Document:

EXHIBIT 4.1

                             DONALDSON COMPANY, INC.
                        2001 MASTER STOCK INCENTIVE PLAN

SECTION 1.        PURPOSE

         The purpose of the Plan is to promote the interests of the Company and
its stockholders by aiding the Company in attracting and retaining employees,
officers, consultants, independent contractors and non-employee directors
capable of assuring the future success of the Company, to offer such persons
incentives to put forth maximum efforts for the success of the Company's
business and to afford such persons an opportunity to acquire a proprietary
interest in the Company, thereby aligning the interests of such persons with the
Company's stockholders.

SECTION 2.        DEFINITIONS

         As used in the Plan, the following terms shall have the meanings set
forth below:

         (a)      "Affiliate" shall mean (i) any entity that, directly or
                  indirectly through one or more intermediaries, is controlled
                  by the Company and (ii) any entity in which the Company has a
                  significant equity interest, in each case as determined by the
                  Committee.

         (b)      "Award" shall mean any Option, Stock Appreciation Right,
                  Restricted Stock, Performance Award, Dividend Equivalent or
                  Other Stock-Based Award granted under the Plan.

         (c)      "Award Agreement" shall mean any written agreement, contract
                  or other instrument or document evidencing any Award granted
                  under the Plan.

         (d)      "Board" shall mean the Board of Directors of the Company.

         (e)      "Code" shall mean the Internal Revenue Code of 1986, as
                  amended from time to time, and any regulations promulgated
                  thereunder.

         (f)      "Committee" shall mean a committee of Directors designated by
                  the Board to administer the Plan. The Committee shall be
                  comprised of not less than such number of Directors as shall
                  be required to permit Awards granted under the Plan to qualify
                  under Rule 16b-3, and each member of the Committee shall be a
                  "Non-Employee Director" within the meaning of Rule 16b-3 and
                  an "outside director" within the meaning of Section 162(m) of
                  the Code. The Company expects to have the Plan administered in
                  accordance with the requirements for the award of "qualified
                  performance-based compensation" within the meaning of Section
                  162(m) of the Code.

         (g)      "Company" shall mean Donaldson Company, Inc., a Delaware
                  corporation, and any successor corporation.

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         (h)      "Director" shall mean a member of the Board.

         (i)      "Dividend Equivalent" shall mean any right granted under
                  Section 6(e) of the Plan.

         (j)      "Eligible Person" shall mean any employee, officer, Director
                  (including any Non-Employee Director), consultant or
                  independent contractor providing services to the Company or
                  any Affiliate who the Committee determines to be an Eligible
                  Person.

         (k)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
                  as amended.

         (l)      "Fair Market Value" shall mean, with respect to any property
                  (including, without limitation, any Shares or other
                  securities), the fair market value of such property determined
                  by such methods or procedures as shall be established from
                  time to time by the Committee. Notwithstanding the foregoing,
                  unless otherwise determined by the Committee, the Fair Market
                  Value of a Share as of a given date shall be, if the Shares
                  are then traded on the New York Stock Exchange, the closing
                  price of one Share as reported on the New York Stock Exchange
                  on such date or, if the New York Stock Exchange is not open
                  for trading on such date, on the most recent preceding date
                  when the New York Stock Exchange is open for trading.

         (m)      "Incentive Stock Option" shall mean an option granted under
                  Section 6(a) of the Plan that is intended to meet the
                  requirements of Section 422 of the Code or any successor
                  provision.

         (n)      "Limitation Amount" shall mean, with respect to any Plan Year,
                  one and one-half (1.50) percent of the Outstanding Shares.

         (o)      "Non-Employee Director" shall mean any Director who is not
                  also an employee of the Company.

         (p)      "Non-Qualified Stock Option" shall mean an option granted
                  under Section 6(a) of the Plan that is not intended to be an
                  Incentive Stock Option.

         (q)      "Option" shall mean an Incentive Stock Option or a
                  Non-Qualified Stock Option.

         (r)      "Other Stock-Based Award" shall mean any right granted under
                  Section 6(f) of the Plan.

         (s)      "Outstanding Shares" shall mean, with respect to any Plan
                  Year, the sum of the outstanding Shares, the outstanding Share
                  equivalents (as determined by the Company in the calculation
                  of earnings per share on a fully diluted basis) and Shares
                  held in the treasury of the Company, as reported in the Annual
                  Report on Form 10-K of the Company, as filed with the
                  Securities and Exchange Commission, for the most recent fiscal
                  year that ends during such Plan Year.

         (t)      "Participant" shall mean an Eligible Person designated to be
                  granted an Award under the Plan.

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         (u)      "Performance Award" shall mean any right granted under Section
                  6(d) of the Plan.

         (v)      "Person" shall mean any individual, corporation, partnership,
                  association or trust.

         (w)      "Plan" shall mean the Donaldson Company, Inc. 2001 Master
                  Stock Incentive Plan, as amended from time to time, the
                  provisions of which are set forth herein.

         (x)      "Plan Year" shall mean a consecutive 12-month period ending on
                  December 31 of each year.

         (y)      "Reload Option" shall mean any Option granted under Section
                  6(a)(iv) of the Plan.

         (z)      "Restricted Stock" shall mean any Shares granted under Section
                  6(c) of the Plan.

         (aa)     "Restricted Stock Unit" shall mean any unit granted under
                  Section 6(c) of the Plan evidencing the right to receive a
                  Share (or a cash payment equal to the Fair Market Value of a
                  Share) at some future date.

         (bb)     "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
                  Securities and Exchange Commission under the Securities
                  Exchange Act, or any successor rule or regulation.

         (cc)     "Share" or "Shares" shall mean shares of common stock, $5.00
                  par value per share, of the Company or such other securities
                  or property as may become subject to Awards pursuant to an
                  adjustment made under Section 4(c) of the Plan.

         (dd)     "Stock Appreciation Right" shall mean any right granted under
                  Section 6(b) of the Plan.

SECTION 3.        ADMINISTRATION

         (a)      POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be
                  administered by the Committee. Subject to the express
                  provisions of the Plan and to applicable law, the Committee
                  shall have full power and authority to: (i) designate
                  Participants; (ii) determine the type or types of Awards to be
                  granted to each Participant under the Plan; (iii) determine
                  the number of Shares to be covered by (or with respect to
                  which payments, rights or other matters are to be calculated
                  in connection with) each Award; (iv) determine the terms and
                  conditions of any Award or Award Agreement; (v) amend the
                  terms and conditions of any Award or Award Agreement and
                  accelerate the exercisability of Options or the lapse of
                  restrictions relating to Restricted Stock, Restricted Stock
                  Units or other Awards; (vi) determine whether, to what extent
                  and under what circumstances Awards may be exercised in cash,
                  Shares, other securities, other Awards or other property, or
                  canceled, forfeited or suspended; (vii) determine whether, to
                  what extent and under what circumstances cash, Shares,
                  promissory notes, other securities, other Awards, other
                  property and other amounts payable with respect to an Award
                  under the Plan shall be deferred either automatically or at
                  the election of the holder thereof or the Committee; (viii)
                  interpret and administer the Plan and any instrument or

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                  agreement, including an Award Agreement, relating to the Plan;
                  (ix) establish, amend, suspend or waive such rules and
                  regulations and appoint such agents as it shall deem
                  appropriate for the proper administration of the Plan; (x)
                  establish any special rules for Eligible Persons, former
                  employees, or Participants located in any particular country
                  other than the United States, which such rules shall be set
                  forth in Appendices to the Plan and shall be deemed
                  incorporated into and form part of the Plan; and (xi) make any
                  other determination and take any other action that the
                  Committee deems necessary or desirable for the administration
                  of the Plan. Unless otherwise expressly provided in the Plan,
                  all designations, determinations, interpretations and other
                  decisions under or with respect to the Plan or any Award shall
                  be within the sole discretion of the Committee, may be made at
                  any time and shall be final, conclusive and binding upon any
                  Participant, any holder or beneficiary of any Award and any
                  employee of the Company or any Affiliate.

         (b)      DELEGATION. The Committee may delegate to one or more officers
                  of the Company or any Affiliate or a committee of such
                  officers, but only to the extent such officer or officers are
                  also members of the Board of Directors of the Company, the
                  authority, subject to such terms and limitations as the
                  Committee shall determine, to grant Awards to Eligible Persons
                  who are not officers or directors of the Company for purposes
                  of Section 16 of the Exchange Act. The Committee shall not
                  delegate its powers and duties under the Plan (i) with regard
                  to officers or directors of the Company or any Affiliate who
                  are subject to Section 16 of the Exchange Act or (ii) in such
                  a manner as would cause the Plan not to comply with the
                  requirements of Section 162(m) of the Code.

         (c)      POWER AND AUTHORITY OF THE BOARD OF DIRECTORS. Notwithstanding
                  anything to the contrary contained herein, the Board may, at
                  any time and from time to time, without any further action of
                  the Committee, exercise the powers and duties of the Committee
                  under the Plan.

SECTION 4.        SHARES AVAILABLE FOR AWARDS

         (a)      SHARES AVAILABLE. Subject to adjustment as provided in Section
                  4(c) of the Plan, the aggregate number of Shares that may be
                  issued under all Awards under the Plan in any Plan Year shall
                  not exceed the Limitation Amount; PROVIDED THAT, any Shares
                  with respect to which Awards may be issued, but are not
                  issued, under the Plan in any Plan Year shall be carried
                  forward and shall be available to be covered by Awards issued
                  in any subsequent Plan Year in which Awards may be issued
                  under the Plan. Shares to be issued under the Plan may be
                  either authorized but unissued Shares or Shares acquired in
                  the open market or otherwise. Any Shares that are used by a
                  Participant as full or partial payment to the Company of the
                  purchase price relating to an Award, or in connection with the
                  satisfaction of tax obligations relating to an Award, shall
                  again be available for granting Awards (other than Incentive
                  Stock Options) under the Plan. In addition, if any Shares
                  covered by an Award or to which an Award relates are not
                  purchased or are forfeited, or if an Award otherwise
                  terminates without delivery of any Shares, then the number of
                  Shares counted against the aggregate number of Shares
                  available

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                  under the Plan with respect to such Award, to the extent of
                  any such forfeiture or termination, shall again be available
                  for granting Awards under the Plan.

         (b)      ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an
                  Award entitles the holder thereof to receive or purchase
                  Shares, the number of Shares covered by such Award or to which
                  such Award relates shall be counted on the date of grant of
                  such Award against the aggregate number of Shares available
                  for granting Awards under the Plan.

         (c)      ADJUSTMENTS. In the event that the Committee shall determine
                  that any dividend or other distribution (whether in the form
                  of cash, Shares, other securities or other property),
                  recapitalization, stock split, reverse stock split,
                  reorganization, merger, consolidation, split-up, spin-off,
                  combination, repurchase or exchange of Shares or other
                  securities of the Company, issuance of warrants or other
                  rights to purchase Shares or other securities of the Company
                  or other similar corporate transaction or event affects the
                  Shares such that an adjustment is determined by the Committee
                  to be appropriate in order to prevent dilution or enlargement
                  of the benefits or potential benefits intended to be made
                  available under the Plan, then the Committee shall, in such
                  manner as it may deem equitable, adjust any or all of (i) the
                  number and type of Shares (or other securities or other
                  property) that thereafter may be made the subject of Awards,
                  (ii) the number and type of Shares (or other securities or
                  other property) subject to outstanding Awards and (iii) the
                  purchase or exercise price with respect to any Award;
                  provided, however, that the number of Shares covered by any
                  Award or to which such Award relates shall always be a whole
                  number.

         (d)      AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be
                  granted any Award or Awards under the Plan, the value of which
                  Award or Awards is based solely on an increase in the value of
                  the Shares after the date of grant of such Award or Awards,
                  for more than 500,000 Shares (subject to adjustment as
                  provided for in Section 4(c) of the Plan), in the aggregate in
                  any calendar year, beginning with the calendar year commencing
                  on January 1, 2001. The foregoing annual limitation
                  specifically includes the grant of any Award or Awards
                  representing "qualified performance-based compensation" within
                  the meaning of Section 162(m) of the Code. Notwithstanding
                  anything to the contrary in this Section 4, but subject at all
                  times to the annual Limitation Amount, the number of Shares
                  available for (i) granting Incentive Stock Options under the
                  Plan in the aggregate shall not exceed 2,000,000, and (ii)
                  Restricted Stock, and Restricted Stock Units under the Plan,
                  shall not exceed 600,000, subject to adjustment as provided in
                  as provided in Section 4(c) of the Plan and subject to the
                  provisions of Section 422 or 424 of the Code or any successor
                  provision.

SECTION 5.        ELIGIBILITY

         Any Eligible Person shall be eligible to be designated a Participant.
In determining which Eligible Persons shall receive an Award and the terms of
any Award, the Committee may take into account the nature of the services
rendered by the respective Eligible Persons, their

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present and potential contributions to the success of the Company or such other
factors as the Committee, in its discretion, shall deem relevant.
Notwithstanding the foregoing, an Incentive Stock Option may only be granted to
full or part-time employees (which term as used herein includes, without
limitation, officers and Directors who are also employees), and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such
Affiliate is also a "subsidiary corporation" of the Company within the meaning
of Section 424(f) of the Code or any successor provision.

SECTION 6.        AWARDS

         (a)      OPTIONS. The Committee is hereby authorized to grant Options
                  to Participants with the following terms and conditions and
                  with such additional terms and conditions not inconsistent
                  with the provisions of the Plan as the Committee shall
                  determine:

                  (i)      EXERCISE PRICE. The purchase price per Share
                           purchasable under an Option shall be determined by
                           the Committee; PROVIDED, HOWEVER, that such purchase
                           price shall not be less than 100% of the Fair Market
                           Value of a Share on the date of grant of such Option.

                  (ii)     OPTION TERM. The term of each Option shall be fixed
                           by the Committee, but, with respect to any Incentive
                           Stock Option, shall in no event exceed 10 years from
                           the date on which such Incentive Stock Option is
                           granted.

                  (iii)    TIME AND METHOD OF EXERCISE. The Committee shall
                           determine the time or times at which an Option may be
                           exercised in whole or in part and the method or
                           methods by which, and the form or forms (including,
                           without limitation, cash, Shares, promissory notes,
                           other securities, other Awards or other property, or
                           any combination thereof, having a Fair Market Value
                           on the exercise date equal to the relevant exercise
                           price) in which, payment of the exercise price with
                           respect thereto may be made or deemed to have been
                           made.

                  (iv)     RELOAD OPTIONS. The Committee may grant Reload
                           Options, separately or together with another Option,
                           pursuant to which, subject to the terms and
                           conditions established by the Committee, the
                           Participant would be granted a new Option when the
                           payment of the exercise price of a previously granted
                           option is made by the delivery of Shares owned by the
                           Participant pursuant to Section 6(a)(iii) hereof or
                           the relevant provisions of another plan of the
                           Company, and/or when Shares are tendered or withheld
                           as payment of the amount to be withheld under
                           applicable income tax laws in connection with the
                           exercise of an Option, which new Option would be an
                           Option to purchase the number of Shares not exceeding
                           the sum of (A) the number of Shares so provided as
                           consideration upon the exercise of the previously
                           granted option to which such Reload Option relates
                           and (B) the number of Shares, if any, tendered or
                           withheld as payment of the amount to be withheld
                           under applicable tax laws in connection with the
                           exercise of

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                           the option to which such Reload Option relates
                           pursuant to the relevant provisions of the plan or
                           agreement relating to such option. Reload Options may
                           be granted with respect to Options previously granted
                           under the Plan or any other stock option plan of the
                           Company or may be granted in connection with any
                           Option granted under the Plan or any other stock
                           option plan of the Company at the time of such grant.
                           Such Reload Options shall have a per share exercise
                           price equal to the Fair Market Value of one Share as
                           of the date of grant of the new Option. Any Reload
                           Option shall be subject to availability of sufficient
                           Shares for grant under the Plan. Shares surrendered
                           as part or all of the exercise price of the Option to
                           which it relates that have been owned by the optionee
                           less than six months will not be counted for purposes
                           of determining the number of Shares that may be
                           purchased pursuant to a Reload Option.

         (b)      STOCK APPRECIATION RIGHTS. The Committee is hereby authorized
                  to grant Stock Appreciation Rights to Participants subject to
                  the terms of the Plan and any applicable Award Agreement. A
                  Stock Appreciation Right granted under the Plan shall confer
                  on the holder thereof a right to receive upon exercise thereof
                  the excess of (i) the Fair Market Value of one Share on the
                  date of exercise (or, if the Committee shall so determine, at
                  any time during a specified period before or after the date of
                  exercise) over (ii) the grant price of the Stock Appreciation
                  Right as specified by the Committee, which price shall not be
                  less than 100% of the Fair Market Value of one Share on the
                  date of grant of the Stock Appreciation Right. Subject to the
                  terms of the Plan and any applicable Award Agreement, the
                  grant price, term, methods of exercise, dates of exercise,
                  methods of settlement and any other terms and conditions of
                  any Stock Appreciation Right shall be as determined by the
                  Committee. The Committee may impose such conditions or
                  restrictions on the exercise of any Stock Appreciation Right
                  as it may deem appropriate.

         (c)      RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
                  hereby authorized to grant Restricted Stock and Restricted
                  Stock Units to Participants with the following terms and
                  conditions and with such additional terms and conditions not
                  inconsistent with the provisions of the Plan as the Committee
                  shall determine:

                  (i)      RESTRICTIONS. Shares of Restricted Stock and
                           Restricted Stock Units shall be subject to such
                           restrictions as the Committee may impose (including,
                           without limitation, a waiver by the Participant of
                           the right to vote or to receive any dividend or other
                           right or property with respect thereto), which
                           restrictions may lapse separately or in combination
                           at such time or times, in such installments or
                           otherwise as the Committee may deem appropriate.

                  (ii)     STOCK CERTIFICATES. Any Restricted Stock granted
                           under the Plan shall be evidenced by issuance of a
                           stock certificate or certificates, which certificate
                           or certificates shall be held by the Company until
                           the applicable restrictions lapse or are waived, or
                           the Shares are forfeited. Such certificate or
                           certificates shall be registered in the name of the
                           Participant who has been granted such Shares and
                           shall bear an appropriate legend

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                           referring to the terms, conditions and restrictions
                           applicable to such Restricted Stock. Stock
                           certificates registered in the name of a Participant
                           with respect to grants of Restricted Stock shall be
                           delivered to such Participant promptly after the
                           applicable restrictions lapse or are waived. In the
                           case of Restricted Stock Units, no Shares shall be
                           issued at the time such Awards are granted. Upon the
                           lapse or waiver of restrictions and the restricted
                           period relating to Restricted Stock Units evidencing
                           the right to receive Shares, Shares shall be issued
                           to, and certificates representing such Shares shall
                           be registered in the name of, and delivered to, the
                           holder of the Restricted Stock Units.

                  (iii)    FORFEITURE. Except as otherwise determined by the
                           Committee, upon termination of employment (as
                           determined under criteria established by the
                           Committee) during the applicable restriction period,
                           all Shares of Restricted Stock and Restricted Stock
                           Units subject to restriction at such time shall be
                           forfeited and reacquired by the Company; provided,
                           however, that the Committee may, when it finds that a
                           waiver would be in the best interest of the Company,
                           waive in whole or in part any or all remaining
                           restrictions with respect to Shares of Restricted
                           Stock or Restricted Stock Units.

         (d)      PERFORMANCE AWARDS. The Committee is hereby authorized to
                  grant Performance Awards to Participants subject to the terms
                  of the Plan and any applicable Award Agreement. A Performance
                  Award granted under the Plan (i) may be denominated or payable
                  in cash, Shares (including, without limitation, Restricted
                  Stock), other securities, other Awards or other property and
                  (ii) shall confer on the holder thereof the right to receive
                  payments, in whole or in part, upon the achievement of such
                  performance goals during such performance periods as the
                  Committee shall establish. Subject to the terms of the Plan
                  and any applicable Award Agreement, the performance goals to
                  be achieved during any performance period, the length of any
                  performance period, the amount of any Performance Award
                  granted, the amount of any payment or transfer to be made
                  pursuant to any Performance Award and any other terms and
                  conditions of any Performance Award shall be determined by the
                  Committee.

         (e)      DIVIDEND EQUIVALENTS. The Committee is hereby authorized to
                  grant Dividend Equivalents to Eligible Persons under which the
                  Participant shall be entitled to receive payments (in cash,
                  Shares, other securities, other Awards or other property as
                  determined in the discretion of the Committee) equivalent to
                  the amount of cash dividends paid by the Company to holders of
                  Shares with respect to a number of Shares determined by the
                  Committee. Subject to the terms of the Plan and any applicable
                  Award Agreement, such Dividend Equivalents may have such terms
                  and conditions as the Committee shall determine.

         (f)      OTHER STOCK-BASED AWARDS. The Committee is hereby authorized
                  to grant to Participants subject to the terms of the Plan and
                  any applicable Award Agreement, such other Awards that are
                  denominated or payable in, valued in whole or in part

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                  by reference to, or otherwise based on or related to, Shares
                  (including, without limitation, securities convertible into
                  Shares), as are deemed by the Committee to be consistent with
                  the purpose of the Plan. Shares or other securities delivered
                  pursuant to a purchase right granted under this Section 6(f)
                  shall be purchased for such consideration, which may be paid
                  by such method or methods and in such form or forms
                  (including, without limitation, cash, Shares, promissory
                  notes, other securities, other Awards or other property or any
                  combination thereof), as the Committee shall determine, the
                  value of which consideration, as established by the Committee,
                  shall not be less than 100% of the Fair Market Value of such
                  Shares or other securities as of the date such purchase right
                  is granted.

         (g)      GENERAL

                  (i)      CONSIDERATION FOR AWARDS. Awards shall be granted for
                           no cash consideration or for any cash or other
                           consideration as may be determined by the Committee
                           or required by applicable law.

                  (ii)     AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards
                           may, in the discretion of the Committee, be granted
                           either alone or in addition to, in tandem with or in
                           substitution for any other Award or any award granted
                           under any plan of the Company or any Affiliate other
                           than the Plan. Awards granted in addition to or in
                           tandem with other Awards or in addition to or in
                           tandem with awards granted under any such other plan
                           of the Company or any Affiliate may be granted either
                           at the same time as or at a different time from the
                           grant of such other Awards or awards.

                  (iii)    FORMS OF PAYMENT UNDER AWARDS. Subject to the terms
                           of the Plan and of any applicable Award Agreement,
                           payments or transfers to be made by the Company or an
                           Affiliate upon the grant, exercise or payment of an
                           Award may be made in such form or forms as the
                           Committee shall determine (including, without
                           limitation, cash, Shares; promissory notes, other
                           securities, other Awards or other property or any
                           combination thereof), and may be made in a single
                           payment or transfer, in installments or on a deferred
                           basis, in each case in accordance with rules and
                           procedures established by the Committee. Such rules
                           and procedures may include, without limitation,
                           provisions for the payment or crediting of reasonable
                           interest on installment or deferred payments or the
                           grant or crediting of Dividend Equivalents with
                           respect to installment or deferred payments.

                  (iv)     LIMITS ON TRANSFER OF AWARDS. No Award and no right
                           under any such Award shall be transferable by a
                           Participant otherwise than by will or by the laws of
                           descent and distribution; provided, however, that, if
                           so determined by the Committee, a Participant may, in
                           the manner established by the Committee, designate a
                           beneficiary or beneficiaries to exercise the rights
                           of the Participant and receive any property
                           distributable with respect to any Award upon the
                           death of the Participant; and provided, further,
                           that, except in the case of an Incentive Stock
                           Option, Awards may

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                           be transferable as specifically provided in any
                           applicable Award Agreement or amendment thereto
                           pursuant to terms determined by the Committee. Except
                           as otherwise provided in any applicable Award
                           Agreement or amendment thereto (other than an Award
                           Agreement relating to an Incentive Stock Option),
                           pursuant to terms determined by the Committee, each
                           Award or right under any Award shall be exercisable
                           during the Participant's lifetime only by the
                           Participant or, if permissible under applicable law,
                           by the Participant's guardian or legal
                           representative. Except as otherwise provided in any
                           applicable Award Agreement or amendment thereto
                           (other than an Award Agreement relating to an
                           Incentive Stock Option), no Award or right under any
                           such Award may be pledged, alienated, attached or
                           otherwise encumbered, and any purported pledge,
                           alienation, attachment or encumbrance thereof shall
                           be void and unenforceable against the Company or any
                           Affiliate.

                  (v)      TERM OF AWARDS. The term of each Award shall be for
                           such period as may be determined by the Committee;
                           provided, however, that in the case of an Incentive
                           Stock Option, such Option shall not be exercisable
                           after the expiration of 10 years from the date such
                           Option is granted.

                  (vi)     RESTRICTIONS; SECURITIES EXCHANGE LISTING. All Shares
                           or other securities delivered under the Plan pursuant
                           to any Award or the exercise thereof shall be subject
                           to such restrictions as the Committee may deem
                           advisable under the Plan, applicable federal or state
                           securities laws and regulatory requirements, and the
                           Committee may cause appropriate entries to be made or
                           legends to be affixed to reflect such restrictions.
                           If any securities of the Company are traded on a
                           securities exchange, the Company shall not be
                           required to deliver any Shares or other securities
                           covered by an Award unless and until such Shares or
                           other securities have been admitted for trading on
                           such securities exchange.

SECTION 7.        AMENDMENT AND TERMINATION; CORRECTIONS

         (a)      AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
                  discontinue or terminate the Plan at any time; provided,
                  however, that, notwithstanding any other provision of the Plan
                  or any Award Agreement, without the approval of the
                  stockholders of the Company, no such amendment, alteration,
                  suspension, discontinuation or termination shall be made that,
                  absent such approval:

                  (i)      would violate the rules or regulations of the New
                           York Stock Exchange or any other securities exchange
                           that are applicable to the Company; or

                  (ii)     would cause the Company to be unable, under the Code,
                           to grant Incentive Stock Options under the Plan.

         (b)      AMENDMENTS TO AWARDS. Except as otherwise explicitly provided
                  herein, the Committee may waive any conditions of or rights of
                  the Company under any

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                  outstanding Award, prospectively or retroactively. Except as
                  otherwise provided herein or in the Award Agreement, the
                  Committee may not amend, alter, suspend, discontinue or
                  terminate any outstanding Award, prospectively or
                  retroactively, if such action would adversely affect the
                  rights of the holder of such Award, without the consent of the
                  Participant or holder or beneficiary thereof

                  (i)      PROHIBITION ON OPTION REPRICING. Except as provided
                           in Section 4(c) hereof, no Option may be amended to
                           reduce its initial exercise price and no Option shall
                           be canceled and replaced with an Option or Options
                           having a lower exercise price, without the approval
                           of the stockholders of the Company.

         (c)      CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
                  Committee may correct any defect, supply any omission or
                  reconcile any inconsistency in the Plan or any Award in the
                  manner and to the extent it shall deem desirable to carry the
                  Plan into effect.

SECTION 8.        TAX WITHHOLDING

         (a)      Participants are responsible for the payment of all income
                  taxes, employment, social insurance, welfare and other taxes
                  under applicable law relating to any amounts deemed under the
                  laws of the country of their residency or of the organization
                  of the participating Affiliate which employs them to
                  constitute income arising out of participation in the Plan. In
                  order to comply with all applicable national, federal, state
                  or local income tax laws or regulations, the Company may take
                  such action as it deems appropriate to ensure that all
                  applicable national, federal, state or local payroll,
                  withholding, income or other taxes, which are the sole and
                  absolute responsibility of a Participant, are withheld or
                  collected from such Participant, and, by accepting an Award
                  pursuant to the terms of this Plan and an Award Agreement,
                  each Participant hereby authorizes the Company or the relevant
                  participating Affiliate to make the appropriate withholding
                  from the Participant's compensation. In order to assist a
                  Participant in paying all or a portion of the national,
                  federal, state and local taxes to be withheld or collected
                  upon exercise or receipt of (or the lapse of restrictions
                  relating to) an Award, the Committee, in its discretion and
                  subject to such additional terms and conditions as it may
                  adopt, may permit the Participant to satisfy such tax
                  obligation by (i) electing to have the Company withhold a
                  portion of the Shares otherwise to be delivered upon exercise
                  or receipt of (or the lapse of restrictions relating to) such
                  Award with a Fair Market Value equal to the amount of such
                  taxes or (ii) delivering to the Company Shares other than
                  Shares issuable upon exercise or receipt of (or the lapse of
                  restrictions relating to) such Award with a Fair Market Value
                  equal to the amount of such taxes. The election, if any, must
                  be made on or before the date that the amount of tax to be
                  withheld is determined.

                                       11
<PAGE>

SECTION 9.        GENERAL PROVISIONS

         (a)      NO RIGHTS TO AWARDS. No Eligible Person, Participant or other
                  Person shall have any claim to be granted any Award under the
                  Plan, and there is no obligation for uniformity of treatment
                  of Eligible Persons, Participants or holders or beneficiaries
                  of Awards under the Plan. The terms and conditions of Awards
                  need not be the same with respect to any Participant or with
                  respect to different Participants.

         (b)      AWARD AGREEMENTS. No Participant will have rights under an
                  Award granted to such Participant unless and until an Award
                  Agreement shall have been duly executed on behalf of the
                  Company and, if requested by the Company, signed by the
                  Participant.

         (c)      PLAN PROVISIONS CONTROL. In the event that any provision of an
                  Award Agreement conflicts with or is inconsistent in any
                  respect with the terms of the Plan as set forth herein or
                  subsequently amended, the terms of the Plan shall control.

         (d)      NO RIGHTS OF SHAREHOLDERS. Except with respect to Shares of
                  Restricted Stock as to which the Participant has been granted
                  the right to vote, neither a Participant nor the Participant's
                  legal representative shall be, or have any of the rights and
                  privileges of, a stockholder of the Company with respect to
                  any Shares issuable to such Participant upon the exercise or
                  payment of any Award, in whole or in part, unless and until
                  such Shares have been issued in the name of such Participant
                  or such Participant's legal representative without restriction
                  thereto.

         (e)      NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
                  in the Plan shall prevent the Company or any Affiliate from
                  adopting or continuing in effect other or additional
                  compensation arrangements, and such arrangements may be either
                  generally applicable or applicable only in specific cases.

         (f)      NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
                  construed as giving a Participant the right to be retained in
                  the employ of the Company or any Affiliate, nor will it affect
                  in any way the right of the Company or an Affiliate to
                  terminate such employment at any time, with or without cause.
                  In addition, the Company or an Affiliate may at any time
                  dismiss a Participant from employment free from any liability
                  or any claim under the Plan or any Award, unless otherwise
                  expressly provided in the Plan or in any Award Agreement.
                  Nothing in this Plan shall confer on any person any legal or
                  equitable right against the Company or any Affiliate, directly
                  or indirectly, or give rise to any cause of action at law or
                  in equity against the Company or an Affiliate. The Awards
                  granted hereunder shall not form any part of the wages or
                  salary of any Eligible Person for purposes of severance pay or
                  termination indemnities, irrespective of the reason for
                  termination of employment. Under no circumstances shall any
                  person ceasing to be an employee of the Company or any
                  Affiliate be entitled to any compensation for any loss of any
                  right or benefit under the Plan which such employee might
                  otherwise have enjoyed but for termination of employment,
                  whether such compensation is claimed by way of damages for
                  wrongful or unfair dismissal,

                                       12
<PAGE>

                  breach of contract or otherwise. By participating in the Plan,
                  each Participant shall be deemed to have accepted all the
                  conditions of the Plan and the terms and conditions of any
                  rules and regulations adopted by the Committee and shall be
                  fully bound thereby.

         (g)      GOVERNING LAW. The validity, construction and effect of the
                  Plan or any Award, and any rules and regulations relating to
                  the Plan or any Award, shall be determined in accordance with
                  the internal laws, and not the law of conflicts, of the State
                  of Delaware.

         (h)      SEVERABILITY. If any provision of the Plan or any Award is or
                  becomes or is deemed to be invalid, illegal or unenforceable
                  in any jurisdiction or would disqualify the Plan or any Award
                  under any law deemed applicable by the Committee, such
                  provision shall be construed or deemed amended to conform to
                  applicable laws, or if it cannot be so construed or deemed
                  amended without, in the determination of the Committee,
                  materially altering the purpose or intent of the Plan or the
                  Award, such provision shall be stricken as to such
                  jurisdiction or Award, and the remainder of the Plan or any
                  such Award shall remain in full force and effect.

         (i)      NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
                  create or be construed to create a trust or separate fund of
                  any kind or a fiduciary relationship between the Company or
                  any Affiliate and a Participant or any other Person. To the
                  extent that any Person acquires a right to receive payments
                  from the Company or any Affiliate pursuant to an Award, such
                  right shall be no greater than the right of any unsecured
                  general creditor of the Company or any Affiliate.

         (j)      OTHER BENEFITS. No compensation or benefit awarded to or
                  realized by any Participant under the Plan shall be included
                  for the purpose of computing such Participant's compensation
                  under any compensation-based retirement, disability, or
                  similar plan of the Company unless required by law or
                  otherwise provided by such other plan.

         (k)      NO FRACTIONAL SHARES. No fractional Shares shall be issued or
                  delivered pursuant to the Plan or any Award, and the Committee
                  shall determine whether cash shall be paid in lieu of any
                  fractional Shares or whether such fractional Shares or any
                  rights thereto shall be canceled, terminated or otherwise
                  eliminated.

         (l)      HEADINGS. Headings are given to the Sections and subsections
                  of the Plan solely as a convenience to facilitate reference.
                  Such headings shall not be deemed in any way material or
                  relevant to the construction or interpretation of the Plan or
                  any provision thereof.

SECTION 10.       EFFECTIVE DATE OF THE PLAN

         The Plan shall be effective as of the date of its approval by the
stockholders of the Company.

                                       13
<PAGE>

SECTION 11.       TERMS OF THE PLAN

         Awards shall only be granted under the Plan during the period beginning
on the effective date of the Plan and ending on December 31, 2011, unless the
Plan is terminated earlier pursuant to Section 7(a) of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond the end of such 10-year period,
and the authority of the Committee provided for hereunder with respect to the
Plan and any Awards, and the authority of the Board of Directors of the Company
to amend the Plan, shall extend beyond the termination of the Plan.

                                       14Form of INDEMNIFICATION AGREEMENT

     This INDEMNIFICATION AGREEMENT, dated as of [insert date] (this
"Agreement"), is made and entered into by and between Scottish Annuity & Life
Holdings, Ltd., a Cayman Islands company (the "Company"), and
____________________ ("Indemnitee").

     WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;

     WHEREAS, Indemnitee is a director, officer, [employee and/or agent] of the
Company;

     WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors, officers,
[employees and/or agents] of companies in today's environment;

     WHEREAS, the Company's Articles of Association (the "Articles") provide
that the Company will indemnify its directors, officers, [employees and/or
agents] to the fullest extent permitted by law and will advance expenses in
connection therewith, and Indemnitee's willingness to serve as a director,
officer, [employee and/or agent] of the Company is based in part on Indemnitee's
reliance on such provisions; and

     WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and Indemnitee's reliance on the aforesaid
provisions of the Articles, and in part to provide Indemnitee with specific
contractual assurance that the protection promised by such provisions will be
available to Indemnitee regardless of, among other things, any amendment to or
revocation of such provisions or any change in the composition of the Company's
Board of Directors or any acquisition or business combination transaction
relating to the Company, the Company wishes to provide in this Agreement for the
indemnification of and the advancement of expenses to Indemnitee as set forth in
this Agreement.

     NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto hereby agree as follows:

     1. Certain Definitions.

          1.1 Claim. The term "Claim" shall mean any threatened, pending or
completed action, suit or proceeding, or any inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit or proceeding, whether civil, criminal, administrative,
investigative (including, without limitation, an action by or in the right of
the Company) or other.

          1.2 Indemnifiable Event. The term "Indemnifiable Event" shall mean any
actual or asserted event or occurrence related to the fact that Indemnitee is or
was a director, officer, employee, agent, or fiduciary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
trustee, agent, or fiduciary of another corporation,

<PAGE>

partnership, joint venture, employee benefit plan, trust, or other entity, or
anything done or not done by Indemnitee in any such capacity.

     2. Basic Indemnification Arrangement. (a) The Company shall indemnify, in
accordance with and to the fullest extent permitted by the laws of the State of
New York in effect on the date hereof or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification,
Indemnitee who was or is a party or is threatened to be made a party to any
Claim by reason of (or arising in whole or in part out of) an Indemnifiable
Event, against any liability or expense actually and reasonably incurred,
including, without limitation, attorney's fees and other fees and expenses,
judgments, fines and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of any such attorneys' fees and other fees and expenses, judgments, fines or
amounts paid in settlement) by Indemnitee in connection with such Claim or any
appeal therefrom, if Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the Company,
and, with respect to any criminal action, proceeding or investigation, had no
reasonable cause to believe his or her conduct was unlawful.

          (b) In the event Indemnitee was, is or becomes a party to or other
participant in, or is threatened to be made a party to or other participant in,
a Claim by or in the right of the Company to procure a judgment in its favor by
reason of (or arising in whole or in part out of) an Indemnifiable Event, the
Company will indemnify Indemnitee, in accordance with and to the fullest extent
permitted by the laws of the State of New York in effect on the date hereof or
as such laws may from time to time hereafter be amended to increase the scope of
such permitted indemnification, against costs, charges and expenses, including,
without limitation, attorneys' fees and other fees and expenses, actually and
reasonably incurred by Indemnitee in connection with such Claim or any appeal
therefrom, if Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made in respect of any such
Claim as to which Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent that the court in which such action, suit
or proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.

          (c) To the extent that the Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any Claim referred to in Sections 2(a) or 2(b)
hereof, Indemnitee shall be indemnified against costs, charges and expenses
(including attorneys' fees and other fees and expenses) actually and reasonably
incurred by him in connection therewith.

          (d) Directors of the Company shall have no personal liability to the
Company or its Members for monetary damages for breach of fiduciary or other
duties as a director, except (i) for any breach of a director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) a
payment of a dividend on stock of the Company or a purchase or redemption of
stock of the Company in violation of law, or (iv) for any transaction from which
a director derived an improper personal benefit.

                                       2

<PAGE>

          (e) Subject to Section 4(a), any indemnification under Sections 2(a)
or 2(b), unless ordered by a court, shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
Indemnitee is proper in the circumstances because Indemnitee has satisfied the
applicable standard set forth in Section 2(a) or 2(b), as the case may be.
Subject to Section 3(a), such determination shall be made (i) by the Board of
Directors of the Company (the "Board"), by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
(ii) if such a quorum of disinterested directors is not available or if such
disinterested directors so direct, by independent legal counsel (designated in
the manner provided below in this subsection (d)) in a written opinion or (iii)
by the shareholders of the Company (the "Shareholders") by a majority vote of
Shareholders present at a meeting at which a quorum is present. Independent
legal counsel shall be designated by vote of a majority of the disinterested
directors; provided, however, that if the Board is unable or fails to so
designate, such designation shall be made by the Indemnitee subject to the
approval of the Company which approval shall not be unreasonably withheld.
Independent legal counsel shall not be any person or firm who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or the Indemnitee in an
action to determine the Indemnitee's rights under this Agreement. The Company
agrees to pay the reasonable fees and expenses of such independent legal counsel
and to indemnify fully such counsel against costs, charges and expenses,
including, without limitation, attorneys' fees and other fees and expenses,
actually and reasonably incurred by such counsel in connection with this
Agreement or the opinion of such counsel pursuant hereto.

          (f) All expenses, including, without limitation, attorneys' fees and
other fees and expenses, incurred by Indemnitee in his capacity as a director,
officer, employee and/or agent of the Company in connection with a Claim shall
be paid by the Company in advance of the final disposition of such Claim in
accordance with and to the full extent now or hereafter permitted by law, and in
the procedural manner prescribed by Section 4(b) hereof.

     3. Exceptions to Indemnification; Allowance for Compliance with Commission
Requirements. (a) The Company shall not be obliged under this Agreement to make
any payment in connection with any claim against Indemnitee:

               (i) to the extent of any fine or similar governmental
     imposition which the Company is prohibited by applicable law, in a
     final nonappealable order, from paying; or

               (ii) to the extent based upon or attributable to Indemnitee
     gaining in fact a personal profit to which he or she was not legally
     entitled, including, without limitation, profits made from the
     purchase and sale by Indemnitee of equity securities of the Company
     which are recoverable by the Company pursuant to Section 16(b) of the
     Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
     profits arising from transactions in publicly traded securities of the
     Company which were effected by Indemnitee in violation of Section
     10(b) of the Exchange Act, including Rule 10b-5 promulgated
     thereunder.

          (b) Indemnitee acknowledges that the Securities and Exchange
Commission (the "Commission") has expressed the opinion that indemnification of
directors and officers from liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), is against public

                                       3
<PAGE>

policy as expressed in the Securities Act and is, therefore, unenforceable.
Indemnitee hereby acknowledges and agrees that it will not be a breach of this
Agreement for the Company to undertake with the Commission in connection with
the registration for sale of any shares or other securities of the Company from
time to time that, in the event a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director or officer of the Company in the successful defense of any action,
suit or proceeding) is asserted in connection with such shares or other
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of competent jurisdiction the question of whether or not such indemnification by
the Company is against public policy as expressed in the Securities Act and the
Company will be governed by the final adjudication of such issue. Indemnitee
further agrees that such submission to a court of competent jurisdiction shall
not be a breach of this Agreement.

     4. Certain Procedures Relating to Indemnification and Advancement of
Expenses. (a) For purposes of pursuing any rights to indemnification under
Sections 2(a) or 2(b) hereof, as the case may be, Indemnitee may, but shall not
be required to, (i) submit to the entity making the determination whether the
Indemnitee is entitled to indemnification (the "Determining Entity") a written
statement of request for indemnification stating that he or she is entitled to
indemnification hereunder and the basis for asserting such a claim for
indemnification; and (ii) present to the Company reasonable evidence of all
expenses for which payment is requested. Submission of such a written statement
to the Determining Entity shall create a presumption that the Indemnitee is
entitled to indemnification under Sections 2(a) or 2(b) hereof, as the case may
be, and the Determining Entity shall be deemed to have determined that
Indemnitee is entitled to such indemnification unless within 30 calendar days
after receipt of such written statement the Determining Entity shall determine
(i) in the case of a determination made by the Board, by a vote of a majority of
the directors who are not parties to such suit, action or proceeding at a
meeting at which a quorum is present, (ii) in the case of a determination made
by independent legal counsel, in its judgment, or (iii) in the case of a
determination made by the Shareholders, by a vote of a majority of the
Shareholders present at a meeting of Shareholders entitled to vote thereon at a
meeting at which a quorum is present, in each case based upon clear and
convincing evidence (sufficient to rebut the foregoing presumption) that
Indemnitee is not entitled to indemnification and Indemnitee shall have received
notice within such 30 calendar day period in writing of such determination that
Indemnitee is not so entitled to indemnification. The notice to the Indemnitee
specified in the preceding sentence shall disclose with particularity the
evidence in support of the Determining Entity's determination. The provisions of
this Section 4(a) are intended to be procedural only and shall not affect the
right of Indemnitee to indemnification under this Agreement and any
determination by the Determining Entity that the Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the written
statement for indemnification shall be subject to judicial review as provided in
Section 7 hereof.

          (b) For purposes of determining whether to authorize advancement of
expenses pursuant to Section 2(f) hereof, Indemnitee shall submit to the Board a
sworn statement of request for advancement of expenses substantially in the form
of Exhibit 1 attached hereto and made a part hereof (the "Undertaking"),
averring that (i) he or she has reasonably incurred or will reasonably incur
actual expenses in connection with a Claim and (ii) he or she undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company under this Agreement or otherwise.
Upon receipt of an

                                       4
<PAGE>

Undertaking, the Board shall within 10 calendar days authorize immediate payment
of the expenses stated in the Undertaking whereupon such payments shall
immediately be made by the Company. No security shall be required in connection
with any Undertaking and any Undertaking shall be accepted without reference to
the Indemnitee's ability to make repayment.

     5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, the Company will nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of any
or all Claims relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, including, without limitation, dismissal
without prejudice, Indemnitee shall be indemnified against all costs, charges
and expenses, including, without limitation, attorneys' fees and other fees and
expenses, incurred in connection therewith.

     6. No Presumption. For purposes of this Agreement, the termination of any
Claim by judgment, order, settlement (whether with or without court approval),
or conviction, or upon a plea of nolo contendere or its equivalent, will not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.

     7. Enforcement. (a) If a claim for indemnification made to the Company is
not paid in full by the Company within 30 calendar days after a written claim
has been received by the Company, the Indemnitee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim.

          (b) In any action brought under Section 7(a) hereof, it shall be a
defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
Undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has not met the standards of conduct which make it permissible under
this Agreement for the Company to indemnify the Indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Company. Neither
the failure of the Company, including the Board, independent legal counsel or
the Shareholders, to have made a determination prior to commencement of such
action that indemnification of the Indemnitee is proper in the circumstances
because he has met the applicable standard of conduct set forth in the this
Agreement, nor an actual determination by the Company, including the Board,
independent legal counsel or the Shareholders, that the Indemnitee has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct.

          (c) It is intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this

                                       5
<PAGE>

Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding designed (or having the effect of being designed) to deny, or to
recover from, the Indemnitee the benefits intended to be provided to the
Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time to retain counsel of his choice, at the expense of the Company as
hereinafter provided, to represent the Indemnitee in connection with the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges and expenses, including, without limitation, attorneys' and other fees
and expenses, reasonably incurred by the Indemnitee (i) as a result of the
Company's failure to perform this Agreement or any provision thereof or (ii) as
a result of the Company or any person contesting the validity or enforceability
of this Agreement or any provision thereof as aforesaid.

     8. Non-Exclusivity and Severability. (a) The rights of Indemnitee hereunder
will be in addition to any other rights Indemnitee may have under the Articles
or the Cayman Islands Companies Law (the "CICL") or otherwise; provided,
however, that to the extent that Indemnitee otherwise would have any greater
right to indemnification under any provision of the Articles or the CICL as in
effect on the date hereof, Indemnitee will be deemed to have such greater right
hereunder; and, provided further, that to the extent that any change is made to
the CICL (whether by legislative action or judicial decision) or the Articles
which permits any greater right to indemnification than that provided under this
Agreement as of the date hereof, Indemnitee will be deemed to have such greater
right hereunder. The Company will not adopt any amendment to the Articles the
effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under the Articles, the CICL, or otherwise as applied to any act
or failure to act occurring in whole or in part prior to the date upon which the
amendment was approved by the Company's Board of Directors and/or its
Shareholders, as the case may be.

          (b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other person or circumstance will not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal will be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid or legal.

     9. Liability Insurance and Funding. The Board of Directors may authorize
the Company to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another company, partnership, joint venture, trust or other enterprise, or in a
fiduciary or other capacity with respect to any employee benefit plan maintained
by the Company, against any liability asserted against him and incurred by him
in any such official capacity, or arising out of his status as such, whether or
not the Company would have the power to indemnify him against such liability
under the provisions contained in Articles ss.116. The Company may, but will not
be required to, create a trust fund, grant a security interest or use other
means, including without limitation a letter of credit, to ensure the payment of
such amounts as may be necessary to satisfy its obligations to indemnify and
advance expenses pursuant to this Agreement.

                                       6
<PAGE>

     10. Subrogation. In the event of payment under this Agreement, the Company
will be subrogated to the extent of such payment to all of the related rights of
recovery of Indemnitee against other persons or entities. Indemnitee will
execute all papers reasonably required and will do everything that may be
reasonably necessary to secure such rights and enable the Company effectively to
bring suit to enforce such rights, including all of Indemnitee's reasonable
costs and expenses, including attorneys' fees and disbursements, to be
reimbursed by, or at the option of Indemnitee advanced by, the Company.

     11. No Duplication of Payments. The Company will not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, the Articles or otherwise) of the amounts otherwise
indemnifiable hereunder.

     12. Defense of Claims. The Company will be entitled to participate in the
defense of any Claim or to assume the defense thereof, with counsel reasonably
satisfactory to the Indemnitee, provided that in the event that (i) the use of
counsel chosen by the Company to represent Indemnitee would present such counsel
with an actual or potential conflict, (ii) the named parties in any such Claim
(including any impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses available
to him or her that are different from or in addition to those available to the
Company, or (iii) any such representation by the Company would be precluded
under the applicable standards of professional conduct then prevailing, then
Indemnitee will be entitled to retain separate counsel at the Company's expense.
The Company will not, without the prior written consent of the Indemnitee,
effect any settlement of any threatened or pending Claim which the Indemnitee is
or could have been a party unless such settlement solely involves the payment of
money and includes an unconditional release of the Indemnitee from all liability
on any claims that are the subject matter of such Claim.

     13. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any person acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor will
thereafter be deemed the "Company" for purposes of this Agreement), but this
Agreement will not otherwise be assignable, transferable or delegable by the
Company.

          (b) This Agreement will inure to the benefit of and be enforceable by
Indemnitee's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.

          (c) This Agreement is personal in nature and neither of the parties
hereto may, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 13(a) and 13(b). Without

                                       7
<PAGE>

limiting the generality or effect of the foregoing, Indemnitee's right to
receive payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other than by
a transfer by Indemnitee's will or by the laws of descent and distribution and,
in the event of any attempted assignment or transfer contrary to this Section
13(c), the Company will have no liability to pay any amount so attempted to be
assigned, transferred or delegated.

     14. Notices. (a) For all purposes of this Agreement, all communications,
including, without limitation, notices, consents, requests or approvals,
required or permitted to be given hereunder will be in writing and may be given
by the Company to any Stockholder either personally or by sending it by post,
cable, email, telex or telecopy to him or to his address as shown in the
register of Shareholders, such notice, if mailed, to be forwarded airmail if the
address be outside the Cayman Islands.

          (b) Where a notice or other communication is sent by post, service of
the notice shall be deemed to be effected by properly addressing to the Company,
to the attention of the President of the Company, at its principle executive
office and to Indemnitee at Indemnitee's principal residence as shown in the
Company's most current records, pre-paying and posting a letter containing the
notice, and to have been effected at the expiration of sixty hours after the
letter containing the same is posted as aforesaid.

          (c) Where a notice or other communication is sent by cable, email,
telex, or telecopy, service of the notice shall be deemed to be effected by
properly addressing, and sending such notice through a transmitting organization
or medium (with receipt thereof orally confirmed) and to have been effected on
the day the same is sent as aforesaid.

     15. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of New York, without giving effect to the
principles of conflict of laws of such State, except that the provisions of
Section 8(a) hereof with respect to the scope of rights to indemnification under
the CICL shall be interpreted and construed under the laws of the Cayman
Islands.

     16. Consent to Jurisdiction, Venue and Service of Process. Each party
consents to non-exclusive jurisdiction of any New York state or federal court or
any court in any other jurisdiction in which a Claim is commenced by a third
person for purposes of any action, suit or proceeding hereunder, waives any
objection to venue therein or any defense based on forum non conveniens or
similar theories and agrees that service of process may be effected in any such
action, suit or proceeding by notice given in accordance with Section 14.

     17. Miscellaneous. No provision of this Agreement may be waived, modified
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Indemnitee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral

                                       8
<PAGE>

or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.

     18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.

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

                                     SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:

                                     INDEMNITEE:

                                     -------------------------------------------
                                     [Name of Indemnitee]

                                       9
<PAGE>

                                                                       Exhibit 1

                                   UNDERTAKING

CAYMAN ISLANDS

         I, ____________________, being first duly sworn do depose and say as
follows:

     1. This Undertaking is submitted pursuant to the Indemnification Agreement,
dated as of __________________, 20___, between Scottish Annuity & Life Holdings,
Ltd. (the "Company"), a Cayman Islands corporation and the undersigned.

     2. I am requesting advancement of certain costs, charges and expenses which
I have incurred or will incur in defending an actual or pending civil or
criminal action, suit, proceeding or claim.

     3. I hereby undertake to repay this advancement of expenses if it shall
ultimately be determined that I am not entitled to be indemnified by the Company
under the aforesaid Indemnification Agreement or otherwise.

     4. The costs, charges and expenses for which advancement is requested are,
in general, all expenses related to
                                    --------------------------------------------
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------.

                                    --------------------------------------------

     Subscribed and sworn to before me, a Notary Public in and for
                    , this     day of                   , 20  .
--------------------       ---        ------------------    --

                                    --------------------------------------------

[Seal]

     My commission expires the         day of                 , 20   .
                               -------        ----------------     --

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