Document:

Execution Copy
	 

	 
		 
	 

	 
		$60,000,000
	 

	 
		Vion Pharmaceuticals, Inc.
	 

	 
		7.75% Convertible Senior Notes due
		2012
	 

	 
		Warrants to Purchase 7,800,000 Shares of
		Common Stock
	 

	 
		PURCHASE AGREEMENT
	 

	 
		February 13, 2007
	 

	 
		CRT Capital Group LLC
	 

	 
		262 Harbor Drive
	 

	 
		Stamford, CT 06902
	 

	 
		Ladies and Gentlemen:
	 

	 
		Vion Pharmaceuticals, Inc., a corporation
		organized under the laws of the State of Delaware (the “Company”), hereby confirms to CRT Capital Group LLC, a
		limited liability company organized under the laws of the State of Connecticut
		(“CRT” or the “Initial Purchaser”), its agreement to issue and sell to CRT certain
		notes and warrants as set forth below.
	 

	 
			
				
				   
				

			 	
				
				  1.
				

			 	
				
				  The Transactions.
				

			 

 

	 
		(a)          Subject
		to the terms and conditions herein contained, the Company proposes to issue and
		sell to the Initial Purchaser $60,000,000 aggregate principal amount of its
		7.75% Convertible Senior Notes due 2012 (the “Notes”)
		and warrants (the “Warrants”) to purchase an aggregate of 7,800,000 shares of
		the Company’s common stock, par value $0.01 per share (the
		“Common
		Stock”). The initial
		conversion rate of the Notes is 520.833 shares of Common Stock per each $1,000
		principal amount of Notes, subject to adjustment as described in the Indenture
		(as defined below). The Notes shall be convertible into shares of Common Stock
		and the Warrants shall be exercisable into shares of Common Stock
		(collectively, the “Shares”). The Notes and Warrants will have the terms and
		provisions which are described in the Offering Memorandum (as defined below)
		under the heading “Description of Securities” and such other terms as
		are customary. The Notes will be issued pursuant to the provisions of the
		Indenture (the “Indenture”), to be dated on or about February 20, 2007,
		between the Company and U.S. Bank National Association, as trustee (the
		“Trustee”) and shall be substantially in the form of the
		Form of Convertible Note attached as Exhibit A thereto (the
		“Form of
		Note”), and the Warrants will
		be issued pursuant to the terms of the form of warrant accompanying this
		Agreement (the “Form of
		Warrant”). The Notes, Warrants
		and the Shares are hereinafter referred to collectively as the
		“Securities.” The offer and sale of the Securities is
		hereinafter referred to as the “Offering.” Holders of the Securities will have the
		registration rights set forth in a registration rights agreement (the
		“Registration Rights
		Agreement”), to be dated as of
		February 20, 2007, between the Company and the Initial Purchaser, relating to
		the resale of the Notes and Shares under the Securities Act of 1933, as amended
		(the “Securities
		Act”).
	 

	 
		 
	 

	 
		 
	 

	 
	 

	 

	 
		(b)          In
		connection with the sale of the Securities, the Company has prepared and
		delivered to the Initial Purchaser an Offering Memorandum, dated the date
		hereof (the “Offering
		Memorandum”), and a
		Preliminary Offering Memorandum, dated January 25, 2007, as disseminated prior
		to the date hereof and as supplemented by the pricing supplement (the
		“Pricing
		Supplement”) disseminated
		prior to the execution of this Agreement and attached hereto as Exhibit A (the
		“Preliminary Offering
		Memorandum”), each in form and
		substance satisfactory to the Initial Purchaser and each setting forth
		information regarding the Company, the Securities, the terms of the Offering
		and the transactions contemplated by the Offering Documents (as defined below).
		The Preliminary Offering Memorandum and the Offering Memorandum each
		incorporates by reference the Company’s (i) Annual Report on Form 10-K for
		the year ended December 31, 2005; (ii) Quarterly Reports on Form 10-Q for the
		quarters ended March 31, 2006, June 30, 2006 and September 30, 2006; (iii)
		Current Reports on Form 8-K filed with the Securities and Exchange Commission
		(the “Commission”) on January 9, 2006, January 12, 2006, January
		31, 2006, February 3, 2006, February 14, 2006, March 14, 2006, April 5, 2006,
		May 12, 2006, May 24, 2006, June 2, 2006, June 6, 2006, June 29, 2006, July 19,
		2006, October 26, 2006, November 14, 2006, December 12, 2006, December 14,
		2006, December 19, 2006, January 17, 2007 and January 25, 2007; (iv) the
		Company’s description of its Common Stock contained in Item 1 of the
		registration statement on Form 8-A, filed with the Commission on January 31,
		1995; (v) the rights agreement, dated as of October 26, 1998, as amended on
		August 16, 2004; and (vi) the registration statement on Form 8-A, filed with
		the Commission on October 26, 1998, as amended by Amendment No. 1 thereto of
		Form 8-A/A filed with the Commission on August 16, 2004 (all such documents
		listed in clauses (i) through (vi) above (including documents incorporated
		therein) are referred to in this Agreement as the “Incorporated Documents”). Any references herein to the Preliminary
		Offering Memorandum and the Offering Memorandum shall be deemed to include, in
		each case, all amendments and supplements thereto and the Incorporated
		Documents and any amendments thereto made prior to the completion of the
		Offering. The Company hereby confirms that it has authorized the use of the
		Preliminary Offering Memorandum and the Offering Memorandum in connection with
		the offering and resale of the Securities by the Initial Purchaser.
	 

	 
		(c)          This
		Agreement, the Securities, the Form of Warrant, the Registration Rights
		Agreement, the Form of Convertible Note and the Indenture are herein referred
		to as the “Offering
		Documents.”
	 

	 
		2.            Representations and Warranties of the
		Company. The Company represents and
		warrants to and agrees with the Initial Purchaser:
	 

	 
		(a)          On
		the date hereof, the Offering Memorandum does not contain any untrue statement
		of a material fact, and does not omit to state a material fact necessary to
		make the statements therein, in the light of the circumstances under which they
		were made, not misleading, except that the representations and warranties set
		forth in this Section 2 do not apply to statements or omissions made in
		reliance upon and in conformity with information relating to the Initial
		Purchaser and furnished to the Company in writing by the Initial Purchaser
		expressly for use in the Offering 
	 

	 
		 
	 

	 
		 
	 

	 
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		Memorandum. No written order or injunction
		has been issued to the Company, and to the best of its knowledge, there are no
		injunctions (which have not been reduced to writing) that either (i) asserts
		that any of the transactions contemplated by the Offering Documents is subject
		to the registration requirements of the Securities Act or (ii) purports to
		prevent or suspend the issuance or sale of any of the Securities or the use of
		the Offering Memorandum in any jurisdiction. The Company has not distributed,
		and will not distribute, prior to the later of the Closing Date (as defined
		below) of the Offering (or any Additional Closing Date (as defined below)) and
		the completion of the Initial Purchaser’s distribution of the Securities,
		any offering material in connection with the offering and sale of the
		Securities other than the Preliminary Offering Memorandum and the Offering
		Memorandum.
	 

	 
		(b)          As
		of their respective filing dates, each of the Incorporated Documents complied
		in all material respects with the requirements of the Securities Act or the
		Exchange Act of 1934, as amended (the “Exchange Act”), as applicable, and the rules and regulations of
		the Commission thereunder applicable to the Incorporated Documents, and as of
		their respective filing dates, no Incorporated Document contained any untrue
		statement of a material fact or omitted to state any material fact required to
		be stated therein or necessary to make the statements therein, in the light of
		the circumstances under which they were made, not misleading. As of their
		respective filing dates, the financial statements of the Company included in
		the Incorporated Documents complied as to form in all material respects with
		then applicable accounting requirements and with the published rules and
		regulations of the Commission with respect thereto, were prepared in accordance
		with generally accepted accounting principles in the United States, applied
		consistently with the past practices of the Company, and as of their respective
		dates, fairly presented in all material respects the financial position of the
		Company and the results of its operations as of the time and for the periods
		indicated therein (except as may be indicated in the notes thereto or, in the
		case of the unaudited statements, as permitted by Form 10-Q, and Regulations
		S-K and S-X of the Commission). The financial and statistical information
		included or incorporated by reference in the Offering Memorandum presents
		fairly the information included therein and, if so required, has been prepared
		on a basis consistent with that of the financial statements that are included
		in the Incorporated Documents and is derived from the books and records of the
		respective entities presented therein and, to the extent such information is a
		range, projection or estimate, is based on the good faith belief and estimates
		of the management of the Company.
	 

	 
		(c)          The
		Company understands and confirms that the Initial Purchaser will rely on the
		representations set forth herein in effecting transactions in the
		Securities.
	 

	 
		(d)          Subsequent
		to the respective dates as of which information is given in the Offering
		Memorandum, except as disclosed in the Offering Memorandum, the Company has not
		declared, paid or made any dividends or other distributions of any kind on or
		in respect of its capital stock and there has been no adverse change or
		development which could, individually or in the aggregate, have or result in a
		material adverse change, whether or not arising from transactions in the
		ordinary course of business, in or affecting (i) the business, condition,
		financial or otherwise, results of operations, stockholders’ 
	 

	 
		 
	 

	 
		 
	 

	 
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		equity, properties or prospects of the
		Company and the subsidiaries of the Company (each a “Subsidiary,” and
		collectively, the “Subsidiaries”) taken as a whole; (ii) the
		long-term debt or capital stock of the Company and the Subsidiaries taken as a
		whole; or (iii) the ability of the Company to consummate the Offering or any of
		the other transactions contemplated by the Offering Documents (any such change
		or development being a “Material
		Adverse Effect”). Since the
		date of the latest balance sheet incorporated by reference into the Offering
		Memorandum, neither the Company nor any Subsidiary has incurred or undertaken
		any liabilities or obligations, whether direct or indirect, accrued or
		absolute, liquidated or contingent, matured or unmatured, or entered into any
		transactions, including any acquisition or disposition of any business or
		asset, which are material to the Company and the Subsidiaries, individually or
		taken as a whole, except for liabilities, obligations and transactions which
		are disclosed in the Offering Memorandum.
	 

	 
		(e)          Except
		as contemplated by this Agreement, the Offering Documents or as disclosed in
		the Offering Memorandum or the Incorporated Documents, since September 30,
		2006, through the date immediately preceding the Closing Date, the Company has
		not (i) made an original issue of stock, options, bonds or other corporate
		securities other than pursuant to the Company’s stock and option plans or
		upon the exercise of warrants outstanding prior to the such date, (ii) borrowed
		any amount or incurred or became subject to any liabilities (absolute, accrued
		or contingent), other than current liabilities incurred in the ordinary course
		of business and liabilities under contracts entered into in the ordinary course
		of business, (iii) discharged or satisfied any lien, charge, mortgage, pledge,
		security interest, claim, equity, trust or other encumbrance, preferential
		arrangement, defect or restriction of any kind whatsoever (any
		“Lien”) or adverse claim or paid any obligation or
		liability (absolute, accrued or contingent), other than current liabilities
		incurred in the ordinary course of business, (iv) declared or made any payment
		or distribution of cash or other property to the stockholders of the Company or
		purchased or redeemed any securities of the Company other than pursuant to
		restricted stock agreements under the Company’s 2005 Stock Incentive Plan,
		(v) mortgaged, pledged or subjected to any Lien or adverse claim any of the
		Company’s properties or assets, except for Liens for taxes not yet due and
		payable or otherwise in the ordinary course of business, (vi) sold, assigned or
		transferred any of its assets, tangible or intangible, except in the ordinary
		course of business or in an aggregate amount less than $250,000, (vii) suffered
		any extraordinary losses or waived any rights of material value other than in
		the ordinary course of business, (viii) made any capital expenditures or
		commitments therefor other than in the ordinary course of business or in an
		aggregate amount less than $250,000, (ix) entered into any other transaction
		other than in the ordinary course of business in an aggregate amount less than
		$250,000 or entered into any material transaction, whether or not in the
		ordinary course of business, (x) made any charitable contributions or pledges
		in an aggregate amount in excess of $25,000, (xi) suffered any damages,
		destruction or casualty loss, whether or not covered by insurance, affecting
		any of the properties or assets of the Company which individually or in the
		aggregate would reasonably be expected to have or result in a Material Adverse
		Effect, (xii) made any material change in the nature or operations of the
		business of the Company or (xiii) entered into any agreement or commitment to
		do any of the foregoing.
	 

	 
		 
	 

	 
		 
	 

	 
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		(f)           The
		authorized, issued and outstanding capital stock of the Company is as set forth
		in the Offering Memorandum (as of the dates set forth in the Offering
		Memorandum) and, after giving effect to the Offering, will be as set forth in
		the Offering Memorandum. Except as disclosed in the Offering Memorandum, all of
		the issued and outstanding shares of capital stock of the Company are fully
		paid and non-assessable and have been duly and validly authorized and issued,
		in compliance with all applicable federal, state and foreign securities laws
		and are not in violation of or subject to any preemptive or similar right that
		does or will entitle any person, upon the issuance or sale of any security, to
		acquire from the Company any Common Stock or other security of the Company or
		any security convertible into, or exercisable or exchangeable for, Common Stock
		or any other such security (any “Relevant Security”).
	 

	 
		(g)          The
		Shares have been duly authorized and reserved, and if and when issued upon
		conversion of the Notes in accordance with their terms and the Indenture, or
		upon exercise of the Warrants in accordance with the Form of Warrant, will be
		validly issued, fully paid and non-assessable, free of any preemptive or
		similar rights and any Liens; will have been issued in compliance with all
		applicable federal, state and foreign securities laws, will not have been
		issued in violation of or subject to any preemptive or similar right that does
		or will entitle any person to acquire any Relevant Security from the Company
		upon issuance or sale of the Securities, and, except as disclosed in the
		Offering Memorandum, will not be subject to any restriction upon the voting or
		transfer thereof pursuant to applicable law or the Company’s certificate
		of incorporation (as amended), bylaws or governing documents or any agreement
		to which the Company is a party or by which any of them may be bound.
	 

	 
		(h)          The
		Common Stock (including the Shares) conforms to the descriptions thereof
		contained in the Offering Memorandum. Except as disclosed in, and as of the
		date or dates disclosed in, the Offering Memorandum, neither the Company nor
		any Subsidiary has any outstanding warrants, options to purchase, or any
		preemptive rights or other rights to subscribe for or to purchase, or any
		contracts or commitments to issue or sell, any Common Stock or other security
		of the Company or any Subsidiary or any security convertible into, or
		exercisable or exchangeable for, Common Stock or any other such
		security.
	 

	 
		(i)           Each
		of the Subsidiaries is wholly-owned by the Company. Neither of the Subsidiaries
		is a “significant subsidiary” of the Company within the meaning of
		Regulation S-X promulgated under the Securities Act. Neither of the
		Subsidiaries has any material operations, assets or liabilities.
	 

	 
		(j)           The
		Company has been duly organized and validly exists as a corporation in good
		standing under the laws of its jurisdiction of incorporation. The Company has
		all requisite power and authority to carry on its business as it is currently
		being conducted and as described in the Offering Memorandum, and to own, lease
		and operate its respective properties. The Company is duly qualified to do
		business and is in good standing as a foreign corporation in each jurisdiction
		in which the character or location of its properties (owned, leased or
		licensed) or the nature or conduct of its business makes such qualification
		necessary, except for those failures to be so qualified 
	 

	 
		 
	 

	 
		 
	 

	 
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		or in good standing which would not
		reasonably be expected (individually and in the aggregate) to have or result in
		a Material Adverse Effect.
	 

	 
		(k)          The
		Company has the requisite power and authority to execute, deliver and perform
		its obligations under the Notes and Warrants. The Notes and Warrants have been
		duly and validly authorized by the Company for issuance and, (i) the Notes when
		executed by the Company and authenticated by the Trustee in accordance with the
		provisions of the Indenture and when delivered to and paid for by the Initial
		Purchaser in accordance with the terms hereof, will have been duly executed,
		issued and delivered and will constitute valid and legally binding obligations
		of the Company free of any Liens, entitled to the benefits of the Indenture and
		(ii) the Warrants, when delivered to and paid for by the Initial Purchaser in
		accordance with the terms hereof, will have been duly executed, issued and
		delivered and will constitute valid and legal binding obligations of the
		Company free of any Liens, entitled to the benefits of the terms thereof. The
		Securities are enforceable against the Company in accordance with their terms
		except that the enforcement thereof may be limited by (A) bankruptcy,
		insolvency, fraudulent transfer, reorganization, moratorium or other similar
		laws now or hereafter in effect relating to or affecting creditors’ rights
		generally, and (B) general principles of equity (regardless of whether such
		enforcement is considered in a proceeding at law or in equity) ((A) and (B)
		collectively, the “Enforceability Exceptions”) and will be convertible or exercisable into the
		shares of Common Stock in accordance with their terms. At the Closing Date, the
		Notes will be in the form contemplated by the Indenture and the Form of Note
		and the Warrants will be in the form contemplated by the Form of
		Warrant.
	 

	 
		(l)           The
		Company has the requisite power and authority to execute, deliver and perform
		its obligations under the Indenture. The Indenture has been duly and validly
		authorized by the Company and meets the requirements for qualification under
		the Trust Indenture Act of 1939, as amended (the “TIA”), and when
		executed and delivered by the Company (assuming the due authorization,
		execution and delivery by the Trustee), will constitute a valid and legally
		binding agreement of the Company, enforceable against the Company in accordance
		with its terms, except that the enforcement thereof may be limited by the
		Enforceability Exceptions.
	 

	 
		(m)         The
		Company has the requisite power and authority to execute, deliver and perform
		its obligations under the Offering Documents. Each of the Offering Documents
		has been duly and validly authorized by the Company and when executed and
		delivered by the Company (assuming the due authorization, execution and
		delivery by the other parties thereto), will constitute a valid and legally
		binding agreement of the Company, enforceable against the Company in accordance
		with its terms, except that the enforcement thereof may be limited by the
		Enforceability Exceptions.
	 

	 
		(n)          There
		exists as of the date hereof (after giving effect to the transactions
		contemplated by each of the Offering Documents) no event or condition that
		would constitute a default or an event of default by the Company under any of
		the Offering Documents.
	 

	 
		 
	 

	 
		 
	 

	 
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		(o)          The
		execution, delivery, and performance of the Offering Documents by the Company
		and the consummation by the Company of the transactions contemplated by the
		Offering Documents do not and will not conflict with, require consent under, or
		result in a breach of any of the terms and provisions of, or constitute a
		default (or an event which with notice or lapse of time, or both, would
		constitute a default) under or violate or result in the creation or imposition
		of any Lien upon any property or assets of the Company pursuant to, (i) any
		indenture, contract, lease, mortgage, deed of trust, note agreement, loan
		agreement or other agreement, obligation, condition, covenant, instrument,
		franchise, license or permit to which the Company is a party or by which the
		Company or its properties, operations or assets may be bound; (ii) any
		provision of the certificate or articles of incorporation, bylaws or other
		organizational documents of the Company; or (iii) any law, rule, regulation,
		ordinance, directive, judgment, decree or order of any judicial, regulatory or
		other legal or governmental agency or body, domestic or foreign, having
		jurisdiction over the Company or any of its properties; except, in the case of
		clauses (i) and (iii) above, as have been or will be obtained, as may be
		required under Federal or state securities laws in connection with the filing
		and effectiveness of the Shelf Registration Statement as contemplated by the
		Registration Rights Agreement, under Federal or state securities laws in
		connection with the distribution of the Securities by the Initial Purchaser, in
		connection with the qualification of the Indenture under the TIA or in
		connection with the listing of the Shares on the Nasdaq Capital Market, or
		would not reasonably be expected to have a Material Adverse Effect.
	 

	 
		(p)          The
		Company has such permits, licenses, consents, exemptions, franchises,
		authorizations and other approvals (each, a “Consent”) of, and has made all filings with and given all
		notices to, all governmental or regulatory authorities and self-regulatory
		organizations and all courts and other tribunals as are necessary to own,
		lease, license and operate its respective properties and to conduct its
		business as presently conducted and as described in the Offering Memorandum,
		and, in all material respects is complying therewith, except where the failure
		to have any such Consent or to make any such filing or notice would not
		reasonably be expected to have, either singly or in the aggregate, a Material
		Adverse Effect. The Company is in compliance in all material respects with the
		rules, regulations and applicable laws and orders of the authorities and
		governing bodies having jurisdiction with respect thereto; and to the knowledge
		of the Company no event has occurred (including), without limitation, the
		receipt of any notice from any such authority or governing body) that would
		result in or, after notice or lapse of time or both, would result in,
		revocation, suspension or termination of any such Consent or would result in
		or, after notice or lapse of time or both, would result in any other impairment
		of the rights of the holder of any such Consent; except where such failure to
		be in compliance or the occurrence of any such event or the presence of any
		such restriction would not reasonably be expected to have, either singly or in
		the aggregate, a Material Adverse Effect.
	 

	 
		(q)          No
		Consent, filing, order, registration, approval, authorization qualification of,
		with or from any judicial, regulatory or other legal or governmental agency or
		body or any third party, foreign or domestic, is required by the Company for
		the execution, delivery and performance of the Offering Documents, or
		consummation of 
	 

	 
		 
	 

	 
		 
	 

	 
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		the Offering and the other transactions
		contemplated by the Offering Documents, including the issuance, sale and
		delivery of the Notes and the Warrants (and the issuance of the Shares upon
		conversion of the Notes and exercise of the Warrants), except such Consents as
		may be required under the rules of the Nasdaq Stock Market or state securities
		or “blue sky” laws or the approval of the Commission of a resale
		registration statement on Form S-3 as contemplated by the Registration Rights
		Agreement. No consent, approval or authorization of the stockholders of the
		Company is required in connection with the issuance of the Securities.
	 

	 
		(r)           Except
		as disclosed in the Offering Memorandum, there is no judicial, regulatory,
		arbitral or other legal or governmental proceeding or other claim, action,
		suit, inquiry, litigation, Commission comment letters, or arbitration, domestic
		or foreign, pending to which the Company is a party or of which any property,
		operations or assets of the Company is the subject which, individually or in
		the aggregate, if determined adversely to the Company, would reasonably be
		expected to have a Material Adverse Effect, and to the best of the
		Company’s knowledge, no such proceeding, claim, action, suit, litigation
		or arbitration is threatened or contemplated.
	 

	 
		(s)           The
		financial statements, including the notes thereto, included in the Incorporated
		Documents are true, correct and complete copies of the consolidated audited
		balance sheets of the Company at December 31, 2004 and 2005 and the related
		consolidated audited statements of operations, changes in stockholders’
		equity (deficit) and comprehensive income (loss) and cash flows for the years
		ended December 31, 2004 and 2005 and present fairly, in all material respects,
		as of the dates and for the periods specified, the financial position, cash
		flows and results of operations of the Company and its consolidated
		subsidiaries for which financial statements are included in the Incorporated
		Documents; such financial statements have been prepared in conformity with
		United States generally accepted accounting principles applied on a consistent
		basis throughout the periods involved (except as otherwise noted therein); and
		the financial and statistical information included or incorporated by reference
		in the Offering Memorandum presents fairly the information included therein
		and, if so required, has been prepared on a basis consistent with that of the
		financial statements that are included in the Incorporated Documents and is
		derived from the books and records of the respective entities presented therein
		and, to the extent such information is a range, projection or estimate, is
		based on the good faith belief and estimates of the management of the
		Company.
	 

	 
		(t)           Ernst
		and Young LLP, which examined the financial statements of the Company at
		December 31, 2005 and the audited financial statements contained in the
		Incorporated Documents, was an independent public accounting firm as required
		by the Securities Act and the Exchange Act at the time of such
		examination.
	 

	 
		(u)          The
		Company is subject to and in full compliance with the reporting requirements of
		Section 13 or 15(d) of the Exchange Act and files reports with the Commission
		on the EDGAR System. The Common Stock is registered pursuant to Section 12(b)
		of the Exchange Act and the outstanding shares of Common Stock are listed for
		quotation on the Nasdaq Capital Market, and the Company has taken no action
		
	 

	 
		 
	 

	 
		 
	 

	 
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		designed to, or likely to have the effect
		of, terminating the registration of the Common Stock under the Exchange Act or
		de-listing the Common Stock from the Nasdaq Capital Market, nor has the Company
		received any written notification or, to its knowledge, oral notification, that
		the Commission or the Nasdaq Capital Market is contemplating terminating such
		registration or listing or that the Company is not in compliance with the
		continuing listing or maintenance requirements of the Nasdaq Capital
		Market.
	 

	 
		(v)          The
		Company has filed in a timely manner (or received an appropriate extension
		therefor) each document or report required to be filed by it pursuant to the
		Exchange Act, including, without limitation, the Incorporated Documents.

	 

	 
		(w)         The
		Company maintains a system of internal accounting and other controls sufficient
		to provide reasonable assurances that (i) transactions are executed in
		accordance with management’s general or specific authorizations, (ii)
		transactions are recorded as necessary to permit preparation of financial
		statements in conformity with United States generally accepted accounting
		principles and to maintain accountability for assets, (iii) access to assets is
		permitted only in accordance with management’s general or specific
		authorization, and (iv) the recorded accounting for assets is compared with
		existing assets at reasonable intervals and appropriate action is taken with
		respect to any differences.
	 

	 
		(x)          To
		the extent required by the Exchange Act, the Company maintains and evaluates
		“disclosure controls and procedures” (as such term is defined in Rule
		13a-15 and 15d-15 under the Exchange Act) and “internal control over
		financial reporting” (as such term is defined in Rule 13a-15 and 15d-15
		under the Exchange Act): such disclosure controls and procedures and internal
		control over financial reporting are designed to ensure that material
		information relating to the Company, including its consolidated subsidiaries,
		is made known to each of the Company’s chief executive officer and chief
		financial officer by others within the Company, and such disclosure controls
		and procedures and internal control over financial reporting are effective to
		perform the functions for which they were established; the Company’s
		independent auditors and audit committee have been advised of: (i) all
		significant deficiencies, if any, in the design or operation of internal
		control over financial reporting which could adversely affect the
		Company’s ability to record, process, summarize and report financial data
		and (ii) all fraud, if any, whether or not material, that involves management
		or other employees who have a role in the Company’s internal control over
		financial reporting; all material weaknesses, if any, in internal control over
		financial reporting have been identified to the Company’s independent
		auditors and audit committee; since the date of the most recent evaluation of
		such disclosure controls and procedures and internal control over financial
		reporting, there have been no significant changes in internal control over
		financial reporting or in other factors that could significantly affect
		internal control over financial reporting, except for any corrective actions
		with regard to significant deficiencies and material weaknesses disclosed in
		the Offering Memorandum; the principal executive officers (or their
		equivalents) and principal financial officers (or their equivalents) of the
		Company have made all certifications required by the Sarbanes-Oxley Act of 2002
		(the “Sarbanes-Oxley
		Act”) and any related rules
		and regulations promulgated by the Commission, and the statements contained in
		each such certification 
	 

	 
		 
	 

	 
		 
	 

	 
		9
	 

	 
		 
	 

	 
	 

	 

	 
		are complete and correct; and the Company
		and the Company’s board of directors and officers are each in compliance
		in all material respects with all applicable effective provisions of the
		Sarbanes-Oxley Act and the rules and regulations of the Commission promulgated
		thereunder.
	 

	 
		(y)          Neither
		the Company nor any of its affiliates (within the meaning of Rule 144 under the
		Securities Act) or any person acting on its or their behalf (i) has, within the
		six-month period prior to the date hereof, offered or sold in the United States
		or to any U.S. person (as such terms are defined in Regulation S) the
		Securities or any security of the same class or series of the Securities or
		(ii) has offered or will offer or sell the Securities (A) in the United States
		by means of any form of general solicitation or general advertising within the
		meaning of Rule 502(c) under the Securities Act or (B) with respect to any such
		securities sold in reliance on Rule 903 of Regulation S under the Securities
		Act, by means of any directed selling efforts within the meaning of Rule 902(c)
		of Regulation S. The Company has not entered nor will it enter into any
		contractual arrangement with respect to the distribution of the Securities
		except for the Offering Documents.
	 

	 
		(z)          The
		proceeds to the Company from the offering of the Securities will not be used to
		purchase or carry any security in violation of Regulation T, U and X of the
		Board of Governors of the Federal Reserve System.
	 

	 
		(aa)        Neither
		the Company nor any of its affiliates (within the meaning of Rule 144 under the
		Securities Act) has taken, directly or indirectly, any action that constitutes
		or is designed to cause or result in, or which could reasonably be expected to
		constitute, cause or result in, the stabilization or manipulation of the price
		of any security to facilitate the sale or resale of the Securities.
	 

	 
		(bb)       Except as
		described in the Offering Memorandum, no holder of any Relevant Security has
		any rights to require registration of any Relevant Security as part or on
		account of, or otherwise in connection with the Offering and any of the other
		transactions contemplated by the Offering Documents.
	 

	 
		(cc)        The
		Company is not and, immediately after the sale of the Securities as
		contemplated hereunder will not be an “investment company” within the
		meaning of the Investment Company Act of 1940, as amended, and the rules and
		regulations of the Commission thereunder.
	 

	 
		(dd)       Except as
		disclosed in the Offering Memorandum, no relationship, direct or indirect,
		exists between or among the Company or any affiliate of the Company, on the one
		hand, and any director, officer, stockholder, customer or supplier of the
		Company or any affiliate of the Company, on the other hand, which is required
		by the Exchange Act to be described in the Company’s Annual Report on Form
		10-K for the year ended December 31, 2005, which is not so described in such
		reports.
	 

	 
		(ee)        The
		Company owns or leases all such properties as are necessary to the conduct of
		its business as presently operated and as described in the Offering 
	 

	 
		 
	 

	 
		 
	 

	 
		10
	 

	 
		 
	 

	 
	 

	 

	 
		Memorandum. The Company has good and
		marketable title in fee simple to all real property and good and marketable
		title to all personal property owned by them, in each case free and clear of
		all Liens except such as are described in the Offering Memorandum or such as
		would not reasonably be expected to have a Material Adverse Effect; and any
		real property and buildings held under lease or sublease by the Company is held
		under valid, subsisting and enforceable leases or subleases with such
		exceptions as are not material to, and do not interfere with, the use made and
		proposed to be made of such property and buildings by the Company.
	 

	 
		(ff)         The
		Company owns, licenses or possesses all patents, patent rights, licenses,
		inventions, copyrights, know-how (including trade secrets and other unpatented
		and/or unpatentable proprietary or confidential information, systems or
		procedures), trademarks, service marks and trade names currently employed by
		them in the connection with the business now operating by them that are
		necessary for the conduct of the business (“Intellectual Property”) of the Company as presently conducted, except
		where failure to own, license or possess or otherwise to be able to acquire
		such intellectual property would not singly, or in the aggregate, have a
		Material Adverse Effect. To the knowledge of the Company, the Intellectual
		Property does not infringe on or conflict with the rights or intellectual
		property of third parties, and the Company has not received any written notice
		of infringement of or conflict with asserted rights of others with respect to
		any intellectual property that, singly or in the aggregate, if the subject of
		unfavorable decision, ruling or finding, would have a Material Adverse Effect,
		in each case except as described in the Offering Memorandum.
	 

	 
		(gg)        The
		Company has prepared and timely filed all material tax returns that are
		required to be filed by it prior to the date hereof and has paid or made
		provision for the payment of all material taxes, assessments, governmental or
		other similar charges, including, without limitation, all material sales and
		use taxes and all taxes which the Company is obligated to withhold from amounts
		owing to employees, creditors and third parties, with respect to the periods
		covered by such tax returns (whether or not such amounts are shown as due on
		any tax return), other than those being contested in good faith by appropriate
		proceedings. There is no tax Lien, whether imposed by any federal, state,
		local, foreign or other taxing authority, outstanding against the assets,
		properties or business of the Company except for Liens for taxes not yet due
		and payable.
	 

	 
		(hh)        No
		collective bargaining agreement covering any employee of the Company exists
		that is binding on the Company, and, to the Company’s knowledge, no
		petition has been filed or proceeding instituted by an employee or group of
		employees of the Company with the National Labor Relations Board seeking
		recognition of a bargaining representative. To the Company’s knowledge, no
		organizational effort currently is being made or threatened by or on behalf of
		any labor union to organize any employees of the Company, and there is no
		threatened, imminent or current labor strike, dispute or organized work
		stoppage in effect by the employees of the Company which could have or result
		in a Material Adverse Effect.
	 

	 
		(ii)          No
		“prohibited transaction” (as defined in either Section 406 of the
		Employee Retirement Income Security Act of 1974, as amended, including the
		
	 

	 
		 
	 

	 
		 
	 

	 
		11
	 

	 
		 
	 

	 
	 

	 

	 
		regulations and published interpretations
		thereunder (“ERISA”), or Section 4975 of the Internal Revenue Code of
		1986, as amended from time to time (the “Code”)), “accumulated
		funding deficiency” (as defined in Section 302 of ERISA) or other event of
		the kind described in Section 4043(b) of ERISA (other than events with respect
		to which the 30-day notice requirement under Section 4043 of ERISA has been
		waived) has occurred with respect to any employee benefit plan (as defined in
		Section 3(3) of ERISA) for which the Company would have any liability; each
		employee benefit plan (as defined in Section 3(3) of ERISA) for which the
		Company would have any liability is in compliance in all material respects with
		applicable law, including, without limitation, ERISA and the Code; the Company
		has not incurred and does not expect to incur material liability under Title IV
		of ERISA with respect to the termination of, or withdrawal from, any
		“pension plan” (as defined in Section 3(2)); and each pension plan
		(as defined in Section 3(2)) for which the Company would have any material
		liability that is intended to be qualified under Section 401(a) of the Code is
		so qualified and, to the Company’s knowledge, nothing has occurred,
		whether by action or by failure to act, which could cause the loss of such
		qualification.
	 

	 
		(jj)          The
		Company is in compliance in all material respects with all rules, laws and
		regulations relating to the use, treatment, storage and disposal of toxic
		substances and protection of health or the environment
		(“Environmental
		Law”) which are applicable to
		its business; (ii) the Company has not received any written notice from any
		governmental authority or third party of an asserted claim under Environmental
		Laws; (iii) the Company has received all material permits, licenses and other
		approvals required of it under applicable Environmental Laws to conduct its
		business and is in compliance in all material respects with all terms and
		conditions of any such permit, license or approval; (iv) to the Company’s
		knowledge, no facts currently exist that will require the Company to make
		future material capital expenditures to comply with Environmental Laws; and (v)
		no property which is or has been owned, leased or occupied by the Company has
		been designated as a Superfund site pursuant to the Comprehensive Environmental
		Response, Compensation of Liability Act of 1980, as amended (42 U.S.C. Section
		9601, et seq.) (the “CERCLA
		1980”) or otherwise designated
		as a contaminated site under applicable state or local law. The Company has
		been named as a “potentially responsible party” under the CERCLA
		1980. In the ordinary course of its business, the Company periodically reviews
		the effect of Environmental Laws on the business, operations and properties of
		the Company, in the course of which the Company identifies and evaluates
		associated costs and liabilities (including, without limitation, any capital or
		operating expenditures required for clean-up, closure of properties or
		compliance with Environmental Laws, or any permit, license or approval, any
		related constraints on operating activities and any potential liabilities to
		third parties). On the basis of such review, the Company has reasonably
		concluded that such associated costs and liabilities would not, singly or in
		the aggregate, have a Material Adverse Effect.
	 

	 
		(kk)        The
		Company maintains insurance of the types, against such losses and in the
		amounts and with such insurers as are customary in the Company’s industry
		and otherwise reasonably prudent, including risks customarily insured against
		by similarly situated companies, all of which insurance is in full force and
		effect, except where failure of the Company to maintain such insurance or
		failure of such insurance to 
	 

	 
		 
	 

	 
		 
	 

	 
		12
	 

	 
		 
	 

	 
	 

	 

	 
		be in full force and effect would not
		reasonably be expected to have, singly or in the aggregate, a Material Adverse
		Effect.
	 

	 
		(ll)          All
		material agreements to which the Company is party and which are required to
		have been filed by the Company pursuant to the Securities Act, the Exchange
		Act, and the rules and regulations thereunder as of the date hereof have been
		filed by the Company with the Commission. As of the date hereof, except as
		disclosed in the Incorporated Documents, except for those agreements that by
		their terms are no longer in effect each such agreement is in full force and
		effect and is binding on the Company and, to the Company’s knowledge, is
		binding upon such other parties, in each case in accordance with its terms, and
		neither the Company nor, to the Company’s knowledge, any other party
		thereto is in breach of or default under any such agreement. Except as
		disclosed in the Offering Memorandum, the Company has not received any written
		notice regarding the termination of any such agreements.
	 

	 
		(mm)     The Company is not (i) in
		violation of its certificate of incorporation, bylaws, or other organizational
		documents, or (ii) in default under, and no event has occurred which, with
		notice or lapse of time or both, would constitute a default under or result in
		the creation or imposition of any Lien upon any of its property or assets
		pursuant to, any material indenture, contract, lease, mortgage, deed of trust,
		note agreement, loan agreement or other agreement, obligation, condition,
		covenant, instrument, franchise, license or permit to which it is a party or by
		which it is bound or to which any of its property or assets is subject, or has
		received a written notice or claim, or, to its knowledge, oral notification, of
		any such default or has knowledge of any breach of such contracts by the other
		party or parties thereto, except where the consequences of such violation would
		not reasonably be expected to have a Material Adverse Effect, and except (in
		the case of clause (ii) above) defaults or Liens disclosed in the Offering
		Memorandum.
	 

	 
		(nn)        The
		certificates for the shares of Common Stock (including the Shares) conform to
		the requirements of the Nasdaq Capital Market and the General Corporation Law
		of the State of Delaware.
	 

	 
		(oo)       Except as
		described in the Offering Memorandum, the Company has complied with and
		established such committees and policies as required by the Sarbanes-Oxley Act
		of 2002. The Company is subject to and is in compliance with all of the
		requirements of the Nasdaq Capital Market.
	 

	 
		(pp)        Other
		than CRT (as the Initial Purchaser), no finder, broker, agent, financial person
		or other intermediary has acted on behalf of the Company in connection with the
		sale of the Securities to the Initial Purchaser, the resale of the Securities
		and Shares by the Initial Purchaser or the consummation of this Agreement or
		any of the transactions contemplated hereby.
	 

	 
		(qq)        Assuming
		the accuracy of the Initial Purchaser’s representations and warranties and
		compliance with its obligations under Section 4 hereof, the offer and sale of
		the Securities to CRT in the manner contemplated by this Agreement will be
		
	 

	 
		 
	 

	 
		 
	 

	 
		13
	 

	 
		 
	 

	 
	 

	 

	 
		exempt from the registration requirements of
		the Securities Act by reason of Section 4(2) and Regulation D thereof,
		Regulation S under the Securities Act or Rule 144A under the Securities Act;
		and except in connection with the registration contemplated by the Registration
		Rights Agreement, it is not necessary to qualify an indenture in respect of the
		Notes under the TIA.
	 

	 
		                              The
		Company acknowledges that the Initial Purchaser and, for purposes of the
		opinions to be delivered to the Initial Purchaser pursuant to Section 7 hereof,
		counsel to the Company and counsel to the Initial Purchaser will rely upon the
		accuracy and truth of the foregoing representations and hereby consents to such
		reliance.
	 

	 
			
				
				   
				

			 	
				
				  3.
				

			 	
				
				  Purchase, Sale and Delivery of
				  the Securities
				

			 

 

	 
		(a)          On
		the basis of the representations, warranties, agreements and covenants herein
		contained and subject to the terms and conditions herein set forth, the Company
		agrees to issue and sell to the Initial Purchaser, and the Initial Purchaser
		agrees to purchase from the Company, at 94% of the principal amount of the
		Notes, the aggregate principal amount of the Notes and the aggregate number of
		Warrants set forth on Schedule
		1 hereto.
	 

	 
		Delivery of and payment for the Securities
		shall be made at the offices of Fulbright & Jaworski L.L.P., 666 Fifth
		Avenue, New York, New York 10103, on February 20, 2007, or such other date as
		the Initial Purchaser and the Company shall mutually agree, at such time and
		date being herein referred to as the “Closing Date.” The Securities shall be delivered on the Closing
		Date against payment of the purchase price therefor by wire transfer of
		immediately available funds to an account specified in writing to the Initial
		Purchaser by the Company. If requested by the Initial Purchaser, one or more
		global securities representing the Securities shall be registered by the
		Trustee in the name of Cede & Co., the nominee of The Depository Trust
		Company (“DTC”),
		and credited to such accounts as CRT shall request, upon notice to the Company
		at least 48 hours prior to the Closing Date.
	 

	 
		(b)          Notwithstanding
		anything to the contrary herein, to the extent that any subsequent purchaser of
		the Securities from the Initial Purchaser listed on a separate letter to be
		delivered to the Company on the date hereof (a “Subsequent Purchaser”) has withdrawn its commitment, as set forth in
		such letter, to purchase all or a portion of the Securities, or such Subsequent
		Purchaser has actually made or has threatened to make any amendments,
		alterations, modifications, withdrawals, waivers or breaches of its commitment
		to purchase the Securities or fails to perform in any way under its commitment
		to purchase the Securities, the Initial Purchaser’s obligation to purchase
		the Notes and Warrants under this Agreement shall be terminated or adjusted
		downward on a dollar for dollar basis accordingly, at the sole discretion of
		the Initial Purchaser; provided that, it shall be a condition to the
		Company’s obligations hereunder to sell the Securities hereunder that the
		Initial Purchaser purchase at least $40 million of Notes and Warrants to
		purchase 5,200,000 shares of Common Stock.
	 

	 
			
				
				   
				

			 	
				
				  4.
				

			 	
				
				  Offering by the Initial
				  Purchaser. 
				

			 

 

	 
		 
	 

	 
		 
	 

	 
		14
	 

	 
		 
	 

	 
	 

	 

	 
		(a)          The
		Initial Purchaser proposes to make an offering of the Securities at the price
		and upon the terms set forth in the Offering Memorandum as soon as practicable
		after this Agreement is entered into and as in the judgment of the Initial
		Purchaser is advisable.
	 

	 
			
				
				   
				

			 	
				
				  (b)
				

			 	
				
				  The Initial Purchaser represents and
				  warrants that:
				

			 

 

	 
		(i)           It
		is a Qualified Institutional Buyer as defined in Rule 144A under the Securities
		Act (a “QIB”) and it will offer the Securities for resale only
		upon the terms and conditions set forth in this Agreement and in the Offering
		Memorandum.
	 

	 
		(ii)          It
		is not acquiring the Securities with a view to any distribution thereof that
		would violate the Securities Act or the securities laws of any state of the
		United States or any other applicable jurisdiction. It will solicit offers to
		buy the Securities only from, and will offer and sell the Securities only to
		persons reasonably believed by it to be, QIBs, institutional accredited
		investors within the meaning of Rule 501(a) (1), (2), (3) or (7) of the
		Securities Act, or in transactions exempt pursuant to Regulation S under the
		Securities Act; provided, however, that in
		purchasing such Securities, such persons are deemed to have represented and
		agreed as provided under the caption “Transfer Restrictions”
		contained in the Preliminary Offering Memorandum and the Offering
		Memorandum.
	 

	 
		(iii)        No form
		of general solicitation or general advertising in violation of the Securities
		Act has been or will be used nor will any offers in any manner involving a
		public offering within the meaning of Section 4(2) of the Securities
		Act.
	 

	 
		5.            Certain Covenants. For the purposes of this Section 5, “Closing
		Date” shall refer to the Closing Date for the Notes and Warrants.
	 

	 
			
				
				   
				

			 	
				
				  (a)
				

			 	
				
				  The Company covenants and agrees
				  with the Initial Purchaser that:
				

			 

 

	 
		(i)           The
		Company shall have prepared the Offering Memorandum in a form approved by the
		Initial Purchaser and deliver the Offering Memorandum to the Initial
		Purchaser.
	 

	 
		(ii)          The
		Company shall use the proceeds of the Offering in the manner described in the
		Offering Memorandum under the heading “Use of Proceeds.”
	 

	 
		(iii)         The
		Company will not amend or supplement the Offering Memorandum or any amendment
		or supplement thereto of which the Initial Purchaser shall not previously have
		been advised and furnished a copy for a reasonable period of time prior to the
		proposed amendment or supplement and as to which the Initial Purchaser shall
		not have given their consent, which consent shall not be unreasonably withheld
		or delayed, other than by filing documents 
	 

	 
		 
	 

	 
		 
	 

	 
		15
	 

	 
		 
	 

	 
	 

	 

	 
		under the Exchange Act that are incorporated
		by reference therein, without notice to the Initial Purchaser. The Company will
		promptly, upon the reasonable request of the Initial Purchaser or counsel to
		the Initial Purchaser, make any amendments or supplements to the Offering
		Memorandum that may be reasonably necessary or advisable in connection with the
		resale of the Securities and Shares by the Initial Purchaser. As soon as the
		Company is advised thereof, the Company will notify the Initial Purchaser and
		its counsel, and confirm the notice in writing, of any order preventing or
		suspending the use of the Offering Documents, or the suspension of the
		qualification or registration of the Securities for offering or the suspension
		of any exemption for such qualification or registration of the Securities for
		offering in any jurisdiction, or of the institution or threatened institution
		of any proceedings for any of such purposes, and the Company will use its best
		efforts to prevent the issuance of any such order and, if issued, to obtain as
		soon as reasonably possible the lifting thereof.
	 

	 
		(iv)         In
		connection with the Offering, until the Initial Purchaser has notified the
		Company of the completion of the resale of the Notes and Shares, neither the
		Company nor any of its affiliates has or will, either alone or with one or more
		other persons, bid for or purchase for any account in which it or any of its
		affiliates has a beneficial interest any Notes or Shares or attempt to induce
		any person to purchase any Notes or Shares; and neither the Company nor any of
		its affiliates will make bids or purchases for the purpose of creating actual,
		or apparent, active trading in, or of raising the price of, the Notes and
		Shares.
	 

	 
		(v)          For
		a period of 90 days after the date of the initial Offering by the Initial
		Purchaser, the Company will not offer, sell, contract to sell, pledge or
		otherwise dispose of, directly or indirectly, any securities of the Company
		that are substantially similar to the Securities, including but not limited to
		any securities that are convertible into or exchangeable for, or that represent
		the right to receive, Common Stock or any such substantially similar
		securities, except with the consent of the Initial Purchaser and except the
		filing of a shelf registration statement covering the Securities, sales and
		grants of employee stock options or stock pursuant to the terms of a plan
		approved by the Company’s stockholders, or issuances of securities
		pursuant to the exercise of such options or the exercise of any other employee
		stock options or warrants outstanding on the date hereof. The Company will not
		at any time offer, sell, contract to sell, pledge or otherwise dispose of,
		directly or indirectly, any securities under circumstances where such offer,
		sale, pledge, contract or disposition would cause the exemption afforded by
		Section 4(2) of the Securities Act, Regulation S of the Securities Act or Rule
		144A of the Securities Act to cease to be applicable to the offer and sale of
		the Securities, except with the consent of the Initial Purchaser.
	 

	 
		(vi)         The
		Company will use its reasonable best efforts to qualify or exempt the Notes and
		Shares for offer and sale under the securities or “blue sky” laws of
		such jurisdictions as the Initial Purchaser may reasonably designate and the
		Company will make such applications and furnish information as may be required
		for such purposes, and will continue any such qualifications or 
	 

	 
		 
	 

	 
		 
	 

	 
		16
	 

	 
		 
	 

	 
	 

	 

	 
		exemptions in effect for as long as may be
		necessary to complete the distribution of the Securities by the Initial
		Purchaser; provided, however, that in connection therewith the Company shall
		not be required to qualify as a foreign corporation or to execute a general
		consent to service of process in any jurisdiction or to take any other action
		that would subject it to general service of process or to taxation in any
		jurisdiction in which it is not otherwise subject.
	 

	 
		(vii)       If, at any
		time prior to the completion of the resale by the Initial Purchaser of the
		Securities, any event shall occur as a result of which it is necessary, in the
		opinion of the Company or its counsel or in the reasonable judgment of the
		Initial Purchaser, to amend or supplement the Offering Memorandum in order to
		make such Offering Memorandum not misleading in the light of the circumstances
		existing at the time it is delivered to a purchaser, or if for any other reason
		it shall be necessary to amend or supplement the Offering Memorandum in order
		to comply with applicable laws, rules or regulations, the Company shall notify
		the Initial Purchaser of any such event and (subject to Section 5(a)) forthwith
		amend or supplement such Offering Memorandum at its own expense so that, as so
		amended or supplemented, such Offering Memorandum will not include an untrue
		statement of a material fact or omit to state a material fact necessary in
		order to make the statements therein, in the light of the circumstances under
		which they are made, not misleading and will comply with all applicable laws,
		rules or regulations.
	 

	 
		(viii)      The Company will,
		without charge, provide to the Initial Purchaser and to counsel to the Initial
		Purchaser as many copies of each of the Offering Memorandum or any amendment or
		supplement thereto as the Initial Purchaser or its counsel may reasonably
		request.
	 

	 
		(ix)         The
		Company will not take any action prohibited by Regulation M under the Exchange
		Act in connection with the distribution of the Securities contemplated
		hereby.
	 

	 
		(x)          Neither
		the Company nor any of its affiliates (within the meaning of Rule 144 under the
		Securities Act) will take, directly or indirectly, any action that constitutes
		or is designed to cause or result in, or which could reasonably be expected to
		constitute, cause or result in, the stabilization or manipulation of the price
		of any security to facilitate the sale or resale of the Securities.
	 

	 
		(xi)         The
		Company will cause the Notes to be eligible for clearance and settlement
		through DTC and will use reasonable best efforts to make any Notes held by QIBs
		eligible for trading on The PORTAL MarketSM of the National
		Association of Securities Dealers, Inc.
	 

	 
		(xii)       The Company
		will use its reasonable best efforts to list the Shares for quotation on the
		Nasdaq Capital Market by Closing.
	 

	 
		 
	 

	 
		 
	 

	 
		17
	 

	 
		 
	 

	 
	 

	 

	 
		(xiii)      The Company will, at
		all times, authorize, reserve and keep available, free of preemptive rights,
		enough shares of Common Stock for the purpose of enabling the Company to
		satisfy its obligations to issue the Shares upon conversion of the Notes and
		exercise of the Warrants.
	 

	 
		(xiv)      Prior to the
		Closing, the Company will not incur any material indebtedness or dispose of any
		material assets or make any material acquisition or change in its business or
		operations, except with the Initial Purchaser’s consent which may not be
		unreasonably withheld. The Company shall not, during the period commencing on
		the date hereof and ending on the Closing Date, issue any press release or
		other public communication, or hold any press conference with respect to the
		Company’s financial condition, results of operations or the Offering,
		without the prior consent of the Initial Purchaser, which consent shall not be
		unreasonably withheld or delayed, subject to the Company’s obligation to
		comply with applicable laws.
	 

	 
		(xv)        The
		Company shall use its reasonable best efforts to cause the Shares to be issued
		in compliance with all applicable federal, state and foreign securities laws
		and to cause the Shares not to be issued in violation of or subject to any
		preemptive or similar right that does or will entitle any person to acquire any
		Relevant Security from the Company upon issuance or sale of the
		Securities.
	 

	 
		(b)           The
		Initial Purchaser covenants and agrees with the Company that it shall use
		reasonable best efforts not to sell the Notes and Warrants to any Person, if as
		a result of such sale, such Person or group of Persons (as identified in a
		public filing made with the Commission) in connection with the offering of the
		Notes and Warrants acquired, or obtained the right to acquire (giving effect
		solely to its or their acquisition or conversion of the Notes and Warrants),
		twenty percent (20%) or more of the Common Stock (or securities convertible or
		exercisable for Common Stock) or the voting power of the Company on a
		post-transaction basis.
	 

	 
		6.            Expenses.
		Whether or not the Offering is consummated or this Agreement is terminated
		(pursuant to Section 11 or otherwise), the Company agrees to pay the following
		costs and expenses and all other costs and expenses incident to the performance
		by the Company of its obligations hereunder: (a) the negotiation, preparation,
		printing, typing, reproduction, execution and delivery of this Agreement and of
		the other Offering Documents, any amendment or supplement to or modification of
		any of the foregoing and any and all other documents furnished pursuant hereto
		or thereto or in connection herewith or therewith; (b) the preparation,
		printing or reproduction of the Preliminary Offering Memorandum, Offering
		Memorandum and each amendment or supplement to it; (c) the delivery (including
		postage, air freight charges and charges for counting and packaging) of such
		copies of each of the Preliminary Offering Memorandum, Offering Memorandum and
		all amendments or supplements to any of them as may be reasonably requested for
		use in connection with the offer and sale of the Notes and Warrants; (d) the
		preparation, printing, authentication, issuance and delivery of certificates
		for the Securities, including any stamp taxes in connection with the original
		issuance and sale of the Securities; (e) the exemption from, or registration or
		qualification of the Securities for offer and sale under the securities or
		“blue sky” laws of the several states (including filing fees and the
		reasonable fees, expenses and disbursements of counsel to the Initial Purchaser
		relating to such 
	 

	 
		 
	 

	 
		 
	 

	 
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		registration and qualification); (f) the
		transportation and other expenses incurred by or on behalf of Company
		representatives in connection with presentations to and related communications
		with prospective purchasers of the Notes and Warrants; (g) the fees and
		expenses of counsel (including local and special counsel, if any) for the
		Company; (h) fees and expenses of the Trustee, including fees and expenses of
		its counsel; (i) all expenses and listing fees incurred in connection with the
		application for listing for quotation of the Common Stock on the Nasdaq Capital
		Market; and (j) all reasonable expenses incurred by CRT (including without
		limitation fees and expenses of counsel (including reasonable counsel fees and
		disbursements with respect to blue sky qualifications) and CRT BioMed LLC and
		all travel, lodging, meals, mailing, telephone, due diligence and all other
		out-of-pocket expenses) incurred by CRT in connection with its engagement by
		the Company.
	 

	 
		7.            Conditions of the Initial Purchaser’s
		Obligations. For purposes of this
		Section 7, “Closing Date” shall refer to the Closing Date for the
		Securities. The obligations of the Initial Purchaser to purchase and pay for
		the Securities are subject to the absence from any certificates, opinions,
		written statements or letters furnished to the Initial Purchaser pursuant to
		this Section 7 of any misstatement or omission and to the following additional
		conditions unless waived in writing by the Initial Purchaser:
	 

	 
		(A) The
		Initial Purchaser shall have received an opinion, in form and substance
		satisfactory to the Initial Purchaser, in its sole discretion, dated the
		Closing Date, of Fulbright & Jaworski, L.L.P., counsel to the
		Company.
	 

	 
		(B) The
		Initial Purchaser shall have received an opinion, in form and substance
		satisfactory to the Initial Purchaser, in its sole discretion, dated the
		Closing Date, of Albert Wai-Kit Chan, LLC and Henry D. Coleman, Esq.,
		intellectual property counsel to the Company.
	 

	 
		(C) The
		Initial Purchaser shall have received a comfort letter, in form and substance
		satisfactory to the Initial Purchaser, in its sole discretion, dated the date
		hereof, of Ernst & Young LLP, registered independent auditor of the
		Company.
	 

	 
		(D) With respect to the comfort letter of
		Ernst & Young LLP referred to in the preceding subsection, the Initial
		Purchaser shall have received a “bring-down” letter of Ernst &
		Young LLP, in form and substance satisfactory to the Initial Purchaser, in its
		sole discretion, dated the Closing Date.
	 

	 
		(E) The Initial Purchaser shall have
		received an opinion, in form and substance satisfactory to the Initial
		Purchaser, in its sole discretion, dated the Closing Date, of DLA Piper US LLP,
		counsel to the Initial Purchaser.
	 

	 
		(F) The
		representations and warranties of the Company contained in this Agreement shall
		be true and correct (in the case of representations and warranties qualified as
		to materiality) or true and correct in all material respects (in the case of
		all other representations and warranties) on and as of the Closing Date, and
		the Company shall have complied in all material respects with all 
	 

	 
		 
	 

	 
		 
	 

	 
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		covenants, agreements and satisfied all
		conditions on its part to be performed or satisfied hereunder at or prior to
		the Closing Date.
	 

	 
		(G) None
		of the issuance and sale of the Securities pursuant to this Agreement or any of
		the transactions contemplated by this Agreement or any of the other Offering
		Documents shall have been enjoined (temporarily or permanently) and no
		restraining order or other injunctive order shall have been issued; and there
		shall not have been any legal action, statute, order, decree or other
		administrative proceeding enacted, instituted or overtly threatened against the
		Company or against the Initial Purchaser relating to the issuance or the
		trading of the Securities or the Initial Purchaser’s activities in
		connection therewith or any other transactions contemplated by this Agreement
		or the Offering Memorandum or the other Offering Documents.
	 

	 
		(H)
		Subsequent to the date of this Agreement and since the date of the most recent
		financial statements in the Offering Memorandum (exclusive of any amendment or
		supplement thereto after the date hereof), there shall not have occurred (i)
		any change, or any development involving a prospective change in, or affecting
		the business, condition (financial or other), properties or results of
		operations of, the Company not disclosed in the Offering Memorandum that is, in
		the judgment of the Initial Purchaser, so material and adverse as to make it
		impracticable or inadvisable to proceed with the Offering on the terms and in
		the manner contemplated by the Offering Memorandum, or (ii) any event or
		development relating to or involving the Company or any of its officers or
		directors that makes any statement made in the Offering Memorandum untrue or
		that, in the opinion of the Company and its counsel or the reasonable judgment
		of the Initial Purchaser, requires the making of any addition to or change in
		the Offering Memorandum in order to state a material fact necessary in order to
		make the statements made therein not misleading.
	 

	 
		(I) The
		Initial Purchaser shall have received a certificate, dated the Closing Date and
		signed by the President and Chief Financial Officer of the Company, to the
		effect that to the best of his knowledge:
	 

	 
		(i)           All
		of the representations and warranties of the Company set forth in this
		Agreement are true and correct (in the case of representations and warranties
		qualified as to materiality) or true and correct in all material respects (in
		the case of all other representations and warranties) on and as of the Closing
		Date, and all covenants agreements, conditions and obligations of the Company
		to be performed, satisfied or complied with hereunder or prior the Closing Date
		have been duly performed, satisfied or complied with in all material
		respects.
	 

	 
		(ii)          No
		event has occurred and is continuing, as a result of which the Offering
		Memorandum including all exhibits and attachments thereto would contain an
		untrue statement of a material fact or omit to state a material fact required
		to be stated therein or necessary to make the statements therein, in 
	 

	 
		 
	 

	 
		 
	 

	 
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		the light of the circumstances existing at
		the time it is delivered to the Initial Purchaser, not misleading.
	 

	 
		(iii)         The
		issuance and sale of the Securities pursuant to this Agreement and the Offering
		Memorandum and the consummation of the transactions contemplated by the
		Offering Documents have not been enjoined (temporarily or permanently) and no
		restraining order or other injunctive order has been issued and there has not
		been any legal action, order, decree or other administrative proceeding
		instituted or, to such officer’s knowledge, threatened against the Company
		relating to the issuance or the trading of the Securities or the Initial
		Purchaser’s activities in connection therewith or in connection with any
		other transactions contemplated by this Agreement or the Offering Memorandum or
		the other Offering Documents.
	 

	 
		(iv)         Subsequent
		to the date of this Agreement and since the date of the most recent financial
		statements in the Offering Memorandum (exclusive of any amendment or supplement
		thereto after the date hereof), there has not occurred (1) any change, or any
		development involving a prospective change, in or affecting the business,
		condition (financial or other), properties or results of operations of the
		Company, not contemplated by the Offering Memorandum, except for any change or
		prospective change that would not reasonably be expected to result in a
		Material Adverse Effect upon the Company, or (2) any event or development
		relating to or involving the Company or any of its officers or directors that,
		in the judgment of the Initial Purchaser, makes any statement made in the
		Offering Memorandum untrue or that requires the making of any addition to or
		change in the Offering Memorandum in order to state a material fact necessary
		in order to make the statements made therein not misleading.
	 

	 
		(v)          At
		the Closing Date and after giving effect to the consummation of the
		transactions contemplated by the Offering Memorandum there shall exist no
		Default or Event of Default (as defined in the Indenture).
	 

	 
		(J)
		There shall have been confirmed sales to the Subsequent Purchasers agreeing to
		fund a total of $60,000,000, none of the Subsequent Purchasers shall have
		actually made or threatened to make any amendments, alterations, modifications,
		withdrawals, waivers or breaches with respect to its commitment to purchase the
		Notes and Warrants, and the Initial Purchaser shall have no reasonable good
		faith belief that such commitments or purchases will not be funded.
	 

	 
		(K) Each
		of the Offering Documents and each other agreement or instrument executed in
		connection with the transactions contemplated thereby shall be reasonably
		satisfactory in form and substance to the Initial Purchaser and shall have been
		executed and delivered by all the respective parties thereto (other than the
		Initial Purchaser) and shall be in full force and effect, and there shall have
		been no material amendments, alterations, modifications or waivers of any
		provision thereof since the date of this Agreement.
	 

	 
		 
	 

	 
		 
	 

	 
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		(L) All
		corporate proceedings taken in connection with the issuance of the Notes and
		Warrants and the transactions contemplated by this Agreement, the other
		Offering Documents and all documents and papers relating thereto shall be
		reasonably satisfactory to the Initial Purchaser and counsel to the Initial
		Purchaser. The Initial Purchaser and counsel to the Initial Purchaser shall
		have received copies of such papers and documents as they may reasonably
		request in connection therewith, all in form and substance satisfactory to
		them.
	 

	 
		(M) The
		Notes shall be eligible for clearance on DTC.
	 

	 
		(N) At
		the Closing Date, the Company and the Trustee shall have entered into the
		Indenture, in form and substance satisfactory to the Initial Purchaser, in its
		reasonable discretion, and the Initial Purchaser shall have received
		counterparts, dated the Closing Date and executed by each of the parties
		thereto and the Notes shall have been duly executed and delivered by the
		Company and duly authenticated by the Trustee.
	 

	 
		(O) At
		the Closing Date, each of the Offering Documents shall have been executed and
		delivered by all parties thereto.
	 

	 
		(P)
		There are no pending or threatened legal or governmental proceedings to which
		the Company is a party or of which any property of the Company is the subject,
		which, the Initial Purchaser believes, in its reasonable discretion, if
		determined adversely to the Company, would individually or in the aggregate
		have a Material Adverse Effect on the financial position or results of
		operations of the Company taken as a whole.
	 

	 
		All such opinions, certificates, letters,
		schedules, documents or instruments delivered pursuant to this Agreement will
		comply with the provisions hereof only if they are reasonably satisfactory to
		the Initial Purchaser and counsel to the Initial Purchaser. The Company shall
		furnish to the Initial Purchaser such conformed copies of such opinions,
		certificates, letters, schedules, documents and instruments in such quantities
		as the Initial Purchaser shall reasonably request.
	 

	 
			
				
				   
				

			 	
				
				  8.
				

			 	
				
				  Indemnification.
				

			 

 

	 
		(a)          The
		Company shall indemnify and hold harmless (i) the Initial Purchaser, (ii) each
		person, if any, who controls the Initial Purchaser within the meaning of
		Section 15 of the Securities Act or Section 20 of the Exchange Act, and (iii)
		the respective members, officers, directors, partners, employees, Initial
		Purchaser and agents of the Initial Purchaser or any controlling person, from
		and against any and all losses, liabilities, claims, damages and expenses
		whatsoever as incurred (including, but not limited to, reasonable
		attorneys’ fees and any and all expenses whatsoever incurred in
		investigating, preparing or defending against any investigation or litigation,
		commenced or threatened, or any claim whatsoever, and any and all amounts paid
		in settlement of any claim or litigation), joint or several, to which they or
		any of them may become subject under the Securities Act, the Exchange Act or
		otherwise, insofar as such losses, 
	 

	 
		 
	 

	 
		 
	 

	 
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		liabilities, claims, damages or expenses (or
		actions in respect thereof) arise out of or are based upon (x) any untrue
		statement or alleged untrue statement of a material fact contained in the
		Preliminary Offering Memorandum or the Offering Memorandum or the omission or
		alleged omission to state in the Preliminary Offering Memorandum or the
		Offering Memorandum a material fact necessary to make the statements therein in
		light of the circumstances in which they were made not misleading or (y) any
		breach by the Company of its representations, warranties or agreements set
		forth herein or of applicable law; provided,
		however, that the Company will not be liable pursuant to (x)
		above in any such case to the extent, but only to the extent, that any such
		loss, liability, claim, damage or expense arises out of or is based upon any
		such untrue statement or alleged untrue statement or omission or alleged
		omission made therein in reliance upon and in conformity with written
		information furnished to the Company by or on behalf of the Initial Purchaser
		for use in the section entitled “Plan of Distribution” therein. The
		parties acknowledge and agree that such information provided by or on behalf of
		the Initial Purchaser consists solely of the material identified in Section 15
		hereof. This indemnity agreement will be in addition to any liability that the
		Company may otherwise have, including under this Agreement. In addition, with
		respect to any untrue statement or alleged untrue statement in, or omission or
		alleged omission from, the Preliminary Offering Memorandum, the Company shall
		not be liable to the Initial Purchaser (or its directors and officers or any
		person controlling the Initial Purchaser within the meaning of Section 15 of
		the Securities Act or Section 20 of the Exchange Act) from whom the person
		asserting any such loss, claims, damages or liabilities purchased the Notes
		concerned as part of the initial placement of the Securities by the Initial
		Purchasers hereunder, to the extent that any such loss, claims damages or
		liabilities asserted by such person results from the fact that there was not
		sent or given to such person, at or prior to the Closing, a copy of the
		Offering Memorandum, as amended or supplemented, if the Company had previously
		furnished copies thereof to the Initial Purchaser. Any amounts advanced by the
		Company to an indemnified party pursuant to this Agreement shall be returned to
		the Company if it shall be finally determined by a court of competent
		jurisdiction, not subject to appeal, that such indemnified party was not
		entitled to indemnification by the Company.
	 

	 
		(b)          The
		Initial Purchaser shall indemnify and hold harmless (i) the Company, (ii) each
		person, if any, who controls the Company within the meaning of Section 15 of
		the Securities Act or Section 20 of the Exchange Act, and (iii) the officers,
		directors, partners, employees, representatives and agents of the Company, from
		and against any and all losses, liabilities, claims, damages and expenses
		whatsoever as incurred (including, but not limited to, attorneys’ fees and
		any and all expenses whatsoever incurred in investigating, preparing or
		defending against any investigation or litigation, commenced or threatened, or
		any claim whatsoever and any and all amounts paid in settlement of any claim or
		litigation), joint or several, to which they or any of them may become subject
		under the Securities Act, the Exchange Act or otherwise, insofar as such
		losses, liabilities, claims, damages or expenses (or actions in respect
		thereof) arise out of or are based upon any untrue statement or alleged untrue
		statement of a material fact provided by such Initial Purchaser and contained
		in the section entitled “Plan of Distribution” of the Offering
		Memorandum, or arise out of or are based upon the omission or alleged omission
		to state in the section entitled “Plan of Distribution” of the
		
	 

	 
		 
	 

	 
		 
	 

	 
		23
	 

	 
		 
	 

	 
	 

	 

	 
		Offering Memorandum a material fact
		necessary to make the statements therein in light of the circumstances under
		which they were made not misleading, in each case to the extent, but only to
		the extent, that any such loss, liability, claim, damage or expense arises out
		of or is based upon any untrue statement or alleged untrue statement or
		omission or alleged omission made therein in reliance upon and in conformity
		with written information furnished to the Company by or on behalf of such
		Initial Purchaser expressly for use therein; provided, however, that in no case
		shall the Initial Purchaser be liable or responsible for any amount in excess
		of the discounts and commissions actually received by such Initial Purchaser in
		connection with the sale of the Securities. The parties acknowledge and agree
		that such information provided by or on behalf of an Initial Purchaser consists
		solely of the material identified in Section 15 hereof. This indemnity will be
		in addition to any liability that an Initial Purchaser may otherwise have,
		including under this Agreement.
	 

	 
		(c)          Promptly
		after receipt by an indemnified party under subsection (a) or (b) above of
		notice of the commencement of any action, such indemnified party shall, if a
		claim in respect thereof is to be made against the indemnifying party under
		such subsection, notify each party against whom indemnification is to be sought
		in writing of the commencement thereof (but the failure so to notify an
		indemnifying party shall not relieve it from any liability which it may have
		under this Section 8, except to the extent the defense of such claim or action
		has been materially prejudiced by such failure). In case any such action is
		brought against any indemnified party, and it notifies an indemnifying party of
		the commencement thereof, the indemnifying party will be entitled to
		participate, at its own expense in the defense of such action, and to the
		extent it may elect by written notice delivered to the indemnified party
		promptly after receiving the aforesaid notice from such indemnified party, to
		assume the defense thereof with counsel satisfactory to such indemnified party;
		provided, however, that counsel to the indemnifying party shall not (except
		with the written consent of the indemnified party) also be counsel to the
		indemnified party. Notwithstanding the foregoing, the indemnified party or
		parties shall have the right to employ its or their own counsel in any such
		case, but the fees and expenses of such counsel shall be at the expense of such
		indemnified party or parties unless (i) the employment of such counsel shall
		have been authorized in writing by one of the indemnifying parties in
		connection with the defense of such action, (ii) the indemnifying parties shall
		not have employed counsel to take charge of the defense of such action within a
		reasonable time after notice of commencement of the action, (iii) the
		indemnifying party does not diligently defend the action after assumption of
		the defense, or (iv) such indemnified party or parties shall have reasonably
		concluded that there may be defenses available to it or them which are
		different from or additional to those available to one or all of the
		indemnifying parties (in which case the indemnifying party or parties shall not
		have the right to direct the defense of such action on behalf of the
		indemnified party or parties), in any of which events such fees and expenses of
		one such counsel and any local counsel shall be borne by the indemnifying
		parties. No indemnifying party shall, without the prior written consent of the
		indemnified parties, effect any settlement or compromise of, or consent to the
		entry of judgment with respect to, any pending or threatened claim,
		investigation, action or proceeding in respect of which indemnity or
		contribution may be or could have been sought by an indemnified party under
		this Section 8 or Section 9 hereof (whether or not the indemnified party is an
		
	 

	 
		 
	 

	 
		 
	 

	 
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		actual or potential party thereto), unless
		(x) such settlement, compromise or judgment (A) includes an unconditional
		release of the indemnified party from all liability arising out of such claim,
		investigation, action or proceeding, and (B) does not include a statement as to
		or an admission of fault, culpability or any failure to act, by or on behalf of
		the indemnified party, and (y) the indemnifying party confirms in writing its
		indemnification obligations hereunder with respect to such settlement,
		compromise or judgment.
	 

	 
		9.            Contribution. In
		order to provide for contribution in circumstances in which the indemnification
		provided for in Section 8 is for any reason held to be unavailable from an
		indemnifying party or is insufficient to hold harmless a party indemnified
		thereunder, the Company, on the one hand, and the Initial Purchaser, on the
		other hand, shall contribute to the aggregate losses, liabilities, claims,
		damages and expenses of the nature contemplated by such indemnification
		provision (including any investigation, legal and other expenses incurred in
		connection with, and any amount paid in settlement of, any action, suit or
		proceeding or any claims asserted, but after deducting in the case of losses,
		liabilities, claims, damages and expenses suffered by the Company, any
		contribution received by the Company from persons, other than the Initial
		Purchaser, who may also be liable for contribution, including persons who
		control the Company within the meaning of Section 15 of the Securities Act or
		Section 20 of the Exchange Act) to which the Company and the Initial Purchaser
		may be subject, in such proportion as is appropriate to reflect the relative
		benefits received by the Company, on the one hand, and the Initial Purchaser,
		on the other hand, from the offering of the Securities or, if such allocation
		is not permitted by applicable law in such proportion as is appropriate to
		reflect not only the relative benefits referred to above but also the relative
		fault of the Company, on the one hand, and the Initial Purchaser, on the other
		hand, in connection with the statements or omissions which resulted in such
		losses, liabilities, claims, damages or expenses, as well as any other relevant
		equitable considerations. The relative benefits received by the Company, on the
		one hand, and the Initial Purchaser, on the other hand, shall be deemed to be
		in the same proportion as (a) the total proceeds from the offering of the
		Securities (net of discounts and expenses) received by the Company bear to (b)
		the discounts and commissions received by the Initial Purchaser, respectively.
		The relative fault of the Company, on the one hand, and the Initial Purchaser,
		on the other hand, shall be determined by reference to, among other things,
		whether the untrue or alleged untrue statement of a material fact or the
		omission or alleged omission to state a material fact relates to information
		supplied by the Company or the Initial Purchaser and the parties’ relative
		intent, knowledge, access to information and opportunity to correct or prevent
		such statement or omission. The Company and the Initial Purchaser agree that it
		would not be just and equitable if contribution pursuant to this Section 9 were
		determined by pro rata allocation or by any other method of allocation which
		does not take into account the equitable considerations referred to above. The
		aggregate amount of losses, liabilities, claims, damages and expenses incurred
		by an indemnified party and referred to above in Section 8 shall be deemed to
		include any legal or other expenses reasonably incurred by such indemnified
		party in investigating, preparing or defending against any litigation, or any
		investigation or proceeding by any judicial, regulatory or other legal or
		governmental agency or body, commenced or threatened, or any claim whatsoever
		based upon any such untrue or alleged untrue statement or omission or alleged
		omission. Notwithstanding the provisions of this Section 9, (i) in no case
		shall the Initial Purchaser be required to contribute any amount in excess of
		the amount by which the discounts and commissions received by the Initial
		Purchaser in respect of the Notes or Shares resold by the Initial Purchaser in
		the initial placement of such Notes and Warrants exceeds the 
	 

	 
		 
	 

	 
		 
	 

	 
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		amount of any damages which the Initial
		Purchaser has otherwise been required to pay by reason of any untrue or alleged
		untrue statement or omission, or alleged omission, and (ii) no person guilty of
		fraudulent misrepresentation (within the meaning of Section 11(f) of the
		Securities Act) shall be entitled to contribution from any person who was not
		guilty of such fraudulent misrepresentation. For purposes of this Section 9,
		(A) each person, if any, who controls the Initial Purchaser within the meaning
		of Section 15 of the Securities Act or Section 20 of the Exchange Act, and (B)
		the respective officers, directors, partners, employees, representatives and
		agents of the Initial Purchaser or any controlling person shall have the same
		rights to contribution as such Initial Purchaser, and (C) each person, if any,
		who controls any Company within the meaning of Section 15 of the Securities Act
		or Section 20 of the Exchange Act, and (D) the officers, directors, employees,
		representatives and agents of the Company shall have the same rights to
		contribution as the Company, subject in each case to clauses (i) and (ii) of
		this Section 9. Any party entitled to contribution will, promptly after receipt
		of notice of commencement of any action, suit or proceeding against such party
		in respect of which a claim for contribution may be made against another party
		or parties under this Section 9, notify such party or parties from whom
		contribution may be sought, but the failure to so notify such party or parties
		shall not relieve the party or parties from whom contribution may be sought
		from any obligation it or they may have under this Section 9 or otherwise. No
		party shall be liable for contribution with respect to any action or claim
		settled without its prior written consent, provided that
		such written consent shall not be unreasonably withheld or delayed.
	 

	 
		10.          Survival Clause.
		The respective representations, warranties, agreements, covenants and
		indemnities of the Company and the Initial Purchaser set forth in this
		Agreement shall remain in full force and effect, regardless of (a) any
		investigation made by or on behalf of officers, directors, partners, employees,
		agents, representatives or controlling persons referred to in Sections 8 and 9
		hereof, and (b) delivery of and payment for the Notes and Warrants, and shall,
		subject to Section 14 hereof, be binding upon and shall, subject to Section 13
		hereof, inure to the benefit of, any successors, permitted assigns, heirs and
		legal representatives of the Company, the Initial Purchaser and the indemnified
		parties referred to in Section 8 hereof. The respective agreements, covenants
		and indemnities set forth in Sections 5 and 8-18 hereof shall remain in full
		force and effect, regardless of any termination of this Agreement.
	 

	 
		11.          Termination. (a)
		This Agreement may be terminated in the sole discretion of the Initial
		Purchaser by notice to the Company if (i) any conditions to be satisfied or
		obligations to be performed hereunder by the Company, including but not limited
		to those set forth in Section 7, or for which the Company is responsible, have
		not been satisfied or performed in all respects on or prior to the Closing
		Date, or (ii) at or prior to the Closing Date or at prior to the Additional
		Closing Date, as the case may be:
	 

	 
		(A) any
		domestic or international event or act or occurrence has materially disrupted,
		or in the opinion of the Initial Purchaser will in the immediate future
		materially disrupt, the market for the Company’s securities or securities
		in general;
	 

	 
		(B)
		trading on the New York Stock Exchange or the Nasdaq Stock Market shall have
		been suspended or made subject to material limitations, or minimum or maximum
		prices for trading shall have been fixed, or maximum 
	 

	 
		 
	 

	 
		 
	 

	 
		26
	 

	 
		 
	 

	 
	 

	 

	 
		ranges for prices for securities shall have
		been required, on the New York Stock Exchange or the Nasdaq Stock Market, or by
		order of the Commission or other regulatory body or governmental authority
		having jurisdiction;
	 

	 
		(C) a
		banking moratorium has been declared by any state or federal authority or if
		any material disruption in commercial banking or securities settlement or
		clearance services shall have occurred;
	 

	 
		(D) (1)
		there shall have occurred any outbreak or escalation of hostilities or acts of
		terrorism involving the United States or there is a declaration of a national
		emergency or war by the United States, or (2) there shall have been any other
		calamity or crisis or any change in political, financial or economic conditions
		if the effect of any such event in (1) or (2), in the opinion of the Initial
		Purchaser, makes it impracticable or inadvisable to proceed with the offering
		and sale and delivery of the Notes and Warrants, on the terms and in the manner
		contemplated by the Offering Memorandum; or
	 

	 
		(b)          Subject
		to paragraph (c) below, termination of this Agreement pursuant to this Section
		11 shall be without liability of any party to any other party.
	 

	 
		(c)          If
		this Agreement shall be terminated pursuant to any of the provisions hereof, or
		if the sale of the Securities provided for herein is not consummated because
		any condition to the obligations of the Initial Purchaser set forth herein is
		not satisfied or because of any refusal, inability or failure on the part of
		the Company to perform any agreement herein or comply with any provision
		hereof, the Company will, subject to demand by the Initial Purchaser, reimburse
		the Initial Purchaser for all out-of-pocket expenses (including the reasonable
		fees and the expenses of its counsel) incurred by the Initial Purchaser in
		connection herewith.
	 

	 
		12.          Notices. All
		notices and other communications provided for or permitted hereunder shall be
		made in writing, shall be delivered by hand delivery, by telecopier, by courier
		guaranteeing overnight delivery or by first-class mail, return receipt
		requested, and shall be deemed given (i) when made, if made by hand delivery,
		(ii) upon confirmation, if made by telecopier (provided notice is also given by
		some other means permitted by this Section 12), (iii) one business day after
		being deposited with such courier, if made by overnight courier, or (iv) on the
		date indicated on the notice of receipt, if made by first-class mail, to the
		parties as follows: to the Initial Purchaser c/o CRT Capital Group LLC, 262
		Harbor Drive, Stamford, CT 06902, Attention: Eric Seal, facsimile number: (203)
		569-6890, and with a copy to DLA Piper US LLP, 1251 Avenue of the Americas, New
		York, NY 10020, Attention: Jonathan Klein, Esq., facsimile number: (212)
		335-4501, and if sent to the Company, to Vion Pharmaceuticals, Inc., 4 Science
		Park, New Haven, Connecticut, 06511, Attention: Corporate Secretary, facsimile
		number: (203) 498-4211, and with a copy to Fulbright & Jaworski, L.L.P.,
		666 Fifth Avenue, New York, New York 10103, Attention: Lawrence A. Spector,
		Esq., facsimile number: (212) 318-3400.
	 

	 
		13.          Successors. This
		Agreement shall inure to the benefit of and be binding upon the Initial
		Purchaser and the Company and their respective successors, permitted assigns
		and legal representatives, and nothing expressed or mentioned in this Agreement
		is intended or 
	 

	 
		 
	 

	 
		 
	 

	 
		27
	 

	 
		 
	 

	 
	 

	 

	 
		shall be construed to give any other person
		any legal or equitable right, remedy or claim under or in respect of this
		Agreement, or any provisions herein contained; this Agreement and all
		conditions and provisions hereof being intended to be and being for the sole
		and exclusive benefit of such persons and for the benefit of no other person
		except that (a) the indemnities of the Company contained in Section 8 of this
		Agreement shall also be for the benefit of any person or persons who control an
		Initial Purchaser within the meaning of Section 15 of the Securities Act or
		Section 20 of the Exchange Act and the respective officers, directors,
		partners, employees, agents and representatives of the Initial Purchaser and
		any such person or persons, and (b) the indemnities of an Initial Purchaser
		contained in Section 8 of this Agreement shall also be for the benefit of the
		directors, officers, employees, agents and representatives of the Company and
		any person or persons who controls the Company within the meaning of Section 15
		of the Securities Act or Section 20 of the Exchange Act. No purchaser of
		Securities from the Initial Purchaser will be deemed a successor or an assign
		because of such purchase. Prior to the Closing, no party may assign this
		Agreement or any of its rights hereunder without the prior written consent of
		the other party or parties.
	 

	 
		14.          No Waiver; Modifications in Writing. No failure or delay on the part of the Company or the
		Initial Purchaser in exercising any right, power or remedy hereunder shall
		operate as a waiver thereof, nor shall any single or partial exercise of any
		such right, power or remedy preclude any other or further exercise thereof or
		the exercise of any other right, power or remedy. The remedies provided for
		herein are cumulative and are not exclusive of any remedies that may be
		available to the Company or the Initial Purchaser at law or in equity or
		otherwise. No waiver of or consent to any departure by the Company or the
		Initial Purchaser from any provision of this Agreement shall be effective
		unless signed in writing by the party entitled to the benefit thereof; provided
		that notice of any such waiver shall be given to each party hereto as set forth
		below. Except as otherwise provided herein, no amendment, modification or
		termination of any provision of this Agreement shall be effective unless signed
		in writing by or on behalf of the Company and the Initial Purchaser. Any
		amendment, supplement or modification of or to any provision of this Agreement,
		any waiver of any provision of this Agreement, and any consent to any departure
		by the Company or the Initial Purchaser from the terms of any provision of this
		Agreement shall be effective only in the specific instance and for the specific
		purpose for which made or given. Except where notice is specifically required
		by this Agreement, no notice to or demand on the Company in any case shall
		entitle the Company to any other or further notice or demand in similar or
		other circumstances.
	 

	 
		15.          Information Supplied by the Initial
		Purchaser. The statements set forth in
		the fourth, fifth, sixth, seventh and last paragraphs in the Offering
		Memorandum under the heading “Plan of Distribution” constitute the
		only information furnished by the Initial Purchaser to the Company for purposes
		of Sections 8(a) and 8(b) hereof.
	 

	 
		16.         Entire Agreement. Except with respect to Section 6 of the Engagement
		Letter, dated February 2, 2007, between the Company and CRT, this Agreement
		constitutes the entire agreement among the parties hereto and supersedes all
		prior agreements, representations, warranties, understandings and arrangements,
		oral or written, among the parties hereto with respect to the subject matter
		hereof.
	 

	 
		 
	 

	 
		 
	 

	 
		28
	 

	 
		 
	 

	 
	 

	 

	 
		17.          No Fiduciary Obligations. The Company acknowledges and agrees that (i) the
		purchase and sale of the Securities pursuant to this Agreement, including the
		determination of the public offering price of the Securities and any related
		discounts and commissions and the conversion rate for the Notes and the
		exercise price for the Warrants, is an arm’s-length commercial transaction
		between the Company, on the one hand, and the Initial Purchaser, on the other
		hand, (ii) in connection with the offering contemplated hereby and the process
		leading to such transaction, the Initial Purchaser are and have been acting
		solely as a principal and is not the agent or fiduciary of the Company or their
		respective stockholders, creditors, employees or any other party, (iii) the
		Initial Purchaser has not assumed or will not assume an advisory or fiduciary
		responsibility in favor of the Company with respect to the offering
		contemplated hereby or the process leading thereto (irrespective of whether the
		Initial Purchaser has advised or is currently advising the Company or on other
		matters) and the Initial Purchaser has no obligation to the Company with
		respect to the offering contemplated hereby except the obligations expressly
		set forth in this Agreement, (iv) the Initial Purchaser and its affiliates may
		be engaged in a broad range of transactions that involve interests that differ
		from those of the Company, and (v) the Initial Purchaser has not provided any
		legal, accounting, regulatory or tax advice with respect to the offering
		contemplated hereby and the Company has consulted its own legal, accounting,
		regulatory and tax advisors to the extent it deems appropriate.
	 

	 
		18.          APPLICABLE LAW; JURISDICTION; WAIVER OF JURY
		TRIAL. THE VALIDITY AND INTERPRETATION
		OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE
		GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
		WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW THAT WOULD
		RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. The Company
		agrees that any suit, action or proceeding against the Company arising out of
		or based upon this Agreement or the transactions contemplated hereby may be
		instituted in any state or federal court in The City of New York, New York, and
		waives any objection which it may now or hereafter have to the laying of venue
		of any such proceeding, and irrevocably submits to the non-exclusive
		jurisdiction of such courts in any suit, action or proceeding. The Company
		expressly accepts the non-exclusive jurisdiction of any such court in respect
		of any such suit, action or proceeding. The Company agrees that a final
		judgment in any such proceeding brought in any such court shall be conclusive
		and binding thereupon and may be enforced in any other court in the
		jurisdiction to which the Company is or may be subject by suit upon such
		judgment. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
		JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR
		TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
		AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
	 

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

	 
		[Remainder of Page Left Intentionally
		Blank]
	 

	 
		 
	 

	 
		 
	 

	 
		29
	 

	 
		 
	 

	 
	 

	 

	 
		If the foregoing correctly sets forth our
		understanding, please indicate your acceptance thereof in the space provided
		below for that purpose, whereupon this letter shall constitute a binding
		agreement between the Company and the Initial Purchaser.
	 

	 
		 
	 

	 
			
				
				   
				

			 	
				
				   
				

			 	
				
				  Very truly yours,
 

				  VION PHARMACEUTICALS, INC.
 

				  a Delaware corporation
  
  
				  
				

			 
	
				
				

			 	
				
				   
				

			 	
				
				  By: 
				

			 	
				
			    
				  /s/ Howard B. Johnson
				

			 
	
				
				   
				

			 	
				
				   
				

			 	
				
				   
				

			 	
				
				  Name: Howard B. Johnson

				  Title: President and Chief Financial
				  Officer
				

			 

 

	 
		The foregoing Agreement is hereby confirmed
		and accepted as of the date first above written.
	 

	 
		 
	 

	 
			
				
				  CRT CAPITAL GROUP LLC
  

				    
				

			 
	
				
				  By: 
				

			 	
				
			    
				  /s/ Eric Seal
				

			 
	
				
				   
				

			 	
				
				  Name: Eric Seal

				  Title: Senior Vice President
				

			 

 

	 
		 
	 

	 
		 
	 

	 
		30
	 

	 
		 
	 

	 
	 

	 

	 
		Schedule 1
	 

	 
		 
	 

	 
			

				
				  
					 Initial Purchaser
				  

				
 	

				
				  
					 Principal Commitment Amount and
					 Number of Warrants
				  

				
 
	
				
				  CRT Capital Group LLC
				

			 	
				
				  $60,000,000 aggregate principal
				  amount of Notes and Warrants to purchase 7,800,000 Sharesexv4w1

 

OMNIBUS INSTRUMENT

     WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 15th day of June, 2007, relating to the issuance by
Principal Life Income Fundings Trust 2007-59 (the “Trust”) of Notes with a principal amount of
$569,000.00 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 February 16, 2006, 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 February 16, 2006 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 Left Intentionally 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 February 16, 2006, 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, the Pricing Supplement or the
Distribution Agreement 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 Left Intentionally 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 Left Intentionally 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 February 16, 2006, 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 Left Intentionally 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 agent named therein, including the Purchasing Agent have
entered into that certain Distribution Agreement dated February 16, 2006 (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 Applicable Time. For purposes of the Distribution Agreement, the
Applicable Time shall be 10:00 am Central Standard Time on June 15, 2007.

     Section 2.05 Free Writing Prospectus. For purposes of the Distribution Agreement,
each free writing prospectus (attached to this Omnibus Instrument as Exhibit G) constitutes
a part of the Time of Sale Prospectus.

     Section 2.06 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 2.07 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 2.08 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, the Pricing Supplement or the Distribution
Agreement as indicated herein.

     Section 2.09 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 Left Intentionally 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 Agents (as defined in the Terms 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, as sponsor and depositor, 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) 361-2184

Facsimile: (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) 657-3862

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: (866) 496-6527

     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: (866) 496-6527

     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: (866) 496-6527

     To Bankers Trust Company, N.A:

Bankers Trust Company, N.A.

453 7th Street

Des Moines, Iowa 50309-2728

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 Left Intentionally 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 the License Agreement set
forth in Section B 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/ Janet P. O’Hara
 	 
	 	 	Name:  	Janet P. O’Hara 	 
	 	 	Title:  	Assistant 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/ Janet P. O’Hara
 	 
	 	 	Name:  	Janet P. O’Hara 	 
	 	 	Title:  	Assistant 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/ Bernard J. Angelo
 	 
	 	 	Name:  	Bernard J. Angelo 	 
	 	 	Title:  	Vice 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/ Jennifer McCourt
 	 
	 	 	Name:  	Jennifer McCourt 	 
	 	 	Title:  	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/ Diana L. Cook
 	 
	 	 	Name:  	Diana L. Cook 	 
	 	 	Title:  	Vice President 	 
	 
	 	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
99.2 to Principal Life Insurance Company’s Current Report on Form
8-K, filed on March 1, 2006.
	 
	 	 
	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 Current Report
on Form 8-K, filed on December 6, 2006.
	 
	 	 
	Exhibit D

	 	Pricing Supplement — Incorporated herein by reference to the
Pricing Supplement with respect to Principal Life Income Fundings
Trust 2007-59, filed on June 11, 2007 with the Securities and
Exchange Commission pursuant to Rule 424(b)(2) 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
	 
	 	 
	Exhibit G

	 	Free Writing Prospectus(es)
	 
	 	 
	Schedule I

	 	Terms Agreement Specifications

 

 

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. 333-129763 and
333-129763-01) (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 l day of
l, 200l.

	 	 	 	 	 
	 	[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.
333-129763 and 333-129763-01 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 l day of
l, 200l.

	 	 	 	 	 
	 	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

 

	 	 	 	 	 

EXHIBIT G

Free Writing Prospectus(es)

None.

G-1

 

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.

     In accordance with Section 2.02(b) of the Terms Agreement and in connection with the purchase
of Notes from the Trust by the Purchasing Agent as principal, the following items will be delivered
on the Settlement Date:

	•	 	Opinion of Sidley Austin LLP regarding the enforceability of the Guarantee and the
Notes.

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

I-1

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