Document:

EX-10.4

 

 Exhibit
10.4

OPTION GRANT NOTICE

          Allied World Assurance Company Holdings, Ltd (the “Company”), pursuant to its Second
Amended and Restated 2001 Employee Stock Option Plan (the “Plan”), hereby grants to Holder
options to purchase the number of Common Shares set forth below. The Options are subject to all of
the terms and conditions as set forth herein and in the Option Agreement (attached hereto or
previously provided to Holder in connection with a prior grant), and in the Plan, all of which are
incorporated herein in their entirety.

	 	 	 
	Holder:

	 	 
	 

	 	 
	 
	 	 
	Date of Grant:

	 	 
	 

	 	 
	 
	 	 
	Number of Common Shares
Subject to Option:

	 	 
	 

	 	 
	 
	 	 
	Exercise Price per Share:

	 	 
	 

	 	 
	 
	 	 
	Expiration Date:

	 	Ten Years from the Date of Grant
	 
	 	 
	Type of Grant:

	 	Nonqualified Stock Option
	 
	 	 
	Vesting Schedule:

	 	Options shall vest and become exercisable in
accordance with the following schedule:
	 
	 	 
	 

	 	Twenty five percent (25%) shall vest and become
exercisable on each of the first, second, third
and fourth anniversaries of the Date of Grant.

THE UNDERSIGNED HOLDER ACKNOWLEDGES RECEIPT OF THIS GRANT NOTICE, THE OPTION AGREEMENT AND THE
PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS HEREUNDER, AGREES TO BE BOUND BY THE
TERMS THIS GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN.

	 	 	 	 	 	 	 	 	 	 	 
	ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD	 	 	 	HOLDER	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Signature
	 	 	 	 	 	Signature	 	 
	Title:

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

 

 

OPTION AGREEMENT

UNDER THE

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

SECOND AMENDED AND RESTATED 2001 EMPLOYEE STOCK OPTION PLAN

          Pursuant to the Option Grant Notice (the “Grant Notice”) delivered to Holder (as
defined in the Grant Notice), and subject to the terms of this Option Agreement (this “Option
Agreement”) and the Allied World Assurance Company Holdings, Ltd Second Amended and Restated
2001 Employee Stock Option Plan (the “Plan”), Allied World Assurance Company Holdings, Ltd
(the “Company”) and Holder agree as follows. Capitalized terms not otherwise defined
herein shall have the same meaning as set forth in the Plan.

     1. Grant of Option. Subject to the terms and conditions set forth herein and in the
Plan, the Company hereby grants to Holder options to purchase up to the number of Common Shares
provided in the Grant Notice, at an exercise price per share as provided in the Grant Notice (the
“Options”). The Company may make one or more additional grants of options to Holder under
this Option Agreement by providing Holder with a new Grant Notice, which may also include any terms
and conditions differing from this Option Agreement. The Company reserves all rights with respect
to the granting of additional options hereunder and makes no implied promise to grant additional
options.

     2. Vesting. Subject to the limitations contained herein, the Options shall vest as
provided in the Grant Notice; provided, however, that, except as may otherwise be provided in any
employment agreement between the Company and Holder that is effective immediately prior to Holder’s
termination of employment or service, all vesting shall cease upon Holder’s termination of
employment or service, as applicable, with the Company.

     3. Exercise of Options Following Termination of Employment or Service.

          The provisions of Section 7(c) of the Plan are incorporated herein by reference and made a
part hereof.

     4. Method of Exercising Options. The Options may be exercised by the delivery of
notice of the number of Common Shares with respect to which the Options are being exercised
accompanied by payment in full of the purchase price of such shares. Such notice shall be
delivered either (x) in writing to the Company at its principal office or at such other address as
may be established by the Committee, to the attention of the Company Secretary; or (y) to a
third-party stock plan administrator as may be arranged for by the Company or the Committee from
time to time for purposes of the administration of outstanding Options under the Plan, in either
case of (x) or (y), as communicated to the Holder in a manner consistent with the terms of Section
10 hereof. Payment for such shares may be made (a) in immediately available funds in United States
dollars, by certified or bank cashier’s check or wire transfer payable to the Company or
third-party administrator, as applicable; (b) through a broker-assisted cashless exercise program
established by the third-party stock plan administrator; or (c) by any other means approved by the
Committee. Anything herein to the contrary notwithstanding, the Company shall not directly or
indirectly extend or maintain credit, or arrange for the extension of credit, in the form of a
personal loan to or for any director or executive officer of the Company

 

 

through the Plan in violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section
402 of SOX”), and to the extent that any form of payment would, in the opinion of the Company’s
counsel, result in a violation of Section 402 of SOX, such form of payment shall not be available.

     5. Issuance of Shares. If Holder elects to receive Common Shares after exercise of an
Option, then as promptly as practical after receipt of such notification and full payment of such
purchase price and any required income tax withholding amount (as provided in Section 9 hereof),
the Company shall issue or transfer, or cause such issue or transfer, to Holder the number of
shares with respect to which the Options have been so exercised, and shall either (a) deliver, or
cause to be delivered, to Holder a certificate or certificates therefor, registered in Holder’s
name or (b) cause such shares to be credited to Holder’s account at the third-party stock plan
administrator.

     6. Company; Holder.

          (a) The term “Company” as used in this Agreement with reference to employment shall include
the Company and its subsidiaries.

          (b) Whenever the word “Holder” is used in any provision of this Agreement under circumstances
where the provision should logically be construed to apply to the executors, the administrators, or
the person or persons to whom the Options may be transferred by will or by the laws of descent and
distribution, the word “Holder” shall be deemed to include such person or persons.

     7. Non-Transferability. The Options are not transferable by Holder except (a) by will
or the laws of descent and distribution, to the Company; (b) to or for the benefit of any spouse,
child or grandchild of Holder; or (c) to a trust or partnership for the benefit of any of the
foregoing. Except as otherwise provided herein, no assignment or transfer of the Options, or of
the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise,
shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately
upon such assignment or transfer the Options shall terminate and become of no further effect.

     8. Rights as Shareholder. Holder or a transferee of the Options shall have no rights
as a shareholder with respect to any share covered by the Options until Holder shall have become
the holder of record or the beneficial owner of such share, and no adjustment shall be made for
dividends or distributions or other rights in respect of such share for which the record date is
prior to the date upon which Holder shall become the holder of record or the beneficial owner
thereof.

     9. Tax Withholding. The provisions of Section 12 of the Plan are incorporated herein
by reference and made a part hereof.

     10. Notice. Every notice or other communication relating to this Agreement between
the Company and Holder shall be in writing, and shall be mailed to or delivered to the party for
whom it is intended at such address as may from time to time be designated by it in a notice mailed
or delivered to the other party as herein provided, provided that, unless and until some other
address be so designated, all notices or communications by Holder to the Company shall be

-2-

 

mailed or delivered to the Company at its principal executive office, to the attention of the
Company Secretary, and all notices or communications by the Company to Holder may be given to
Holder personally or may be mailed to Holder at Holder’s last known address, as reflected in the
Company’s records. Notwithstanding the above, all notices and communications between the Holder
and any third-party stock plan administrator shall be mailed, delivered, transmitted or sent in
accordance with the procedures established by such third-party stock plan administrator and
communicated to Holder from time to time.

     11. No Right to Continued Service. This Agreement does not confer upon Holder any
right to continue as an employee or service provided to the Company.

     12. Binding Effect. This Agreement shall be binding upon the heirs, executors,
administrators and successors of the parties hereto.

     13. Waiver and Amendments. Any waiver, alteration, amendment or modification of any
of the terms of this Agreement shall be valid only if made in writing and signed by the parties
hereto; provided, however, that any such waiver, alteration, amendment or modification is consented
to on the Company’s behalf by the Committee. No waiver by either of the parties hereto of their
rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences
or transactions hereunder unless such waiver specifically states that it is to be construed as a
continuing waiver.

     14. Governing Law. This Agreement shall be construed and interpreted in accordance
with the laws of the State of New York, without regard to the principles of conflicts of law
thereof. Notwithstanding anything contained in this Option Agreement, the Grant Notice or the Plan
to the contrary, if any suit or claim is instituted by Holder or the Company relating to this
Option Agreement, the Grant Notice or the Plan, Holder hereby submits to the exclusive jurisdiction
of and venue in the courts of Bermuda.

     15. Plan. The terms and provisions of the Plan are incorporated herein by reference.
Capitalized terms used herein which are not defined herein shall have the meanings attributable
thereto in the Plan. In the event of a conflict or inconsistency between the terms and provisions
of the Plan and the provisions of this Agreement, the Plan shall govern and control.

-3-EX-10.5

Table of Contents

Exhibit 10.5

 

    ALLIED
    WORLD ASSURANCE COMPANY HOLDINGS, LTD

 

    SECOND AMENDED
    AND RESTATED

    2004 STOCK INCENTIVE PLAN

 

    TABLE OF
    CONTENTS

 

	 	 	 	 	 
	

    ARTICLE I GENERAL

	
 
	 
	
    1
	 

	

    1.1 Purpose

	
 
	 
	
    1
	 

	

    1.2 Definitions of Certain Terms

	
 
	 
	
    1
	 

	

    1.3 Administration

	
 
	 
	
    1
	 

	

    1.4 Persons Eligible for Awards

	
 
	 
	
    2
	 

	

    1.5 Types of Awards Under Plan

	
 
	 
	
    2
	 

	

    1.6 Common Shares Available for Awards

	
 
	 
	
    2
	 

	
 
	
 
	
	
 
	 
	
    ARTICLE II AWARDS UNDER THE PLAN
	
 
	 
	
    3
	 

	

    2.1 Agreements Evidencing Awards

	
 
	 
	
    3
	 

	

    2.2 No Rights as a Shareholder

	
 
	 
	
    4
	 

	

    2.3 Grant of Restricted Common Shares

	
 
	 
	
    4
	 

	

    2.4 Grant of Restricted Stock Units

	
 
	 
	
    4
	 

	

    2.5 Grant of Dividend Equivalent Rights

	
 
	 
	
    4
	 

	

    2.6 Other Stock-Based Awards

	
 
	 
	
    4
	 

	

    2.7 Certain Restrictions

	
 
	 
	
    4
	 

	
 
	
 
	
	
 
	 
	
    ARTICLE III MISCELLANEOUS
	
 
	 
	
    5
	 

	

    3.1 Amendment of the Plan

	
 
	 
	
    5
	 

	

    3.2 Confidentiality

	
 
	 
	
    5
	 

	

    3.3 Tax Withholding

	
 
	 
	
    5
	 

	

    3.4 Required Consents and Legends

	
 
	 
	
    5
	 

	

    3.5 Nonassignability; No Hedging

	
 
	 
	
    5
	 

	

    3.6 Successor Entity

	
 
	 
	
    6
	 

	

    3.7 Right of Discharge Reserved

	
 
	 
	
    6
	 

	

    3.8 Nature of Payments

	
 
	 
	
    6
	 

	

    3.9 Non-Uniform Determinations

	
 
	 
	
    6
	 

	

    3.10 Other Payments or Awards

	
 
	 
	
    6
	 

	

    3.11 Plan Headings

	
 
	 
	
    7
	 

	

    3.12 Termination of Plan

	
 
	 
	
    7
	 

	

    3.13 Governing Law; Venue

	
 
	 
	
    7
	 

	

    3.14 Severability; Entire Agreement

	
 
	 
	
    7
	 

	

    3.15 Waiver of Claims

	
 
	 
	
    7
	 

	

    3.16 No Third Party Beneficiaries

	
 
	 
	
    7
	 

	

    3.17 Successors and Assigns of Allied World

	
 
	 
	
    7
	 

	

    3.18 Date of Adoption and Approval of Shareholders

	
 
	 
	
    8
	 

	

    3.19 Section 409A

	
 
	 
	
    8
	 

Table of Contents

    ALLIED
    WORLD ASSURANCE COMPANY HOLDINGS, LTD

 

    SECOND
    
AMENDED
    AND RESTATED

 

    2004
    STOCK INCENTIVE PLAN

 

    ARTICLE I

 

    GENERAL

 

		
	
    1.1  
	
    Purpose

 

    The purpose of the Allied World Assurance Company Holdings, Ltd
    Second
    
Amended and Restated 2004 Stock Incentive Plan is to
    attract, retain and motivate officers, directors, employees
    (including prospective employees), consultants and others who
    may perform services for the Company, to compensate them for
    their contributions to the long-term growth and profits of the
    Company, and to encourage them to acquire a proprietary interest
    in the success of the Company.

 

		
	
    1.2  
	
    Definitions
    of Certain Terms

 

    “ALLIED WORLD” means Allied World Assurance Company
    Holdings, Ltd or a successor entity contemplated by
    Section 3.6.

 

    “AWARD” means an award made pursuant to the Plan.

 

    “AWARD AGREEMENT” means the written document by which
    each Award is evidenced.

 

    “BOARD” means the Board of Directors of Allied World.

 

    “CERTIFICATE” means a share certificate (or other
    appropriate document or evidence of ownership) representing
    Common Shares of Allied World.

 

    “COMMITTEE” has the meaning set forth in
    Section 1.3.1.

 

    “COMMON SHARES” mean the common shares of Allied World.

 

    “COMPANY” means Allied World and its subsidiaries.

 

    “COVERED PERSON” has the meaning set forth in
    Section 1.3.3.

 

    “EMPLOYMENT” means a grantee’s performance of
    services for the Company, as determined by the Committee. The
    terms “employ” and “employed” shall have
    their correlative meanings.

 

    “EXCHANGE ACT” means the Securities Exchange Act of
    1934, as amended from time to time, and the applicable rules and
    regulations thereunder.

 

    “PLAN” means the Allied World Assurance Company
    Holdings, Ltd Second Amended and Restated 2004 Stock Incentive
    Plan, as described herein and as hereafter amended from time to
    time.

 

		
	
    1.3  
	
    Administration

 

    1.3.1 Except, as otherwise provided herein, the Plan shall
    be administered by a committee (the “Committee”) of
    the Board to be drawn solely from members of the Board who are
    not and have not been officers of the Company. The Committee is
    authorized, subject to the provisions of the Plan, to establish
    such rules and regulations as it deems necessary for the proper
    administration of the Plan and to make such determinations and
    interpretations and to take such action in connection with the
    Plan and any Award granted thereunder as it deems necessary or
    advisable. All determinations and interpretations made by the
    Committee shall be final, binding and conclusive on all grantees
    and on their legal representatives and beneficiaries. The
    Committee shall have the authority, in its absolute discretion,
    to determine the persons who shall receive Awards, the time when
    Awards shall be granted, the terms of such Awards and the number
    of Common Shares, if any, which shall be subject to such Awards.
    Unless otherwise provided in an Award Agreement, the Committee
    shall have the authority, in its absolute discretion, to
    (i) amend any outstanding Award Agreement in any respect,
    whether or not the rights of the grantee of such Award

    

    1

Table of Contents

    are adversely affected, including, without limitation, to
    accelerate the time or times at which the Award becomes vested,
    unrestricted or may be exercised, waive or amend any goals,
    restrictions or conditions set forth in such Award Agreement, or
    impose new goals, restrictions and conditions, or reflect a
    change in the grantee’s circumstances; and
    (ii) determine whether, to what extent and under what
    circumstances and method or methods (A) Awards may be
    (1) settled in cash, Common Shares, other securities, other
    Awards or other property or (2) canceled, forfeited or
    suspended, (B) Common Shares, other securities, other
    Awards or other property, and other amounts payable with respect
    to an Award may be deferred either automatically or at the
    election of the grantee thereof or of the Committee and
    (C) Awards may be settled by the Company or any of its
    designees. Notwithstanding anything to the contrary contained
    herein, the Board may, in its sole discretion, at any time and
    from time to time, grant Awards (including grants to members of
    the Board who are not employees of the Company) or administer
    the Plan, in which case the Board shall have all of the
    authority and responsibility granted to the Committee herein.

 

    1.3.2 Actions of the Committee may be taken by the vote of
    a majority of its members. The Committee may allocate among its
    members and delegate to any person who is not a member of the
    Committee any of its powers, responsibilities or duties in
    accordance with applicable law.

 

    1.3.3 No member of the Board or the Committee or any
    employee of the Company (each such person a “Covered
    Person”) shall have any liability to any person (including
    any grantee) for any action taken or omitted to be taken or any
    determination made in good faith with respect to the Plan or any
    Award. Each Covered Person shall be indemnified and held
    harmless by Allied World against and from any loss, cost,
    liability or expense (including attorneys’ fees) that may
    be imposed upon or incurred by such Covered Person in connection
    with or resulting from any action, suit or proceeding to which
    such Covered Person may be a party or in which such Covered
    Person may be involved by reason of any action taken or omitted
    to be taken under the Plan or any Award Agreement and against
    and from any and all amounts paid by such Covered Person, with
    Allied World’s approval, in settlement thereof, or paid by
    such Covered Person in satisfaction of any judgment in any such
    action, suit or proceeding against such Covered Person, provided
    that Allied World shall have the right, at its own expense, to
    assume and defend any such action, suit or proceeding and, once
    Allied World gives notice of its intent to assume the defense,
    Allied World shall have sole control over such defense with
    counsel of Allied World’s choice. The foregoing right of
    indemnification shall not be available to a Covered Person to
    the extent that a court of competent jurisdiction in a final
    judgment or other final adjudication, in either case, not
    subject to further appeal, determines that the acts or omissions
    of such Covered Person giving rise to the indemnification claim
    resulted from such Covered Person’s fraud or dishonesty.
    The foregoing right of indemnification shall not be exclusive of
    any other rights of indemnification to which Covered Persons may
    be entitled under Allied World’s Memorandum of Association
    or Bye-Laws, as a matter of law, or otherwise, or any other
    power that Allied World may have to indemnify such persons or
    hold them harmless.

 

		
	
    1.4   
	
    Persons
    Eligible for Awards

 

    Awards under the Plan may be made to such officers, directors,
    employees (including prospective employees), consultants and
    other individuals who may perform services for the Company, as
    the Committee may select.

 

		
	
    1.5   
	
    Types of
    Awards Under Plan

 

    Awards may be made under the Plan in the form of
    (a) restricted stock, (b) restricted stock units,
    (c) dividend equivalent rights and (d) other
    equity-based or equity-related Awards that the Committee
    determines to be consistent with the purposes of the Plan and
    the interests of the Company. Allied World, however, will not
    grant stock options pursuant to the Plan.

 

		
	
    1.6   
	
    Common
    Shares Available for Awards

 

    1.6.1 Subject to adjustment as provided in
    Section 1.6.2 hereof, the maximum number of shares that may
    be issued under the Plan is two million (2,000,000) Common
    Shares. Such Common Shares may, in the discretion of the
    Committee, be either authorized but unissued shares or shares
    previously issued and reacquired by Allied World. If any Award
    shall expire, terminate or otherwise lapse, in whole or in part,
    any Common Shares subject to such Award (or portion thereof)
    shall again be available for issuance under the Plan. Any Common
    Shares delivered by

    

    2

Table of Contents

    Allied World, any Common Shares with respect to which Awards are
    made by Allied World and any Common Shares with respect to which
    Allied World becomes obligated to make Awards, through the
    assumption of, or in substitution for, outstanding awards
    previously granted by an acquired entity, shall not be counted
    against the shares available for Awards under this Plan.

 

    1.6.2 The Committee shall adjust the number of Common
    Shares authorized pursuant to Section 1.6.1 and the terms
    of any outstanding Awards (including, without limitation, the
    number of Common Shares covered by each outstanding Award, the
    type of property to which the Award is subject and the exercise
    or strike price of any Award), in such manner as it deems
    appropriate to preserve the benefits or potential benefits
    intended to be made available to grantees of Awards, for any
    increase or decrease in the number of issued Common Shares
    resulting from a recapitalization, stock split, stock dividend,
    combination or exchange of Common Shares, merger, amalgamation,
    consolidation, rights offering, separation, reorganization or
    liquidation, or any other change in the corporate structure or
    shares of Allied World. After any adjustment made pursuant to
    this Section 1.6.2, the number of Common Shares subject to
    each outstanding Award shall be rounded down to the nearest
    whole number. Notwithstanding the foregoing, in the event of
    (i) a merger, amalgamation or consolidation involving
    Allied World in which Allied World is not the surviving
    corporation; (ii) a merger, amalgamation or consolidation
    involving Allied World in which Allied World is the surviving
    corporation but the holders of shares of Common Shares receive
    securities of another corporation
    and/or other
    property, including cash; (iii) a the sale of greater than
    fifty percent (50%) of the securities of Allied World entitled
    to vote in the election of directors to the Board; or
    (iv) the reorganization or liquidation of Allied World
    (each, a “Corporate Event”), in lieu of providing the
    adjustment set forth in subsection (b) above, the Committee
    may, in its discretion, provide that all outstanding Awards
    shall terminate as of the consummation of such Corporate Event,
    and either (x) accelerate the vesting of, and cause all
    vesting restrictions to lapse on, all outstanding Awards to a
    date at least ten days prior to the date of such Corporate
    Event, or (y) provide that holders of Awards will receive a
    payment in respect of cancellation of their Awards based on the
    amount of the per share consideration being paid for the Common
    Shares in connection with such Corporate Event. Payments to
    holders pursuant to the preceding sentence shall be made in
    cash, or, in the sole discretion of the Committee, in such other
    consideration necessary for a holder of an Award to receive
    property, cash or securities as such holder would have been
    entitled to receive upon the occurrence of the transaction if
    the holder had been, immediately prior to such transaction, the
    holder of the number of Common Shares covered by the Award at
    such time.

 

    1.6.3 There shall be no limit on the amount of cash,
    securities (other than Common Shares as provided in this
    Section 1.6) or other property that may be delivered
    pursuant to the Plan or any Award; provided, however,
    that during
    any time that the Company is subject to Section 162(m) of
    the Code, the maximum number of Common Shares with respect to
    which Awards may be granted to any individual in any one year
    shall not exceed the maximum number of Common Shares available
    for issue hereunder, as such number may change from time to
    time.

 

    ARTICLE II

 

    AWARDS
    UNDER THE PLAN

 

		
	
    2.1   
	
    Agreements
    Evidencing Awards

 

    Each Award granted under the Plan shall be evidenced by a
    written document that shall contain such provisions and
    conditions as the Committee deems appropriate. The Committee may
    grant Awards in tandem with or in substitution for any other
    Award or Awards granted under this Plan or any award granted
    under any other plan of the Company. By accepting an Award
    pursuant to the Plan, a grantee thereby agrees that the Award
    shall be subject to all of the terms and provisions of the Plan
    and the applicable Award Agreement.

    
3

Table of Contents

		
	
    2.2   
	
    No Rights
    as a Shareholder

 

    No grantee of an Award shall have any of the rights of a
    shareholder of Allied World with respect to Common Shares
    subject to such Award until the delivery of such shares. Except
    as otherwise provided in Section 1.6.2, no adjustments
    shall be made for dividends, distributions or other rights
    (whether ordinary or extraordinary, and whether in cash, Common
    Shares, other securities or other property) for which the record
    date is prior to the date such shares are delivered.

 

		
	
    2.3   
	
    Grant of
    Restricted Common Shares

 

    The Committee may grant or offer for sale restricted Common
    Shares in such amounts and subject to Section 2.7 and such
    terms and conditions as the Committee shall determine. Upon the
    delivery of such shares, the grantee shall have the rights of a
    shareholder with respect to the restricted stock, subject to
    Section 2.7 and any other restrictions and conditions as
    the Committee may include in the applicable Award Agreement. In
    the event that a Certificate is issued in respect of restricted
    Common Shares, such Certificate may be registered in the name of
    the grantee but may be held by Allied World or its designated
    agent until the time the restrictions lapse.

 

		
	
    2.4   
	
    Grant of
    Restricted Stock Units

 

    The Committee may grant Awards of restricted stock units in such
    amounts and subject to Section 2.7 and such terms and
    conditions as the Committee shall determine. A grantee of a
    restricted stock unit will have only the rights of a general
    unsecured creditor of Allied World until delivery of Common
    Shares, cash or other securities or property is made as
    specified in the applicable Award Agreement. On the delivery
    date specified in the Award Agreement, the grantee of each
    restricted stock unit not previously forfeited or terminated
    shall receive one Common Share, or cash, securities or other
    property equal in value to a Common Share or a combination
    thereof as specified by the Committee.

 

		
	
    2.5   
	
    Grant of
    Dividend Equivalent Rights

 

    The Committee may include in the Award Agreement with respect to
    any Award a dividend equivalent right entitling the grantee to
    receive amounts equal to all or any portion of the dividends
    that would be paid on the Common Shares covered by such Award if
    such shares had been delivered pursuant to such Award. The
    grantee of a dividend equivalent right will have only the rights
    of a general unsecured creditor of Allied World until payment of
    such amounts is made as specified in the applicable Award
    Agreement. In the event such a provision is included in an Award
    Agreement, the Committee shall determine whether such payments
    shall be made in cash, in Common Shares or in another form,
    whether they shall be conditioned upon the exercise of the Award
    to which they relate, the time or times at which they shall be
    made, and such other terms and conditions as the Committee shall
    deem appropriate.

 

		
	
    2.6   
	
    Other
    Stock-Based Awards

 

    The Committee may grant other types of equity-based or
    equity-related Awards (including the grant or offer for sale of
    unrestricted Common Shares) in such amounts and subject to such
    terms and conditions, as the Committee shall determine. Such
    Awards may entail the transfer of actual Common Shares to Award
    recipients, or payment in cash or otherwise of amounts based on
    the value of Common Shares, and may include, without limitation,
    Awards designed to comply with or take advantage of the
    applicable local laws of jurisdictions other than the United
    States.

 

		
	
    2.7   
	
    Certain
    Restrictions

 

    In the case of an Award in the form of restricted stock or
    restricted stock units, at least one year must elapse before the
    delivery or payment of Common Shares, cash or other property,
    except in the case of (i) termination of employment due to
    death, disability, retirement at or after age 65 or change
    of control; or (ii) an Award that the Committee determines
    is performance based, in which case at least one year must
    elapse.

    
4

Table of Contents

    ARTICLE III

 

    MISCELLANEOUS

 

    3.1
    Amendment of the Plan

 

    3.1.1 Unless otherwise provided in an Award Agreement, the
    Board may from time to time suspend, discontinue, revise or
    amend the Plan in any respect whatsoever, including in any
    manner that adversely affects the rights, duties or obligations
    of any grantee of an Award.

 

    3.1.2 Unless otherwise determined by the Board, shareholder
    approval of any suspension, discontinuance, revision or
    amendment shall be obtained only to the extent necessary to
    comply with any applicable law or stock exchange listing
    requirement.

 

    3.2
    Confidentiality

 

    In consideration of the grantee’s acceptance of any Award,
    the grantee hereby agrees to keep confidential the existence of,
    and any information concerning, any dispute arising in
    connection with any Award, the Plan and any related matters,
    except that the grantee may disclose information concerning such
    dispute to the court that is considering such dispute or to the
    grantee’s legal counsel (provided that such counsel agrees
    not to disclose any such information other than as necessary to
    the prosecution or defense of the dispute).

 

    3.3 Tax
    Withholding

 

    As a condition to the delivery of any Common Shares pursuant to
    any Award or the lifting or lapse of restrictions on any Award,
    or in connection with any other event that gives rise to a
    federal or other governmental tax withholding obligation on the
    part of the Company relating to an Award (including, without
    limitation, FICA tax), (a) the Company may deduct or
    withhold (or cause to be deducted or withheld) from any payment
    or distribution to a grantee whether or not pursuant to the Plan
    or (b) the Committee shall be entitled to require that the
    grantee remit cash to the Company (through payroll deduction or
    otherwise), in each case in an amount sufficient in the opinion
    of the Company to satisfy such withholding obligation.

 

		
	
    3.4   
	
    Required
    Consents and Legends

 

    3.4.1 If the Committee shall at any time determine that any
    consent (as hereinafter defined) is necessary or desirable as a
    condition of, or in connection with, the granting of any Award,
    the delivery of Common Shares or the delivery of any cash,
    securities or other property under the Plan, or the taking of
    any other action thereunder (each such action being hereinafter
    referred to as a “plan action”), then such plan action
    shall not be taken, in whole or in part, unless and until such
    consent shall have been effected or obtained to the full
    satisfaction of the Committee. The Committee may direct that any
    Certificate evidencing shares delivered pursuant to the Plan
    shall bear a legend setting forth such restrictions on
    transferability as the Committee may determine to be necessary
    or desirable, and may advise the transfer agent to place a stop
    transfer order against any legended shares.

 

    3.4.2 The term “consent” as used in this
    Section 3.4 with respect to any plan action includes
    (a) any and all listings, registrations or qualifications
    in respect thereof upon any securities exchange or under any
    federal, state or local law, or law, rule or regulation of a
    jurisdiction outside the United States; (b) or any other
    matter, which the Committee may deem necessary or desirable to
    comply with the terms of any such listing, registration or
    qualification or to obtain an exemption from the requirement
    that any such listing, qualification or registration be made;
    (c) any and all other consents, clearances and approvals in
    respect of a plan action by any governmental or other regulatory
    body or any stock exchange or self-regulatory agency; and
    (d) any and all consents required by the Committee. Nothing
    herein shall require Allied World to list, register or qualify
    the Common Shares on any securities exchange.

 

		
	
    3.5   
	
    Nonassignability;
    No Hedging

 

    Except to the extent otherwise expressly provided in the
    applicable Award Agreement or determined by the Committee, no
    Award (or any rights and obligations thereunder) granted to any
    person under the Plan may be sold,

    
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    exchanged, transferred, assigned, pledged, hypothecated or
    otherwise disposed of or hedged, in any manner (including
    through the use of any cash-settled instrument), whether
    voluntarily or involuntarily and whether by operation of law or
    otherwise, other than by will or by the laws of descent and
    distribution, and all such Awards (and any rights thereunder)
    shall be exercisable during the life of the grantee only by the
    grantee or the grantee’s legal representative. Any sale,
    exchange, transfer, assignment, pledge, hypothecation or other
    disposition in violation of the provisions of this
    Section 3.5 shall be null and void and any Award which is
    hedged in any manner shall immediately be forfeited. All of the
    terms and conditions of this Plan and the Award Agreements shall
    be binding upon any permitted successors and assigns.

 

		
	
    3.6  
	
    Successor
    Entity

 

    Unless otherwise provided in the applicable Award Agreement and
    except as otherwise determined by the Committee, in the event of
    a merger, amalgamation, consolidation, mandatory share exchange
    or other similar business combination of Allied World with or
    into any other entity or any transaction in which another person
    or entity acquires all of the issued and outstanding Common
    Shares of Allied World, or all or substantially all of the
    assets of Allied World, outstanding Awards may be assumed or a
    substantially equivalent award may be substituted by such
    successor entity or a parent or subsidiary of such successor
    entity.

 

		
	
    3.7   
	
    Right of
    Discharge Reserved

 

    Nothing in the Plan or in any Award Agreement shall confer upon
    any grantee the right to continued Employment by the Company or
    affect any right that the Company may have to terminate such
    Employment.

 

		
	
    3.8   
	
    Nature of
    Payments

 

    3.8.1 Any and all grants of Awards and deliveries of Common
    Shares, cash, securities or other property under the Plan shall
    be in consideration of services performed or to be performed for
    the Company by the grantee. Awards under the Plan may, in the
    discretion of the Committee, be made in substitution in whole or
    in part for cash or other compensation otherwise payable to a
    grantee by the Company. Only whole Common Shares shall be
    delivered under the Plan. Awards shall, to the extent reasonably
    practicable, be aggregated in order to eliminate any fractional
    shares. Fractional shares shall be rounded down to the nearest
    whole share and any such fractional shares shall be forfeited.

 

    3.8.2 All such grants and deliveries shall constitute a
    special discretionary incentive payment to the grantee and shall
    not be required to be taken into account in computing the amount
    of salary or compensation of the grantee for the purpose of
    determining any contributions to or any benefits under any
    pension, retirement, profit-sharing, bonus, life insurance,
    severance or other benefit plan of the Company or under any
    agreement with the grantee, unless the Company specifically
    provides otherwise.

 

		
	
    3.9   
	
    Non-Uniform
    Determinations

 

    The Committee’s determinations under the Plan and Award
    Agreements need not be uniform and may be made by it selectively
    among persons who receive, or are eligible to receive, Awards
    under the Plan (whether or not such persons are similarly
    situated). Without limiting the generality of the foregoing, the
    Committee shall be entitled, among other things, to make
    non-uniform and selective determinations under Award Agreements,
    and to enter into non-uniform and selective Award Agreements, as
    to (a) the persons to receive Awards, (b) the terms
    and provisions of Awards and (c) whether a grantee’s
    Employment has been terminated for purposes of the Plan.

 

		
	
    3.10   
	
    Other
    Payments or Awards

 

    Nothing contained in the Plan shall be deemed in any way to
    limit or restrict the Company from making any award or payment
    to any person under any other plan, arrangement or
    understanding, whether now existing or hereafter in effect.

    
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    3.11   
	
    Plan
    Headings

 

    The headings in this Plan are for the purpose of convenience
    only and are not intended to define or limit the construction of
    the provisions hereof.

 

		
	
    3.12   
	
    Termination
    of Plan

 

    The Board reserves the right to terminate the Plan at any time;
    provided, however, that in any case, the Plan shall
    terminate on May 8,
    2018,
 and provided further, that all Awards made
    under the Plan prior to its termination shall remain in effect
    until such Awards have been satisfied or terminated in
    accordance with the terms and provisions of the Plan and the
    applicable Award Agreements.

 

    3.13
    Governing Law; Venue

 

    THIS PLAN
    SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
    OF THE STATE OF NEW YORK. IN CONSIDERATION OF THE GRANTEE’S
    ACCEPTANCE OF THE ISSUANCE OF ANY AWARD, THE GRANTEE HEREBY
    EXPRESSLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF AND VENUE IN
    THE COURTS OF BERMUDA WITH RESPECT TO ANY SUIT OR CLAIM
    INSTITUTED BY THE COMPANY OR THE GRANTEE RELATING TO THIS PLAN
    OR THE AWARD.

 

		
	
    3.14   
	
    Severability;
    Entire Agreement

 

    If any of the provisions of this Plan or any Award Agreement is
    finally held to be invalid, illegal or unenforceable (whether in
    whole or in part), such provision shall be deemed modified to
    the extent, but only to the extent, of such invalidity,
    illegality or unenforceability and the remaining provisions
    shall not be affected thereby; provided, that if any of such
    provisions is finally held to be invalid, illegal or
    unenforceable because it exceeds the maximum scope determined to
    be acceptable to permit such provision to be enforceable, such
    provision shall be deemed to be modified to the minimum extent
    necessary to modify such scope in order to make such provision
    enforceable hereunder. The Plan and any Award Agreements contain
    the entire agreement of the parties with respect to the subject
    matter thereof and supersede all prior agreements, promises,
    covenants, arrangements, communications, representations and
    warranties between them, whether written or oral with respect to
    the subject matter thereof.

 

		
	
    3.15   
	
    Waiver of
    Claims

 

    Each grantee of an Award recognizes and agrees that prior to
    being selected by the Committee to receive an Award he or she
    has no right to any benefits hereunder. Accordingly, in
    consideration of the grantee’s receipt of any Award
    hereunder, he or she expressly waives any right to contest the
    amount of any Award, the terms of any Award Agreement, any
    determination, action or omission hereunder or under any Award
    Agreement by the Committee, Allied World or the Board, or any
    amendment to the Plan or any Award Agreement (other than an
    amendment to this Plan or an Award Agreement to which his or her
    consent is expressly required by the express terms of an Award
    Agreement).

 

		
	
    3.16   
	
    No Third
    Party Beneficiaries

 

    Except as expressly provided therein, neither the Plan nor any
    Award Agreement shall confer on any person other than Allied
    World and the grantee of any Award any rights or remedies
    thereunder. The exculpation and indemnification provisions of
    Section 1.3.3 shall inure to the benefit of a Covered
    Person’s estate and beneficiaries and legatees.

 

		
	
    3.17   
	
    Successors
    and Assigns of Allied World

 

    The terms of this Plan shall be binding upon and inure to the
    benefit of Allied World and any successor entity contemplated by
    Section 3.6.

    
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    3.18   
	
    Date of
    Adoption and Approval of Shareholders

 

    The Plan was adopted effective on February 28, 2008, by the
Board, subject to approval by the shareholders of the Company at a General Meeting of Shareholders, on May 8, 2008.

 

		
	
    3.19 
	Section 409A

 

    The Plan and all Awards granted hereunder are intended to be
    exempt from the provisions of Section 409A of the Internal
    Revenue Code of 1986, as amended
    (“Section 409A”). To the extent that any Awards,
    payments or benefits provided hereunder are considered deferred
    compensation subject to Section 409A, the Company intends
    for this Plan and all Awards to comply with the standards for
    nonqualified deferred compensation established by 409A (the
    “409A Standards”). Notwithstanding anything herein to
    the contrary, to the extent that any terms of the Plan or any
    Award would subject recipient of an Award to gross income
    inclusion, interest or an additional tax pursuant to
    Section 409A, those terms are, to that extent, superseded
    by the 409A Standards. The Company reserves the right to amend
    Awards granted hereunder to cause such Awards to comply with or
    be exempt from Section 409A.

    
8

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