Document:

exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”), made and entered into this 1st day of
October, 2005, by and between O2Diesel Corporation, a Delaware corporation (the “Company”), and
David H. Shipman (the “Executive”).

WITNESSETH

     WHEREAS, the Company desires to hire the Executive and the Executive desires to become
employed by the Company; and

     WHEREAS, the Company and the Executive have determined that it is in their respective best
interest to enter into this Agreement on the terms and conditions as set forth herein.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:

     1.    Employment. The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to serve the Company, upon the terms and conditions set forth herein.

     2.    Term. The employment of the Executive by the Company pursuant to this Agreement as
provided in Section 1 will commence on October 1, 2005 (the “Effective Date”), and continue until
the Executive’s employment is terminated as provided in Section 6 (the “Term”).

     3.    Position and Duties. The Executive shall serve as the Chief Financial Officer
(“CFO”), and shall have such responsibilities, duties and authority as are generally associated
with such office and as may from time to time be assigned to the Executive by the Company’s Board
of Directors (the “Board”) and the Company’s Chief Executive Officer that are consistent with such
responsibilities, duties and authority, including, but not limited to, responsibility for the
overall financial health and day-to-day financial operations of the Company on a worldwide basis.
The Executive shall perform his duties diligently and faithfully and shall devote substantially all
his working time and efforts to the business and affairs of the Company and its subsidiaries and
affiliates. The Executive shall, at all times during the Term, report directly to the Chief
Executive Officer. Notwithstanding anything in this Section 3 to the contrary, the Executive shall
not be required to perform any duties or responsibilities that would result in a violation of, or
noncompliance with, any law, regulation, regulatory pronouncement or any other regulatory
requirement applicable to the Company and the conduct of the Company’s business or to the Executive
in his capacity as CFO of the Company.

 

 

     4.    Compensation and Related Matters.

     4.1    Base Salary. In consideration of the services rendered to the Company hereunder
by the Executive and the Executive’s covenants hereunder, the Company shall, during the Term,
pay to the Executive an annual base salary at a rate of $177,500 (the “Base Salary”), less
statutory deductions and withholdings, payable in accordance with the Company’s normal payroll
practices. At least annually, the Company will review the Base Salary for competitiveness, the
stage of development of the Company and appropriateness in the industry.

     4.2    Annual Bonus. For each calendar year during the Term, the Executive shall be
eligible to receive a cash bonus of 50% of the Base Salary (the “Bonus”). Such Bonus shall be
payable at the sole discretion of the Board.

     4.3    Stock Options. The Company shall grant to Executive an option to purchase 450,000
shares of the Company’s common stock (the “Options”). The Options shall vest over 3 years in
accordance with the following vesting schedule: (i) thirty four percent (34%) after one year of
service, and (ii) the remaining sixty six percent (66%) every six months thereafter in equal
increments of sixteen and a half percent (16.5%). The term of the Options shall be ten years from
the Effective Date. The Options shall be issued pursuant to the Company’s 2004 Stock Incentive
Plan and will be evidenced by a Stock Option Grant Agreement, as modified to reflect the terms of
this Agreement. The strike price for the Options shall be $1.50, or as otherwise revised by the
Board. Irrespective of the date of grant, the vesting commencement date for any Options issued in
accordance with this Section 4.3 will be the Effective Date. The Options will be granted, to the
maximum amount of shares currently permitted by law, in the form of incentive stock options and the
remainder in non-qualified options.

     Notwithstanding the foregoing, all Options shall vest 100% immediately upon a Change in
Control as defined below. For purposes of this Section, a “Change in Control” shall be deemed to
occur in the event of a change in ownership or control of the Company effected through any of the
following transactions: (i) the acquisition, directly or indirectly, by any person or related group
of persons (other than the Company or a person that immediately before the Change of Control
directly or indirectly controls, or is controlled by, or is under common control with, the Company)
of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended) of outstanding securities possessing more than fifty percent (50%) of the total
combined voting power of the Company’s outstanding securities; (ii) the sale, transfer or other
disposition of all or substantially all of the Company’s assets; or (iii) the consummation of a
merger or consolidation of the Company with or into another entity or any other corporate
reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or
surviving entity’s securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization.

     4.4    Expenses. The Executive shall be entitled to receive prompt reimbursement for all
reasonable and customary expenses incurred by the Executive in performing services hereunder,
provided that such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.

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     4.5    Benefits.

             (a)    The company shall directly pay the insurance carrier for the premium costs of any medical
and dental plans under which Executive is covered during the Term. As
soon as practicable after the Effective Date, the Company agrees to either establish a Company
sponsored dental plan, which the Executive shall be able to participate in, or a provide reasonable
alternative.

             (b)    The Executive shall be entitled to a car allowance, not to exceed $1,000 per month during
the Term.

             (c)    The Executive shall be entitled to receive reimbursement for Executive’s certified public
accountant license fees and related continuing education classes not to exceed $2,500 per year
during the Term.

             (d)    The Executive shall be eligible to participate in any insurance coverage, including
health, dental, life and disability, and 401(k)/profit sharing or pension plans that cover or are
established for similarly situated full-time employees of the Company. The Executive’s
participation in the foregoing benefits will be subject to the terms of the applicable plan
documents and the Company’s generally applied policies, and the Company in its sole discretion may
from time to time adopt, modify or interpret such plans or policies.

             (e)    The executive shall be entitled to three weeks vacation each year.

     5.    D&O Insurance. As an officer of the Company, the Executive will be covered under
all of the Company’s Director’s and Officer’s liability insurance policies, which are in place and
updated over time. The Company shall indemnify Executive to the full extent permitted under
Delaware law for claims relating to his service as an officer of the Company.

     6.    Termination. The Executive’s employment hereunder may be terminated under the
following circumstances:

     6.1  Death or Disability. In the event of the Executive’s death or Disability (as
defined below) during the Term of this Agreement, the Executive’s employment hereunder shall
immediately and automatically terminate, and the Company shall have no further obligation or duty
to the Executive or his estate or beneficiaries other than for the Base Salary earned under this
Agreement to the date of termination, reimbursement of corporate expenses to which Executive would
otherwise be entitled, and any payments or benefits due under Company policies or benefit plans
which shall be paid within a reasonable time following death or Disability. For purposes of this
Agreement, “Disability” shall mean the physical or mental infirmity of Executive (including
Executive’s addiction to, or habitual abuse of, narcotics or controlled dangerous substances as
shall be substantiated medically at the industry standard for Executive at the time) which
infirmity causes him to be substantially unable to perform his duties hereunder for any period of
one hundred eighty (180) consecutive days; provided, however, that notwithstanding anything to the
contrary herein and despite any termination of Executive’s employment under this Section 6,
Executive or his estate shall be entitled in the event of a termination on account of death or
Disability: (i) to retain his disability benefits, which amounts shall not be offset by any
disability benefits received by Executive from any other source, (ii) to receive his Base Salary
until such time as he has commenced receiving disability payments under the Company’s policies,
(iii) to receive a prorated portion of the Bonus to which Executive would otherwise have been
entitled for the calendar year through the date of termination (as determined

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by the Board), and
(iv) accrued but unused vacation. Executive or his estate shall have a period of one (1) year
following the termination of his employment pursuant to this Section 6.1 to exercise any vested
Options. After 180 days, the Board may continue to pay Executive his Base Salary at its sole
discretion.

     6.2    Cause, Without Cause Termination by the Executive. Notwithstanding the provisions
of Section 2 of this Agreement, the Executive’s employment hereunder may terminate under the
following circumstances:

             (a)    Termination by the Company for Cause. The Board may terminate this Agreement for
Cause (as defined below) at any time, upon written notice to the Executive setting forth in
reasonable detail the nature of such Cause. For purposes of this Agreement, Cause is defined as
(i) the Executive’s material breach of Sections 7, 8, 9, 10 or 12 of this Agreement; (ii) the
Executive’s commission of any felony or any crime involving moral turpitude; or (iii) gross neglect
or willful misconduct by the Executive in connection with the performance of his material duties
hereunder, or his refusal to perform such material duties reasonably requested in the ordinary
course; provided, however, that the Company shall give Executive thirty (30) days’ written notice
and opportunity to cure prior to any termination for Cause based on the grounds specified in (i)
and (iii) above. Upon the termination for Cause of Executive’s employment, the Company shall have
no further obligation or liability to the Executive other than for Base Salary earned under this
Agreement prior to the date of termination, reimbursement for corporate expenses for which
Executive would otherwise be entitled, and any accrued but unused vacation. Executive’s vested but
unexercised Options shall expire immediately upon his termination for Cause pursuant to this
Section 6.2(a).

             (b)    Termination by the Company Without Cause. The Executive’s employment hereunder
may be terminated without Cause by the Company upon written notice to the Executive, provided,
however, that if the Company terminates the Executive’s employment without Cause, or the Executive
terminates his employment for Good Reason (as defined below) the Company shall (i) continue to pay
the Executive the Base Salary and shall reimburse medical and dental premiums, under the same
conditions as exist at the time of termination, for a severance period of twelve months, (ii) pay
to the Executive a prorated portion of the Bonus to which Executive would otherwise have been
entitled based on performance through the calendar quarter in which the termination has occurred,
(iii) reimburse Executive for corporate expenses for which Executive would otherwise be entitled,
(iv) cause any unvested Options granted to the Executive to immediately vest and (v) pay Executive
for any accrued but unused vacation. The Company’s obligations under this Section 6.2(b) are not
subject to any right of setoff and impose no duty to mitigate on Executive. As a condition of
receiving severance benefits pursuant to this Agreement, the Executive shall execute and deliver to
the Company prior to his receipt of such benefits a general release in substantially the form set
forth in Annex A hereto. The obligations of the Company under this Section 6.2(b) are
subject to Executive’s compliance with Sections 7, 8, 9 and 10 hereof.

             (c)    Termination by the Executive. The Executive may terminate his employment
hereunder for any reason upon one (1) month’s written notice to the Company (the “Notice Period”).
In the event Executive provides notice of termination pursuant to this Section 6.2(c), the Company
may elect to terminate Executive at any time during the Notice Period

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without such termination being deemed a termination by the Company under this Agreement;
provided that the Company shall nevertheless pay the Executive for any remaining portion of the
Notice Period an amount equal to the Base Salary and benefits at the rate of compensation the
Executive was receiving immediately before the Notice Period. The payments in the preceding
sentence shall be in addition to any other payments Executive is entitled to receive under this
Agreement as a result of the termination by Executive. The Executive may also terminate his
employment hereunder for “Good Reason,” within ninety (90) days after the occurrence of any of the
following events (i) a material breach of this Agreement by the Company; (ii) a material change in
the Executive’s duties or responsibilities inconsistent with his position as CFO, including any
reduction in Base Salary or Bonus opportunity; (iii) a change in the Executive’s reporting
relationship so that he no longer reports directly to the Chief Executive Officer; or (iv) a
relocation of the Executive’s worksite to a location fifty (50) miles or more from its current
location. The Executive shall give the Company thirty (30) days’ written notice and opportunity to
cure prior to any termination for Good Reason based on the grounds specified in (i) through (iii)
above.

     7.    Confidentiality, Disclosure of Information.

             (a) The Executive recognizes and acknowledges that the Executive has had and will have access
to Confidential Information (as defined below) relating to the business or interests of the Company
or of persons with whom the Company may have business relationships. Except as permitted herein,
the Executive will not during the Term, or at any time thereafter, use, disclose or permit to be
known by any other person or entity, any Confidential Information of the Company (except as
required by applicable law or as Executive deems necessary in connection with the performance of
the Executive’s duties and responsibilities hereunder). The term “Confidential Information” means
information relating to the Company’s business affairs, proprietary technology, trade secrets,
patented processes, research and development data, know-how, market studies and forecasts,
competitive analyses, pricing policies, employee lists, employment agreements (other than this
Agreement), personnel policies, the substance of agreements with customers, suppliers and others,
marketing arrangements, customer lists, commercial arrangements, or any other information relating
to the Company’s business that is not generally known to the public or to actual or potential
competitors of the Company (other than through a breach of this Agreement). This obligation shall
continue until such Confidential Information becomes publicly available, other than pursuant to a
breach of this Section 7 by the Executive, regardless of whether the Executive continues to be
employed by the Company.

             (b) It is further agreed and understood by and between the parties to this Agreement that all
“Company Materials,” which include, but are not limited to, computers, computer software, computer
disks, tapes, printouts, source, HTML and other code, flowcharts, schematics, designs, graphics,
drawings, photographs, charts, graphs, notebooks, customer lists, sound recordings, other tangible
or intangible manifestation of content, and all other documents whether printed, typewritten,
handwritten, electronic, or stored on computer disks, tapes, hard drives, or any other tangible
medium, as well as samples, prototypes, models, products and the like, shall be the exclusive
property of the Company and, upon termination of Executive’s employment with the Company, and/or
upon the request of the Company, all Company
Materials, including copies thereof, as well as all other Company property then in the
Executive’s possession or control, shall be returned to and left with the Company.

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     8.    Inventions Discovered by Executive. The Executive shall promptly disclose to the
Company any invention, improvement, discovery, process, formula, or method or other intellectual
property, whether or not patentable or copyrightable (collectively, “Inventions”), conceived or
first reduced to practice by the Executive, either alone or jointly with others, while performing
services hereunder (or, if based on any Confidential Information, within fifteen (15) months after
the Term), (a) which pertain to any line of business activity of the Company, whether then
conducted or then being actively planned by the Company, with which the Executive was or is
involved, (b) which is developed using time, material or facilities of the Company, whether or not
during working hours or on the Company premises, or (c) which directly relates to any of the
Executive’s work during the Term, whether or not during normal working hours. The Executive hereby
assigns to the Company all of the Executive’s right, title and interest in and to any such
Inventions. During the Term and for fifteen (15) months thereafter, the Executive shall execute
any documents necessary to perfect the assignment of such Inventions to the Company and to enable
the Company to apply for, obtain and enforce patents, trademarks and copyrights in any and all
countries on such Inventions, including, without limitation, the execution of any instruments and
the giving of evidence and testimony, without further compensation beyond the Executive’s agreed
compensation during the Term of the Executive’s employment; provided, however, that to the extent
Executive is asked to provide these services after the Term, he will be entitled to reasonable
compensation. Without limiting the foregoing, the Executive further acknowledges that all original
works of authorship by the Executive, whether created alone or jointly with others, related to the
Executive’s employment with the Company and which are protectable by copyright, are “works made for
hire” within the meaning of the United States Copyright Act, 17 U.S.C. § 101, as amended, and the
copyright of which shall be owned solely, completely and exclusively by the Company. If any
Invention is considered to be work not included in the categories of work covered by the United
States Copyright Act, 17 U.S.C. § 101, as amended, such work is hereby assigned or transferred
completely and exclusively to the Company. The Executive hereby irrevocably designates counsel to
the Company as the Executive’s agent and attorney-in-fact to do all lawful acts necessary to apply
for and obtain patents and copyrights and to enforce the Company’s rights under this Section. This
Section 8 shall survive the termination of this Agreement. Any assignment of a copyright hereunder
includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that
may be known as or referred to as “moral rights” (collectively “Moral Rights”). To the extent such
Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by
the laws in the various countries where Moral Rights exist, the Executive hereby waives such Moral
Rights and consents to any action of the Company that would violate such Moral Rights in the
absence of such consent. The Executive agrees to confirm any such waivers and consents from time
to time as requested by the Company.

     9.    Non-Competition and Non-Solicitation. The Executive acknowledges that the Company
has invested substantial time, money and resources in the development and retention of its
Inventions, Confidential Information (including trade secrets), customers, accounts and business
partners, and further acknowledges that during the course of the Executive’s employment with the
Company the Executive will have access to the Company’s Inventions and

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Confidential Information (including trade secrets), and will be introduced to existing and
prospective customers, accounts and business partners of the Company. The Executive acknowledges
and agrees that any and all “goodwill” associated with any existing or prospective customer,
account or business partner belongs exclusively to the Company, including, but not limited to, any
goodwill created as a result of direct or indirect contacts or relationships between the Executive
and any existing or prospective customers, accounts or business partners. Additionally, the
parties acknowledge and agree that Executive possesses skills that are special, unique or
extraordinary and that the value of the Company depends upon his use of such skills on its behalf.

     In recognition of this, the Executive covenants and agrees that:

             (a)    During the Term, and for a period of twelve (12) months thereafter, the Executive may not,
without the prior written consent of the Board, (whether as an employee, agent, owner, partner,
consultant, independent contractor, representative, stockholder or in any other capacity
whatsoever) participate in any business that offers products or services competitive in any way to
those offered by the Company or that were under active development by the Company during the Term,
provided that nothing herein shall prohibit the Executive from owning securities of corporations
which are listed on a national securities exchange or traded in the national over-the-counter
market in an amount which shall not exceed five percent (5%) of the outstanding shares of an such
corporation.

             (b)    During the Term, and for a period of twelve (12) months thereafter, the Executive may not
entice, solicit or encourage any Company employee to leave the employ of the Company or any
independent contractor to sever its engagement with the Company, absent prior written consent to do
so from the Board.

             (c)    During the Term, and for a period of twelve (12) months thereafter, the Executive may not,
directly or indirectly, entice, solicit or encourage any customer or prospective customer of the
Company to cease doing business with the Company, reduce its relationship with the Company or
refrain from establishing or expanding a relationship with the Company.

     Provided, however, that this Section 9 shall not apply if the Company terminates the Executive
Without Cause or Executive terminates this Agreement for Good Reason.

     10. Non-Disparagement. The Executive hereby agrees that during the Term, and for
twelve (12) months thereafter, the Executive will not make any statement that is disparaging about
the Company, any of its officers, directors, or shareholders (in their capacity as shareholders of
the Company), including, but not limited to, any statement that disparages the products, services,
finances, financial condition, capabilities or other aspect of the business of the Company.

     11. Provisions Necessary and Reasonable. (a) The Executive agrees that (i) the
provisions of Sections 7, 8, 9 and 10 of this Agreement are necessary and reasonable to protect the
Company’s Confidential Information, Inventions, and goodwill; (ii) the specific temporal and
substantive provisions set forth in Section 9 of this Agreement are reasonable and necessary to

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protect the Company’s business interests; and (iii) in the event of any breach of any of the
covenants set forth herein, the Company would suffer substantial irreparable harm and would not
have an adequate remedy at law for such breach. In recognition of the foregoing, the Executive
agrees that in the event of a breach or threatened breach of any of these covenants, in addition to
such other remedies as the Company may have at law, without posting any bond or security, the
Company shall be entitled to seek and obtain equitable relief, in the form of specific performance,
and/or temporary, preliminary or permanent injunctive relief, or any other equitable remedy which
then may be available. The seeking of such injunction or order shall not affect the Company’s
right to seek and obtain damages or other equitable relief on account of any such actual or
threatened breach.

             (a)    If any of the covenants contained in Sections 7, 8, 9 and 10 hereof, or any part thereof,
are hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of
the covenant or covenants, which shall be given full effect without regard to the invalid portions.

             (b)    If any of the covenants contained in Sections 7, 8, 9 and 10 hereof, or any part thereof,
are held to be unenforceable by a court of competent jurisdiction because of the temporal scope of
such provision or the area covered thereby, the parties agree that the court making such
determination shall have the power to reduce the duration of such provision and, in its reduced
form, such provision shall be enforceable.

     12.    Representations Regarding Prior Work and Legal Obligations.

             (a)    The Executive represents that the Executive has no agreement or other legal obligation
with any prior employer, or any other person or entity, that restricts the Executive’s ability to
accept employment with, or to perform any function for, the Company.

             (b)    The Executive has been advised by the Company that at no time should the Executive
divulge to or use for the benefit of the Company any trade secret or confidential or proprietary
information of any previous employer. The Executive expressly acknowledges that the Executive has
not divulged or used any such information for the benefit of the Company.

             (c)    The Executive acknowledges that the Executive has not and will not misappropriate any
Invention that the Executive played any part in creating while working for any former employer.

             (d)    The Executive acknowledges that the Company is basing important business decisions on
these representations, and affirms that all of the statements included herein are true.

     13.    Successors; Binding Agreement. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
If the Executive should die, all amounts due following the Executive’s death, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s
devisee, legatee, or other designee or, if there is no such designee, to the Executive’s estate.

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     14.    Notice. For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be deemed to have been
duly given when delivered or (unless otherwise specified) mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

David Shipman

121 Moore Drive

Media

PA, 19063

Tel: +1 610 872 4691

PERSONAL AND CONFIDENTIAL

If to the Company:

O2Diesel Corporation

100 Commerce Drive

Suite 300

Newark, Delaware 19713

Attn: Alan Rae

Fax: 302-266-7076

     or to such other address as any party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon receipt.

     15.    Miscellaneous. No provisions of this Agreement may be amended, modified, waived
or discharged unless such amendment, waiver, modification or discharge is agreed to in writing
signed by the Executive and such officer of the Company as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by such other party
shall 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 or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be binding on all successors to the Company.

     16.    Severability. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and affect.

     17.    Dispute Resolution. Any controversy or claim arising out of this Agreement or any
aspect of the Executive’s relationship with the Company including the cessation thereof (other than
disputes with respect to alleged violations of the covenants contained in Sections 7, 8,

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9 or 10 hereof), shall be resolved by arbitration in accordance with the then existing
Employment Dispute Resolution Rules of the American Arbitration Association, in Newark, Delaware,
and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The
parties shall split equally the costs of arbitration, except that each party shall pay its own
attorneys’ fees. The parties agree that the award of the arbitrator shall be final and binding.

     18.    Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by and construed and enforced in accordance with the internal laws of
the State of Delaware without regard to the principle of conflicts of laws.

     19.    Counterparts. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original but both of which together will constitute one and the same
instrument.

     20.    Survivorship. The respective rights and obligations of the parties to this
Agreement shall survive the termination of this Agreement or the Executive’s employment hereunder
for any reason to the extent necessary to the intended preservation of such rights and obligations.

     21.    Representation. The Company represents and warrants that it is fully authorized
and empowered to enter into this Agreement and that the performance of its obligations hereunder
shall not violate any agreement between the Company and any other person, firm or organization.

     22.    Entire Agreement. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is hereby terminated and
cancelled.

     23.    Headings. The parties acknowledge that the headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or construction of this
Agreement.

     24.    Advice of Counsel. The Executive and the Company hereby acknowledge that each
party has had adequate opportunity to review this Agreement, to obtain the advice of counsel with
respect to this Agreement, and to reflect upon and consider the terms and conditions of this
Agreement. The parties further acknowledge that each party fully understands the terms of this
Agreement and has voluntarily executed this Agreement.

[Signatures appear on following page]

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

	 	 	 	 	 
	EXECUTIVE

	 	 
	O2DIESEL CORPORATION
	 
	 	 	 	 
	/s/ David H. Shipman

	 	 	/s/ Alan R. Rae
	 

	 	 	 
	David Shipman

	 	 	Name: Alan Rae
	 

	 	 	Title:   Chief Executive Officer
	 
	 	 	 	 
	Dated: October, 1st 2005

	 	 	Dated: October, 1st 2005

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Annex A

Form of Release

Employee hereby expressly waives, releases, acquits and forever discharges the Company and its
divisions, subsidiaries, affiliates, parents, related entities, partners, officers, directors,
shareholders, investors, executives, managers, employees, agents, attorneys, representatives,
successors and assigns (hereinafter collectively referred to as “Releasees”), from any and all
claims, demands, and causes of action which Employee has or claims to have, whether known or
unknown, of whatever nature, which exist or may exist on Employee’s behalf from the beginning of
time up to and including the date of this Agreement. As used in this paragraph, “claims,”
“demands,” and “causes of action” include, but are not limited to, claims based on contract,
whether express or implied, fraud, stock fraud, defamation, wrongful termination, estoppel, equity,
tort, retaliation, intellectual property, personal injury, spoliation of evidence, emotional
distress, public policy, wage and hour law, statute or common law, claims for severance pay, claims
related to stock options and/or fringe benefits, claims for attorneys’ fees, vacation pay, debts,
accounts, compensatory damages, punitive or exemplary damages, liquidated damages, and any and all
claims arising under any federal, state, or local statute, law, or ordinance prohibiting
discrimination on account of race, color, sex, age, religion, sexual orientation, disability or
national origin, including but not limited to, the Age Discrimination in Employment Act, Title VII
of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, the Family and
Medical Leave Act or the Employee Retirement Income Security Act.

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OMNIBUS INSTRUMENT

     WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 30th day of September, 2005, relating to the issuance
by Principal Life Income Fundings Trust 2005-99 (the “Trust”) of Notes to investors under Principal
Life’s secured notes program;

     WHEREAS, the Trust is a trust and will be organized under and its activities will be governed
by the provisions of the Trust Agreement (set forth in Section A of this Omnibus Instrument), dated
as of the date of the Pricing Supplement (attached to this Omnibus Instrument as Exhibit D)
(the “Pricing Supplement”), by and between the parties thereto indicated in Section F herein;

     WHEREAS, certain expense and indemnification arrangements between Principal Life and the
Trustee, on behalf of itself and on behalf of the Trust, are governed pursuant to the provisions of
the Expense and Indemnity Agreement dated as of March 5, 2004, by and between Principal Life and
the Trustee;

     WHEREAS, certain licensing arrangements between the Trust and Principal Financial Services,
Inc. will be governed pursuant to the provisions of the License Agreement (set forth in Section B
of this Omnibus Instrument), dated as of the date of the Pricing Supplement, by and between the
parties thereto indicated in Section F herein;

     WHEREAS, certain custodial arrangements of the Funding Agreement and the Guarantee will be
governed pursuant to the provisions of the Custodial Agreement (the “Custodial Agreement”) dated as
of March 5, 2004 by and among Bankers Trust Company, N.A., acting as custodian (the “Custodian”),
the Indenture Trustee and the Trustee, on behalf of the Trust;

     WHEREAS, the Notes will be issued pursuant to the Indenture (set forth in Section C of this
Omnibus Instrument), dated as of the Original Issue Date, by and between the parties thereto
indicated in Section F herein;

     WHEREAS, the sale of the Notes will be governed by the Terms Agreement (set forth in Section D
of this Omnibus Instrument), dated the date of the Pricing Supplement, by and among the parties
thereto indicated in Section F herein; and

     WHEREAS, certain agreements relating to the Notes, the Funding Agreement and the Guarantee are
set forth in the Coordination Agreement (set forth in Section E of this Omnibus Instrument), dated
as of the date of the Pricing Supplement, by and among the parties thereto indicated in Section F
herein.

     All capitalized terms used herein and not otherwise defined will have the meanings set forth
in the Indenture.

[Remainder of Page Intentionally Left Blank.]

 

SECTION A

TRUST AGREEMENT

     This TRUST AGREEMENT (this “Trust Agreement”), dated as of the date of the
Pricing Supplement, is entered into by and between GSS Holdings II, Inc., a
Delaware corporation, as trust beneficial owner (the “Trust Beneficial Owner”),
and U.S. Bank Trust National Association, a national banking association, as
Trustee (the “Trustee”).

W I T N E S S E T H:

     WHEREAS, the Trust Beneficial Owner and the Trustee desire to authorize
the issuance of a Trust Beneficial Interest and a series of Notes in connection
with the entry into this Trust Agreement;

     WHEREAS, all things necessary to make this Trust Agreement a valid and
legally binding agreement of the Trustee and the Trust Beneficial Owner,
enforceable in accordance with its terms, have been done;

     WHEREAS, the parties intend to provide for, among other things, (i) the
issuance and sale of the Notes (pursuant to the Indenture, the Distribution
Agreement and the related Terms Agreement) and the Trust Beneficial Interest,
(ii) the use of the proceeds of the sale of the Notes and Trust Beneficial
Interest to acquire the Funding Agreement, the payment obligations of which
will be fully and unconditionally guaranteed by the Guarantee, and (iii) all
other actions deemed necessary or desirable in connection with the transactions
contemplated by this Trust Agreement; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard Trust Terms, dated as of March 5, 2004, and attached to the
Omnibus Instrument as Exhibit A (the “Standard Trust Terms”) and all
capitalized terms not otherwise defined herein (including the recitals hereof)
shall have the meanings set forth in the Standard Trust Terms (the Standard
Trust Terms and this Trust Agreement, collectively, the “Trust Agreement”).

     NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which are hereby acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard Trust Terms (except to the extent
expressly modified herein) are hereby incorporated herein by reference with the
same force and effect as though fully set forth herein. To the extent that the
terms set forth in Article 2 of this Trust Agreement are inconsistent with the
terms of the Standard Trust Terms, the terms set forth in Article 2 herein
shall apply.

A-1

 

ARTICLE 2

     Section 2.01 Name. The Trust created and governed by the Trust Agreement
shall be the trust specified in the Omnibus Instrument. The name of the Trust
shall be the name specified in the first paragraph of the Omnibus Instrument,
as such name may be modified from time to time by the Trustee following written
notice to the Trust Beneficial Owner.

     Section 2.02 Jurisdiction. The Trust is hereby organized in, and formed
under and pursuant to, the laws of the State of New York.

     Section 2.03 Initial Capital Contribution and Ownership. The Trust
Beneficial Owner has paid or has caused to be paid to, or to an account at the
direction of, the Trustee, on the date hereof, the sum of $15 (or, in the case
of Notes issued with original issue discount, such amount multiplied by the
issue price of the Notes). The Trustee hereby acknowledges receipt in trust
from the Trust Beneficial Owner, as of the date hereof, of the foregoing
contribution, which shall be used along with the proceeds from the sale of the
series of Notes to purchase the Funding Agreement. Upon the creation of the
Trust and the registration of the Trust Beneficial Interest in the Securities
Register (as defined in the Trust Agreement) by the Registrar in the name of
the Trust Beneficial Owner, the Trust Beneficial Owner shall be the sole
beneficial owner of the Trust.

     Section 2.04 Acknowledgment. The Trustee, on behalf of the Trust,
expressly acknowledges its duties and obligations set forth in the Standard
Trust Terms incorporated herein.

     Section 2.05 Additional Terms.

     None

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the Trust Agreement will enter into the Trust Agreement by
executing the Omnibus Instrument.

     By executing the Omnibus Instrument, the Trustee and the Trust Beneficial
Owner hereby agree that the Trust Agreement will constitute a legal, valid and
binding agreement between the Trustee and the Trust Beneficial Owner.

     All terms relating to the Trust or the series of Notes not otherwise
included in the Trust Agreement will be as specified in the Omnibus Instrument
or Pricing Supplement, as indicated herein.

A-2

 

     Section 2.07 Governing Law. The Trust Agreement will be governed by, and
construed in accordance with, the laws of the State of New York.

     Section 2.08 Counterparts. The Trust Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

A-3

 

SECTION B

LICENSE AGREEMENT

     This LICENSE AGREEMENT (this “License Agreement”), dated as of the date of
the Pricing Supplement, is entered into by and between Principal Financial
Services, Inc., an Iowa corporation with its principal place of business at 711
High Street, Des Moines, Iowa 50392 (the “Licensor”), and the Principal Life
Income Fundings Trust specified in the Omnibus Instrument (the “Licensee”).

W I T N E S S E T H:

     WHEREAS, the Licensor is the owner of certain trademarks and service marks
and registrations and pending applications therefor, and may acquire additional
trademarks and service marks in the future, all as described more fully below;

     WHEREAS, the Licensee desires to use certain of the Licensor’s trademarks
and service marks in connection with the Licensee’s activities, as described
more fully below;

     WHEREAS, the Licensor and the Licensee wish to formalize the agreement
between them regarding the Licensee’s use of the Licensor’s marks; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard License Agreement Terms, dated March 5, 2004, and attached to
the Omnibus Instrument as Exhibit B (the “Standard License Agreement Terms”)
and all capitalized terms not otherwise defined herein (including the recitals
hereof) shall have the meanings set forth in the Standard License Agreement
Terms (the Standard License Agreement Terms and this License Agreement,
collectively, the “License Agreement”).

     NOW, THEREFORE, in consideration of the mutual promises set forth herein
and for other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard License Agreement Terms (except to the
extent expressly modified herein) are hereby incorporated herein by reference
with the same force and effect as though fully set forth herein. To the extent
that the terms set forth in Article 2 of this License Agreement are
inconsistent with the terms of the Standard License Agreement Terms, the terms
set forth in Article 2 herein shall apply.

ARTICLE 2

     Section 2.01 Additional Terms.

     None

B-1

 

     Section 2.02 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the License Agreement will enter into the License Agreement
by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, the Licensor and the Licensee hereby
agree that the License Agreement will constitute a legal, valid and binding
agreement between the Licensor and the Licensee.

     All terms relating to the Trust or the Notes not otherwise included in the
License Agreement will be as specified in the Omnibus Instrument or Pricing
Supplement, as indicated herein.

     Section 2.03 Counterparts. The License Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

B-2

 

SECTION C

INDENTURE

     This INDENTURE (this “Indenture”) is entered into as of the Original Issue
Date by and between the Principal Life Income Fundings Trust specified in the
Omnibus Instrument (the “Trust”) and Citibank, N.A., as indenture trustee (the
“Indenture Trustee”).

     Citibank, N.A., in its capacity as indenture trustee, hereby accepts its
role as Registrar, Paying Agent, Transfer Agent and Calculation Agent
hereunder.

     References herein to “Indenture Trustee,” “Registrar,” “Transfer Agent,”
“Paying Agent” or “Calculation Agent” shall include the permitted successors
and assigns of any such entity from time to time.

W I T N E S S E T H:

     WHEREAS, the Trust has duly authorized the execution and delivery of this
Indenture to provide for the issuance of Notes;

     WHEREAS, all things necessary to make this Indenture a valid and legally
binding agreement of the Trust and the other parties to this Indenture,
enforceable in accordance with its terms, have been done, and the Trust
proposes to do all things necessary to make the Notes, when executed by the
Trust and authenticated and delivered pursuant hereto, valid and legally
binding obligations of the Trust as hereinafter provided; and

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard Indenture Terms, dated as of March 5, 2004, and attached to
the Omnibus Instrument as Exhibit C (the “Standard Indenture Terms”) and all
capitalized terms not otherwise defined herein (including the recitals hereof)
shall have the meanings set forth in the Standard Indenture Terms (the Standard
Indenture Terms and this Indenture, collectively, the “Indenture”).

     NOW, THEREFORE, for and in consideration of the premises and the purchase
of the Notes by the Holders thereof, it is mutually covenanted and agreed by
each of the parties hereto as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. All terms, provisions and
agreements set forth in the Standard Indenture Terms (except to the extent
expressly modified herein) are hereby incorporated herein by reference (with
the same force and effect as though fully set forth herein). To the extent
that the terms set forth in Article 2 of this Indenture are inconsistent with
the terms of the Standard Indenture Terms, the terms set forth in Article 2
herein shall apply.

C-1

 

ARTICLE 2

     Section 2.01 Agreement to be Bound. Each of the Trust, the Indenture
Trustee, the Registrar, the Transfer Agent, the Paying Agent and the
Calculation Agent hereby agrees to be bound by all of the terms, provisions and
agreements set forth in the Indenture, with respect to all matters contemplated
in the Indenture, including, without limitation, those relating to the issuance
of the below-referenced Notes.

     Section 2.02 Designation of the Trust, the Notes, the Funding Agreement
and the Guarantee. The Trust created by the Trust Agreement and referred to in
the Indenture is the Principal Life Income Fundings Trust specified in the
Omnibus Instrument. The Notes issued by the Trust and governed by the
Indenture shall be the Notes specified in the Pricing Supplement. The Funding
Agreement designated hereby is the Funding Agreement designated in the Pricing
Supplement dated as of the Original Issue Date between the Trust and Principal
Life. The Guarantee designated hereby is the Guarantee dated as of the Original
Issue Date of PFG.

     Section 2.03 Additional Terms.

     None

     Section 2.04 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to the Indenture will enter into the Indenture by executing
the Omnibus Instrument.

     By executing the Omnibus Instrument, the Indenture Trustee, the Registrar,
the Transfer Agent, the Paying Agent, the Calculation Agent and the Trust
hereby agree that the Indenture will constitute a legal, valid and binding
agreement between the Indenture Trustee, the Registrar, the Transfer Agent, the
Paying Agent, the Calculation Agent and the Trust.

     All terms relating to the Trust or the Notes not otherwise included in the
Indenture will be as specified in the Omnibus Instrument or Pricing Supplement,
as indicated herein.

     Section 2.05 Counterparts. The Indenture, through the Omnibus Instrument,
may be executed in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute one
and the same instrument.

[Remainder of Page Intentionally Left Blank.]

C-2

 

SECTION D

TERMS AGREEMENT

     This TERMS AGREEMENT (this “Terms Agreement”) is entered into as of the
Original Issue Date by and among Principal Life Insurance Company (“Principal
Life”), Principal Financial Group, Inc. (“PFG”), the Principal Life Income
Fundings Trust specified in the Omnibus Instrument (the “Trust”) and the
Purchasing Agent specified in the Pricing Supplement (the “Purchasing Agent”).

W I T N E S S E T H:

     WHEREAS, Principal Life, PFG and the agents named therein, including the
Purchasing Agent have entered into that certain Distribution Agreement dated
March 5, 2004 (the “Distribution Agreement”).

     NOW, THEREFORE, in consideration of the mutual promises set forth herein
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, each of the parties hereby agrees as follows:

ARTICLE 1

     Section 1.01 Incorporation by Reference. The provisions of the
Distribution Agreement and the related definitions (unless otherwise specified
herein) are incorporated by reference herein and shall be deemed to have the
same force and effect as if set forth in full herein.

ARTICLE 2

     Section 2.01 Addition of Trust as Party to Distribution Agreement.

     Pursuant to Section 1 of the Distribution Agreement, each of the
undersigned parties hereby acknowledges and agrees that the Trust, upon
execution hereof by the Trust and the other parties to the Distribution
Agreement (other than any other trusts organized in connection with the
Registration Statement that are party thereto as of the date hereof), shall
become a Trust for purposes of the Distribution Agreement in accordance with
the terms thereof, in respect of the Notes, with all the authority, rights,
powers, duties and obligations of a Trust under the Distribution Agreement.
The Trust confirms that any agreement, covenant, acknowledgment, representation
or warranty under the Distribution Agreement applicable to the Trust is made by
the Trust at the date hereof, unless another time or times are specified in the
Distribution Agreement, in which case such agreement, covenant, acknowledgment,
representation or warranty shall be deemed to be confirmed by the Trust at such
specified time or times.

     Section 2.02 Purchase of Notes as Principal.

     (a) Subject in all respects to the terms and conditions of the
Distribution Agreement, the Trust hereby agrees to sell to the Purchasing Agent
and the Purchasing Agent hereby agrees to purchase the Notes having the terms
specified in the Pricing Supplement relating to such Notes.

D-1

 

     (b) In connection with any purchase of Notes from the Trust by the
Purchasing Agent as principal, the parties agrees that the items specified on
Schedule I of the Omnibus Instrument will be delivered as of the Settlement
Date.

     Section 2.03 Termination. Upon the termination of this Terms Agreement
pursuant to Section 13(b) of the Distribution Agreement the undersigned parties
hereby agree to that the expenses reasonably incurred prior to or in connection
with such termination will be borne by Principal Life and PFG.

     Section 2.04 Governing Law. This Terms Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to the principles of conflicts of laws thereof.

     Section 2.05 Notices. For purposes of Section 14 of the Distribution
Agreement, the Trust’s communications details are as set forth in Section E of
the Omnibus Instrument.

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to this Terms Agreement will enter into this Terms Agreement
by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, each party hereto agrees that this
Terms Agreement will constitute a legal, valid and binding agreement by and
among such parties.

     All terms relating to the Trust or the Notes not otherwise included in
this Terms Agreement will be as specified in the Omnibus Instrument or Pricing
Supplement, as indicated herein.

     Section 2.07 Counterparts. This Terms Agreement, through the Omnibus
Instrument, may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.

[Remainder of Page Intentionally Left Blank.]

D-2

 

SECTION E

COORDINATION AGREEMENT

     This COORDINATION AGREEMENT (this “Coordination Agreement”), dated as of
the date of the Pricing Supplement, is entered into by and among Principal Life
Insurance Company (“Principal Life”), Principal Financial Group, Inc. (“PFG”),
the Principal Life Income Fundings Trust specified in the Omnibus Instrument
(the “Trust”), Principal Financial Services, Inc. (“PFSI”), Bankers Trust
Company, N.A. and Citibank, N.A., as indenture trustee (the “Indenture
Trustee”).

W I T N E S S E T H

     WHEREAS, the Trust will enter into the Funding Agreement with Principal
Life dated as of the Original Issue Date specified in the Pricing Supplement;

     WHEREAS, PFG will issue a Guarantee to the Trust as of the Original Issue
Date specified in the Pricing Supplement, which will fully and unconditionally
guarantee the payment obligations of Principal Life under the Funding
Agreement;

     WHEREAS, the Purchasing Agent (as defined in the Distribution Agreement)
have agreed to sell the Notes in accordance with the Registration Statement;

     WHEREAS, the Trust intends to issue the Notes in accordance with the
Indenture, to collaterally assign to, and grant a security interest in, the
Funding Agreement and the Guarantee to and in favor of the Indenture Trustee in
accordance with the Indenture to secure payment of the Notes;

     WHEREAS, the Custodian will hold the Funding Agreement and the Guarantee
on behalf of the Indenture Trustee pursuant to the terms of the Custodial
Agreement; and

     WHEREAS, certain licensing arrangements between the Trust and PFSI will be
governed pursuant to the provisions of the License Agreement.

     NOW, THEREFORE, to give effect to the agreements and arrangements
established under the Terms Agreement included in the Omnibus Instrument, as
applicable, the Trust Agreement, the Indenture and the Notes, and in
consideration of the agreements and obligations set forth herein and for other
good and valuable consideration, the sufficiency of which are hereby
acknowledged, each party hereby agrees as follows:

ARTICLE 1

     Section 1.01 Delivery of the Funding Agreement and the Guarantee. The
Trust hereby authorizes the Custodian, on behalf of the Indenture Trustee, to
receive the Funding Agreement from Principal Life and the Guarantee from PFG
pursuant to the assignment of the Funding Agreement and Guarantee (the
“Assignment”), to be entered into on the Original Issue Date, included in the
closing instrument dated as of the Original Issue Date (the “Closing
Instrument”).

E-1

 

     Section 1.02 Issuance and Purchase of the Notes.

     (a) Delivery of the Funding Agreement and the Guarantee to the Custodian,
on behalf of the Indenture Trustee, pursuant to the Assignment or execution of
the cross receipt contained in the Closing Instrument shall be confirmation of
payment by the Trust for the Funding Agreement.

     (b) The Trust hereby directs the Indenture Trustee, upon receipt by the
Custodian, on behalf of the Indenture Trustee, of the Funding Agreement
pursuant to the Assignment and upon receipt by the Custodian, on behalf of the
Indenture Trustee, of the Guarantee, (i) to authenticate the certificates
representing the Notes (the “Notes Certificates”) in accordance with the
Indenture and (ii) to (A) deliver each relevant Notes Certificate to the
clearing system or systems identified in each such Notes Certificate, or to the
nominee of such clearing system, or the custodian thereof, for credit to such
accounts as the Purchasing Agent may direct, or (B) deliver each relevant Notes
Certificate to the purchasers thereof as identified by the Purchasing Agent.

ARTICLE 2

     Section 2.01 Directions Regarding Periodic Payments. As registered owner
of the Funding Agreement and the Guarantee as collateral securing payments on
the Notes, the Indenture Trustee will receive payments on the Funding Agreement
and the Guarantee on behalf of the Trust. The Trust hereby directs the
Indenture Trustee to use such funds to make payments on behalf of the Trust
pursuant to the Trust Agreement and the Indenture.

     Section 2.02 Maturity of the Funding Agreement. Upon the maturity of the
Funding Agreement and the return of funds thereunder, the Trust hereby directs
the Indenture Trustee to set aside from such funds an amount sufficient for the
repayment of the outstanding principal on the Notes and Trust Beneficial
Interest when due.

ARTICLE 3

     Section 3.01 Certificates. Principal Life hereby agrees to deliver an
Officer’s Certificate, a copy of which is attached hereto as Exhibit E, on a
quarterly basis to any rating agency currently rating the Program. The Trust
hereby agrees to deliver an Officer’s Certificate, a copy of which is attached
hereto as Exhibit F, on a quarterly basis to any rating agency currently rating
the Program.

     Section 3.02 Filings. Principal Life hereby covenants to file, or cause
to be filed, in a timely manner on behalf of the Trust all reports,
certifications or similar filings required under the Securities Exchange Act of
1934, as amended.

ARTICLE 4

     Section 4.01 No Additional Liability. Nothing in this Coordination
Agreement shall impose any liability or obligation on the part of any party to
this Coordination Agreement to make any payment or disbursement in addition to
any liability or obligation such party has under the Program Documents, except
to the extent that a party has actually received funds which it is obligated to
disburse pursuant to this Coordination Agreement.

E-2

 

     Section 4.02 No Conflict. This Coordination Agreement is intended to be
in furtherance of the agreements reflected in the documents related to the
Program Documents, and not in conflict. To the extent that a provision of this
Coordination Agreement conflicts with the provisions of one or more Program
Documents, the provisions of such Program Documents shall govern.

     Section 4.03 Governing Law. This Coordination Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to the principles of conflicts of laws thereof.

     Section 4.04 Severability. If any provision in this Coordination
Agreement shall be invalid, illegal or unenforceable, such provision shall be
deemed severable from the remaining provisions of this Coordination Agreement
and shall in no way affect the validity or enforceability of such other
provisions of this Coordination Agreement.

     Section 4.05 Severability. If any provision in this Coordination
Agreement shall be invalid, illegal or unenforceable, such provision shall be
deemed severable from the remaining provisions of this Coordination Agreement
and shall in no way affect the validity or enforceability of such other
provisions of this Coordination Agreement.

     Section 4.06 Notices. All demands, notices and communications under this
Coordination Agreement shall be in writing and shall be deemed to have been
duly given upon receipt at the addresses set forth below:

	 	 	 
	To the Trust:
	 	 
	 
	

	 	Principal Life Income Fundings
Trust (followed by the number set forth in the Omnibus Instrument)
	

	 	c/o U.S. Bank Trust National Association
	

	 	100 Wall Street, 16th Floor
	

	 	New York, New York 10005
	

	 	Attention: Corporate Trust Administration
	

	 	Telephone: (212) 361-2458
	

	 	Facsimile: (212) 809-5459 and (212) 509-3384
	 
	To the Indenture Trustee:
	 	 
	 
	

	 	Citibank, N.A.
	

	 	Citibank Agency & Trust
	

	 	388 Greenwich Street, 14th Floor
	

	 	New York, New York 10013
	

	 	Attention: Nancy Forte
	

	 	Telephone: (212) 816-5685
	

	 	Facsimile: (212) 816-5527

E-3

 

	 	 	 
	To Principal Life:

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011
	 
	 	 	With a copy to:

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To PFG:

	 
	

	 	Principal Financial Group, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011
	 
	 	 	With a copy to:
	 	 
	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To Principal Financial
Services, Inc.:
	 	 
	 
	

	 	Principal Financial Services, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011

E-4

 

	 	 	 
	 	 	With a copy to:
	 	 
	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To Bankers Trust Company, N.A:
	 	 
	 
	

	 	Bankers Trust Company, N.A.
	

	 	665 Locust Street
	

	 	Des Moines, Iowa 50309-3702
	

	 	Attention: Angela C. Brick
	

	 	Telephone: (515) 245-2820
	

	 	Facsimile: (515) 247-2101

or at such other address as shall be designated by any such party in a written
notice to the other parties.

ARTICLE 5

     Section 5.01 Omnibus Instrument; Execution and Incorporation of Terms.

     The parties to this Coordination Agreement will enter into this
Coordination Agreement by executing the Omnibus Instrument.

     By executing the Omnibus Instrument, each party hereto agrees that this
Coordination Agreement will constitute a legal, valid and binding agreement by
and among the Trust, Principal Life, PFG, PFSI, the Custodian and the Indenture
Trustee.

     All terms relating to the Trust or the Notes not otherwise included in
this Coordination Agreement will be as specified in the Omnibus Instrument or
Pricing Supplement, as indicated herein.

     Section 5.02 Acknowledgment. Principal Life hereby acknowledges Section
2.10 of the Indenture and Section 6.1 of the Custodial Agreement. The Trust
hereby acknowledges and agrees to the terms of the Custodial Agreement.

     Section 5.03 Counterparts. This Coordination Agreement, through the
Omnibus Instrument, may be executed in any number of counterparts, each of
which counterparts shall be deemed to be an original, and all of which
counterparts shall constitute but one and the same instrument.

     Section 5.04 Capitalized Terms. All capitalized terms used herein and not
otherwise defined in this Coordination Agreement will have the meanings set
forth in the Indenture.

[Remainder of Page Intentionally Left Blank.]

E-5

 

SECTION F

MISCELLANEOUS AND EXECUTION PAGES

     This Omnibus Instrument may be executed by each of the parties hereto in any number of
counterparts, and by each of the parties hereto on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

     Each signatory, by its execution hereof, does hereby become a party to each of the agreements
or indenture identified for such party as of the date specified in such agreements or indenture.

     IN WITNESS WHEREOF, the undersigned have executed this Omnibus Instrument with respect to the
Notes as of the date first written above.

	 	 	 	 	 
	 	PRINCIPAL LIFE INSURANCE COMPANY (in executing below agrees and becomes a party to (i) the Terms Agreement set forth in Section D herein and (ii) the Coordination Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Christopher P. Freese
 	 
	 	 	Name:  	Christopher P. Freese 	 
	 	 	Title:  	Officer 	 
	 
	 	PRINCIPAL FINANCIAL GROUP, INC. (in executing below agrees and becomes a party to (i) the Terms Agreement set forth in Section D herein and (ii) the Coordination Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Elizabeth D. Swanson
 	 
	 	 	Name:  	Elizabeth D. Swanson 	 
	 	 	Title:  	Counsel 	 
	 
	 	PRINCIPAL FINANCIAL SERVICES, INC. (in executing below agrees and becomes a party to (i) the License Agreement set forth in Section B herein and (ii) the Coordination Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Elizabeth D. Swanson
 	 
	 	 	Name:  	Elizabeth D. Swanson 	 
	 	 	Title:  	Counsel 	 
	 

[Execution Page 1 of 3]

 

 

	 	 	 	 	 
	 	THE PRINCIPAL LIFE INCOME FUNDINGS TRUST DESIGNATED IN THIS OMNIBUS INSTRUMENT (in executing below agrees and becomes a party to (i) the License Agreement set forth in Section B herein, (ii) the Indenture set forth in Section C herein, (iii) the Terms Agreement set forth in Section D herein and (iv) the Coordination Agreement set forth in Section E herein)

By U.S. Bank Trust National Association, not in its individual capacity but solely in its capacity as trustee of the Trust

 	 
	 	By:  	/s/ Thomas E. Tabor
 	 
	 	 	Name:  	Thomas E. Tabor 	 
	 	 	Title:  	Vice President 	 
	 
	 	U.S. BANK TRUST NATIONAL ASSOCIATION (in executing below agrees and becomes a party to the Trust Agreement set forth in Section A herein), as Trustee

 	 
	 	By:  	/s/ Thomas E. Tabor
 	 
	 	 	Name:  	Thomas E. Tabor 	 
	 	 	Title:  	Vice President 	 
	 
	 	GSS HOLDINGS II, INC. (in executing below agrees and becomes a party to the Trust Agreement set forth in Section A herein), as Trust Beneficial Owner

 	 
	 	By:  	/s/ Andrew L. Stidd
 	 
	 	 	Name:  	Andrew L. Stidd 	 
	 	 	Title:  	President 	 
	 
	 	CITIBANK, N.A. (in executing below agrees and becomes a party to (i) the Indenture set forth in Section C herein, as Indenture Trustee, Registrar, Transfer Agent, Paying Agent and Calculation Agent and (ii) the Coordination Agreement set forth in Section E herein), as Indenture Trustee, Registrar, Transfer Agent, Paying Agent and Calculation Agent

 	 
	 	By:  	/s/ Nancy Forte
 	 
	 	 	Name:  	Nancy Forte 	 
	 	 	Title:  	Assistant Vice President 	 
	 

[Execution Page 2 of 3]

 

 

	 	 	 	 	 
	 	BANKERS TRUST COMPANY, N.A. (in executing below agrees and becomes a party to the Coordination Agreement set forth in Section E herein)

 	 
	 	By:  	/s/ Rick Greene
 	 
	 	 	Name:  	Rick Greene 	 
	 	 	Title:  	AVP- Officer 	 
	 
	 	MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (in executing below agrees and becomes a party to the Terms Agreement set forth in Section D herein)

 	 
	 	By:  	/s/ Diane Kenna
 	 
	 	 	Name:  	Diane Kenna 	 
	 	 	Title:  	Authorized Signatory 	 
	 

[Execution Page 3 of 3]

 

 

INDEX OF EXHIBITS AND SCHEDULES TO THE OMNIBUS INSTRUMENT

	 	 	 
	Exhibit A

	 	Standard Trust Terms – Incorporated herein by reference to
Exhibit 4.6 to Principal Life Insurance Company’s and Principal
Financial Group, Inc.’s Registration Statement on Form S-3
(Registration Nos. 333-110499 and 
333-110499-01).
	 
	 	 
	Exhibit B

	 	Standard License Agreement Terms – Incorporated herein by
reference to Exhibit 99.1 to Principal Life Insurance Company’s
Current Report on Form 8-K, filed on March 29, 2004.
	 
	 	 
	Exhibit C

	 	Standard Indenture Terms – Incorporated herein by reference to
Exhibit 4.1 to Principal Life Insurance Company’s and Principal
Financial Group, Inc.’s Registration Statement on Form S-3
(Registration Nos. 333-110499 and 
333-110499-01).
	 
	 	 
	Exhibit D

	 	Pricing Supplement – Incorporated herein by reference to the
Pricing Supplement with respect to Principal Life Income Fundings
Trust 2005-99, filed on October 3, 2005, with the Securities and
Exchange Commission pursuant to Rule 424(b)(5) under the
Securities Act of 1933, as amended.
	 
	 	 
	Exhibit E

	 	Principal Life Insurance Company Officer’s Certificate
	 
	 	 
	Exhibit F

	 	Principal Life Income Fundings Trusts Trustee Officer’s Certificate
	 
	 	 
	Schedule I

	 	Terms Agreement Specifications

I-1

 

 

EXHIBIT E

Principal Life Insurance Company

Officer’s Certificate

     The undersigned, an officer of Principal Life Insurance Company, an Iowa
stock life insurance company (“Principal Life”), does hereby certify to
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., in such capacity and on behalf of Principal Life, to the knowledge of the
undersigned and after reasonable inquiry, that:

	 	 	 
	1.

	 	each of the representations and warranties of Principal Life
contained in each Expense and Indemnity Agreement entered into in
connection with the Registration Statement (defined below), and each
Funding Agreement issued in connection with the Program (the
“Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and
correct on and as of the date hereof, with the same effect as though
such representation or warranty had been made on and as of the date
hereof;
	 
	2.

	 	no default under any of the Specified Agreements and no event
or any condition which, with notice or lapse of time or both, would
become a default, has occurred and is continuing as of the date
hereof;
	 
	3.

	 	Principal Life has performed and complied with, respectively,
in all material respects, all of the agreements, covenants,
obligations and conditions applicable to Principal Life required by
the Specified Agreements to be performed or complied with by
Principal Life on or before the date hereof;
	 
	4.

	 	the Registration Statement filed on Form S-3 (File Nos.
333-110499 and 333-110499-01) (the “Registration Statement”) by
Principal Life and Principal Financial Group, Inc. has been declared
effective by the Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the
“Act”) and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been commenced by or are pending before or contemplated
by the Commission;
	 
	5.

	 	all filings, if any, required by Rule 424 and Rule 430A under
the Act have been made in a timely manner;
	 
	6.

	 	since
     , the Trusts organized in connection with the
program contemplated by the Registration Statement have issued the
following series of Notes:
	 
	

	 	[List each series of Notes.] [(collectively, the “Designated Notes”)]; and
	 
	7.

	 	the Funding Agreements issued in connection with the Designated
Notes have been executed and delivered by Principal Life in accordance
with the terms and conditions of the Program Documents.

E-1

 

          Capitalized terms used herein and not otherwise defined herein shall have the meanings set
forth in the Standard Indenture Terms attached as Exhibit 4.1 to the
Registration Statement.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the • day of •, 200•.

	 	 	 
	

	[Name], [in his/her] capacity as an
authorized officer of Principal Life
	 
	 	By:
	 
	 	 	

	

	 	Name:
	

	 	Title:

	 	 	 	 	 

E-2

 

EXHIBIT F

Principal Life Income Fundings Trusts

Trustee Officer’s Certificate

     U.S. Bank Trust National Association, not in its individual capacity but
solely in its capacity as trustee acting on behalf of each common law trust
organized under the laws of the State of New York (in such capacity, the
“Trustee,” and each such common law trust being referred to herein as, a
“Trust”) in connection with the program contemplated by Registration Statement
Nos. 333-110499 and 333-110499-01 filed on Form S-3 (the “Registration
Statement”) by Principal Life Insurance Company and Principal Financial Group,
Inc. with the Securities and Exchange Commission, does hereby certify to
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., in such capacity and on behalf of each Trust, to the knowledge of the
Trustee, that:

	 	 	 
	1.

	 	each of the representations and warranties of each Trust
contained in the Notes issued in connection with the Program, each
Indenture entered into in connection with the Registration Statement
and the Expense and Indemnity Agreement concerning the Trusts (the
“Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and
correct on and as of the date hereof, with the same effect as though
such representation or warranty had been made on and as of the date
hereof;
	 
	2.

	 	no default under any of the Specified Agreements and no event
or any condition which, with notice or lapse of time or both, would
become a default, has occurred and is continuing as of the date
hereof;
	 
	3.

	 	each Trust has performed and complied with, respectively, in
all material respects, all of the agreements, covenants, obligations
and conditions applicable to such Trust required by the Specified
Agreements to be performed or complied with by such Trust on or
before the date hereof;
	 
	4.

	 	the Notes issued in connection with the Program, have been
issued, in all material respects, in accordance with the terms and
conditions of the Program Documents; and
	 
	5.

	 	each Funding Agreement has been executed and delivered by the
related Trust in accordance with the terms and conditions of the
Program Documents.

     Capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Standard Indenture Terms attached as Exhibit 4.1
to the Registration Statement. In no event shall U.S. Bank Trust National
Association in its personal corporate capacity have any liability for any of
the certifications or statements contained in this Trustee Officer’s
Certificate, such liability being solely that of each Trust.

F-1

 

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the • day of •, 200•.

	 	 	 
	

	 	U.S. Bank Trust National Association, not
in its capacity but solely in its capacity
as Trustee acting on behalf of each Trust
	 
	 	By:
	 
	 	 	

	

	 	Name:
	

	 	Title:

F-2

 

SCHEDULE I

Terms Agreement Specifications

      In connection with Section 3(a)(iv) of the Distribution Agreement, the Program under which the
Notes are issued is rated Aa2 by Moody’s Investors Service, Inc. (“Moody’s”) and AA by Standard &
Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. (“S&P”). Principal Life and
PFG expect that the Notes will be rated Aa2 by Moody’s. The Company’s financial strength rating is
Aa2 by Moody’s and AA by S&P. All capitalized terms used herein and not otherwise defined herein
will have the meanings set forth in the Distribution Agreement.

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