratifies and reaffirms the continuing effectiveness of all instruments, documents and
agreements entered into in connection with the Agreement.

     7. Except as set forth in the Schedule of Exceptions originally provided by Borrowers to Bank
in connection with the Agreement and any updated Schedule of Exceptions provided by Borrowers to
Bank, each Borrower represents and warrants that the representations and warranties contained in
the Agreement are true and correct as of the date of this Amendment, and that no Event of Default
has occurred and is continuing.

     8. This Amendment may be executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one instrument.

     9. As a condition to the effectiveness of this Amendment, Bank shall have received, in form
and substance satisfactory to Bank, the following:

          (a) this Amendment, duly executed by Borrowers;

          (b) Affirmation of Subordination (Safeguard Scientifics, Inc.);

          (c) Affirmation of Guaranty (Safeguard Delaware / Safeguard Scientifics (Delaware)); and

          (d) such other documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate.

     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above
written.

	 	 	 	 	 
	 	 	ALLIANCE HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven J. Feder
	 

	 	 	 	 
	 

	 	Title:
	 	/s/ Vice President
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	ALLIANCE CONSULTING GROUP ASSOCIATES, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ James P. Dandy
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President of Finance
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	COMERICA BANK
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Charles R. Bowman
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President
	 

	 	 	 	 

2exv10w3w6

 

EXHIBIT 10.3.6

AFFIRMATION OF GUARANTY

(Safeguard Delaware / Safeguard Scientifics (Delaware))

     This AFFIRMATION OF GUARANTY is made as of May 2, 2007, by the undersigned (each a
“Guarantor”; collectively, the “Guarantors”) and COMERICA BANK (“Bank”).

RECITALS

     Borrowers and Bank are parties to that certain Amended and Loan and Security Agreement, dated
as of February 28, 2007 (the “Agreement”).

     Guarantors executed for the benefit of Bank an Unconditional Guaranty dated as of September
30, 2004 (the “Guaranty”), guarantying certain amounts owing by Borrowers to Bank, and an
Affirmation of Guaranty dated as of February 28, 2007, which Guarantors executed in connection with
the Agreement. Borrowers and Bank wish to amend the Agreement to provide, among other things, for
an increase of the Revolving Line to $7,500,000. Bank has agreed to enter into the First Amendment
and Waiver to Amended and Restated Loan and Security Agreement (the “Amendment”) provided, among
other things, that Guarantors consent to the entry by Borrowers into the Amendment and related
documents and agree that the Guaranty will remain effective.

AGREEMENT

     NOW, THEREFORE, Guarantors agree as follows:

     1. Each Guarantor consents to the execution, delivery and performance by Borrower of the
Amendment and the documents and instruments executed in connection therewith.

     2. The Guaranty is and shall remain in full force and effect with respect to all of Borrowers’
Obligations as defined in the Guarantied Loan Agreement. Each Guarantor confirms that, as of the
date hereof, it has no defenses against its obligations under the Guaranty.

     3. Each Guarantor represents and warrants that the Representations and Warranties contained in
the Guaranty are true and correct as of the date of this Affirmation except (i) to the extent such
representations and warranties expressly relate to an earlier date, which representations and
warranties are true and correct as of such date; and (ii) for those changes to the representations
and warranties resulting from events, occurrences or circumstances permitted under the applicable
Loan Documents. Unless otherwise defined, all capitalized terms in this Affirmation shall be as
defined in the Guaranty.

     4. The Guaranty, as amended hereby, shall be and remain in full force and effect in accordance
with its respective terms and hereby is ratified and confirmed in all respects. Except as
expressly set forth herein, the execution, delivery, and performance of this Affirmation and shall
not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the
Guaranty, as in effect prior to the date hereof. Each Guarantor ratifies and reaffirms the
continuing effectiveness of all instruments, documents and agreements entered into in connection
with the Guaranty.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 

 

     IN WITNESS WHEREOF, the undersigned Guarantors have executed this Affirmation of Guaranty as
of the first date above written.

	 	 	 	 	 
	 	 	SAFEGUARD DELAWARE, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven J. Feder
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	SAFEGUARD SCIENTIFICS (DELAWARE), INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven J. Feder
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President
	 

	 	 	 	 
	 
	 	 
	 	 	COMERICA BANK
	 
	 	 
	 

	 	By:
	 	/s/ Charles R. Bowman
	 

	 	 	 	 
	 

	 	Title:
	 	Vice Presidentexv10w1

 

EXHIBIT 10.1

Execution Copy

Larry A. Frakes

President and Chief Operating Officer

United America Indemnity, Ltd.

This document sets forth the agreement between Larry A. Frakes (“Executive”) and United
America Indemnity, Ltd. (the “Company”) regarding all matters relating to Executive’s employment by
the Company, but shall constitute the legally binding agreement of Executive and the Company (the
“Agreement”) if and only if it (1) is manually executed by Executive and Saul Fox, in his capacity
as chairman of the Board of Directors (the “Board”) of the Company (the “Chairman”) and Chief
Executive Officer (the “CEO”), and (ii) is confirmed by the affirmative vote of a majority of the
Board or a Committee acting on behalf of the Board.

	 	 	 
	Positions & Titles:

	 	On May 10, 2007 (“Effective Date”), Executive
shall assume the position of President and
Chief Operating Officer of the Company as
well as chief executive officer of any
Company Affiliates (as defined below) as may
be determined and specified by the Chairman
or CEO in writing from time to time.
Executive shall also serve on the Board as a
director of the Company (a “Director”). Upon
becoming President and Chief Operating
Officer, Executive shall resign from his
positions on the 162(m) Committee and Audit
Committee of the Board.
	 
	 	 
	Responsibilities:

	 	Executive shall have such responsibilities
and duties as are customary for a President
and Chief Operating Officer of a company
conducting business comparable to the Company
(except as may be otherwise provided by the
Board or Chairman or CEO from time to time).
Executive shall devote his full business time
and efforts to his service as President and
Chief Operating Officer and as a Director and
shall not engage in any other non-Company or
non-Company Affiliate business activities
without the written approval of the Board.
Notwithstanding the foregoing, Executive
shall be permitted to manage his and his
family’s personal investments and affairs,
engage in charitable activities and community
affairs, and act as a member, director, or
officer of industry trade associations or
groups, provided that such activities do not
interfere with his duties hereunder.
	 
	 	 
	Reporting:

	 	During the Term (as defined below), Executive
shall report to the Chairman and CEO
regarding the affairs of the Company and
Company Affiliates and as requested report to
the Board from time to time about the affairs
of the Company. All other executives and
other employees of the

 

 

	 	 	 
	 

	 	Company (other than the CEO and employees designated by the CEO) shall report
to Executive (or his designees as approved by the Board); provided that the CEO
may establish dotted line or dual reporting responsibilities as he deems
necessary for the conduct of the business of the Company and/or any Company
Affiliate.
	 
	 	 
	Location:

	 	Executive shall be provided by the Company
with an office at the headquarters of the
Company’s Affiliate in Bala Cynwyd,
Pennsylvania.
	 
	 	 
	Term:

	 	The initial term of Executive’s employment
under this Agreement shall be from the
Effective Date through December 31, 2011.
Such term will automatically be extended for
additional one-year periods on a
year-to-year basis unless Executive or the
Company notifies in writing the other to the
contrary not less than three months and not
more than five months prior to the
expiration of the initial term of this
Agreement and of any renewal term (the
initial term and any renewal term,
collectively, the “Term”).
	 
	 	 
	Annual Compensation:

	 	$2,100,000+. Commencing on the Effective
Date, Executive will accrue base salary and
be eligible for an annual bonus as provided
below in consideration of his services to
the Company and its Affiliates.
	 
	 	 
	Base Salary:

	 	The Company agrees to pay Executive an annual base
salary of $600,000 (“Base Salary” or $50,000 per month (“Monthly Base
Salary”)), commencing as of the Effective Date, in accordance with the
Company’s normal payroll practices for executives. Following a termination by
the Company of Executive without Cause (as defined below) or a resignation by
Executive for Good Reason (as defined below), Executive will receive severance
payments equal to the Monthly Base Salary Multiplied by Months Served (as
hereafter defined), less any amounts paid during the relevant notice period and
any taxes and withholdings, subject to the conditions described in the
“Termination” Section below. For purposes of the foregoing sentence, “Months
Served” shall equal the sum of the full calendar months (capped at 18) of the
Term that elapsed prior to a notice of termination without Cause or the event
giving rise to the resignation with Good Reason, as the case may be.
	 
	 	 
	Annual Bonus:

	 	In respect of the remainder of 2007, Executive shall be eligible to
receive a pro rata bonus based on his

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	 	achievement of milestones for 2007 that have been agreed to
between the Executive and the CEO and approved by the Board.
The pro-ration shall be based on an annual bonus opportunity
for 2007 of $1,500,000, pro rated based on time served in
2007, with the first 1/3 of any earned and declared pro rata
bonus to be satisfied through the issuance of restricted
shares of the Company’s Class A common stock subject to the
conditions of “Annual Bonus-Section C” below (but without
applying any additional “Operational Goals & Milestones”)(the
“2007 Restricted Shares”), and the remaining portion (2/3) of
any earned and declared pro rata bonus shall be paid in cash
on or before March 15, 2008 if Executive is employed in good
standing as of such date.
	 
	 	 
	 

	 	In respect of each full calendar year (commencing in respect
of 2008) during the Term (a “Bonus Year”), the Company shall
provide Executive with a bonus opportunity of $1,500,000+
(“Annual Bonus”), subject to the following and determined,
awarded and paid as follows:
	 
	 	 
	 

	 	A. Plan & Performance Score:

	 	a.	 	Plan: Prior to the commencement of each
Bonus Year, Executive shall prepare and submit
to the Board for its approval a comprehensive
business plan for the Company and its Affiliates
projecting the business performance (including
among other matters, consolidated net income per
share) of the Company and its Affiliates in
respect of the forthcoming Bonus Year (including
any changes made in the good faith judgment of
the Board at the time of its approval, the
“Plan”). The Plan shall be prepared and
presented both (1) in accordance with Generally
Accepted Accounting Principles (“GAAP”) and (2)
on an accident year basis.
	 
	 	b.	 	
Performance Score: Within 75 days after
completion of each Bonus Year, a performance
score (“Performance Score”) for such Bonus Year
shall be determined by the Board in accordance
with the following steps: (1) dividing (i) the
actual consolidated net income per share
of the Company (adjusted to account for all
items of gain, loss or expenses

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	 	 	 	determined by the Board in its sole discretion to
be unanticipated and/or extraordinary),
determined on an Accident Year Basis and as
verified by the Company’s independent auditors
for such Bonus Year by (ii) the projected
consolidated net income per share of the Company
(determined on an Accident Year Basis) as set
forth in the Plan for such Bonus Year (and as
approved by the Board prior to the commencement
of such Bonus Year in accordance with paragraph
a. (immediately preceding)), (2) multiplying the
quotient determined in accordance with Step (1)
(immediately preceding) by 100, and (3) rounding
the result obtained in Step (2) (immediately
preceding) to the nearest tenth.

	 	B.	 	Bonus Computation: The Annual Bonus shall equal:

	 	a.	 	$50,000 multiplied by the excess of the
Performance Score over 90, plus
	 
	 	b.	 	$200,000 multiplied by the excess of the
Performance Score (capped at 100 for this
purpose) over 95, plus
	 
	 	c.	 	A cash payment equal to Executive’s net federal
and state tax liability directly resulting from
the vesting of the restricted shares comprising
the restricted shares portion of the Annual
Bonus (to the extent provided for in Section C
below), if Executive is employed by the Company
and in good standing at the time of such
vesting, with such payment to be made prior to
Executive’s actual payment of such tax
liability.
	 
	 	 	 	Example: If the Performance Score in
respect of the 2008 Original Bonus Year
equaled 100, the Annual Bonus in respect of
2008 would be equal to $1,500,000 [($50,000 x
(100-90)) + ($200,000 x (100-95))=
$1,500,000].

	 
	 	 	 	Example: If the Performance Score in respect
of the 2008 Original Bonus Year equaled 110,
the Annual Bonus in respect of 2008 would be
equal to $2,000,000 [($50,000 x (110-90)) +
($200,000 x (100-95))=$2,000,000].

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	 	C.	 	First $500,000 of each Annual Bonus:

	 	a.	 	Restricted Shares. Subject to the
immediately succeeding paragraph b., the first
$500,000 of each Annual Bonus (determined in
accordance with the immediately preceding
Section B but not including the tax liability
payments made pursuant to paragraph c. of such
Section) shall be satisfied by the issuance to
Executive of restricted Class A common shares of
the Company as of March 15 of the year following
the Bonus Year, subject to Executive being
employed by the Company in good standing as of
such date (or if such date is not a business
day, the immediately preceding business day)
(valued for this purpose at the closing price of
the Company’s Class A common shares on the last
trading day of the relevant Bonus Year as
reported in the Wall Street Journal).
Twenty-five percent (25%) of the Company shares
that may be issued to Executive pursuant to this
paragraph with respect to the 2008 Bonus Year,
2009 Bonus Year and the 2010 Bonus Year during
the Term shall vest and become transferable on
each of the first four anniversaries of the
issuance thereof. One-third of the Company
shares that may be issued to Executive pursuant
to this paragraph with respect to the 2011 Bonus
Year and subsequent Bonus Years during the Term
shall vest and become transferable on each of
the first three anniversaries of the issuance
thereof. Notwithstanding the foregoing
sentence, vesting of any such restricted shares
issued to Executive pursuant to this Section C
shall cease in the event and at such time as (1)
Executive resigns from the Company without Good
Reason, (2) Executive is terminated by the
Company for Cause, (3) the Term expires, if at
the time of such expiration (x) Executive
declined the Company’s proposal to extend the
duration of this Agreement on terms at least
substantially equivalent to the terms hereof, or
(y) the Company had Cause (as defined below) to
terminate Executive, or (4) Executive does not
comply with the Non-Competition, Non-

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	 	 	 	Solicitation, Confidential Information and
Cooperation “Covenants” set forth in Schedule I
hereto along with his obligations, if applicable,
under any release which he is required to provide
in favor of the Company and those under any
separation agreement to which he is party with
the Company and/or its Affiliates (collectively,
the “Post-Termination Obligations”). (The terms
of the Restricted Shares shall be otherwise
subject to the Company’s form of “Restricted
Share Agreement” attached as Exhibit C hereto)
	 
	 	b.	 	Operational Goals & Milestones. Prior
to the commencement of the 2008 Bonus Year and
each Bonus Year thereafter, it shall be
Executive’s responsibility to propose in
writing, based upon Executive’s discussions with
the Chairman and CEO, Company milestones and
operational goals for the forthcoming Bonus Year
that must be achieved for Executive to become
entitled to the restricted shares award provided
in this Section C. The absence of such a
proposal as of the commencement of a Bonus Year
will result in no achievement of such milestones
and goals. The Chairman and CEO shall review
and revise such milestones and goals in his
discretion and refer them to the Board in
writing for its approval, in its discretion. In
addition to the other requirements of paragraphs
a., b., and c. of this Section C, the Board
shall make a good faith determination, which
shall be conclusive, as to whether the
milestones and operational goals as earlier
approved by the Board have been satisfied
thereby entitling Executive to the amount of
restricted shares determined in accordance with
paragraphs a. and b. of this Section C.

	 	D.	 	Annual Bonus Cash Portion: To the extent an Annual Bonus amount exceeds
$500,000 (but not including the tax liability payments
made pursuant to paragraph c. of Section B above):

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	 	a.	 	Fifty percent (50%) of such excess shall be paid
in cash to Executive (the “Paid Cash Bonus”)
within thirty days of the Board’s determination
with respect to such bonus as provided for in
Sections A and B above; and
	 
	 	b.	 	Fifty percent (50%) of such excess shall be
retained by the Company (the “Retained Cash
Bonus”) to satisfy the true-up adjustments
provided in Section E (immediately succeeding).

	 	E.	 	Accident Year True-Up Provisions:

	 	a.	 	The Performance Score and the amount of the
Annual Bonus Cash Portion in respect to a Bonus
Year (for purposes of this Section “Annual
Bonus” and the Section “Additional Equity
Participation” below, “Target Year”) shall be
redetermined or trued-up on an Accident Year
Basis within 15 days following the completion of
the Company’s audited financial statements in
respect of the third full calendar year
succeeding such Target Year, with such
redetermination or true-up assuming the capital
structure of the Company as of the last day of
the applicable Target Year (for purposes of
computing consolidated net income, consolidated
net income per share, and other capital
structure dependent items that would affect
computation of the true-up contemplated by this
Section E). (The Performance Score and Annual
Bonus Cash Portion as so redetermined are
referred to hereinbelow as the “Trued-Up
Performance Score” and the “Trued-Up Annual
Bonus Cash Portion,” respectively.) Computation
of the Trued-Up Performance Score and the
Trued-Up Annual Bonus Cash Portion shall be
verified by Company’s independent auditors and
confirmed by the Board. All redeterminations
hereunder shall (i) be made without regard to
the tax liability payments made pursuant to
paragraph c. of Section B above and (ii) not
increase or reduce

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	 	 	 	the number of restricted shares previously
awarded to Executive pursuant to Section C of
this “Annual Bonus” Section.
	 
	 	b.	 	Subject to paragraph c. (immediately
succeeding), if the Trued-Up Annual Bonus Cash
Portion in respect to a Target Year equals or
exceeds the amount of the Annual Bonus Cash
Portion originally determined in respect of such
Target Year, then the following amounts shall be
paid to Executive (whether or not Executive is
then employed by the Company, unless pursuant to
paragraph c. (immediately succeeding) Executive
is no longer then entitled to payments under
this paragraph b.) within thirty days of the
redetermination:

	 	1.	 	The excess of the Trued-Up Annual Bonus
Cash Portion in respect of the Target
Year over the Annual Bonus Cash Portion
originally determined in respect of the
Target Year; plus
	 
	 	2.	 	The Retained Cash Bonus in respect to
the Target Year; plus
	 
	 	3.	 	A deemed investment return on the
amounts to be paid to Executive pursuant
to paragraphs 1 & 2 (immediately
preceding), which shall be calculated by
utilizing the investment return realized
by the Company and the Company Affiliates
on their investable assets (including
cash) over the period said amounts to be
paid to Executive had been retained by
the Company.

	 	c.	 	Executive shall not be entitled to receive any
payments pursuant to paragraph b. (immediately
preceding) from and after the first to occur of
the following: (1) Executive resigns from the
Company without Good Reason; (2) Executive is
terminated by the Company for Cause; (3) the
expiration of the Term, if at the time of such
expiration (x) Executive declined the Company’s
proposal to extend the duration of

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	 	 	 	this Agreement on terms at least substantially
equivalent to the terms hereof, or (y) the
Company had Cause to terminate Executive; or (4)
Executive does not comply with the
Post-Termination Obligations.
	 
	 	d.	 	If the amount of the Annual Bonus Cash Portion
originally determined in respect of a Target
Year exceeds the amount of the Trued-Up Annual
Bonus Cash Portion in respect of such Target
Year, then the amount of such excess shall be
offset against and reduce dollar-for-dollar
(whether or not Executive is then employed by
the Company) the aggregate amount of Retained
Cash Bonuses then or thereafter held by the
Company. The remaining Retained Cash Bonus with
respect to the Target Year, if any, shall then
be paid to Executive within thirty days of the
foregoing redetermination, along with a deemed
investment return thereon, which shall be
calculated by utilizing the investment return
realized by the Company and the Company
Affiliates on their investable assets (including
cash) over the period such remaining Retained
Cash Bonus had been retained by the Company.

Attached as Schedule II is an example of application
of the Bonus provisions of this Agreement.

	 	F.	 	Additional
Matters: All bonus payments hereunder are intended to
comply with Sections 162(m) and 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), and to
the extent applicable shall be governed by the terms of
the Company’s incentive award plans and paid in a manner
and at such time so as to result in tax deductibility to
the Company.

	 	 	 
	Employee Benefits/Expenses:

	 	During the Term:

	 	A.	 	Executive shall
be entitled to participate in or receive benefits under
all employee benefit plans, including, but not limited
to, any pension or retirement plan, savings plan,
medical or health-and-accident plan, life, disability,
and other insurance plans or arrangements

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	 	 	 	generally made available by the Company to its executives
and key management employees, subject to and on a basis
consistent with the terms, conditions and overall
administration of such plans and arrangements and of this
Agreement. Following a termination by the Company of
Executive without Cause or a resignation by Executive for
Good Reason, Executive will be entitled to be reimbursed
for the cost of COBRA continuation coverage under the
Company’s group health plans for up to eighteen months
following his termination date, subject to Executive’s
continued eligibility for such coverage under COBRA and
to the conditions described in the “Termination” Section
below;
	 
	 	B.	 	Executive shall
be entitled to four weeks paid vacation per full year in
accordance with the policies periodically established by
the Board for other senior executives of the Company;
and
	 
	 	C.	 	The Company shall
pay or reimburse Executive for all reasonable expenses
incurred or paid by Executive in the performance of
Executive’s duties hereunder in accordance with the
generally applicable policies and procedures of the
Company.

	 	 	 
	Additional Equity 
	 	 
	Participation:

	 	A.   Share Purchase & Option
Grant: The Company’s goal is
for the Executive to acquire
from the Company $1,000,000
of the Company’s Class A
common shares (“Shares”).
Executive further agrees that
the Shares shall not be
transferable (other than for
estate planning purposes
where the ultimate
beneficiary of the transfer
is a member of Executive’s
immediate family) earlier
than (i) the end of the Term,
(ii) the occurrence of a
“Change of Control” (as
defined below), or (iii) the
date on which Executive is
terminated. Executive agrees
to meet with the CEO and
Chairman and work towards
achieving this ownership goal
in such manner as the parties
may reasonably agree. The
Company shall grant
Executive stock
options in accordance with
the following (the “Stock
Options”):

	 	a.	 	Each option shall represent the right to acquire
from the Company one Class A common share of the
Company, subject to paying to the

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	 	 	 	Company the “Exercise Price” (as defined in the
immediately succeeding paragraph);
	 
	 	b.	 	The “Exercise Price” (or strike price) of each
option shall be equal to the closing price of
the Company’s Class A Common Shares on the sixth
(6th) trading day following the
issuance by the Company of a press release
announcing Executive’s employment with the
Company (as reported in the Wall Street
Journal), and each such option shall be
granted as of such trading day; and
	 
	 	c.	 	The number of options granted
Executive shall equal the quotient
obtained by dividing $10,000,000 by the Exercise
Price (rounded to the nearest whole option).

	 	B.	 	Time Vesting
Options: 12.5% of the Stock Options shall vest on each
of December 31, 2008, December 31, 2009, December 31,
2010, and December 31, 2011 (aggregating 50% of the
Stock Options) if Executive is employed by the
Company and in good standing as of such respective
dates.
	 
	 	C.	 	Performance
Vesting Options:

	 	a.	 	 An additional 12.5% of the Stock Options shall
provisionally vest on each of December 31, 2008,
December 31, 2009, December 31, 2010 and
December 31, 2011 (aggregating the remaining 50%
of the Stock Options (the “Performance Stock
Options”)) if, in addition to the criteria
described below, on such dates
Executive is employed by the Company
and in good standing. The number of
provisionally vested Performance Stock Options
in respect to a calendar year that shall vest
conclusively shall be determined by multiplying
the number of such provisionally vested
Performance Stock Options by a fraction, the
numerator of which fraction shall equal the
excess over 90 of the Trued-Up Performance Score
for the Target Year inclusive of the date on
which such Performance Stock Options
provisionally vested (capped at ten for this
purpose) and the denominator of which fraction
shall equal ten.

- 11 -

 

	 	b.	 	Provisionally vested Performance Stock Options
shall become exercisable only in the event such
options become conclusively vested as verified
by the Company’s independent auditors and
confirmed by the Board.

	 	D.	 	Special Vesting
of Options, Restricted Shares and Retained Cash Bonus :

	 	a.	 	Notwithstanding paragraph a. of Section C
(immediately preceding), all provisionally
vested Performance Stock Options shall vest
conclusively (and thereafter be exercisable) as
of the 120th day following a two-year
consecutive period of either calendar years (i)
2010 and 2011 or (ii) calendar years 2011 and
2012 if:

	 	1.	 	the Company’s return on equity (determined
in accordance with GAAP) and the Company’s
percentage increase in gross written
premiums (over the relevant preceding year)
exceeded the return on equity (determined in
accordance with GAAP) and the percentage
increase in gross written premiums (over the
relevant preceding year), of more than 50%
of the Peer Group (as hereafter defined), as
determined by the Board in its discretion
within 120 days after the close of the
relevant two-year period. The Board, in its
sole discretion, may make such adjustments
to the determination required by this
paragraph as it deems appropriate to account
for unanticipated and/or extraordinary
matters affecting the Company’s or Peer
Group members’ results; and
	 
	 	2.	 	Executive was employed by the
Company and in good standing on (i) December
31 of each year in which the Company’s
performance satisfied the conditions of
paragraph 1 (immediately preceding) and (ii)
the date on which the relevant Board
determination was made.

- 12 -

 

Example: If the Company’s return on
equity for 2010 of 15% exceeded the median
return on equity for the Peer Group of
12%, the Company’s return on equity for
2011 of 18% exceeded the median return on
equity for the Peer Group of 15%, the
Company’s increase in gross written
premiums for 2010 of 5% exceeded the
median increase for the Peer Group of 3%,
and the Company’s increase in gross
written premiums for 2011 of 8% exceeded
the median increase for the Peer Group of
7%, then all necessary targets will have
been achieved and all provisionally vested
Performance Options may be conclusively
vested, subject to Executive
being employed in good standing on the
required dates.

	 	3.	 	For purposes of paragraph 1 of this
Section D, the “Peer Group” shall consist of
W.R. Berkley Corporation (BER), RLI
Corporation (RLI), James River Group, Inc.
(JRVR), Navigators Insurance Group (NAVG),
Philadelphia Consolidated Group (PHLY),
Markel Corporation (MKL), HCC Insurance
Holdings, Inc. (HCC), Argonaut Group (AGII)
and NYMAGIC, Inc. (NYM). The companies
constituting the Peer Group may be modified
by the Board from time to time in its
discretion so as to take into account new
competitive entrants to the Company’s market
niche, the departure of companies from the
Company’s market niche, as well as mergers,
acquisitions and other changes affecting
companies included in the Peer Group.

	 	b.	 	Notwithstanding any other provision of this
Agreement, upon the consummation of a Change in
Control (as defined below), if Executive is then
employed by the Company in good standing and has
not given notice of resignation, all unvested
and provisionally vested Stock Options and all
unvested Restricted Shares shall vest
conclusively (and thereafter become exercisable)
and Executive shall be paid any then outstanding
Paid Cash Bonus and Retained Cash Bonus (without
being subject to any true-up adjustments
provided for herein if the Company’s publicly
traded shares

- 13 -

 

	 	 	 	appreciated in value by a 15% or greater annual
compounded rate measured from the closing price
on the Effective Date through the closing price
on the date of the consummation of the Change in
Control (in each case as reported in the Wall
Street Journal). In determining such
compounded rate of the Company’s publicly traded
shares for purposes of this paragraph, the Board
shall give appropriate credit to dividends and
other distributions made in respect to the
Company’s shares to all shareholders as well as
other relevant items (such as stock splits).
	 
	 	c.	 	For purposes of this Section D:

	 	1.	 	A “Change of Control” shall mean (i) the
acquisition of all or substantially all of
the Company’s assets by an Unaffiliated
Person, (ii) a merger, consolidation,
statutory share exchange or similar form of
corporate transaction after which the
resulting entity is controlled by an
Unaffiliated Person, or (iii) the
acquisition by an Unaffiliated Person of
sufficient voting shares of the Company to
cause the election of a majority of the
Company’s Directors.
	 
	 	2.	 	“Unaffiliated Person” shall mean a “person”
(as such term is defined in Section 3(a)(9)
of the Securities Exchange Act of 1934 and
as such term is used in Section 13(d)(3) and
14(d)(2) of such Act) or a group of
“persons” which is not an Affiliate of Fox
Paine & Company, LLC (“Fox Paine”), the
members thereof, or Fox Paine Capital Fund
II, L.P.

	 	E.	 	Shareholding
Guidelines. In addition to any other transfer
restrictions contained herein, beginning as of January
1, 2010 and for the remainder of the Term,
Executive shall be obligated at all times to
hold shares in the Company with a value of no less than
two times his “Annual Compensation” (as defined below)
(or if less, the aggregate value of the shares if any
acquired by the Executive based on his agreement with
the Chairman and CEO, any shares which he has been
granted

- 14 -

 

	 	 	 	pursuant to this Agreement and any vested “in the money”
Time Vesting Options which he has been granted pursuant
to this Agreement), or such higher amount as may be
required by the Board pursuant to share ownership
guidelines adopted with respect to the Company’s senior
executive team. Such value shall include vested share
options, assuming their exercise for the underlying
shares. For purposes of this Section E, “Annual
Compensation” shall be the Base Salary plus the Annual
Bonus payable upon the achievement of a Performance Score
of 100 and all applicable milestones and goals (including
any retained portion of the Annual Bonus but excluding
all tax liability payments).
	 
	 	F.	 	Equity
Agreements. Any restricted shares or options which are
granted pursuant to this Agreement shall be granted
pursuant to the restricted share and share option
agreements attached as Exhibits A, B and C hereto, and
any grants hereunder shall be conditioned on (i)
Executive’s execution of such agreements; and
(ii) the Company’s shareholder-approved, publicly-filed
equity compensation plan, i.e., its Share Incentive
Plan, as such plan may be amended from time to time (or
any successor thereto).

	 	 	 
	Compliance with
	 	 
	Section 409A:

	 	The parties have attempted in good faith to
structure this Agreement to comply with or be
exempt from Section 409A of the Code and the
regulations and guidance relating thereto
(“Section 409A”). Therefore, notwithstanding any
other provisions hereof, this Agreement shall be
administered in good faith compliance with
Section 409A, and accordingly any payment or
vesting in severance benefits hereunder may be
subject to a six-month delay as required by
Section 409A, as determined by the Board in good
faith.
	 
	 	 
	Termination:

	 	The Board may, in its absolute discretion,
terminate Executive’s employment with
the Company at any time prior to the expiration
of the Term, with or without Cause, upon three
full calendar months’ written notice (in which
event Executive shall receive accrued
and unpaid Base Salary through the termination
date) and during such three-month period the
Company may request that Executive

- 15 -

 

	 	 	 
	 

	 	resign his officerships and direct Executive to perform only those
services (if any) it determines are necessary. If Executive’s
employment terminates as a result of his death or “Disability” (such Disability
occurring when a licensed physician selected by the Company determines that
Executive is disabled and Executive is unable to perform or
complete his duties under this Agreement for a period of 180 consecutive days
or 180 days within any twelve-month period), Executive or his
successors shall receive accrued and unpaid Base Salary through to the
termination date. In the event Executive’s employment with the
Company is terminated by the Company without Cause or as a result of a
resignation by the Executive for Good Reason, Executive
shall receive from the Company the salary amounts payable pursuant to the
second sentence of the “Base Salary” paragraph of the “Annual Compensation”
Section hereof, continued benefits as provided in the “Employee
Benefits/Expenses” Section hereof, and continued vesting in any equity awarded
as provided in this Agreement, provided that such payments, benefits and
vesting shall be conditioned on (i) Executive executing a general
release in favor of the Company, its Directors, and employees, Fox Paine, and
its members and employees, and all Affiliates of each of the foregoing, (ii)
Executive remaining in compliance with all of his Post-Termination
Obligations, and (iii) the Company determining that it did not have Cause to
terminate Executive while he was employed. Executive may
terminate his employment with the Company at any time without Good Reason upon
written notice to the Chairman of at least three full calendar months (and upon
such notice the Company may elect to terminate Executive without any
further payment obligations whatsoever as if Executive was terminated
with Cause). Any termination by the Executive for Good Reason shall be upon
thirty (30) days’ advance written notice and subject to the cure and other
provisions related to “Good Reason” as set forth in the “Cause/Good Reason”
section below.
	 
	 	 
	Cause / Good
Reason:

	“Cause” shall mean (i) the engaging by
Executive in malfeasance, fraud,
dishonesty or gross misconduct adverse to
the interests of the Company or its
Affiliates, (ii) the material violation by
Executive of any of the covenants
hereof or other provisions of this Agreement
after notice from the Company and a failure
to cure such violation within 10 days of
said notice (to the extent the Board
reasonably determines such violation is
curable and subject

- 16 -

 

	 	 	 
	 

	 	to notice), (iii) a breach by Executive of any representation or
warranty contained herein, (iv) the Board’s determination that
Executive has exhibited incompetence or gross negligence in the
performance of his duties hereunder, (v) receipt of a final written directive
or order of any governmental body or entity having jurisdiction over the
Company requiring termination or removal of Executive, (vi)
Executive being charged with a felony or other crime involving moral
turpitude, or (vii) Executive substantially failing to perform his
duties hereunder after notice from the Company and failure to cure such
non-performance within 10 days of said notice (to the extent the Board
reasonably determines such failure to perform is curable and subject to notice)
or violating any material Company policies, including, without limitation, the
Company’s corporate governance and ethics guidelines, conflicts of interests
policies and code of conduct applicable to all Company employees or senior
executives.
	 
	 	 
	 

	 	“Good Reason” shall mean a willful and substantial
reduction in Executive’s material
responsibilities and reporting as provided for in the
“Responsibilities” and “Reporting” Sections of this
Agreement which remains uncured for thirty (30) days
after written notice thereof is provided by
Executive to the Company setting forth in
reasonable detail the alleged reduction at issue;
provided that Executive must provide such
written notice within ten (10) days of the event
allegedly giving rise to Good Reason or such alleged
event shall not provide a basis for such notice;
provided further that (i) “dotted-line” or dual
reporting to the Chairman and CEO by any Company or
Company Affiliate executive shall not constitute Good
Reason and (ii) a modification as to whom
Executive shall report resulting from a
Change of Control shall not constitute Good Reason.
	 
	 	 
	Covenants:

	 	As consideration for the payments made and equity
awarded pursuant to this Agreement, along with other
good and valuable consideration, including, without
limitation, the trade secrets provided to
Executive in connection with the
performance of his duties, Executive agrees
and acknowledges that he will be bound by the
restrictive covenants set forth on Schedule I
hereof.
	 
	 	 
	Policies:

	 	Executive covenants and agrees to be
subject to the policies applicable to a senior
executive of the Company, including without
limitation the Company’s corporate governance

- 17 -

 

	 	 	 
	 

	 	rules, procedures, and policies as may be adopted by the Board from time to time.
	 
	 	 
	Miscellaneous:

	 	Executive represents that he is not a party to any agreement or arrangement
that would limit in any manner his ability to perform the duties contemplated
hereunder and that he will not use any confidential information belonging to his
previous employer(s) in the performance of his duties hereunder. The Company may
set-off against or otherwise deduct from any amounts owed or due Executive
or Company shares or options in respect of Company shares held by Executive
if and to the extent that Executive is in default in respect of amounts he
is obligated to pay to the Company (or any Company Affiliate).
	 
	 	 
	Binding Agreement:

	 	The obligations of Executive under this Agreement will continue after the
termination of his employment with the Company for any reason, to the extent provided
herein, and will be binding on his heirs, executors, and legal representatives.
	 
	 	 
	Assignment:

	 	This Agreement shall not be assignable by Executive. This Agreement is
assignable by the Company to an Affiliate. The rights and obligations hereunder
shall be binding upon and take effect for the benefit of any successor in interest of
the Company created by merger, reorganization, sale of assets, assignment or
otherwise, and the Company shall use commercially reasonable efforts to obtain an
assumption agreement with respect to this Agreement from such successor.
	 
	 	 
	Indemnity:

	 	The Company shall, as provided for by its by-laws and charter, defend and indemnify
Executive. The Company shall also include Executive in the
coverage provisions of the directors and officers liability insurance policy that it
maintains for its Directors and officers, including any applicable tail coverage that
it provides to its current and former Directors, as may be applicable.
	 
	 	 
	Board Approval:

	 	This Agreement is subject to the approval of the Board and its Compensation
Committee. Only upon such approval and the manual execution hereof by Executive and
the Chairman shall the Agreement become a legally binding agreement of the Company
and Executive.
	 
	 	 
	Governing Law:

	 	Executive and the Company agree that, due to the Company’s significant and ongoing
contacts and business

- 18 -

 

	 	 	 
	 

	 	relationships (including its listing on NASDAQ) with the State of New York,
this Agreement shall be governed by and construed in accordance with the laws
of such state, without reference to principles of conflict of laws of that
jurisdiction or any other jurisdiction.
	 
	 	 
	Arbitration:

	 	All disputes between the Company and
Executive or between Executive and any
Affiliate shall be resolved by binding
confidential arbitration in front of a single
arbitrator in Philadelphia, Pennsylvania,
United States conducted by the Judicial
Arbitration and Mediation Services, Inc.
(“JAMS”) in accordance with the comprehensive
rules and procedures of JAMS, including the
internal appeal process provided for in Rule
34 of the JAMS rules with respect to any
initial judgment rendered in an arbitration.
The Company, its Affiliates and Executive
agree that the arbitrator shall have no
authority to award any punitive or exemplary
damages and waive, to the full extent
permitted by law, any right to recover such
damages in arbitration. The Company (or its
Affiliate) shall pay the costs and fees of
the arbitrator and appeal arbitrators. The
Company (or its Affiliate) and Executive
shall each bear its own respective costs,
including attorney’s fees (and there shall
not be any award of attorney’s fees).
Judgment on the award rendered in such
arbitration may be entered in any court
having jurisdiction. Notwithstanding the
foregoing, the Company and its Affiliates
reserve the right to obtain judicial
injunctive relief arising in connection with
a prospective violation by Executive of the
provisions hereof relating to
non-competition, non-solicitation, or Company
Confidential Information and any claim or
cause of action which Executive has against
the Company or Affiliates shall not be a bar
or defense to the granting of such relief.
In the event the Company and/or its
Affiliates seek judicial injunctive relief
arising in connection with an actual or
threatened violation by Executive of the
provisions hereof relating to
non-competition, non-solicitation, or Company
Confidential Information, the Company will be
entitled to all attorney’s fees and all costs
and disbursements incurred by the Company in
enforcing any actual and/or threatened
violation.
	 
	 	 
	Affiliates/
company affiliates:

	 	The term “Affiliate(s)” includes: (i) the
Company and any person or entity controlled
by, or under common control with, the
Company; (ii) all current and former
Directors; (iii) Fox Paine, Fox Paine Capital
Fund II, L.P., and Fox

- 19 -

 

	 	 	 
	 

	 	Paine Capital Fund International II, L.P.; and (iv) each of such entities’
members, shareholders, partners, and employees. 

The term “Company Affiliate(s)” includes only the
Company and any person or entity controlled by the
Company.
	 
	 	 
	Integration:

	 	This writing supersedes and integrates all prior
promises, representations, offers, contracts, and
agreements between the Company or any Affiliate and
Executive and among Executive and Fox Paine, Saul
Fox, or any Affiliate of the foregoing. This letter
may not be amended except in a writing which is
manually executed by Executive and Saul Fox and
approved by the Board.

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on May 8, 2007.

	 	 	 	 	 	 	 	 	 
	UNITED AMERICA INDEMNITY, LTD.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Saul A. Fox
 

Saul A. Fox

Chairman of the Board
	 	  
	 	/s/ Larry A. Frakes
 

LARRY A. FRAKES
	 	 

- 20 -

 

Schedule I

Covenants of Executive

	1)	 	Non-Competition. Executive covenants and agrees that during his employment
with the Company, and for a period of eighteen (18) months following the termination of such
employment for any reason, Executive shall not directly or indirectly, own, manage,
operate, participate in, be employed by, associate with, advise (as a consultant or
otherwise), engage in or otherwise have an interest in any business competing with the
insurance or reinsurance businesses of the Company or its Affiliates within any geographical
area in which the Companies or its Affiliates engage in such businesses Notwithstanding the
foregoing, it shall not be a violation of Executive’s obligations pursuant to this
paragraph for Executive to hold publicly-traded securities of his former employer or
one percent or less of the outstanding publicly-traded securities of a different company.
	 
	2)	 	Non-Solicitation/Non-Interference. Executive covenants and agrees that
during his employment with the Company, and for a period of eighteen (18) months following the
termination of such employment for any reason, he shall not (i) directly, indirectly, or
assist another to solicit, to endeavor to entice away from the Company or its Affiliates, or
to induce (or attempt to induce) or to accept business from any Producer or Producers (as
those terms are defined below), customers, clients or accounts who have engaged in any
business with the Company or its Affiliates within the twelve-month period preceding the end
of the Executive’s employment with Company; (ii) directly, indirectly, or assist another to
engage in any conduct that interferes or is intended to interfere with the relationship
between the Company and/or its Affiliates and any Producers, customers, clients or accounts;
or (iii) directly or indirectly, by himself, or by being associated with, employed by, or in
business with any business entity or individual who, or directly or indirectly hire(s),
attempt(s) to hire, solicit(s), or induce(s) any employee of the Company or its Affiliates,
including anyone so employed within the twelve-month period prior to his termination of
employment, to either (x) terminate such employment with the Company or its Affiliate or (y)
associate with, be employed by, or join in business with any other Person operating in the
property and casualty insurance industry. The term “Producer” or “Producer(s)” includes
managing general agents, wholesale general agents, and other producers or wholesale
distributors, retail distributors, or other distributors of property and casualty insurance
business underwritten by the Company.
	 
	3)	 	Confidential Information. Executive covenants and agrees not to, during or
after his employment with the Company (i) disclose, in whole or in part, any “Company
Confidential Information” (as defined below) to any Person unless authorized in writing to do
so by the Company or required by law or (ii) use any Company Confidential Information for his
own purpose or for the benefit of any Person other than the Company, except in the proper
performance of his duties as instructed or approved by the Company in writing.
	 
	 	 	The term “Company Confidential Information” means the knowledge and information acquired by
Executive concerning the Company’s and its Affiliates’ confidential and

- 21 -

 

	 	 	proprietary information regarding business plans, software, formatting, programs, client
prospects, client lists, supplier and vendor information, client contacts, client
information and data, market data, marketing plans, data processing systems and information
contained therein, products, proposals to clients and potential clients, account reports,
plans, studies, underwriting policies and practices, pricing information, loss experience
information, competitive information, price lists, financial statements and records, files
and other trade secrets, know-how, or other private, confidential or proprietary information
of or about the Company or its Affiliates which is not already available to the public or
known generally in the industry. The term “Company Confidential Information” shall not
include (x) information in the public domain or generally known in the industry (unless
Executive is responsible, directly or indirectly, for such Company Confidential
Information entering the public domain or becoming known in the industry without the
Company’s consent), (y) information and know-how derived or known by Executive
from experience in the industry generally and not specific to the Company, or (z)
information disclosed by the Company to third parties without any duty or obligation of
confidentiality or non-disclosure.
	 
	4)	 	Work for Hire. All original works of authorship which have been or are made by
Executive within the scope of and during the period of his employment with the
Company and which are protectable by copyright are “works for hire” and the Company or its
designee shall own all rights therein.
	 
	5)	 	Assignment of Invention. Executive shall disclose promptly in writing to
the Company, all inventions, including discoveries, concepts and ideas, patentable or not,
hereafter made or conceived solely or jointly by Executive during employment with
the Company (or its Affiliates), or within six months after the termination of
Executive’s employment, if based on or related to proprietary information of the
Company or its Affiliates known by Executive, provided such invention, discovery,
concepts and ideas relate in some manner to the business or activities of the Company.
Executive agrees that in connection with any invention covered by this paragraph,
Executive shall, on request of the Company, promptly execute a specific assignment
of title to the Company or its Affiliates and do anything else reasonably necessary to enable
the Company or its Affiliates to secure a patent therefor in the United States and foreign
countries.
	 
	6)	 	Cooperation. Executive agrees to be available to the Company from time to
time to answer questions or provide information relating to Company matters that he worked on
during his employment at the Company or its Affiliates for a period of six months following
his termination of employment for any reason (the “Cooperation Period”). The Company shall
make reasonable efforts to minimize any burden placed on Executive during the
Cooperation Period and shall not unreasonably interfere in Executive’s obligations
to any subsequent employer. In the event that Executive would reasonably be
required to incur any cost or expense to communicate with the Company or travel to any
location requested by the Company, the Company shall advance any such travel or other costs
reasonably incurred by Executive to comply with and perform his obligations during
the Cooperation Period.

- 22 -

 

	7)	 	Acknowledgment. Executive acknowledges and agrees that the terms of these covenants:
(i) are reasonable in light of all of the circumstances; (ii) are sufficiently limited to
protect the legitimate interests of the Company and its subsidiaries; (iii) impose no undue
hardship on Executive; and (iv) are not injurious to the public. Executive further
acknowledges and agrees that (x) Executive’s breach of the provisions of these covenants will
cause the Company irreparable harm, which cannot be adequately compensated by money damages,
and (y) if the Company elects to prevent Executive from breaching such provisions by obtaining
an injunction against Executive, there is a reasonable probability of the Company’s eventual
success on the merits. Executive consents and agrees that if he commits any such breach or
threatens to commit any breach, the Company shall (at its election and notwithstanding the
Arbitration provision hereof) be entitled to temporary, preliminary and permanent injunctive
relief from a court of competent jurisdiction, without posting any bond or other security and
without the necessity of proof of actual damage, in addition to, and not in lieu of, such
other remedies as may be available to the Company for such breach, including the recovery of
money damages. All references to the Company in this paragraph shall include its Affiliates.
Executive further agrees that the Company will be entitled to all attorney’s fees and all
costs and disbursements incurred by the Company in enforcing any actual and/or threatened
breach of any of the provisions in this Schedule I (“Covenants of the Executive”).

- 23 -

 

Schedule II

[Example of Accident Year True-Up Provisions]

- 24 -

 

     

Schedule II

UAI CEO Employment Agreement

Retained Cash Bonus True-up Example

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Year Ended	 	2007 Payout on	 	Year Ended	 	2008 Payout on	 	Year Ended	 	2009 Payout on	 	Year Ended	 	2010 Payout on	 	Year Ended	 	2011 Payout on	 	Year Ended	 	2012 Payout on	 	Year Ended	 	2013 Payout on
	 	 	2007	 	Mar./Apr. 2008 (1)	 	2008	 	Mar./Apr. 2009	 	2009	 	Mar./Apr. 2010	 	2010	 	Mar./Apr. 2011 (13)	 	2011	 	Mar./Apr. 2012	 	2012	 	Mar./Apr. 2013	 	2013	 	Mar./Apr. 2014
	Projected Consolidated Net Income Per Share — (Accident Year Basis)
	 	$	2.30	 	 	 	 	 	 	$	2.53	 	 	 	 	 	 	$	2.78	 	 	 	 	 	 	$	3.06	 	 	 	 	 	 	$	3.37	 	 	 	 	 	 	$	3.70	 	 	 	 	 	 	$	4.07	 	 	 	 	 
	Actual Consolidated Net Income Per Share — (Accident Year Basis)
	 	$	2.30	 	 	 	 	 	 	$	2.67	 	 	 	 	 	 	$	2.50	 	 	 	 	 	 	$	3.34	 	 	 	 	 	 	$	3.40	 	 	 	 	 	 	$	3.65	 	 	 	 	 	 	$	4.08	 	 	 	 	 
	Performance Score — Section A.b
	 	 	100.0	%	 	 	 	 	 	 	105.5	%	 	 	 	 	 	 	90.0	%	 	 	 	 	 	 	109.1	%	 	 	 	 	 	 	101.0	%	 	 	 	 	 	 	98.5	%	 	 	 	 	 	 	100.1	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Bonus Components:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Section B.(a) bonus (2)
	 	 	500,000	 	 	 	 	 	 	 	775,000	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	955,000	 	 	 	 	 	 	 	550,000	 	 	 	 	 	 	 	425,000	 	 	 	 	 	 	 	505,000	 	 	 	 	 
	Section B.(b) bonus (3)
	 	 	1,000,000	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 	 	 	700,000	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payment for Tax liability on restricted share vesting (12) — Section B.c
	 	 	 	 	 	 	—	 	 	 	 	 	 	 	46,250	 	 	 	 	 	 	 	92,500	 	 	 	 	 	 	 	92,500	 	 	 	 	 	 	 	154,167	 	 	 	 	 	 	 	169,584	 	 	 	 	 	 	 	185,000	 
	Annual Bonus
	 	 	 	 	 	 	1,500,000	 	 	 	 	 	 	 	1,821,250	 	 	 	—	 	 	 	92,500	 	 	 	 	 	 	 	2,047,500	 	 	 	 	 	 	 	1,704,167	 	 	 	 	 	 	 	1,294,584	 	 	 	 	 	 	 	1,690,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Paid in Restricted Stock (4) — Section C
	 	 	(500,000	)	 	 	500,000	 	 	 	(500,000	)	 	 	500,000	 	 	 	—	 	 	 	—	 	 	 	(500,000	)	 	 	500,000	 	 	 	(500,000	)	 	 	500,000	 	 	 	(500,000	)	 	 	500,000	 	 	 	(500,000	)	 	 	500,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Annual Bonus Cash Portion (without regard to tax liability payments) — Section D
	 	 	1,000,000	 	 	 	 	 	 	 	1,275,000	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	1,455,000	 	 	 	 	 	 	 	1,050,000	 	 	 	 	 	 	 	625,000	 	 	 	 	 	 	 	1,005,000	 	 	 	 	 
	Paid Cash Bonus — Section D.a
	 	 	500,000	 	 	 	500,000	 	 	 	637,500	 	 	 	637,500	 	 	 	—	 	 	 	—	 	 	 	727,500	 	 	 	727,500	 	 	 	525,000	 	 	 	525,000	 	 	 	312,500	 	 	 	312,500	 	 	 	502,500	 	 	 	502,500	 
	Retained Cash Bonus — Section D.b
	 	 	500,000	 	 	 	 	 	 	 	637,500	 	 	 	 	 	 	 	—	 	 	 	—	 	 	 	727,500	 	 	 	 	 	 	 	525,000	 	 	 	 	 	 	 	312,500	 	 	 	 	 	 	 	502,500	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2007 Payout on	 	 	 	 	 	2008 Payout on	 	 	 	 	 	2009 Payout on	 	 	 	 	 	2010 Payout on
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2007	 	 	April 15, 2011 (6)	 	 	2008	 	 	April 15, 2012	 	 	2009	 	 	April 15, 2013	 	 	2010	 	 	April 15, 2014
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accident Year Performance Score True-Up
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trued-up Performance Score — Section E.a
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	97.0	%	 	 	 	 	 	 	99.0	%	 	 	 	 	 	 	98.0	%	 	 	 	 	 	 	102.0	%	 	 	 	 
	Recalculated Section B.(a) Bonus
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	350,000	 	 	 	 	 	 	 	450,000	 	 	 	 	 	 	 	400,000	 	 	 	 	 	 	 	600,000	 	 	 	 	 
	Recalculated Section B.(b) Bonus
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	400,000	 	 	 	 	 	 	 	800,000	 	 	 	 	 	 	 	600,000	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total recalculated Annual Bonus (without regard to tax liability payments)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	750,000	 	 	 	 	 	 	 	1,250,000	 	 	 	 	 	 	 	1,000,000	 	 	 	 	 	 	 	1,600,000	 	 	 	 	 
	Less: Restricted Stock component (5)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(500,000	)	 	 	 	 	 	 	(500,000	)	 	 	 	 	 	 	(500,000	)	 	 	 	 	 	 	(500,000	)	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trued Up Annual Bonus Cash Portion — Section E.a
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	250,000	 	 	 	 	 	 	 	750,000	 	 	 	 	 	 	 	500,000	 	 	 	 	 	 	 	1,100,000	 	 	 	 	 
	Excess of Trued-Up Annual Bonus Cash Portion over originally determined
Annual Bonus Cash Portion — Section E.b or Section E.d
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(750,000	)	 	 	 	 	 	 	(525,000	)	 	 	 	 	 	 	500,000	 	 	 	 	 	 	 	(355,000	)	 	 	 	 
	Retained Cash Bonus for Target Year — Section E.b.2
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	500,000	 	 	 	 	 	 	 	637,500	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	727,500	 	 	 	 	 
	Excess + Retained Cash Bonus for Target
Year— Sections E.b.1 and 2 or Section E.d (9)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	(250,000	)	 	 	 	 	 	 	112,500	 	 	 	112,500	 	 	 	500,000	 	 	 	500,000	 	 	 	372,500	 	 	 	372,500	 
	Deemed Investment Return (10) — Section E.b.3
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	17,733	 	 	 	17,733	 	 	 	78,813	 	 	 	78,813	 	 	 	58,715	 	 	 	58,715	 
	Payment for Tax liability on restricted share vesting (11) — Section B.c
	 	 	 	 	 	 	—	 	 	 	 	 	 	 	46,250	 	 	 	 	 	 	 	92,500	 	 	 	 	 	 	 	92,500	 	 	 	 	 	 	 	154,167	 	 	 	 	 	 	 	169,584	 	 	 	 	 	 	 	185,000	 
	Total Bonus Paid or Awarded (8)
	 	 	 	 	 	$	1,000,000	 	 	 	 	 	 	$	1,183,750	 	 	 	 	 	 	$	92,500	 	 	 	 	 	 	$	1,320,000	 	 	 	 	 	 	$	1,309,400	 	 	 	 	 	 	$	1,560,896	 	 	 	 	 	 	$	1,618,716	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cumulative Retained Cash Bonus (7):
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cumulative Retained Cash Bonus as of the Prior Year
	 	 	—	 	 	 	—	 	 	 	500,000	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,115,000	 	 	 	1,115,000	 	 	 	1,115,000	 	 	 	1,002,500	 	 	 	1,315,000	 	 	 	1,315,000	 	 	 	1,462,500	 
	Current Year Retained Cash Bonus
	 	 	500,000	 	 	 	500,000	 	 	 	637,500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	727,500	 	 	 	—	 	 	 	525,000	 	 	 	—	 	 	 	312,500	 	 	 	—	 	 	 	502,500	 	 	 	—	 
	Retained Cash Bonus which is paid out (E.b or E.d) or used to reduce
other held Retained Cash Bonues (E.d)
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(750,000	)	 	 	 	 	 	 	(525,000	)	 	 	(112,500	)	 	 	—	 	 	 	—	 	 	 	(355,000	)	 	 	(372,500	)
	 	 	 
	Cumulative Retained Cash Bonus (7)
	 	 	500,000	 	 	 	500,000	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,137,500	 	 	 	1,115,000	 	 	 	1,115,000	 	 	 	1,115,000	 	 	 	1,002,500	 	 	 	1,315,000	 	 	 	1,315,000	 	 	 	1,462,500	 	 	 	1,090,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Restricted Stock Vesting Schedule (12)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2007 (Granted on March 15, 2008)
	 	 	 	 	 	 	—	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2008 (Granted on March 15, 2009)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	 	 
	2009 no shares granted due to original performance score of 90%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	 	 
	2010 (Granted on March 15, 2011) (13)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	166,667	 	 	 	 	 	 	 	166,667	 	 	 	 	 	 	 	166,667	 
	2011 (Granted on March 15, 2012)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	166,667	 	 	 	 	 	 	 	166,667	 
	2012 (Granted on March 15, 2013)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	166,667	 
	2013 (Granted on March 15, 2014)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Value of shares vesting per calendar year
	 	 	 	 	 	 	—	 	 	 	 	 	 	 	125,000	 	 	 	 	 	 	 	250,000	 	 	 	 	 	 	 	250,000	 	 	 	 	 	 	 	416,667	 	 	 	 	 	 	 	458,334	 	 	 	 	 	 	 	500,001	 

 

			
	(1)	 	Restricted stock grant is made as of March 15. Paid Cash Bonus is made within 30 days of
the Board’s determination, which is due within 75 days of the start of the year.
	 
	(2)	 	(Performance Score -90)x50,000
	 
	(3)	 	(Performance Score <=100-95)x200,000
	 
	(4)	 	Full $500,000 payment assumes goals/milestones fully achieved.
	 
	(5)	 	Restricted stock component is deducted because it is not impacted by true-up feature.
	 
	(6)	 	Retained Cash Bonus is paid within 45 days of completion of audited financial statements,
which are expected on March 1.
	 
	(7)	 	Cumulative Retained Cash Bonus equals annual Retained Cash Bonus, less payouts of retained
bonus or deficits after the true-up period has ended.
	 
	(8)	 	Calendar year bonus paid consists of restricted stock and 50% of Target Year Annual Cash
Bonus, plus payout of trued-up remainder for the Target Year close out scheduled for that year.
	 
	(9)	 	The Retained Cash Bonus for 2007 upon true-up was depleted, and therefore no Retained Cash
Bonus is paid, and the remaining deficit is netted against the cumulative Retained Cash Bonus.
	 
	(10)	 	CEO earns interest on the Retained Cash Bonus at the invested asset earned rate of the
Company over the 3-year period.

For purposes of this example, a 5% return on invested assets is assumed.
	 
	(11)	 	As per the employment contract, the CEO receives cash funding of the tax liability generated
by the scheduled vesting of his restricted stock shares.

A 37% effective tax rate (assuming a PA/non-Phila — resident (35% federal, 3.07% state)) has been
used for the purpose of this example.
	 
	(12)	 	Assumes flat share value over vesting period.
	 
	(13)	 	Payments and grants in 2011 and thereafter are based on CEO/Company reaching agreement on
continued employment.

True-ups for 2011 and beyond are not shown.

- 25 -

 

Exhibit A

TIME VESTING SHARE OPTION AGREEMENT

     TIME VESTING SHARE OPTION AGREEMENT (“Agreement”) dated as of May 10, 2007 (the “Grant Date”),
by and between United America Indemnity, Ltd., a Cayman Islands exempted company with limited
liability whose office is located c/o Walkers SPV Limited, Walker House, 87 Mary Street, P.O. Box
908GT, George Town, Grand Cayman, Cayman Islands (the “Company”), and Larry A. Frakes (the
“Participant”).

     WHEREAS, pursuant to the United America Indemnity, Ltd. Share Incentive Plan (the “Plan”), the
Committee (as defined in the Plan) has decided to award share options on the terms and conditions
set forth in this Agreement.

     WHEREAS, these Options are granted to the Participant in accordance with the Employment
Agreement of May 10, 2007, by and between the Company and the Participant (the “Employment
Agreement”).

     NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, the parties hereto agree as
follows:

1. Definitions.

     As used in this Agreement, the following terms shall have the meanings ascribed to them below.
Any capitalized term used in this Agreement and not defined herein shall have the meaning ascribed
to it in the Plan.

     “Acquisition” shall have the meaning set forth in Section 6.3.

     “Change of Control” shall have the meaning set forth in the Employment Agreement.

     “Class A Common Shares” shall mean the Class A common shares, par value $0.0001 per
share, of the Company, subject to adjustment pursuant to the third paragraph of Section 3 of the
Plan under certain circumstances.

     “Exercise Price” shall have the meaning set forth in Section 2.2, subject to
adjustment pursuant to the third paragraph of Section 3 of the Plan.

     “Grant Date” shall have the meaning set forth in Section 2.1.

     “Options” shall have the meaning set forth in Section 2.1.

     In addition, certain other terms used herein have definitions otherwise ascribed to them
herein.

- 26 -

 

2. Grant and Terms of Options.

     2.1 Grant of Options. The Company hereby grants to the Participant as of the Grant
Date [ ] Nonqualified Stock Options (the “Options” or “Time Vesting Options”) to purchase one Class
A Common Share per Option on the terms and conditions set forth below, and in reliance upon the
representations and covenants of the Participant set forth below. Unless sooner exercised or
cancelled as provided for in the Plan or this Agreement, the Options shall expire on the tenth
anniversary of the date of this Agreement.

     2.2 Exercise Price. The Exercise Price of the Options is $[ ] per Class A Common
Share subject thereto.

     2.3 Vesting and Exercisability.

          (a) Subject to the terms and conditions herein, the Options shall vest and become
exercisable according to the following schedule:

	 	 	 	 	 
	 	 	Percent of Total Time Vesting Option
	Date of Vesting	 	Grant Vested
	[     ]
	 	 	25	%
	[     ]
	 	 	50	%
	[     ]
	 	 	75	%
	[     ]
	 	 	100	%

     Options that are exercisable may be exercised by the Participant only in accordance
with the terms of the Plan, this Agreement and the Employment Agreement, subject to the
termination, expiration, cancellation, lapsing and other provisions contained in each such
document.

          (b) Notwithstanding anything to the contrary in Section 2.3(a), if the Participant is
employed by the Company and in good standing at the time of a Change in Control, the Options
(or a portion thereof) may accelerate so as to vest and become exercisable in accordance
with the terms of the Employment Agreement, if so provided under the Employment Agreement.

3. Expiration and Cancellation.

     3.1 Termination of Employment. Upon termination of Employment for any reason
(including Cause), vesting ceases, the term of unvested Options lapses and such unvested Options
will expire immediately. If the Participant’s Employment terminates for Cause, vested Options will
also expire immediately. If the Participant’s Employment terminates for any reason other than for
Cause (including as a result of the Participant’s resignation), the Options shall expire on the
earlier of the following occasions:

- 27 -

 

          (i) the expiration date determined pursuant to Section 2.1; or

          (ii) the date 90 days after the termination of the Participant’s Employment.

          The Participant may exercise all or part of the Options at any time before its expiration
under this Section 3.1, but only to the extent that the Options have vested and become exercisable
before the Participant’s Employment terminated. In the event that the Participant dies after
termination of Employment, but before the expiration of the Options, all of the Options may be
exercised (prior to expiration) by the executors or administrators of the Participant’s estate by
any person who has acquired the Options directly from the Participant by beneficiary designation,
bequest or inheritance, but only to the extent that the Options have vested and become exercisable
before the Participant’s Employment terminated.

          3.2 Cancellation. In the event the Participant (i) violates any covenant provided in
the Employment Agreement or (ii) is terminated for Cause (as defined subclauses (ii) and (vii) of
the “Cause” clause of the Employment Agreement) (a “Forfeiture Event”), all Options will be
cancelled, Class A Common shares acquired upon the previous exercise of any Options (“Option
Shares”) will be subject to repurchase by the Company at the lower of the Exercise Price or fair
market value, and the Company shall be entitled to repayment by the Participant of any Award Gain
(as defined below) realized as a result of any exercise of any Options or any sale of Option
Shares. If the Participant resigns from employment with the Company or any of its Affiliates, and
if the Company or one of its Affiliates later determines that, while still employed, he had
committed acts that justified termination for Cause (as defined sub-clauses (ii) and (vii) of the
“Cause” clause of the Employment Agreement), then these cancellation and repurchase rights shall
apply.

          (a) Company Repurchase of Shares. Payment with respect to any repurchase of
Option Shares by the Company from the Participant shall take the form of a three-year note
from the Company or its designee, accruing interest at the lowest then applicable rate
mandated by U.S. law, with the principal and interest due on the third anniversary of the
date of purchase (or such later date as may be necessary to permit the Company or its
designee to comply with any applicable borrowing covenants affecting its payment
obligations), and shall be reduced to reflect any outstanding liabilities of the Participant
to the Company or its Affiliates. The Participant promptly shall take all appropriate and
necessary action to facilitate the Company’s purchase of such equity, including the prompt
delivery to the Company (or its designee) of all share certificates or other documents that
the Company may request.

          (b) Recovery of Award Gain.

     1. The term “Award Gain” shall mean (I) in respect of a given options exercise,
the product of (X) the Fair Market Value per Option Share at the date of such
exercise (without regard to any subsequent change in the market price of such Option
Share) minus the Exercise Price times (Y) the number of Option Shares as to which
the Options were exercised at that date, and (II) in respect of any sale of Option
Shares, the value of any cash or the fair market value of the Option Shares or
property paid or payable to the Participant less any

- 28 -

 

cash or the fair market value of any Option Shares or property (other than
Option Shares or Options which would have been forfeitable hereunder and excluding
any payment of tax withholding) paid by the Participant to the Company (or its
designee) as a condition or in connection with the acquisition of such Option Shares
or amount otherwise included in subclause (I) above.

     2. The Participant will be obligated to repay to the Company (or its designee),
in cash, within ten (10) business days after demand is made therefor, by the Company
(or its designee), the total amount of Award Gain realized by the Participant (I)
upon each exercise of the Options that occurred on or after (A) the date that is six
(6) months prior to the Forfeiture Event, if the Forfeiture Event occurred while the
Participant was employed by the Company or a subsidiary or affiliate, or (B) the
date that is six (6) months prior to the date that the Participant’s employment by
the Company or a subsidiary or affiliate terminated, if the Forfeiture Event
occurred after the Participant ceased to be so employed, or (II) upon any sale,
transfer or other disposition of the Option Shares.

     (c) Should the Company and/or its Affiliates be required to seek judicial
relief to compel the Participant to comply with the provisions of Section 3.2, the
Company and/or its Affiliates shall be entitled to recover their attorneys’ fees and
costs incurred in doing so from the Participant.

4. Transferability of Plan Shares and Options. 

     The Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber
any Options, except as hereinafter provided in Section 6.1 and in accordance with the Articles of
Association of the Company.

5. Participant’s Representations, Warranties and Agreements.

     In connection with the exercise of any Options, the Participant shall make to the Company, in
writing, such representations, warranties and agreements in connection with such exercise and
investment in Class A Common Shares as the Committee shall reasonably request.

6. Successors.

          6.1 This Agreement is personal to the Participant and, without the prior written consent of
the Company, shall not be transferable by the Participant otherwise than (i) by will or the laws of
descent and distribution, (ii) pursuant to a qualified domestic relations order (as defined in the
Code) or (iii) pursuant to a gift to the Participant’s spouse, children, grandchildren or other
living descendants, whether directly or indirectly or by means of a trust, partnership, limited
liability company or otherwise. This Agreement shall inure to the benefit of and be enforceable by
the Participant’s legal representatives.

          6.2 This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.

- 29 -

 

          6.3 The Company shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, scheme of arrangement or otherwise (an “Acquisition”)) to all or substantially all
of the business and/or assets of the Company expressly to assume and to agree to perform this
Agreement in the same manner and to the same extent that the Company would have been required to
perform it if no such succession had taken place (or by substituting for such Options new options,
based upon the shares of such successor, having an aggregate spread between the Fair Market Value
of the underlying shares and the Exercise Price thereof, and the same term, immediately after such
substitution, equal to the spread on, and the term of, such Options immediately before such
substitution but in any case subject to the same terms and conditions, including those applicable
to vesting and exercise, as may otherwise be applicable to the Options granted by the Company), and
the Participant hereby agrees to such assumption (or substitution); provided, however, that the
Company or such successor may, at its option, at the time of or promptly after such Acquisition,
terminate all of its obligations hereunder with respect to the Options by paying to the Participant
or the Participant’s successors or assigns an amount equal to the product of (i) the number of
Options and (ii) the Fair Market Value per share of the shares underlying such Options at the time
of such Acquisition less the amount of such Options’ Exercise Price (but not in excess of such Fair
Market Value per share), in either case, in exchange for the Participant’s Options. As used in
this Agreement, the “Company” shall mean both the Company as defined above and any such successor
that assumes and agrees to perform this Agreement, by operation of law or otherwise.

7. Miscellaneous.

          7.1 This Agreement shall be governed by and construed and enforced in accordance with the laws
of the State of [ ], without regard to the principles of conflicts of law thereof. The captions of
this Agreement are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.

          7.2 Plan Shares may bear legends to the extent the Committee or the Board determines it to be
necessary or appropriate.

          7.3 All notices and other communications under this Agreement shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed if to the Participant, at the address set forth on the
signature page hereto, and if to the Company: United America Indemnity, Ltd., c/o Walkers SPV
Limited, Walker House, 87 Mary Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands,
Attention: General Counsel, or to such other addresses as either party furnishes to the other in
writing in accordance with this Section 7.3. Notices and communications shall be effective when
actually received by the addressee.

          7.4 The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.

          7.5 No later than the date as of which an amount first becomes includible in the gross income
of the Participant for federal, state, foreign or other income tax purposes with respect to any
Options, the Participant shall pay to the Company, or if appropriate, any of its

- 30 -

 

Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local, foreign or other taxes of any kind required by law to be withheld with
respect to such amount. If approved by the Committee, withholding obligations may be settled with
Class A Common Shares, including Class A Common Shares that are part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment otherwise due to the Participant.
The Committee may establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Class A Common Shares.

          7.6 The Participant’s or the Company’s failure to insist upon strict compliance with any
provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of
such provision or right or of any other provision of or right under this Agreement.

          7.8 The Options are granted pursuant to the Plan which is incorporated herein by reference and
the Options shall, except as otherwise expressly provided herein, be governed by the terms thereof.
The Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof. The Participant and the Company each acknowledges that this
Agreement (together with the Plan and the other agreements referred to herein and therein)
constitutes the entire agreement and supersedes all other agreements and understandings, both
written and oral, among the parties or either of them, with respect to the subject matter hereof;
provided, however, that the Employment Agreement shall control in the event of any conflict between
the Employment Agreement and this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 	 	 	 	 
	UNITED AMERICA INDEMNITY, LTD.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	Title:

	 	 

	 	 
	 	 	 	 

Larry A. Frakes
	 	 
	 

	 	 	 	 	 	 	 	[Address]	 	 

- 31 -

 

Exhibit B

PERFORMANCE VESTING SHARE OPTION AGREEMENT

     PERFORMANCE VESTING SHARE OPTION AGREEMENT (“Agreement”) dated as of May 10, 2007 (the “Grant
Date”) by and between United America Indemnity, Ltd., a Cayman Islands exempted company with
limited liability whose office is located c/o Walkers SPV Limited, Walker House, 87 Mary Street,
P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands (the “Company”), and Larry A. Frakes (the
“Participant”).

     WHEREAS, pursuant to the United America Indemnity, Ltd. Share Incentive Plan (the “Plan”), the
Committee (as defined in the Plan) has decided to award share options on the terms and conditions
set forth in this Agreement.

     WHEREAS, these Options are granted to the Participant in accordance with the Employment
Agreement of May 10, 2007, by and between the Company and the Participant (the “Employment
Agreement”).

     NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, the parties hereto agree as
follows:

     1. Definitions.

     As used in this Agreement, the following terms shall have the meanings ascribed to them below.
Any capitalized term used in this Agreement and not defined herein shall have the meaning ascribed
to it in the Plan.

     “Acquisition” shall have the meaning set forth in Section 6.3.

     “Change of Control” shall have the meaning set forth in the Employment Agreement.

     “Class A Common Shares” shall mean the Class A common shares, par value $0.0001 per
share, of the Company, subject to adjustment pursuant to the third paragraph of Section 3 of the
Plan, under certain circumstances.

     “Exercise Price” shall have the meaning set forth in Section 2.2, subject to
adjustment pursuant to the third paragraph of Section 3 of the Plan.

     “Grant Date” shall have the meaning set forth in Section 2.1.

     “Options” shall have the meaning set forth in Section 2.1.

     In addition, certain other terms used herein have definitions otherwise ascribed to them
herein.

     2. Grant and Terms of Options.

- 1 -

 

          2.1 Grant of Options. The Company hereby grants to the Participant as of the Grant
Date [ ] Nonqualified Stock Options (the “Options”) to purchase one Class A Common Share per Option
on the terms and conditions set forth below, and in reliance upon the representations and covenants
of the Participant set forth below. Unless sooner exercised as provided for in the Plan or this
Agreement, the Options shall expire on the tenth anniversary of the date of this Agreement.

          2.2 Exercise Price. The Exercise Price of the Options is $[ ] per Class A Common
Share subject thereto.

          2.3 Vesting and Exercisability.

          (a) The Options shall vest as described in the Employment Agreement with the Company
and once vested shall become exercisable to the extent provided for in the Employment
Agreement. Options that are exercisable may be exercised by the Participant only in
accordance with the terms of the Plan and this Agreement and Employment Agreement, subject
to the termination, expiration, cancellation, lapsing and other provisions contained herein
and in the Plan.

          (b) Notwithstanding anything to the contrary in Section 2.3(a), if the Participant is
employed by the Company and in good standing at the time of a Change in Control, the Options
(or a portion thereof) may accelerate so as to vest and become exercisable in accordance
with the terms of the Employment Agreement, if so provided by the Employment Agreement.

     3. Expiration and Cancellation.

          3.1 Termination of Employment. Upon termination of Employment for any reason
(including Cause), vesting ceases (other than with respect to Options that have vested
provisionally as of such date of termination under the terms of the Employment Agreement), the term
of unvested Options lapses and such unvested Options will expire immediately. If the Participant’s
Employment terminates for Cause, vested Options will also expire immediately. If the Participant’s
Employment terminates for any reason other than for Cause (including as a result of the
Participant’s resignation), the Options shall expire on the earlier of the following occasions:

             (i) the expiration date determined pursuant to Section 2.1; or

             (ii) the date 90 days after the termination of the Participant’s Employment.

          The Participant may exercise all or part of the Options at any time before its expiration
under this Section 3.1, but only to the extent that the Options have vested and become exercisable
before the Participant’s Employment terminated. In the event that the Participant dies after
termination of Employment, but before the expiration of the Options, all of the Options may be
exercised (prior to expiration) by the executors or administrators of the Participant’s estate by
any person who has acquired the Options directly from the Participant by beneficiary designation,
bequest or inheritance, but only to the extent that the Options have vested and become exercisable
before the Participant’s Employment terminated.

- 2 -

 

          3.2 Cancellation. In the event the Participant (i) violates any covenant provided in
the Employment Agreement or (ii) is terminated for Cause (as defined subclauses (ii) and (vii) of
the “Cause” clause of the Employment Agreement) (a “Forfeiture Event”), all Options will be
cancelled, Class A Common shares acquired upon the previous exercise of any Options (“Option
Shares”) will be subject to repurchase by the Company at the lower of the Exercise Price or fair
market value, and the Company shall be entitled to repayment by the Participant of any Award Gain
(as defined below) realized as a result of any exercise of any Options or any sale of Option
Shares. If the Participant resigns from employment with the Company or any of its Affiliates,
and if the Company or one of its Affiliates later determines that, while still employed, he had
committed acts that justified termination for Cause (as defined sub-clauses (ii) and (vii) of the
“Cause” clause of the Employment Agreement), then these cancellation and repurchase rights shall
apply.

          (a) Company Repurchase of Shares. Payment with respect to any repurchase of
Option Shares by the Company from the Participant shall take the form of a three-year note
from the Company or its designee, accruing interest at the lowest then applicable rate
mandated by U.S. law, with the principal and interest due on the third anniversary of the
date of purchase (or such later date as may be necessary to permit the Company or its
designee to comply with any applicable borrowing covenants affecting its payment
obligations), and shall be reduced to reflect any outstanding liabilities of the Participant
to the Company or its Affiliates. The Participant promptly shall take all appropriate and
necessary action to facilitate the Company’s purchase of such equity, including the prompt
delivery to the Company (or its designee) of all share certificates or other documents that
the Company may request.

          (b) Recovery of Award Gain.

     1. The term “Award Gain” shall mean (I) in respect of a given options exercise,
the product of (X) the Fair Market Value per Option Share at the date of such
exercise (without regard to any subsequent change in the market price of such Option
Share) minus the Exercise Price times (Y) the number of Option Shares as to which
the Options were exercised at that date, and (II) in respect of any sale of Option
Shares, the value of any cash or the fair market value of the Option Shares or
property paid or payable to the Participant less any cash or the fair market value
of any Option Shares or property (other than Option Shares or Options which would
have been forfeitable hereunder and excluding any payment of tax withholding) paid
by the Participant to the Company (or its designee) as a condition or in connection
with the acquisition of such Option Shares or amount otherwise included in subclause
(I) above.

     2. The Participant will be obligated to repay to the Company (or its designee),
in cash, within ten (10) business days after demand is made therefor, by the Company
(or its designee), the total amount of Award Gain realized by the Participant (I)
upon each exercise of the Options that occurred on or after (A) the date that is six
(6) months prior to the Forfeiture Event, if the Forfeiture Event occurred while the
Participant was employed by the Company or a subsidiary or affiliate, or (B) the
date that is six (6) months prior to the date that the

- 3 -

 

Participant’s employment by the Company or a subsidiary or affiliate
terminated, if the Forfeiture Event occurred after the Participant ceased to be so
employed, or (II) upon any sale, transfer or other disposition of the Option Shares.

     (c) Should the Company and/or its Affiliates be required to seek judicial
relief to compel the Participant to comply with the provisions of Section 3.2, the
Company and/or its Affiliates shall be entitled to recover their attorneys’ fees and
costs incurred in doing so from the Participant.

     4. Transferability of Plan Shares and Options. 

     The Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber
any Options, except as hereinafter provided in Section 6.1 and in accordance with the Articles of
Association of the Company.

     5. Participant’s Representations, Warranties and Agreements.

     In connection with the exercise of any Options, the Participant shall make to the Company, in
writing, such representations, warranties and agreements in connection with such exercise and
investment in Class A Common Shares as the Committee shall reasonably request.

     6. Successors.

          6.1 This Agreement is personal to the Participant and, without the prior written consent of
the Company, shall not be transferable by the Participant otherwise than (i) by will or the laws of
descent and distribution, (ii) pursuant to a qualified domestic relations order (as defined in the
Code) or (iii) pursuant to a gift to the Participant’s spouse, children, grandchildren or other
living descendants, whether directly or indirectly or by means of a trust, partnership, limited
liability company or otherwise. This Agreement shall inure to the benefit of and be enforceable by
the Participant’s legal representatives.

          6.2 This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.

          6.3 The Company shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, scheme of arrangement or otherwise (an “Acquisition”)) to all or substantially all
of the business and/or assets of the Company expressly to assume and to agree to perform this
Agreement in the same manner and to the same extent that the Company would have been required to
perform it if no such succession had taken place (or by substituting for such Options new options,
based upon the shares of such successor, having an aggregate spread between the Fair Market Value
of the underlying shares and the Exercise Price thereof, and the same term, immediately after such
substitution, equal to the spread on, and the term of, such Options immediately before such
substitution but in any case subject to the same terms and conditions, including those applicable
to vesting and exercise, as may otherwise be applicable to the Options granted by the Company), and
the Participant hereby agrees to such assumption (or substitution); provided, however, that the
Company or such successor may, at its option, at the time of or promptly after such Acquisition,
terminate all of its obligations hereunder with respect to the Options by paying to the Participant
or the Participant’s successors or assigns an amount equal to the product of (i) the number of
Options and (ii) the Fair Market Value per share of the shares underlying such Options at the time
of such Acquisition less the amount of such Options’

- 4 -

 

Exercise Price (but not in excess of such Fair Market Value per share), in either case, in
exchange for the Participant’s Options. As used in this Agreement, the “Company” shall mean both
the Company as defined above and any such successor that assumes and agrees to perform this
Agreement, by operation of law or otherwise.

     7. Miscellaneous.

     7.1 This Agreement shall be governed by and construed and enforced in accordance with the laws
of the State of Delaware, without regard to the principles of conflicts of law thereof. The
captions of this Agreement are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified except by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

     7.2 Plan Shares may bear legends to the extent the Committee or the Board determines it to be
necessary or appropriate.

     7.3 All notices and other communications under this Agreement shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed if to the Participant, at the address set forth on the
signature page hereto, and if to the Company: United America Indemnity, Ltd., c/o Walkers SPV
Limited, Walker House, 87 Mary Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands,
Attention: General Counsel, or to such other addresses as either party furnishes to the other in
writing in accordance with this Section 7.3. Notices and communications shall be effective when
actually received by the addressee.

     7.4 The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.

     7.5 No later than the date as of which an amount first becomes includible in the gross income
of the Participant for federal, state, foreign or other income tax purposes with respect to any
Options, the Participant shall pay to the Company, or if appropriate, any of its Affiliates, or
make arrangements satisfactory to the Committee regarding the payment of, any federal, state,
local, foreign or other taxes of any kind required by law to be withheld with respect to such
amount. If approved by the Committee, withholding obligations may be settled with Class A Common
Shares, including Class A Common Shares that are part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment otherwise due to the Participant.
The Committee may establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Class A Common Shares.

     7.6 The Participant’s or the Company’s failure to insist upon strict compliance with any
provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of
such provision or right or of any other provision of or right under this Agreement.

     7.7 The Options are granted pursuant to the Plan which is incorporated herein by reference and
the Options shall, except as otherwise expressly provided herein, be governed by

- 5 -

 

the terms thereof. The Participant hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof. The Participant and the Company each
acknowledges that this Agreement (together with the Plan and the other agreements referred to
herein and therein) constitutes the entire agreement and supersedes all other agreements and
understandings, both written and oral, among the parties or either of them, with respect to the
subject matter hereof; provided, however, that the Employment Agreement shall control in the event
of any conflict between the Employment Agreement and this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 	 	 	 	 
	UNITED AMERICA INDEMNITY, LTD.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	Title:

	 	 

	 	 
	 	 	 	 

Larry A. Frakes
	 	 
	 

	 	 	 	 	 	 	 	[Address]	 	 

- 6 -

 

Exhibit C

RESTRICTED SHARE AGREEMENT

     THIS
AGREEMENT, made as of the ___ day of
                    , 200___ (the “Grant Date”), by and between
United America Indemnity, Ltd., a Cayman Islands exempted company with limited liability whose
office is located c/o Walkers SPV Limited, Walker House, 87 Mary Street, P.O. Box 908GT, George
Town, Grand Cayman, Cayman Islands (the “Company”), and Larry A. Frakes (the “Participant”), with
an address of                                                             .

     1. Grant of Shares. Subject to the restrictions, terms and conditions of the United
America Indemnity, Ltd. Share Incentive Plan (the “Plan”), this Agreement and the Employment
Agreement of May 10, 2007, by and between the Company and the Participant (the “Employment
Agreement”), the Company hereby awards to the Participant
___ (___0) shares of the Company’s
validly issued Class A common shares, par value $.0001 per share (“Common Shares” or the “Plan
Shares”). To the extent required by law, the Participant shall pay the Company the par value
($.0001) for each Share awarded to the Participant simultaneously with the execution of this
Agreement. Pursuant to Section 2 hereof, the Plan Shares are subject to certain restrictions,
which restrictions relate to the passage of time as an employee of the Company and/or its
Affiliates. While such restrictions are in effect (such period, the “Restricted Period”), the Plan
Shares subject to such restrictions shall be referred to herein as “Restricted Shares.”

     2. Restrictions on Transfer. The Participant shall not sell, transfer, pledge,
hypothecate, assign or otherwise dispose of the Plan Shares, except as set forth in the Plan, this
Agreement or the Employment Agreement. Any attempted sale, transfer, pledge, hypothecation,
assignment or other disposition of the Plan Shares in violation of the Plan or this Agreement shall
be void and of no effect and the Company shall have the right to disregard the same on its books
and records and to issue “stop transfer” instructions to its transfer agent.

     3. Restricted Shares.

          3.1 Retention of Certificates. Promptly after the date of this Agreement, the Company
shall issue share certificates representing the Restricted Shares unless it elects to recognize
such ownership through book entry by the transfer agent. The share certificates shall be
registered in the Participant’s name and shall bear any legend required under the Plan. Such share
certificates shall be held in custody by the Company (or its designated agent) until the
restrictions thereon shall have lapsed. Upon the Company’s request, the Participant shall deliver
to the Company a duly signed share power, endorsed in blank, relating to the Restricted Shares. In
the event the Participant receives a share dividend on the Restricted Shares or the Plan Shares of
Restricted Shares are split or the Participant receives any other shares, securities, moneys or
property representing a dividend on the Restricted Shares (other than regular cash dividends on and
after the date of this Agreement) or representing a distribution or return of capital upon or in
respect of the Restricted Shares or any part thereof, or resulting from a split-up,
reclassification or other like changes of the Restricted Shares, or otherwise received in exchange
therefor, and any warrants, rights or options issued to the Participant in respect of the
Restricted Shares (collectively “RS Property”), the Participant will also immediately deposit with
and deliver to the

- 1 -

 

Company any of such RS Property, including any certificates representing shares duly endorsed
in blank or accompanied by share powers duly executed in blank, and such RS Property shall be
subject to the same restrictions, including that of this Section 3.1, as the Restricted Shares with
regard to which they are issued and shall herein be encompassed within the term “Restricted
Shares.”

          3.2 Rights with Regard to Restricted Shares. The Participant will have the right to
vote the Restricted Shares, to receive and retain all regular cash dividends payable to holders of
Plan Shares of record on and after the transfer of the Restricted Shares (although such dividends
shall be treated, to the extent required by applicable law, as additional compensation for tax
purposes if paid on Restricted Shares), and to exercise all other rights, powers and privileges of
a holder of Common Shares with respect to the Restricted Shares set forth in the Plan, with the
exceptions that: (i) the Participant will not be entitled to delivery of the share certificate or
certificates representing the Restricted Shares until the Restricted Period shall have expired;
(ii) the Company (or its designated agent) will retain custody of the share certificate or
certificates representing the Restricted Shares and the other RS Property during the Restricted
Period; (iii) no RS Property shall bear interest or be segregated in separate accounts during the
Restricted Period; and (iv) the Participant may not sell, assign, transfer, pledge, exchange,
encumber or dispose of the Restricted Shares during the Restricted Period, except as set forth in
the Plan, this Agreement or the Employment Agreement.

          3.3 Vesting. The Restricted Shares shall become vested and cease to be Restricted
Shares in installments as follows, provided that the Participant is continuously employed by the
Company or any of its Affiliates from the Grant Date until the applicable Vesting Date (as
specified below), unless provided otherwise in the Employment Agreement:

	 	 	 	 	 	 	 	 	 
	Percent of Total	 	 	 	 
	Grant Vested	 	Shares Vested	 	Vesting Date
	 	25	%	 	 	—	 	 	First Anniversary of Grant Date

	 	50	%	 	 	—	 	 	Second Anniversary of Grant Date

	 	75	%	 	 	—	 	 	Third Anniversary of Grant Date

	 	100	%	 	 	—	 	 	Fourth Anniversary of Grant Date

Nothwithstanding the foregoing, upon consummation of a Change of Control (as defined in the
Employment Agreement), if the Participant is then employed by the Company in good standing and has
not given notice of resignation, all unvested Restricted Shares shall vest.

          3.4 Forfeiture. The Participant shall forfeit to the Company, without compensation,
other than repayment of the par value paid for such Plan Shares, any and all unvested Restricted
Shares (but no vested portion of the Plan Shares) and RS Property upon the Participant’s
Termination with the Company and its Affiliates for any reason.

- 2 -

 

          3.5 Section 83(b). If the Participant properly elects (as required by Section 83(b)
of the Code) within thirty (30) days after the issuance of the Restricted Shares to include in
gross income for federal income tax purposes in the year of issuance the fair market value of such
Plan Shares of Restricted Shares, the Participant shall pay to the Company or make arrangements
satisfactory to the Company to pay to the Company upon such election, any federal, state or local
taxes required to be withheld with respect to the Restricted Shares. If the Participant shall fail
to make such payment, or otherwise make arrangements satisfactory to the Company to pay to the
Company, upon election, any federal state or local taxes required to be withheld, the Company
shall, to the extent permitted by law, have the right to deduct from any payment of any kind
otherwise due to the Participant any federal, state or local taxes of any kind required by law to
be withheld with respect to the Restricted Shares. The Participant acknowledges that it is his or
her sole responsibility, and not the Company’s, to file timely and properly the election under
Section 83(b) of the Code and any corresponding provisions of state tax laws if he or she elects to
utilize such election.

          3.6 Delivery Delay. The delivery of any certificate representing the Restricted
Shares or other RS Property may be postponed by the Company for such period as may be required for
it to comply with any applicable federal or state securities law, or any national securities
exchange listing requirements and the Company is not obligated to issue or deliver any securities
if, in the opinion of counsel for the Company, the issuance of such Plan Shares shall constitute a
violation by the Participant or the Company of any provisions of any law or of any regulations of
any governmental authority or any national securities exchange.

          3.7 Withholding. Participant acknowledges that the Restricted Shares is subject to
applicable withholding as described in Section 10(e) of the Plan.

     4. Not an Employment Agreement. The issuance of the Plan Shares hereunder does not
constitute an agreement by the Company to continue to employ the Participant during the entire, or
any portion of the, term of this Agreement, including but not limited to any period during which
the Restricted Shares is outstanding.

     5. Power of Attorney. The Company, its successors and assigns, is hereby appointed
the attorney-in-fact, with full power of substitution, of the Participant for the purpose of
carrying out the Company’s rights and obligations with respect to the Restricted Shares and RS
Property under the provisions of this Agreement and taking any action and executing any instruments
which such attorney-in-fact may deem necessary or advisable to accomplish the purposes thereof,
which appointment as attorney-in-fact is irrevocable and coupled with an interest. The Company, as
attorney-in-fact for the Participant, may in the name and stead of the Participant, make and
execute all conveyances, assignments and transfers of the Restricted Shares and RS Property
provided for herein, and the Participant hereby ratifies and confirms all that the Company, as said
attorney-in-fact, shall do by virtue hereof. Nevertheless, the Participant shall, if so requested
by the Company, execute and deliver to the Company all such instruments as may, in the judgment of
the Company, be advisable for the purpose.

- 3 -

 

     6. Miscellaneous.

          6.1 This Agreement shall inure to the benefit of and be binding upon the parties hereto and
their respective heirs, legal representatives, successors and assigns.

          6.2 Notwithstanding those powers granted the Company pursuant to Section 5 hereof, no
modification or waiver of any of the provisions of this Agreement shall be effective unless agreed
upon, reflected in writing and signed by the parties to this Agreement.

          6.3 This Agreement may be executed in one or more counterparts, all of which taken together
shall constitute one contract.

          6.4 The failure of any party hereto at any time to require performance by another party of any
provision of this Agreement shall not affect the right of such party to require performance of that
provision, and any waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the
provision itself, or a waiver of any right under this Agreement.

          6.5 The headings of the sections of this Agreement have been inserted for convenience of
reference only and shall in no way restrict or modify any of the terms or provisions hereof.

          6.6 All notices, consents, requests, approvals, instructions and other communications provided
for herein shall be in writing and validly given or made when delivered, or on the second
succeeding business day after being mailed by registered or certified mail, whichever is earlier,
to the persons entitled or required to receive the same, at the addresses set forth at the heading
of this Agreement or to such other address as either party may designate by like notice. Notices
to the Company shall be addressed to the General Counsel of the Company.

          6.7 This Agreement and the award hereunder are subject to all the restrictions, terms and
provisions of the Plan which are incorporated herein by reference. In the event of an
inconsistency between any provision of the Plan and this Agreement, the terms of the Plan shall
control. The capitalized terms in this Agreement that are not otherwise defined shall have the
same meaning as set forth in the Plan. The Participant and the Company each acknowledges that this
Agreement (together with the Plan and the other agreements referred to herein and therein)
constitutes the entire agreement and supersedes all other agreements and understandings, both
written and oral, among the parties or either of them, with respect to the subject matter hereof;
provided, however, that the Employment Agreement shall control in the event of any conflict between
the Employment Agreement and this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 	 	 	 	 
	UNITED AMERICA INDEMNITY, LTD.	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	Title:

	 	 

	 	 
	 	 	 	 

Larry A. Frakes
	 	 
	 

	 	 	 	 	 	 	 		 	 

- 4 -

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