Document:

EX-10.2

 

Exhibit
10.2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

DEFERRED FEE PLAN FOR NON-EMPLOYEE DIRECTORS

     1. Purpose. The purpose of this Plan is to aid the Company in retaining and
attracting well-qualified individuals for service as Directors by providing them with the
opportunity to receive Deferred Share Units in lieu of all or a portion of their Cash Director
Fees payable, and to defer the settlement of their RSU Awards granted, with respect to any
calendar year beginning with calendar year 2008.

     2. Definitions.

     (i) “Award Agreement” means an agreement by which an award of unrestricted
Common Shares is granted to a Participant under the Stock Incentive Plan in settlement of
Deferred Share Units hereunder.

     (ii) “Board” means the Board of Directors of the Company.

     (iii) “Cash Director Fees” means the annual cash retainer payable to a Director
with respect to a calendar year in consideration for service on the Board (including
additional retainer payable with respect to a Director’s position as a Board committee
member or chairman, if applicable); provided, however, that the term “Cash Director Fees”
shall not include meeting fees.

     (iv) “Change in Control” means a change in the ownership or effective control
of the Company or in the ownership of a substantial portion of the assets of the Company,
within the meaning of Section 409A(a)(2)(A)(v) of the Code.

     (v) “Code” means the Internal Revenue Code of 1986, as amended.

     (vi) “Common Shares” shall have the meaning attributed to it in the Stock
Incentive Plan.

     (vii) “Company” means Allied World Assurance Company Holdings, Ltd.

     (viii) “Compensation Committee” means the Compensation Committee of the Board.

     (ix) “Deferral Election” means, with respect to the Cash Director Fees
otherwise payable to such Director with respect to a Plan Year, an irrevocable election made
by a Director pursuant to Section 3 hereof to receive Deferred Share Units in lieu of all or
a portion of such fees, and with respect to an RSU Award to be granted to such Director, an
irrevocable election made by a Director pursuant to Section 4 below to defer the settlement
of such RSU Award.

     (x) “Deferred Share Unit” means a hypothetical investment for Cash Director
Fees credited to a Deferred Share Unit Account hereunder representing the right

 

 

to receive upon settlement, pursuant to Section 6(a) hereof, one unrestricted Common
Share under the Stock Incentive Plan.

     (xi) “Deferred Share Unit Account” means a bookkeeping account established and
maintained by the Company in the name of each Participant who elects hereunder to receive
Deferred Share Units in lieu of Cash Director Fees.

     (xii) “Director” means any non-employee member of the Board.

     (xiii) “Dividend Equivalents” shall have the meaning ascribed to such term in
Section 5(c) below.

     (xiv) “Election Form” means the form or forms established from time to time by
the Company that a Director completes, signs and returns to the Company or the Company’s
designated third-party plan administrator to make a Deferral Election under the Plan. An
Election Form also includes any other method approved by the Company that a Director may use
to make an election under the Plan.

     (xv) “Fair Market Value” means, on a given date, (i) if the Common Shares are
listed or traded on an established securities exchange, the closing price reported as having
occurred on the primary exchange with which the Common Shares are listed or traded on such
date, or if there is no such sale on such date, then on the last preceding date on which
such a sale was reported; or (ii) if the Common Shares are not listed on an established
securities exchange, the amount determined by the Board to be the fair market value of a
Common Share based upon a good-faith attempt to value the Common Shares accurately and
computed in accordance with applicable regulations of the Internal Revenue Service and the
Department of the Treasury.

     (xvi) “Participant” means a Director who has made a Deferral Election and for
whom the Company currently maintains a Deferred Share Unit Account or who has deferred RSU
Awards outstanding hereunder.

     (xvii) “Plan” means this Allied World Assurance Company Holdings, Ltd Deferred
Fee Plan for Non-Employee Directors.

     (xviii) “Plan Year” means a calendar year.

     (xix) “RSU Award” means a restricted stock unit award granted to a Director
pursuant to the terms of the Stock Incentive Plan in consideration for service on the Board.

     (xx) “Settlement Date” means, with respect to the settlement of a Participant’s
Deferred Share Units and deferred RSU Awards, the earliest to occur of (i) a Change in
Control, (ii) such Participant’s death, and (iii) such Participant’s separation from service
with the Company.

     (xxi) “Stock Incentive Plan” means the Allied World Assurance Company Holdings,
Ltd Amended and Restated 2004 Stock Incentive Plan.

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     3. Deferral Election for Cash Director Fees.

     a. Deferral Election. Directors may make a Deferral Election with respect to Cash
Director Fees for a given Plan Year by timely filing with the Company or the Company’s designated
third-party plan administrator a completed Election Form with respect to such Plan Year that shall
specify the percentage (in increments of 10% up to 100%) of any Cash Director Fees otherwise
payable during such Plan Year that will be credited to the Participant’s Deferred Share Unit
Account as Deferred Share Units. A Deferral Election with respect to Cash Director Fees will not
be effective for any Plan Year unless a properly completed Election Form is received by the Company
or the Company’s designated third-party plan administrator no later than the last day of the Plan
Year immediately preceding the Plan Year to which the Cash Director Fees to be deferred relate;
provided, however, that with respect to Cash Director Fees related to the first Plan Year in which
a Director becomes eligible to participate in the Plan (including the 2008 Plan Year with respect
to all Directors), a Director’s completed Election Form must be received by the Company or the
Company’s designated third-party plan administrator within 30 days following the date on which such
Director first becomes eligible to participate in the Plan (provided that such election shall
relate only to amounts earned subsequent to the date such Election Form is so received).

     b. Duration of Elections. Any Deferral Election under subsection (a) above (including
a failure to make an election) shall remain in effect from Plan Year to each subsequent Plan Year
unless a written request to modify or terminate that election for such subsequent Plan Year is
submitted to the Company in accordance with the time periods provided under subsection (a)
applicable to an election with respect to such subsequent Plan Year.

     4. Deferral Election for RSU Awards. A Deferral Election with respect to an RSU Award
may be made by filing with the Company or the Company’s designated third-party plan administrator a
properly completed Election Form on or prior to the date that is 12 months in advance of the
earliest date on which such RSU Award may vest pursuant to its terms (but in no event later than 30
days following the date of grant of such RSU Award); provided, however, that no Deferral Election
may be made with respect to an RSU Award that vests earlier than 12 months from the date of grant.
The Election Form shall be effective only with respect to the RSU Awards with respect to which the
Deferral Election is being made, and the electing Director must file an additional Election Form
(in a timely manner as set forth above in this Section 4) with respect to each future RSU Award
with respect to which such Director desires to make a Deferral Election. Other than with respect
to deferring the date of settlement of an RSU Award, the filing of a Deferral Election under this
Plan shall in no way modify any other term or condition of such RSU Award (including vesting
conditions) under any applicable award agreement or plan.

     5. Deferred Share Unit Accounts.

     a. Deferred Share Unit Account. The Company will establish and maintain in its
bookkeeping records a Deferred Share Unit Account for each Participant who receives Deferred Share
Units hereunder until all such Deferred Share Units have been settled pursuant to the terms hereof.
As of any date on which the Company would otherwise pay to a Participant Cash Director Fees with
respect to which such Participant has made a Deferral Election hereunder, the

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Company shall credit to such Participant’s Deferred Share Unit Account that number of Deferred
Share Units whose underlying Common Shares have a Fair Market Value equal to such Cash Director
Fees so payable as of such date.

     b. Vesting. Each Participant shall be 100% vested in the full balance of his Deferred
Share Unit Account.

     c. Dividend Equivalents. On each date that cash dividends are payable to holders of
the Common Shares, the Company shall credit each Participant’s Deferred Share Unit Account with
that number of additional Deferred Share Units having a number of underlying Common Shares with an
aggregate Fair Market Value equal to the cash dividends that would have otherwise been payable to a
holder of the number of Common Shares underlying the Deferred Share Units in each such
Participant’s Deferred Share Unit Account as of the record date established by the Company with
respect to such cash dividends (“Dividend Equivalents”), which Dividend Equivalents shall
be settled on the Settlement Date.

     d. No Actual Investment. Notwithstanding any other provision of the Plan to the
contrary, a Deferred Share Unit shall not be considered or construed in any manner as an actual
investment in the Common Shares. In the event that the Company, in its discretion, decides to
invest funds in Common Shares or to contribute Common Shares to a trust for the benefit of
Participants receiving Deferred Share Units hereunder, no Participant shall have any rights in or
to such invested funds or Common Shares themselves.

     e. Adjustment. Deferred Share Units hereunder shall be adjusted pursuant to Section
1.6 of the Stock Incentive Plan (or a successor plan as may be approved by the Board or Committee
from time to time) in the same manner as outstanding awards thereunder.

     6. Settlement of Deferred Share Units and Deferred RSU Awards.

     a. Settlement of Deferred Share Units. A Participant’s Deferred Share Units shall be
settled in whole Common Shares on the Settlement Date. Settlement of Deferred Share Units under
this plan will be satisfied by the award of unrestricted Common Shares, evidenced by an Award
Agreement, under Section 2.6 of the Stock Incentive Plan (or a successor plan as may be approved by
the Board or Committee from time to time). No fractional Common Share shall be delivered to a
Participant, and any fractional Deferred Share Unit shall be settled in cash equal to the Fair
Market Value of such fractional Deferred Share Unit on the Settlement Date. By accepting and
executing an Award Agreement, a Participant thereby agrees that the award of unrestricted Common
Shares granted pursuant thereto shall be subject to all of the terms and provisions of the Stock
Incentive Plan and such agreement.

     b. Settlement of Deferred RSU Awards. A Participant’s deferred RSU Awards shall be
settled on the Settlement Date to the extent such Participant is then vested in such RSU Awards.

     c. Accelerated Settlement upon Unforeseeable Emergency. Notwithstanding anything
herein to the contrary, a Participant may petition the Compensation Committee for the settlement of
a portion of his Deferred Share Units and/or his deferred RSU Awards upon the occurrence of an
“unforeseeable emergency” (as defined in Section 409A(a)(2)(B)(ii)(I) of the

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Code and Treasury Regulation § 1.409A-3(i)(3)). Upon such a petition by a Participant and as
soon as reasonably practicable following the approval thereof by the Compensation Committee (which
shall deliberate on and approve such petition without any involvement of the petitioning
Participant), the Company shall settle only the portion of such Participant’s Deferred Share Units
and/or only the portion of such Participant’s deferred RSU Awards reasonably necessary to satisfy
the emergency need (which may include amounts necessary to pay any federal, state, local or foreign
income taxes or penalties reasonably anticipated to result from the distribution); provided,
however, that in determining the amount reasonably necessary to satisfy the emergency need, the
Compensation Committee is not required to take into account any additional compensation that due to
the unforeseeable emergency is available under another nonqualified deferred compensation plan but
has not actually been paid; provided further, however, that in no event may the number of Deferred
Share Units settled exceed the total number of Deferred Share Units in such Participant’s Deferred
Share Unit Account, and in no event may the number of deferred RSU Awards settled exceed the total
number of such Participant’s deferred RSU Awards under this Plan. To the extent a Participant does
not provide for the allocation between the settlement of Deferred Share Units and/or the settlement
of deferred RSU Awards, the Compensation Committee may determine such allocation, in its sole
discretion, which determination shall be final and binding on the petitioning Participant.

     d. Settlement in the Event of Income Inclusion under Section 409A of the Code.
Notwithstanding anything herein to the contrary, if any portion of a Participant’s Deferred Share
Units and/or deferred RSU Awards is required to be included in income by the Participant prior to
settlement due to a violation of the requirements of Code Section 409A, the Participant may
petition the Compensation Committee for the settlement of those portions of his Deferred Share
Units and/or deferred RSU Awards that are required to be included in income. As soon as reasonably
practicable following the grant of such a petition, which grant shall not be unreasonably withheld,
the Company shall settle a portion of such Participant’s Deferred Share Units and/or a portion of
such Participant’s deferred RSU Awards equal to the amount required to be included in income as a
result of the failure of the Plan to meet the requirements of Code Section 409A; provided, however,
that in no event may the number of Deferred Share Units settled exceed the total number of Deferred
Share Units in such Participant’s Deferred Share Unit Account, and in no event may the number of
deferred RSU Awards settled exceed the total number of such Participant’s deferred RSU Awards under
this Plan. To the extent a Participant does not provide for the allocation between the settlement
of Deferred Share Units and/or the settlement of deferred RSU Awards, the Compensation Committee
may determine such allocation, in its sole discretion, which determination shall be final and
binding on the petitioning Participant.

     7. Beneficiaries. A Participant shall have the right to designate one or more
beneficiaries to receive the Participant’s Deferred Share Units and deferred RSU Awards in the
event the Participant dies prior to the settlement of all of such Deferred Share Units and deferred
RSU Awards. A beneficiary designation shall be made, and may be amended at any time, by the
Participant by filing a written designation with the Company or the Company’s designated
third-party plan administrator, on such form and in accordance with such procedures as the Company
shall establish from time to time. A Participant may change the designated beneficiaries under
this Plan at any time by providing such designation in writing to the Company or the Company’s
designated third-party plan administrator. If a Participant fails to make a beneficiary

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designation, or if all designated beneficiaries predecease the Participant, the Participant’s
beneficiary shall be deemed to be the Participant’s estate. If the Company is unable to determine
a Participant’s beneficiaries, or if any dispute arises concerning a Participant’s beneficiaries,
the Company may pay benefits to the Participant’s estate. Upon such payment, the Company shall
have no further liability hereunder.

     8. No Funding; Participant’s Rights Unsecured. The Company will not fund the amount
of any Deferred Share Units, Deferred Share Unit Accounts or deferred RSU Awards under this Plan
(which in no event will preclude the Company from “funding” through a “rabbi” trust), and
Participants will have the status of general unsecured creditors of the Company with respect
thereto. The Company will not be required to establish any special or separate fund or to make any
segregation of assets to assure the payment of any amount credited to a Participant’s Deferred
Share Unit Accounts under the Plan.

     9. Administration. This Plan will be administered by the Compensation Committee or
its designee, who will have the authority to adopt rules and regulations for carrying out the Plan;
provided, however, that in the case of any Participant who is also a member of the Compensation
Committee, such Participant shall not take part, directly or indirectly, in any action by the
Compensation Committee which affects only such individual Participant’s rights under the Plan,
other than actions that apply to all Participants equally. The Compensation Committee or its
designee will have the authority to interpret, construe and implement the provisions of the Plan
and to prescribe the form of the request for deferral of Cash Director Fees and RSU Awards in
accordance with the terms of the Plan. Each member of the Compensation Committee and any designee
of the Compensation Committee shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith, upon any report
made by the independent public accountant of the Company and upon any other information furnished
in connection with the Plan by any person or persons other than such member.

     10. Amendment and Termination.

     a. Amendment. The Board or the Compensation Committee may amend the Plan at any time
and from time to time without the consent of any Participant or beneficiary; provided, however,
that no amendment shall reduce any benefits accrued under the terms of the Plan prior to the date
of amendment without the consent of all Participants prior to the date of such amendment.

     b. Termination. The Board or the Compensation Committee may terminate the Plan at any
time and for any reason without the consent of any Participant or beneficiary. All outstanding
Deferred Share Units and deferred RSU Awards shall be settled upon the Company’s termination and
liquidation of the Plan, provided that: (i) the termination and liquidation do not occur proximate
to a downturn in the financial health of the Company; (ii) the Company terminates and liquidates
all agreements, methods, programs and other arrangements sponsored by the Company that would be
aggregated with the Plan and any other terminated and liquidated agreements, methods, programs and
other arrangements under Section 409A of the Code if the Participant had deferrals of compensation
under all the agreements, methods, programs and other arrangements that are terminated and
liquidated; (iii) no payments in

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liquidation of the Plan are made within 12 months of the date the Company takes all necessary
actions to irrevocably terminate and liquidate the Plan other than payments that would be payable
under the terms of the Plan if the action to terminate and liquidate the Plan had not occurred;
(iv) all payments are made within 24 months of the date the Company takes all necessary actions to
irrevocably terminate and liquidate the Plan; and (v) the Company does not adopt a new plan that
would be aggregated with the Plan or any other terminated and liquidated plan under Section 409A of
the Code if the Participant participated in both plans, at any time within three years following
the date the Company takes all necessary actions to irrevocably terminate and liquidate the Plan.

     11. Miscellaneous.

     a. Taxes. If the Company is required to withhold amounts under applicable federal,
state, local or foreign tax laws, rules or regulations, the Company may make such provisions and
take such actions as it may deem necessary or appropriate for the withholding, including, but not
limited to, the withholding of appropriate sums from any amount otherwise payable to a Participant.
Each Participant, however, shall be responsible for the payment of all individual tax liabilities
relating to any such benefits.

     b. Terms of the Stock Incentive Plan. All deferred RSU Awards hereunder shall at all
times remain subject to the terms of the Stock Incentive Plan (including without limitation, any
such terms relating to the adjustment of “Awards” thereunder pursuant to Section 1.6 thereof), and
to the extent any of the provisions of this Plan contradict the terms of the Stock Incentive Plan,
the terms of the Stock Incentive Plan shall govern.

     c. Successors. Other than pursuant to Section 7 hereof, the right to receive any
payment under this Plan shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise. The provisions of this Plan shall bind the Company and its
successors and assigns. The term “successors” as used herein shall include any corporate or other
business entity which shall, whether by merger, consolidation, amalgamation, purchase or otherwise,
acquire all or substantially all of the business and assets of the Company, and successors of any
such corporation or other business entity.

     d. Severability. The invalidity or unenforceability of any provision of this Plan
shall not affect the validity or enforceability of any other provision of this Plan.

     e. No Rights to Board Membership. Nothing contained herein shall (i) be construed as
conferring upon any Participant the right to continue as a member of the Board, (ii) affect in any
way the right of the Company to terminate such membership, or (iii) affect in any way the rights of
any Participant contained in any agreement with the Company governing a Participant’s service as a
member of the Board.

     f. Titles and Headings. The titles and headings of the sections in the Plan are for
convenience of reference only, and in the event of any conflict, the text of the Plan, rather than
such titles or headings, shall control.

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     g. Governing Law. The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of New York without giving effect to the
choice of law principles thereof.

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Exhibit 10.3

 

    ALLIED
    WORLD ASSURANCE COMPANY HOLDINGS, LTD

    

 

    SECOND
    AMENDED AND RESTATED 2001 EMPLOYEE STOCK OPTION PLAN

 

    1.  Purpose.  As of
    May 8, 2008 (the “Second Amendment and Restatement
    Effective Date”), the Allied World Assurance Company
    Holdings, Ltd Amended and Restated 2001 Employee Stock Option
    Plan was amended and restated and renamed the Allied World
    Assurance Company Holdings, Ltd Second Amended and Restated 2001
    Employee Stock Option Plan (the “Plan”). The purpose
    of the Plan is to advance the interest of Allied World Assurance
    Company Holdings, Ltd (“Allied World”) and its
    subsidiaries (collectively, the “Company”) by
    providing certain Key Persons (as defined below) with the
    opportunity to acquire a proprietary interest in the success of
    the Company, to enhance the long-term performance of the
    Company, as well as to attract people with training, experience
    and ability to the Company and its subsidiaries and affiliates.

 

    2.  Definitions of Certain Terms.

 

    (i) “Award” means a stock option
    granted pursuant to the Plan, including Prior Grants. Stock
    options granted under the Plan are not intended to qualify as
    “incentive stock options” meeting the requirements of
    Section 422 of the Code.

 

    (ii) “Award Agreement” means the
    written document by which each Award is evidenced.

 

    (iii) “Board” means the Board of
    Directors of Allied World.

 

    (iv) “Code” means the Internal
    Revenue Code of 1986, as amended from time to time, and the
    applicable rulings and regulations thereunder.

 

    (v) “Committee” has the meaning set
    forth in Section 3.a.

 

    (vi) “Common Shares” means the
    common shares of Allied World.

 

    (vii) “Covered Person” has the
    meaning set forth in Section 3.c.

 

    (viii) “Fair Market Value” means,
    with respect to a Common Share on any day, the fair market value
    as determined in accordance with a valuation methodology
    approved by the Committee and consistent with the requirements
    of Section 409A of the Code, or if there is a public market
    for the shares on such date, the closing price of the Common
    Shares on such stock exchange on which the shares are
    principally trading on the date in question, or, if there were
    no sales on such date, on the closest preceding date on which
    there were sales of shares.

 

    (ix) “Key Persons” means officers,
    directors, employees (including prospective employees),
    consultants and others who may perform services for the Company.
    For purposes of the Plan, if a Key Person provides services to
    the Company in a non-employee capacity, references herein to
    “employee” shall instead refer to “service
    provider” and references herein to “employment”
    or similar terms shall instead refer to “service” or
    similar terms.

 

    (x) “Prior Grants” means stock
    options and warrants granted prior to the Second Amendment and
    Restatement Effective Date under previous versions of the Plan.

 

    3.  Administration.

 

    a. 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 hereunder 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 which Key Persons shall receive Awards, the time
    when Awards shall be issued, the terms of

    

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    such Awards and the number of shares for which Awards shall be
    issued; provided, however, that the Board shall have the
    sole authority to make such determinations with respect to
    Awards, if any, to be issued to the members of the Committee.
    Unless otherwise expressly provided in the Plan or an Award
    Agreement, the Committee shall have the authority, in its
    absolute discretion, to (i) amend any outstanding Award
    Agreement in any respect, subject to the consent of any grantee
    where the rights of the grantee of such Award 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 restrictions or conditions set
    forth in such Award Agreement, or impose new 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.

 

    b. 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.

 

    c. 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.

 

    4.  Common Shares Available for Awards;
    Adjustments.

 

    a. Common Shares Available for
    Awards.  The total number of Common Shares
    that may be issued pursuant to Awards granted under the Plan
    shall not exceed four million (4,000,000) Common Shares (the
    “Maximum Number”) as adjusted pursuant to the
    provisions of Section 4.b. Common Shares issued upon
    exercise of Prior Grants shall count against the Maximum Number.
    Awards may be granted to Key Persons in such number and at such
    times during the term of this Plan as the Committee or the Board
    shall determine; 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. Shares
    granted pursuant to this Plan may be authorized but unissued
    Common Shares or authorized and issued Common Shares held by the
    Company or acquired by the Company for the purposes of the Plan.
    If any Award granted under this Plan or any Prior Grant is
    forfeited or otherwise terminates or is canceled without the
    delivery of Common Shares, then the Common Shares covered by
    such forfeited, terminated or canceled Award or Prior Grant
    shall again become available for transfer pursuant to Awards
    granted or to be granted under this Plan. Without

    

    2

 

    affecting the number of Common Shares reserved or available
    hereunder, the Committee may authorize under the Plan the
    issuance of Awards or the assumption of awards granted under
    plans of other entities in connection with any amalgamation,
    merger, consolidation, acquisition of property or stock, or
    reorganization upon such terms and conditions as it may deem
    appropriate, and any other applicable laws or stock exchange
    rules.

 

    b. Capitalization Adjustments.  The
    aggregate number of Common Shares which may be granted or
    purchased pursuant to Awards granted hereunder, the number of
    Common Shares covered by each outstanding Award, and the price
    per share thereof in each such Award shall be equitably and
    proportionally adjusted or substituted, as determined by the
    Committee in good faith and in its sole discretion, as to the
    number, price or kind of Common Shares or other consideration
    subject to such Awards or as otherwise determined by the
    Committee in good faith to be fair and equitable (i) in the
    event of changes in the outstanding Common Shares or in the
    capital structure of the Company by reason of stock dividends,
    stock splits, reverse stock splits, recapitalizations,
    reorganizations, mergers, consolidations, combinations,
    exchanges or other relevant changes in capitalization occurring
    after the date of grant of any such Award; (ii) in the
    event of any change in applicable laws or any change in
    circumstances which results in or would result in any
    substantial dilution or enlargement of the rights granted to, or
    available for, participants in the Plan; or (iii) for any
    other reason which the Committee determines, in its sole
    discretion and acting in good faith, to otherwise warrant
    equitable adjustment.

 

    c. Corporate
    Events.  Notwithstanding subsection (b)
    above, in the event of (i) a merger, amalgamation or
    consolidation involving the Company in which the Company is not
    the surviving corporation; (ii) a merger, amalgamation or
    consolidation involving the Company in which the Company is the
    surviving corporation but the holders of Common Shares receive
    securities of another corporation
    and/or other
    property, including cash; (iii) the sale of greater than
    fifty percent (50%) of the securities of the Company entitled to
    vote in the election of directors to the Board; or (iv) the
    reorganization or liquidation of the Company (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 exercisability 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, such that holders may exercise all such Awards prior to
    the 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 less the applicable exercise price. 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.

 

    d. Fractional Shares.  Any such
    adjustment may provide for the elimination of any fractional
    share which might otherwise become subject to an Award.

 

    5.  Eligibi1ity.  Awards under
    the Plan may be made to such Key Persons as the Committee may
    select in its discretion.

 

    6.  Grant of Awards.  The
    Committee is authorized to grant Awards only in the form of
    stock options to purchase Common Shares from the Company, to
    such Key Persons, in such amounts and subject to such terms and
    conditions, as the Committee shall determine in its discretion.

 

    7.  Terms and Conditions of Award
    Agreements.  Each Award granted under the Plan
    shall be evidenced by a written document which shall contain
    such provisions and conditions as the Committee deems
    appropriate. 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. All Awards granted under the Plan shall be subject to
    the following terms and conditions:

 

    a. Exercise Price.  The exercise
    price per share with respect to each Award shall be determined
    by the Committee or the Board but shall not be less than 100% of
    the Fair Market Value of the Common Shares on the date the Award
    is granted.

    

    3

 

    b. Term of Award.  In no event
    shall any Award be exercisable after the expiration of
    10 years from the date on which the Award is issued.

 

    c. Termination of
    Employment.  Except as otherwise provided by
    the Committee or the Board, no part of any Award issued to an
    employee (including an officer) may be exercised after the
    termination of his or her employment with the Company, except
    that:

 

    (i) if such termination of employment is on or after the
    date the employee attains age sixty-five (65) or due to
    disability or death, any portion of an Award, whether or not
    exercisable at the time of such termination, may be exercised by
    the grantee (or in case of death by the person or persons to
    whom the grantee’s rights under such Award are transferred
    by will or the laws of descent and distribution) at any time
    within the term of the Award; and

 

    (ii) if such termination of employment is not at or after
    normal retirement age or due to disability or death, any portion
    of an Award may be exercised by the grantee within 90 days
    after such termination, but only to the extent such Award was
    exercisable at the time of such termination, and any portion of
    such Award that remains unvested at the time of such termination
    shall terminate and no longer be exercisable at any time.

 

    8.  Term of Plan.  The Plan
    shall terminate on, and no Awards shall be issued pursuant to
    the Plan after, May 8, 2018; provided, however, that
    Awards granted theretofore may extend beyond such date and the
    terms and conditions of the Plan shall continue to apply thereto.

 

    9.  Termination or Amendment of
    Plan.  The Board may at any time terminate the
    Plan with respect to any Common Shares of Allied World not at
    the time subject to an Award, and may from time to time alter or
    amend the Plan or any part thereof. 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; provided, however, that
    unless approved by the Company’s shareholders or as
    otherwise specifically provided under Section 4(a) hereof,
    no adjustments or reduction of the exercise price of any
    outstanding Awards shall be made in the event of a decline in
    stock price, either by reducing the exercise price of
    outstanding Awards or through cancellation of outstanding Awards
    in connection with a re-granting of Awards at a lower price to
    the same individual.

 

    10.  Employment Status and Rights; Waiver of
    Claims.  The granting of any Award does not
    alter the at-will nature of any grantee’s employment with
    the Company. In addition, prior to being granted an Award, no
    employee of the Company has any right to any benefits hereunder.
    Accordingly, in consideration of a Key Person’s selection
    to receive an Award under the Plan and by acceptance of the
    grant of such Award, such Key Person expressly waives any right
    to contest the number of Awards issued to him or her, the terms
    of the Plan or the Award Agreement, any determination, action or
    omission under the Plan or any Award Agreement by Allied World,
    the Board or the Committee, or any amendment to the Plan or any
    Award Agreement (other than an amendment to the Plan or an Award
    Agreement to which his or her consent is expressly required by
    the express terms of an Award Agreement).

 

    11.  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).

 

    12.  Tax Withholding.  As a
    condition to the delivery of any Common Shares pursuant to 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.

    

    4

 

    13.  Required Consents and Legends.

 

    a. 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 hereunder (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.

 

    b. The term “consent” as used in this
    Section 13 with respect to any Plan Action includes
    (i) 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; (ii) 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;
    (iii) 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 (iv) 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.

 

    14.  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, 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 14 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.

 

    15.  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.

 

    16.  Nature of Payments.

 

    a. 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.

 

    b. 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.

 

    17.  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,

    

    5

 

    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.

 

    18.  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.

 

    19.  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.

 

    20.  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.

 

    21.  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.

 

    22.  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 3.c shall inure to
    the benefit of a Covered Person’s estate and beneficiaries
    and legatees.

 

    23.  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 15.

 

    24.  Date of Adoption.  This
    Plan was adopted effective on February 28, 2008 by the
    Board, subject to approval by the shareholders of Allied World
    at a General Meeting of Shareholders on May 8, 2008.

    

    6

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