Document:

EX-10.4

AMERIGROUP CORPORATION

2005 EQUITY INCENTIVE PLAN

STOCK APPRECIATION RIGHT AGREEMENT

This Stock Appreciation Right Agreement (the “SAR Agreement”) is made and entered into as of
     , 200     (the “Date of Grant”), by and between AMERIGROUP Corporation, a Delaware
corporation (the “Company”), and      (the “Grantee”). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company’s 2005 Equity Incentive Plan (the
“Plan”).

1. Number of Shares. The Company hereby grants to Grantee a stock appreciation right
(this “SAR”) covering      Shares (the “SAR Shares”) at an Exercise Price per Share of
$     , subject to all of the terms and conditions of this SAR Agreement and the Plan.

2. SAR Term. The term of the SAR (the “SAR Term”) shall commence on the Date of Grant
set forth above and, unless the SAR is previously terminated pursuant to Section 5 below, shall
terminate on the [ ] anniversary thereof (the “Expiration Date”). As of the Expiration
Date, all rights of Grantee hereunder shall terminate.

3. Conditions of Exercise.

[If granted pursuant to AMERIGROUP’s Bonus Plan]

(a) Subject to Section 5 below, the SAR shall become vested on the Date of Grant as to
     percent (     %) of the SAR Shares, as to an additional      percent (     %) of the
SAR Shares on April 1, 200     and as to an additional      percent (     %) of the SAR Shares
quarterly thereafter, such that the SAR shall become fully (100%) vested on      , 200_.

[If granted other than under AMERIGROUP’s Bonus Plan]

(a) Subject to Section 5 below, the SAR shall become vested as to      of the SAR
Shares on the first anniversary of the Date of Grant, and as to an additional      of the SAR
Shares quarterly thereafter, such that the SAR shall become fully (100%) vested on      .

(b) Prior to the Expiration Date, this SAR may, subject to Section 5 below, be exercised in
whole or in part at any time, but only as to SAR Shares that have vested. Without limiting Section
5, if Grantee’s employment or service with the Company and all Subsidiaries and Affiliates
terminates, then from and after such Termination Date (as defined in Section 5 below), this SAR may
be exercised only with respect to SAR Shares that have vested as of the Termination Date and only
as expressly permitted pursuant to Section 5.

(c) This SAR may not be exercised for a fraction of a share.

4. Method of Exercise of SAR.

(a) The SAR may be exercised by delivering to the Company an executed SAR exercise agreement
in the form attached hereto as Exhibit A, or in such other form as may be approved by the
Administrator from time to time (the “Exercise Agreement”), which shall set forth, inter
alia, (i) Grantee’s election to exercise the SAR and (ii) the number of vested SAR Shares
with respect to which it is being exercised. If someone other than Grantee exercises the SAR, then
such person must submit documentation reasonably acceptable to the Company verifying that such
person has the legal right to exercise the SAR.

(b) The SAR may not be exercised unless such exercise is in compliance with all applicable
federal and state securities law, as they are in effect on the date of exercise.

(c) Upon exercise of the SAR, the Company shall deliver to Grantee a number of Shares with a
Fair Market Value equal to the product of (i) the excess of the Fair Market Value of a Share on the
date of exercise over the Exercise Price and (ii) the number of SAR Shares with respect to which
the SAR is being exercised.

5. Effect of Termination of Employment or Service, Change in Control and Disabling
Conduct.

(a) Termination of Employment or Service Generally.

(i) Upon the termination of Grantee’s employment or service with the Company and all
Subsidiaries and Affiliates, the SAR shall immediately terminate as to any SAR Shares that have not
previously vested as of the date of such termination (the “Termination Date”).

(ii) Any portion of the SAR that has vested as of the Termination Date shall be exercisable in
whole or in part for a period of 90 days following the Termination Date (the “Post-Termination
Exercise Period”) unless Grantee has been terminated for Cause or engaged in Disabling Conduct
(defined below); provided, in no event may the SAR be exercised after the Expiration Date.

(iii) In the event of termination by reason of Grantee’s death or Disability, the
Post-Termination Exercise Period shall extend until the date that is six months from the
Termination Date; provided, in no event may the SAR be exercised after the Expiration Date.

(iv) Upon the expiration of the Post-Termination Exercise Period any unexercised portion of
the SAR shall terminate in full (whether or not then exercisable).

(b) Termination for Cause; Disabling Conduct.

(i) The SAR shall terminate in full (whether or not then exercisable) immediately upon the
termination of Grantee’s employment with the Company or any Subsidiary or Affiliate for Cause.

(ii) The SAR also shall terminate in full (whether or not then exercisable) immediately if
Grantee engages in Disabling Conduct.

[At the discretion of the Administrator, either]

(c) Change in Control. For purposes of Section 5(a) above, any portion of the SAR
that has not previously vested shall be deemed fully vested if Grantee’s employment or service with
the Company or any Subsidiary or Affiliate is terminated by the Company or any Subsidiary or
Affiliate or any successor entity for any reason (other than for Cause or as a result of Disabling
Conduct) within two years following a Change in Control or if Grantee terminates employment or
service with the Company or any Subsidiary or Affiliate within two years following the Change in
Control and after there is a material adverse change in the nature or status of Grantee’s duties or
responsibilities from those in effect immediately prior to the Change in Control.

[or]

(c) Change in Control. Any portion of the SAR that has not previously vested shall
become fully vested upon a Change in Control.

(d) Definition of Disabling Conduct. As used herein, “Disabling Conduct” shall mean
conduct involving a breach of the covenants made in Section 6 below.

6. Covenant Not to Compete.

(a) In consideration for the grant of the SAR, and as a material condition to the grant,
Grantee hereby expressly agrees as follows:

(i) Grantee will act in the best interests of the Company and its Subsidiaries and Affiliates
(each, an “AMERIGROUP Company” and collectively, the “AMERIGROUP Companies”) throughout the period
of Grantee’s employment with any of the AMERIGROUP Companies; and

(ii) at all times while employed by any AMERIGROUP Company and at all times during the Covered
Post-Employment Period (defined below), Grantee will not (A) compete with any AMERIGROUP Company by
serving a Competitor (defined below) in any managerial capacity, or in any capacity that influences
business strategy, with respect to a Covered Product or Service (defined below) that the Competitor
is offering in a Covered Area (defined below) or developing to offer in a Covered Area, or (B)
solicit for employment, interfere with the employment relationship of or endeavor to entice away
any employee of any AMERIGROUP Company.

(b) As used herein,

(i) The “Covered Post-Employment Period” means the twelve (12) month period beginning on the
first day on which Grantee is no longer employed by any AMERIGROUP Company as a result of Grantee’s
resignation or termination for Cause and ending on the first anniversary of such date. (In the
event the Company terminates Grantee without Cause, there shall not be a Covered Post-Employment
Period.)

(ii) “Competitor” means any entity or person that provides or is planning to provide a Covered
Product or Service in competition with a Covered Product or Service that an AMERIGROUP Company is
actively developing, marketing, providing or selling.

(iii) “Confidential Information” means an AMERIGROUP Company’s material non-public information
concerning its business and affairs, including, without limitation, trade secrets, strategies,
business plans, marketing and advertising plans, member and provider information, employee and
personnel information, contracts, training manuals, financial projections, budgets and non-public
financial data (including, without limitation, statements with premium revenue and/or provider
compensation terms, reports of actuaries, medical loss reports, balance sheets and income
statements).

(iv) A “Covered Product or Service” shall mean a managed health care product or service
offered or provided to any beneficiary of and/or participant in any Medicaid, Medicaid-related, or
SSI program, any government-funded children’s health insurance program or any federal and/or state
sponsored health care program that is substantially similar to any of such programs.

(v) The “Covered Area” shall consist of each city, county and other similar governmental
territory in which an AMERIGROUP Company provides or has made material efforts to develop and
provide a Covered Product or Service to its members, if in the course of Grantee’s employment with
an AMERIGROUP Company he or she (A) has provided services to an AMERIGROUP Company with respect to
the Covered Products or Services in such city, county or governmental territory, or (B) reviewed or
discussed Confidential Information of an AMERIGROUP Company with respect to the Covered Product or
Service in such city, county or governmental territory.

(c) Grantee agrees that any breach by Grantee of the covenants made in Section 6(a) above may
cause irreparable damage to one or more of the AMERIGROUP Companies and that in the event of such
breach each AMERIGROUP Company shall have, in addition to any and all remedies of law, the right to
an injunction, specific performance or other equitable relief to prevent the violation of Grantee’s
obligations hereunder. Grantee agrees that any such AMERIGROUP Company may seek and obtain
injunctive relief without posting an injunction bond. Grantee hereby acknowledges and agrees that
Grantee will have access to confidential and proprietary information and trade secrets concerning
the AMERIGROUP Companies during Grantee’s employment and that the covenants in Section 6(a) are
reasonable in scope and necessary to protect the legitimate business interests of the AMERIGROUP
Companies. Grantee hereby further expressly acknowledges and agrees that each AMERIGROUP Company
is an express third party beneficiary of the terms of this Agreement. (For the avoidance of doubt,
Grantee acknowledges and agrees that the experience and/or knowledge that Grantee acquires in the
course of his or her employment with an AMERIGROUP Company may relate not only to the Covered
Products and Services of the AMERIGROUP Company with which he or she is employed, but also those of
other AMERIGROUP Companies.)

7. Adjustments. In the event of any Change in Capitalization, the Administrator shall
take such actions pursuant to Section 5 of the Plan (including the provisions thereof relating to
the cancellation of Awards in exchange for a payment in cash or other property) as it deems
appropriate.

8. Certain Changes. The Administrator may accelerate the date on which the SAR
becomes exercisable, waive or amend the operation of the provisions of this Agreement respecting
exercise after termination of employment or otherwise adjust any of the terms of the SAR,
provided that no action under this Section 8 shall adversely affect Grantee’s rights
hereunder without the consent of Grantee.

9. Nontransferability of SAR. Except under the laws of descent and distribution,
Grantee shall not be permitted to sell, transfer, pledge or assign the SAR or this SAR Agreement;
provided that subject to such terms and conditions as the Administrator may establish,
Grantee shall be permitted to transfer this SAR to a trust controlled by Grantee during Grantee’s
lifetime for estate planning purposes or to make a gift of this SAR to an Immediate Family Member.
Unless transferred pursuant to the preceding sentence, the SAR shall be exercisable, during
Grantee’s lifetime, only by Grantee. Without limiting the generality of the foregoing, except as
otherwise provided herein, the SAR may not be assigned, transferred, pledged or hypothecated in any
way, shall not be assignable by operation of law, and shall not be subject to execution, attachment
or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition
of the SAR contrary to the provisions hereof, and the levy of any execution, attachment or similar
process upon the SAR shall be null and void and without effect.

10. Notices. All notices and other communications under this Agreement shall be in
writing and shall be given by facsimile or first class mail, certified or registered with return
receipt requested, and shall be deemed to have been duly given three days after mailing or 24 hours
after transmission by facsimile to the respective parties named below:

	 	 	 	 	 
	If to the Company:
	 	AMERIGROUPCorporation

	 
	 	4425 Corporation Lane
	 
	 	Virginia Beach, VA 23462

	 
	 	Facsimile: (757) 557-6743

	 
	 	Attn: Stanley F. Baldwin

	If to Grantee:
	 	 	—	 

Facsimile:

Either party hereto may change such party’s address for notices by notice duly given pursuant
hereto.

11. Tax Consequences. The tax laws and regulations applicable to the exercise of the
SAR and the disposition of the SAR Shares are complex and subject to change. Grantee should
consult a tax adviser before exercising the SAR or disposing of the Shares.

12. Securities Laws Requirements. The SAR shall not be exercisable to any extent, and
the Company shall not be obligated to transfer any SAR Shares to Grantee upon exercise of such SAR,
if such exercise, in the opinion of counsel for the Company, would violate the Securities Act of
1933 (the “Securities Act”) or any other Federal or state statutes having similar requirements as
may be in effect at that time.

13. No Obligation to Register SAR Shares. The Company shall be under no obligation to
register the SAR Shares pursuant to the Securities Act or any other Federal or state securities
laws.

14. Investment Representation. Grantee hereby represents and warrants to the Company
that Grantee, by reason of Grantee’s business or financial experience (or the business or financial
experience of Grantee’s professional advisors who are unaffiliated with and who are not compensated
by the Company or any affiliate or selling agent of the Company, directly or indirectly), has the
capacity to protect Grantee’s own interests in connection with the transactions contemplated under
this SAR Agreement.

15. Market Stand-Off. In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement filed under the
Securities Act for such period as the Company or its underwriters may request (such period not to
exceed 180 days following the date of the applicable offering), Grantee shall not, directly or
indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other contract for the sale
of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions
with respect to, any SAR Shares acquired under this SAR Agreement without the prior written consent
of the Company or its underwriters.

16. Protections Against Violations of Agreement. No purported sale, assignment,
mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other)
or other disposition of, or creation of a security interest in or lien on, any of the SAR Shares by
any holder thereof in violation of the provisions of this Agreement or the Certificate of
Incorporation or the Bylaws of the Company, will be valid, and the Company will not transfer any of
said SAR Shares on its books nor will any of said SAR Shares be entitled to vote, nor will any
dividends be paid thereon, unless and until there has been full compliance with said provisions to
the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of
any other remedies, legal or equitable, available to enforce said provisions.

17. Withholding Requirements. The Company’s obligations under this SAR Agreement
shall be subject to all applicable tax and other withholding requirements, and the Company shall,
to the extent permitted by law, have the right to deduct any withholding amounts from any payment
or transfer of any kind otherwise due to Grantee.

18. Failure to Enforce Not a Waiver. The failure of the Company to enforce at any
time any provision of this SAR Agreement shall in no way be construed to be a waiver of such
provision or of any other provision hereof.

19. Governing Law. With the exception of Section 6 above, this SAR Agreement shall be
governed by and construed according to the laws of the State of Delaware without regard to its
principles of conflict of laws. The provisions of Section 6 above shall be governed by and
construed according to the laws of the Commonwealth of Virginia without regard to its principles of
conflict of laws.

20. Incorporation of Plan. The Plan is hereby incorporated by reference and made a
part hereof, and the SAR and this SAR Agreement shall be subject to all terms and conditions of the
Plan.

21. Amendments; Construction. The Administrator may amend the terms of this SAR
Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights
of Grantee hereunder without his or her consent. To the extent the terms of Section 6 above
conflict with any prior agreement between the parties related to such subject matter, the terms of
Section 6 shall supersede such conflicting terms and control. Headings to Sections of this SAR
Agreement are intended for convenience of reference only, are not part of this SAR Agreement and
shall have no affect on the interpretation hereof.

22. Rights as a Stockholder. Neither Grantee nor any of Grantee’s successors in
interest shall have any rights as a stockholder of the Company with respect to any shares of Common
Stock subject to the SAR until the date of issuance of a stock certificate for such shares of
Common Stock.

23. Agreement Not a Contract for Services. Neither the Plan, the granting of the SAR,
this SAR Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence
of any agreement or understanding, express or implied, that Grantee has a right to continue to
provide services as an officer, director, employee, consultant or advisor of the Company or any
Subsidiary or Affiliate for any period of time or at any specific rate of compensation.

24. Authority of the Administrator. The Administrator shall have full authority to
interpret and construe the terms of the Plan and this SAR Agreement. The determination of the
Administrator as to any such matter of interpretation or construction shall be final, binding and
conclusive.

25. Survival of Terms. This SAR Agreement shall apply to and bind Grantee and the
Company and their respective permitted assignees and transferees, heirs, legatees, executors,
administrators and legal successors. The terms of Section 6 shall expressly survive the
termination of the SAR and this Agreement.

26. Acceptance. Grantee hereby acknowledges receipt of a copy of the Plan and this
SAR Agreement. Grantee has read and understand the terms and provision thereof, and accepts the
SAR subject to all the terms and conditions of the Plan and this Agreement.

27. Severability. Should any provision of this SAR Agreement be held by a court of
competent jurisdiction to be unenforceable, or enforceable only if modified, such holding shall not
affect the validity of the remainder of this SAR Agreement, the balance of which shall continue to
be binding upon the parties hereto with any such modification (if any) to become a part hereof and
treated as though contained in this original SAR Agreement. Moreover, if one or more of the
provisions contained in this SAR Agreement shall for any reason be held to be excessively broad as
to scope, activity, subject or otherwise so as to be unenforceable, in lieu of severing such
unenforceable provision, such provision or provisions shall be construed by the appropriate
judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear, and such determination by such judicial
body shall not affect the enforceability of such provisions or provisions in any other
jurisdiction.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this SAR Agreement on the
day and year first above written.

AMERIGROUP Corporation

By

Stanley F. Baldwin

Executive Vice President, General Counsel

and Secretary

     

Address:

Social Security Number:

1

EXHIBIT A

AMERIGROUP CORPORATION

2005 EQUITY INCENTIVE PLAN

STOCK APPRECIATION RIGHT AGREEMENT

NOTICE OF EXERCISE

______________, ____

AMERIGROUP Corporation

[Address]

Attn:

On      , I was granted a stock appreciation right (a “SAR”) by AMERIGROUP Corporation
(the “Company”) under the Company’s 2005 Equity Incentive Plan (the “Plan”) and a SAR Agreement,
between me and the Company (the “Agreement”). This letter is to notify you that I wish to exercise
the SAR under the Agreement as set forth below.

Exercise of SAR

1. I wish to exercise with respect to      SAR Shares.

2. I am paying the local, state and federal withholding taxes and/or all other taxes that the
Company has advised me are due as follows:

	 	 	 	     By enclosing cash and/or a certified or
cashier’s check payable to the Company in the amount of $     .

	 	 	 	     By authorizing the Company to withhold
from the number of SAR Shares I would otherwise receive that number
of whole Shares having a fair market value equal to the minimum tax
withholding due, with any fractional share amounts to be settled by
cash and/or a certified or cashier’s check.

	 	 	 	     By delivery of unrestricted shares of
Company stock already owned by me for more than six months on the
date of surrender, and which have an aggregate fair market value on
the date of surrender equal to the minimum tax withholding due, with
any fractional share amounts to be settled by cash and/or a
certified or cashier’s check.

4. In exercising my SAR I hereby warrant and represent to the Company that I have not engaged
in Disabling Conduct.

Very truly yours,

Grantee

Name and Address (please print)

	 	 	 	 	 
	Telephone Number
	 	 	(   	)
	 
	 	 	 	 
	Social Security Number
	 	 	 	 
	 
	 	 	 	 

2EX-10.1

Exhibit 10.1

AMENDED AND RESTATED

UNITED AMERICA INDEMNITY, LTD.

ANNUAL INCENTIVE AWARDS PROGRAM

(Effective as of January 1, 2005)

1

Amended and Restated

United America Indemnity, Ltd.

Annual Incentive Awards Program

I. Purpose: The purposes of this Annual Incentive Awards Program (the “Program”) are:

	 	1.	 	To encourage increased efficiency and profitability of United America
Indemnity, Ltd. (the “Company” or “UAI”).

2. To reward Participants’ contributions to corporate success.

II. Compensation Philosophy.

UAI wishes to provide a comprehensive, competitive compensation program for its officers and
certain other employees. The Program is intended to be an integral part of the total compensation
opportunity offered by the organization to such employees. This incentive program is an adjunct to
other forms of compensation provided by UAI and its subsidiaries.

III. Definition of Terms.

For purposes of the Program, terms have meanings as follows:

	 	A.	 	“Award” means the amount earned by a Participant pursuant to the provisions of
the Program.

	 	B.	 	“Base Salary” means a Participant’s W-2 wages for a calendar year excluding any
extraordinary compensation such as bonuses, stock options, deferred compensation or
benefits which are taxable for federal income tax purposes. For purposes of the
Program, Base Salary shall also include, however, any salary deferrals which represent
the employee’s portion of contributions to a qualified benefit plan or deferred
compensation plan offered by UAI and subsidiaries.

	 	C.	 	“Beneficiary” or “Beneficiaries” means the person or persons designated by the
Participant to receive any payments due from the Program in the event of the
Participant’s death. Such a designation may, without notice to the Beneficiary, be
changed or revoked by the Participant at any time and from time to time. The
designation of the Beneficiary, and any change or revocation thereof, shall be made in
writing and shall not be effective unless and until filed with and acknowledged by the
Committee.

If a Participant fails to designate a Beneficiary, or if no designated Beneficiary
survives the Participant, the amount payable from the Program shall be paid to the
Participant’s estate.

If a person designated as a Beneficiary shall be a minor or a person who has been
judged legally incompetent, UAI shall make payment on behalf of such Beneficiary to
the Beneficiary’s guardian or conservator, but only if such guardian or conservator
has provided to the Committee documentary evidence satisfactory to it as to the
legal, valid and continuing authority of such guardian or conservator to act on
behalf of such Beneficiary. Upon payment to such guardian or conservator, neither
the Board of Directors (the “Board”), UAI, the Committee or any other agent,
employee or officer of any of them shall have any further liability for such
payment.

	 	D.	 	“Code” means the Internal Revenue Code of 1986, as amended, and any successor
thereto.

	 	E.	 	“Code Section 162(m)” means the exception for performance-based compensation
under Section 162(m) of the Code or any successor section and the Treasury regulations
promulgated thereunder.

	 	F.	 	“Committee” means the Compensation Committee of UAI, as designated from time to
time by the Board, or its designee. When pertaining to Covered Participants and as
otherwise necessary to comply with Code Section 162(m), “Committee” shall mean a
subcommittee thereof consisting solely of “outside” directors, as such term is defined
by Code Section 162(m).

	 	G.	 	“Covered Participant” means a Participant who, on the last day of UAI’s taxable
year, is the chief executive officer of UAI or is among the four highest compensated
officers (other than the chief executive officer) of UAI as determined under Code
Section 162(m).

	 	H.	 	“Disability” means (i) “disability” as defined by long-term disability plan
maintained by UAI or by the subsidiary or division thereof by which the Participant is
employed and under which the Participant is covered or (ii) as determined by the
Committee in its reasonable judgment.

	 	I.	 	“Participant” means any employee of UAI or subsidiary who has been designated
by the Committee as eligible to participate in the Program.

	 	J.	 	“Performance Goals” means the objective performance goals established by the
Committee, and if desirable for purposes of Code Section 162(m), based on one or more
Performance Criteria (as defined in Annex A).

	 	K.	 	“Program Year” means a twelve-month consecutive period commencing on each
January 1 and ending on each December 31.

	 	L.	 	“Retirement” means the Participant’s voluntary resignation in circumstances
acceptable to the Committee.

IV. Designation of Participants.

A. The Participants shall be those employees (or class of employees) of UAI and subsidiaries
who are designated by the Committee as being eligible to participate in the Program. The Committee
shall create different sets of Award opportunities (“Tiers”) and shall assign Participants to such
Tiers. With respect to non-Covered Participants, the Committee may designate, should it so choose,
certain employees who would determine eligibility, Award opportunities and/or Award amounts from a
bonus pool designated by the Committee for such non-Covered Participants (or Tiers thereof).

B. In order to be eligible to be a Participant for any Program Year, an individual must meet
the criteria set forth in the Program both at the beginning and the end of the Program Year, except
in those cases where a Participant’s employment with UAI and its subsidiaries has terminated due to
Retirement, death or Disability, as provided in Section VI. Any deviation from this clause
requires the prior written approval of the Committee.

V. Awards for Participants:

A. Basis for Earning Awards: Unless otherwise provided herein, Participants will earn an
Award on the basis of achievement of the Performance Goals, as such goals are selected and
determined by the Committee. If the Committee so elects, certain Participants who are not Covered
Participants may be eligible for discretionary bonuses based on their individual performance.

B. Award Opportunities:

A Participant’s Award opportunity shall be determined by the Committee, or its designate, as
provided in Section IV, and may provide for different levels of Awards depending on varying
achievement of the Performance Goals.

Award opportunities under the Program may be expressed as a percentage of the Base Salary, and
may range from 5% to 200%, or may be expressed as specific dollar amounts; provided that in no
event shall an Award under the Program exceed $1,000,000.

C. Determination of Awards Earned:

The Committee will establish the specific Performance Goals which must be attained in order to
receive Awards hereunder. With respect to Covered Participants, such goals shall be established in
writing prior to the beginning of a Program Year or at such later date as permitted under Code
Section 162(m) and while the outcome of the Performance Goals is substantially uncertain.

Upon receipt of the audited financials for the Company, the Committee (or with respect to
Committee-designated non-Covered Participants, such Participants’ supervisors) shall determine
whether and to what extent the Performance Goals for the Program Year were achieved. The Committee
may, in its sole discretion, disregard (or adjust for) changes in accounting methods, corporate
transactions (including, without limitation, dispositions and acquisitions) and other similar type
events or circumstances; provided however that, to the extent such discretion would be
impermissible under Code Section 162(m) or otherwise violate Code Section 162(m), the Committee
shall not exercise such discretion with respect to any Covered Participant’s Award.

Notwithstanding the foregoing, the Committee may, in its sole discretion, elect to pay a
Participant an amount that is less than or more than what the Participant’s Award would otherwise
be hereunder; provided that in no instance shall the Committee increase the amounts otherwise
payable to a Covered Participant.

VI. Payment of Awards.

A Participant shall be entitled to receive payment in an amount equal to his/her Award no
later than March 15 of the year following the Program Year to which payment relates.
Notwithstanding the foregoing, in order to be eligible for payment of an Award for any Program
Year, a Participant must be continuously employed by UAI or its subsidiaries through the close of
the Program Year, except in the case of a Participant whose employment terminates on account of
Retirement, death, or Disability. In the case of a Participant whose employment has terminated
during the Program Year due to Retirement, death or Disability, that Participant or his/her
Beneficiary will qualify for a pro-rated portion of the Participant’s Award, based on (i) the
number of complete calendar months of service which the Participant completed during that Program
Year and (ii) the actual achievement of the Performance Goals for such Program Year, to be paid on
or about the same time Awards are paid to active Participants under the Program. Any deviation
from this clause requires the prior authorization of the Committee.

Any payments due to Beneficiaries under the Program will be paid at the time payment would
otherwise have been made to the Participant, provided the identity and validity of such Beneficiary
has been legally established.

Notwithstanding any other provision herein, (A) if an individual’s employment with UAI and
subsidiaries is terminated on account of conduct detrimental to UAI’s best interests, then the
Committee, in its sole discretion (and not subject to challenge by the Participant in any way), may
cancel payment of any Award that has been earned under the Program but has not yet been paid and
(B) if a Participant resigns for any reason prior to the payment of an Award, the Participant shall
not be entitled to any payment under the Program.

No Award shall be paid to any Covered Participant before the Committee certifies in writing
that the relevant Performance Goals (except to the extent permitted under Code Section 162(m) and
provided above with regard to Retirement, death or Disability) were in fact satisfied.

VII. Program Administration.

The Program shall be administered by the Committee. The Committee shall have the authority to
(i) interpret the Program in its sole and absolute discretion based upon the Program’s provisions,
(ii) certify attainment of Performance Goals, and (iii) make all other determinations necessary or
desirable for the Program’s administration; and such decisions of the Committee shall be final,
conclusive and binding on all parties. The Program is intended to comply with Code Section 162(m)
with respect to Covered Participants, and all provisions contained herein shall be limited,
construed and interpreted in a manner to so comply.

The designation of an individual as a Participant for a particular Program Year shall not
confer upon such individual the right to be designated as a Participant in a subsequent Program
Year.

An individual who has been designated by the Committee as a Participant for a Program Year
shall be notified in writing no later than April 30 of the Program Year of such designation,
provided that Covered Participants shall be notified in writing prior to the beginning of such
Program Year or at such later date as permitted under Code Section 162(m).

UAI shall deduct from any distributions made to Participants or Beneficiaries under the
Program any applicable federal, state or local taxes which UAI may be required to deduct under the
law and all amounts distributed under the Program are stated herein before any such deductions.

No Participant or other person shall have an interest in any fund or any specific assets of
UAI and subsidiaries by reason of being a Participant in the Program or any right to receive any
distribution under the Program except and to the extent expressly provided in the Program.

The designation of an individual as a Participant under the Program shall not be construed as
conferring upon such individual any right to remain in the employ of UAI and subsidiaries. With
respect to any Participant, UAI and subsidiaries’ right to discipline, promote, demote, reassign or
terminate for any reason they deem fit shall not be affected in any manner by reason of such
individual’s designation as a Participant in the Program.

All questions or controversies arising in any manner between the parties or persons in
connection with the Program or its operation, whether as to any claim for benefits, or as to the
construction of language or meaning of the Program, or rules and regulations adopted by the
Committee, or as to any writing, decision, instrument or account in connection with the operation
of the Program or otherwise, shall be submitted to the Committee for decision.

VIII. No Assignment or Alienation.

Except as otherwise required by law, no right or interest (which right shall simply be a
contractual right) of any Participant hereunder shall be assigned, transferred or pledged
voluntarily or involuntarily and any attempt to do so shall be void, nor shall such rights or
interests be subject to attachment or other claims of creditors.

IX. General.

All actions taken or determinations made by the Committee shall be final and binding and all
concerned and nothing in the Program shall be deemed to give any Participant, Beneficiary, legal
representatives or assigns any right to participate in the Program except as determined by the
Committee pursuant to the provisions in the Program.

X. Program Amendment and Termination.

The Company reserves the right in the Board (or a duly authorized committee thereof) to amend,
suspend or terminate the Program or to adopt a new plan in place of the Program at any time;
provided, that no such amendment shall, without the prior approval of the Company’s shareholders in
accordance with applicable law to the extent required for the Program to continue to comply with
the requirements of Code Section 162(m): (i) materially alter the Performance Criteria (as defined
in Annex A) set forth in Annex A; (ii) change the class of eligible employees set forth in Article
IV; (iii) increase the maximum amount set forth in Article V; or (iv) implement any other change to
a provision of the Program. Furthermore, no amendment, suspension or termination shall, without
the consent of the Participant, alter or impair a Participant’s right to receive payment of an
Award for a Program Year otherwise payable hereunder.

XI. Governing Law.

The Program and any amendments thereto shall be construed, administered, and governing in all
respects in accordance with the laws of the Commonwealth of Pennsylvania (regardless of the law
that might otherwise govern under applicable principles of conflict of laws).

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ANNEX A

UNITED AMERICA INDEMNITY, LTD.

PERFORMANCE CRITERIA

Performance Goals intended to comply with Code Section 162(m) shall be based on one or more of
the following performance criteria (“Performance Criteria”): (i) the attainment of certain target
levels of, or a specified percentage increase in, revenues, income before taxes and extraordinary
items, net income, operating income, earnings before income tax, earnings before interest, taxes,
depreciation and amortization or a combination of any or all of the foregoing; (ii) the attainment
of certain target levels of, or a percentage increase in, after-tax or pre-tax profits including,
without limitation, that attributable to continuing and/or other operations; (iii) the attainment
of certain target levels of, or a specified increase in, operational cash flow; (iv) the
achievement of a certain level of, reduction of, or other specified objectives with regard to
limiting the level of increase in, all or a portion of, the Company’s bank debt or other long-term
or short-term public or private debt or other similar financial obligations of the Company, which
may be calculated net of such cash balances and/or other offsets and adjustments as may be
established by the Committee; (v) earnings per share or the attainment of a specified percentage
increase in earnings per share or earnings per share from continuing operations; (vi) the
attainment of certain target levels of, or a specified increase in return on capital employed or
return on invested capital; (vii) the attainment of certain target levels of, or a percentage
increase in, after-tax or pre-tax return on stockholders’ equity; (viii) the attainment of certain
target levels of, or a specified increase in, economic value added targets based on a cash flow
return on investment formula; (ix) the attainment of certain target levels in the fair market value
of the shares of the Company’s common stock; (x) the growth in the value of an investment in the
Company’s common stock assuming the reinvestment of dividends; (xi) the attainment of certain GAAP
insurance operating ratios; or (xii) the attainment of a certain level of, reduction of, or other
specified objectives with regard to limiting the level in or increase in, all or a portion of
controllable expenses or costs or other expenses or costs. For purposes of item (i) above,
“extraordinary items” shall mean all items of gain, loss or expense for the fiscal year determined
to be extraordinary or unusual in nature or infrequent in occurrence or related to a corporate
transaction (including, without limitation, a disposition or acquisition) or related to a change in
accounting principle, all as determined in accordance with standards established by Opinion No. 30
of the Accounting Principles Board.

In addition, such Performance Criteria may be based upon the attainment of specified levels of
Company (or subsidiary, division or other operational unit of the Company) performance under one or
more of the measures described above relative to the performance of other corporations. To the
extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section
162(m) of the Code (including, without limitation, compliance with any requirements for stockholder
approval), the Committee may: (i) designate additional business criteria on which the Performance
Criteria may be based or (ii) adjust, modify or amend the aforementioned business criteria.

3

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