Document:

exv4w2

 

Exhibit 4.2

Shopping.com Ltd. 

2004 EQUITY INCENTIVE PLAN

Adopted by the Board of Directors February 29, 2004

     1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions are important to the
success of the Company, any Parent and all Subsidiaries, by offering them an opportunity to
participate in the Company’s future performance through awards of Options, Restricted Stock, Stock
Appreciation Rights, and Stock Units. Capitalized terms not defined elsewhere in the text are
defined in Section 25 hereof.

     2. SHARES SUBJECT TO THE PLAN.

          2.1 Number of Shares Available. Subject to Sections 2.2 and 19 hereof, the
total number of Shares reserved and available for grant and issuance pursuant to this Plan will be
three million (3,000,000) Shares plus: (a) the number of Ordinary Shares reserved under the
Company’s 2003 Omnibus Stock Option and Restricted Stock Incentive Plan (the “Prior Plan”) that are
not subject to outstanding awards under the Prior Plan upon its termination at the Effective Date,
and (b) the number of Ordinary Shares that are released from, or reacquired by the Company from,
awards outstanding under the Prior Plan at the Effective Date. Shares reserved under this Plan that
correspond to Ordinary Shares covered by part (b) of the immediately preceding sentence shall not
be available for grant and issuance pursuant to this Plan except as such Ordinary Shares cease to
be subject to such outstanding awards or are reacquired by the Company. The number of Shares
reserved for issuance under the Plan shall be increased on the first day of each of the Company’s
fiscal years 2006 through 2015, by the lesser of: (i) four percent (4%) of the number of Ordinary
Shares issued and outstanding on the last day prior to the date of increase, and (ii) a lesser
number of Ordinary Shares determined by the Board. Subject to this Section 2.1 and Sections 2.2
and 19 hereof, if Shares: (a) are subject to an Award that terminates without such Shares being
issued, or (b) are issued pursuant to an Award, but are forfeited or repurchased by the Company at
the original issue price; then such Shares will again be available for grant and issuance under
this Plan. At all times the Company will reserve and keep available the number of Shares necessary
to satisfy the requirements of all Awards then outstanding under this Plan. No more than forty
percent (40%) of the Shares reserved under the Plan may be issuable pursuant to an Award at a price
per Share that is at a discount from the Fair Market Value on the date of grant of such Award
(excluding Awards granted in substitution for other awards as part of an acquisition by the
Company). In no event shall the total number of Shares issued (counting each reissuance of a Share
that was previously issued and then forfeited or repurchased by the Company as a separate issuance)
under the Plan upon exercise of Awards exceed fifteen million (15,000,000) Shares (adjusted in
proportion to any adjustments under Section 2.2 hereof) over the term of the Plan.

          2.2 Adjustment of Shares. In the event that the number of the Company’s
outstanding Ordinary Shares are changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification, spin-off or similar change in the capital
structure of the Company without consideration, then (a) the number of Shares reserved for issuance
under this Plan, (b) the number of Shares that may be granted pursuant to Awards (including without
limitation, the provisions of Sections 3 and 5.11 below), and (c) the Exercise Prices and Purchase
Prices of, and number of Shares subject to, then outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of a Share will not
be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or
will be rounded down to the nearest whole Share, as determined by the Committee.

     3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to
employees (including officers and directors who are also employees) of the Company or of a Parent
or Subsidiary. 102 Stock Options may be granted only to Israeli employees and Office Holders
excluding any “Controlling Holders” as such term is defined in the Ordinance. 3(I) Stock Options
may be granted only to consultants and to any Israeli employees or Office Holders who are
Controlling Holders. All other types of Awards may be granted to any employee, officer, director or
consultant of the Company or any Parent or Subsidiary; provided that with respect to any
consultant, however, that such consultant is a natural person and the Award is in full or partial
compensation for bona fide services unconnected with any offer and sale of securities in a
capital-raising transaction. On and after the date the Company becomes a “publicly held
corporation” (as defined in the regulations promulgated under Section 162(m) of the Code) no
employee will be eligible to receive more than 250,000 Shares in any calendar year under this Plan
pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent
or Subsidiary (including new employees who are also officers and directors of the Company or any
Parent or Subsidiary), who will be eligible to receive up to a maximum of 750,000 Shares in the
calendar year in which they commence their employment. Any Participant may be granted more than one
Award under this Plan.

     4. ADMINISTRATION.

          4.1 Authority. The Committee will administer this Plan subject to:
applicable law, the general purposes, terms and conditions of this Plan, the direction and
parameters established by the Board with respect to grants hereunder. If there is no Committee, or
the Committee ceases to exist, the Plan shall be administered by the Board. Furthermore, if an
action, necessary for the administration of the Plan or the grant of Awards hereunder, is required
under law to be approved by the Board, then such action shall not occur until approved by the
Board. In any

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such event, all references herein to the Committee shall be construed as references to the
Board. Subject to the foregoing, the Committee will have full power to implement and carry out
this Plan including, without limitation, authority to:

               (a) construe and interpret this Plan, any Award Agreement and any other agreement or
document executed pursuant to this Plan;

               (b) prescribe, amend and rescind rules and regulations relating to this Plan;

               (c) approve persons to receive Awards;

               (d) determine the form and terms of Awards;

               (e) determine the number of Shares or other consideration subject to Awards;

               (f) determine whether Awards will be granted singly, in combination with, in tandem
with, in replacement of, or as alternatives to, other Awards or awards under any other incentive or
compensation plan of the Company or any Parent or Subsidiary;

               (g) grant waivers of any conditions of this Plan or any Award;

               (h) determine the terms of vesting, exercisability and payment of Awards (including,
without limitation, the inclusion of any Performance Factors and a Performance Period in such
terms);

               (i) correct any defect, supply any omission, or reconcile any inconsistency in this
Plan, any Award, any Award Agreement or any Exercise Agreement;

               (j) determine whether an Award has been earned (including, without limitation, the
satisfaction of any Performance Factors);

               (k) delegate to one or more officers of the Company the authority to grant Awards
within parameters established by the Committee, provided each such officer is a member of the Board
and subject to applicable law (for example, the corporate governance laws of the state of the
Company’s incorporation);

               (l) delegate authority to grant Awards to a committee comprised solely of two, or
more, “outside directors” (as defined in the regulations promulgated under Section 162(m) of the
Code); make all other determinations necessary or advisable for the administration of this Plan;
and

               (m) To determine which method – the capital gain method or the work income method or
any other method available under Section 102 – shall be adopted for the purposes of the Plan under
Section 102 of the Ordinance; and to appoint a Trustee, if the Committee deems it necessary,
prudent or advisable;

               (n) extend the vesting period beyond a Participant’s Termination Date.

          4.2 Committee Discretion. Any determination made by the Committee with
respect to any Award will be made in its sole discretion, provided such determination does not
contravene any law or any other express term of this Plan or direction of the Board, either: (a) at
the time of grant of the Award, or (b) at any later time, subject to Section 5.9 hereof and
provided such determination does not contravene any express term of such Award. Any such
determination will be final and binding on the Company and on all persons having an interest in any
Award affected by such determination. The Committee may delegate to one or more officers of the
Company the authority to grant an Award under this Plan to Participants who are not Insiders of the
Company.

     5. OPTIONS. The Committee will determine at, or prior to, the date of grant
of each Option whether such Option will be: an “incentive stock option” within the meaning of
Section 422 of the Code (“ISO”) or a nonqualified stock option (“NQSO”), either of which may also
be an option intended to comply with the provisions of Section 102 (“102 Stock Option”); or the
provisions of Section 3(I) of the Ordinance (“3(I) Stock Option”); the number of Shares subject to
the Option, the Exercise Price of the Option, the period during which the Option may be exercised,
and all other terms and conditions of the Option, subject to the following:

          5.1 Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement, expressly identifying the Option as an ISO or an NQSO, a 102 Stock
Option or a 3(I) Stock Option (“Stock Option Agreement”), which will: (a) be in such form and
contain such provisions (which need not be the same for each Participant) as the Committee may from
time to time approve, and (b) comply with and be subject to the terms and conditions of this Plan.

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          5.2 Date of Grant. The date of grant of an Option will be the date on which
the Committee, subsequent to a Board approval of the parameters with respect to grants hereunder,
makes the determination to grant such Option, unless the Committee specifies a later date of grant
or a later date is required by law (for example, when applicable law requires additional approval
by the Board). The Stock Option Agreement and a copy of this Plan must be delivered to the
Participant within a reasonable time after the date of grant of the Option. Notwithstanding the
foregoing to the extent required by applicable law, the date of grant of an Option granted to a
director of the Company under this Plan shall be the later of (a) the date the shareholders of the
Company approve such grant and (b) the date of grant provided for in the Plan.

          5.3 Exercise Period. Options may be exercisable immediately subject to
repurchase pursuant to Section 13 hereof, or may be exercisable within the times or upon the events
determined by the Committee, within the parameters set by the Board, as set forth in the Stock
Option Agreement governing such Option. The Committee also may provide for Options to become
exercisable at one time or from time to time, periodically or otherwise, in such number of Shares
or percentage of Shares as the Committee determines.

               (a) Subject to the terms of this Plan, each Option will expire no later than the
earlier of ten years from its date of grant or the latest date set forth in the Stock Option
Agreement for such Option.

               (b) Any ISO granted to a Ten Percent Shareholder will expire and cease to be
exercisable on the date that is the fifth anniversary of the date the ISO is granted.

               (c) Any Option held by a Participant who is Terminated for Cause will expire and
cease to be exercisable on such Participant’s Termination Date unless determined otherwise by the
Committee.

          5.4 Exercise Price. The Exercise Price of an Option will be determined by
the Committee, within the parameters set by the Board, when the Option is granted; provided that
(a) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair
Market Value of the Shares on the date of grant, and (b) the Exercise Price of any ISO granted to a
Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market
Value of the Shares on the date of grant. Payment for the Shares purchased must be made in
accordance with Section 7 hereof.

          5.5 Method of Exercise. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved
by the Committee (which need not be the same for each Participant). The Exercise Agreement will
state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares
purchased under such Exercise Agreement, if any, and (c) such representations and agreements
regarding Participant’s investment intent and access to information and other matters, if any, as
may be required or desirable by the Company to comply with applicable securities laws. Participant
shall execute and deliver to the Company the Exercise Agreement together with payment in full of
the Exercise Price, and any applicable taxes, for the number of Shares being purchased.

          5.6 Termination. Subject to earlier termination pursuant to Sections 5.3, 19
or 20 hereof and unless a different exercise period is expressly set forth in the Stock Option
Agreement, the exercise period of an Option is always subject to the following:

               (a) If the Participant is Terminated for any reason other than death, Disability or
for Cause, then the Participant may exercise such Participant’s Options only to the extent that
such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise
determined by the Committee. Such Options must be exercised by the Participant, if at all, as to
all or some of the Vested Shares calculated as of the Termination Date or such other date
determined by the Committee, within three (3) months after the Termination Date (or within such
shorter or longer time period after the Termination Date as may be determined by the Committee,
with any exercise of an ISO occurring three (3) months after the Termination Date deemed to be
exercise of an NQSO) but in any event, no later than the applicable expiration date determined
under Section 5.3 above.

               (b) If the Participant is Terminated because of Participant’s death or Disability (or
the Participant dies within three (3) months after a Termination other than for Cause), then
Participant’s Options may be exercised only to the extent that such Options are exercisable as to
Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee.
Such options must be exercised by Participant (or Participant’s legal representative or authorized
assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date
or such other date determined by the Committee, within twelve (12) months after the Termination
Date (or within such shorter or longer time period after the Termination Date as may be determined
by the Committee) but in any event no later than the applicable expiration date determined under
Section 5.3 above.

               (c) When a Participant is Terminated for Cause, such Participant’s Options, may be
exercised to the extent such Options are Vested Shares no later than the Termination Date.

          5.7 Limitations on Exercise. The Committee may specify a reasonable minimum
number of Shares that must be purchased on any exercise of an Option, provided that such minimum
number will not prevent a final exercise of an Option for the number of Shares for which it is then
exercisable.

          5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of
the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a
Participant during any calendar year (under this Plan or under any other incentive stock option
plan

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of the Company or any Parent or Subsidiary) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds One Hundred
Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000)
worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that
calendar year will be NQSOs and such distinction shall be documented in separate Stock Option
Agreements per Section 5.1 above. In the event that the Code or the regulations promulgated
thereunder are amended after the Effective Date to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, then such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective date of such
amendment.

          5.9 Modification, Extension or Renewal. Subject to the provisions of
applicable law, the Committee, within the parameters set by the Board, may modify (including,
without limitation, reducing the exercise price), extend or renew outstanding Options and authorize
the grant of new Options or any other type of Award in substitution or exchange therefor, provided
that any such action may not, without the written consent of a Participant, impair any of such
Participant’s rights under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the
Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding
Options without the consent of Participants by a written notice to them; provided, however, that
the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted
under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise
Price.

          5.10 No Disqualification. Notwithstanding any other provision in this Plan,
no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any
discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under
Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant’s
ISO under Section 422 of the Code.

          5.11 Automatic Grants to Outside Directors. Subject to the approval of the
shareholders of the Company with respect to each grant provided for below:

               (a) Options may be granted to any member of the Board who first joins the Board on or
after the Effective Date, and in either case who is not then also an Employee (an “Outside
Director”), in accordance with the policies established from time to time by the Board specifying
the number of shares (if any) to be subject to each such award and the time at which such award
shall be granted.

               (b) Each Option granted under this Section 5.11 shall be immediately exercisable,
subject to the Company’s right to repurchase unvested shares upon the Outside Director holding such
Option ceasing to be a member of the Board or a consultant of the Company. Options granted under
this Section 5.11 shall become fully vested if a Corporate Transaction (defined in Section 19.1)
occurs with respect to the Company.

               (c) The Exercise Price of all Options granted under this Section 5.11 shall be equal
to 100% of the Fair Market Value of a Share on the date of grant, and payable as provided in the
form of stock option agreement.

               (d) All Options granted under this Section 5.11 shall terminate on the earlier of (i)
the day before the tenth anniversary of the date of grant of such Options, (ii) the date three (3)
months after the Outside Director holding such Options ceases, for any reason, to be a member of
the Board or a consultant of the Company; provided, however, that exercisability of any such
Options for Shares that are not then vested shall terminate immediately, or (iii) in the event of a
Corporate Transaction, then as provided in the plan or agreement approved by the Board for such
Corporate Transaction.

          5.12 102 Stock Options.

               (a) Options granted pursuant to this Section 5.12 are intended to constitute 102
Stock Options and subject to Section 102 of the Ordinance and the rules and regulations promulgated
thereunder, as amended and shall further be subject to the general terms and conditions specified
in Section 5 hereof and other provisions of the Plan, except for said provisions of the Plan
applying to Options under a different tax law or regulation.

               (b) To the extent required by the Ordinance or the Income Tax Commissioner of the
State of Israel, the 102 Stock Options which shall be granted pursuant to the Plan shall be issued
to a Trustee nominated by the Committee and approved by the tax authorities in accordance with the
provisions of the Ordinance. The 102 Stock Options and the Shares issued upon the exercise of such
Options shall be held by the Trustee for the benefit of the Participant for such period of time as
may be required by the Ordinance or any other applicable law or regulation.

               (c) Notwithstanding anything to the contrary, the Trustee of the 102 Stock Options
shall not release any 102 Stock Options which were not already exercised by the Participant or
release any Shares issued upon exercise of 102 Stock Options prior to the full payment of the
Participant’s tax liabilities arising from 102 Stock Options granted to the Participant and/or any
Shares issued upon exercise of such Options.

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               (d) During the holding period with the Trustee as set forth in Section 102 and as
long as the applicable tax liabilities have not been paid, neither the Options nor the Shares, as
the case may be, may be sold, transferred, assigned, pledged or mortgaged (other than through a
transfer by will or by operation of law), nor may they be the subject of an attachment, power of
attorney or transfer deed (other than a power of attorney for the purpose of participation in
general meetings of shareholders) unless Section 102 and/or the regulations, rules, orders or
procedures promulgated thereunder allow otherwise.

               (e) As a condition precedent to the grant of a Section 102 Option, the Participant
will sign an undertaking under the Stock Option Agreement to release the Trustee from any liability
in respect of any action or decision duly taken and bona fide executed in relation with the Plan,
or any Option or Share granted to the Participant thereunder.

               (f) Notwithstanding anything in this Section 5.12 to the contrary, Options granted
under Section 102(c) of the Ordinance, shall not be issued to a Trustee and shall not be subject to
any holding period by the Trustee, but shall always be subject to the terms and conditions of
Section 102(c) of the Ordinance, as such may be amended from time to time. With respect to Options
granted under Section 102(c), if the Participant ceases to be employed by the Company, the
Participant shall extend to the Company reasonable security or a guarantee for the payment of tax
due at the time of sale of Ordinary Shares, all in accordance with the provisions of Section 102
and the rules, regulation and orders promulgated thereunder.

          5.13 3(I) Stock Options.

               (a) Options granted pursuant to this Section 5.13 are intended to constitute 3(I)
Stock Options and shall be subject to the general terms and conditions specified in Section 5
hereof and other provisions of the Plan, except for said provisions of the Plan applying to Options
under a different tax law or regulation.

               (b) 3(I) Stock Options may be granted to non-employees, including consultants,
service providers and Controlling Holders (as such term is defined in the Ordinance).

               (c) 3(I) Stock Options may be issued to a Trustee nominated by the Committee. If the
Committee has nominated such a Trustee, the Trustee shall hold the 3(I) Stock Options, on behalf of
the Participant, until such time as the Participant wishes to sell the Shares issued to him or her
upon exercise of the 3(I) Stock Options.

               (d) The Trustee shall not transfer the 3(I) Stock Options or any Shares issued upon
the exercise of such Options to the Participant unless all payments due in connection with such
Options or Shares have been paid in full.

               (e) Upon receipt of the 3(I) Stock Options to be held by a Trustee, the Participant
will sign an undertaking under the Stock Option Agreement to release the Trustee from any liability
in respect of any action or decision duly taken and bona fide executed in relation with the Plan,
or any Option or Share granted to the Participant thereunder.

     6. RESTRICTED STOCK AWARDS. A Restricted Stock Award is an Award made in the
form of an offer by the Company to sell Shares that are subject to certain specified restrictions.
The Committee, within the parameters set by the Board, will determine all the terms and conditions
of the Restricted Stock Award (such as, the number of Shares, the Purchase Price and the
restrictions to which the Shares will be subject) subject to the following:

          6.1 Restricted Stock Purchase Agreement. All purchases under a Restricted
Stock Award will be evidenced by an Award Agreement (“Restricted Stock Purchase Agreement”) that
will be in such form (which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
The Participant’s acceptance of the Restricted Stock Award is accomplished by the Participant’s
execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares
to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is
delivered to the person and prior to Termination of the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment (made in accordance
with Section 7.1 hereof) for the Shares to the Company within such period of time, then such
Restricted Stock Award will terminate, unless otherwise determined by the Committee.

          6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee, within the parameters set by the Board.

          6.3 Restrictions. Restricted Stock Awards may be subject to the restrictions
set forth in Section 13 hereof or such other restrictions determined by the Committee or required
by law.

     7. PAYMENT FOR SHARE PURCHASES.

          7.1 Payment. Payment for Shares purchased pursuant to this Plan may be made
in cash (including by check) or, where expressly approved for the Participant by the Committee and
permitted by law:

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               (a) by cancellation of indebtedness of the Company owed to the Participant;

               (b) by surrender of shares that: (i) either (A) have been owned by Participant for
more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Company by use of a promissory note, such note has been fully paid
with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are
clear of all liens, claims, encumbrances or security interests;

               (c) by tender of a full recourse promissory note having such terms as may be approved
by the Committee and bearing interest at a rate sufficient to avoid (i) imputation of income under
Sections 483 and 1274 of the Code and (ii) variable accounting treatment under Financial Accounting
Standards Board Interpretation No. 44 to APB No. 25; provided, however, that Participants who are
not employees or directors of the Company will not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other than the Shares;

               (d) by waiver of compensation due or accrued to the Participant from the Company for
services rendered;

               (e) with respect only to purchases upon exercise of an Option, and provided that a
public market for the Company’s stock exists:

                    (i) through a “same day sale” commitment from the Participant and a broker-dealer
that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the
Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so
purchased sufficient to pay the total Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or

                    (ii) through a “margin” commitment from the Participant and an NASD Dealer whereby
the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of
the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the total Exercise Price directly to the Company; or

               (f) by any combination of the foregoing.

          7.2 Loan Guarantees. The Committee may, in its sole discretion, elect to
assist the Participant in paying for Shares purchased under this Plan by authorizing a guarantee by
the Company of a third-party loan to the Participant.

     8. STOCK APPRECIATION RIGHTS.

          8.1 SAR Agreement. Each grant of a Stock Appreciation Right or SAR under the
Plan shall be evidenced by a SAR Agreement between the Participant and the Company. Such SAR shall
be subject to all applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the
Plan need not be identical. SARs may be granted in consideration of a reduction in the
Participant’s other compensation.

          8.2 Exercise of SARs. Upon exercise of a SAR, the Participant (or any person
having the right to exercise the SAR after his or her death) shall receive from the Company: (a)
Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the
Shares subject to the SARs exceeds the Exercise Price.

          8.3 Number of SARs. Each SAR Agreement shall specify the number of rights to
which the SAR pertains and shall provide for the adjustment of such number in accordance with the
Plan.

          8.4 Exercise Price. Each SAR Agreement shall specify the Exercise Price. A
SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula
while the SAR is outstanding.

          8.5 Exercisability and Term. Each SAR Agreement shall specify the date when
all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify
the term of the SAR. A SAR Agreement may provide for accelerated exercisability in the event of the
Participant’s death, Disability or other events and may provide for expiration prior to the end of
its term in the event of Termination. SARs may be awarded in combination with Options, and such an
Award may provide that the SARs will not be exercisable unless the related Options are forfeited. A
SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time
of grant or thereafter.

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     9. STOCK UNITS.

          9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be
evidenced by a Stock Unit Agreement between the recipient and the Company. Such Stock Units shall
be subject to all applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the
recipient’s other compensation.

          9.2 Payment. No payment of cash shall be required as consideration.

          9.3 Vesting. Stock Units may or may not be subject to vesting. Vesting shall
occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit
Agreement.

          9.4 Rights as a Shareholder. No voting or dividend rights as a shareholder
shall exist prior to the actual issuance of Shares in the name of the Participant. A Stock Unit
Agreement may provide for dividend equivalent units.

          9.5 Exercisability and Term. Each Stock Unit Agreement shall specify its
term and any conditions on the time or times for settlement, and provide for expiration prior to
the end of its term in the event of Termination, and may provide for earlier settlement in the
event of the Participant’s death, Disability or other events.

          9.6 Settlement. Settlement of vested Stock Units may be made in the form of:
(a) cash, (b) Shares or (c) any combination, as determined by the Committee and may be settled in a
lump sum or in installments. Distribution to a Participant of an amount (or amounts) from
settlement of vested Stock Units can be deferred to a date after settlement as determined by the
Committee. The amount of a deferred distribution may be increased by an interest factor or by
dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units
shall be subject to adjustment pursuant to the Plan.

     10. WITHHOLDING TAXES.

          10.1 Withholding Generally. Whenever Shares are to be issued in satisfaction
of Awards granted under this Plan, the Company may require the Participant to remit to the Company
an amount sufficient to satisfy any foreign, federal, state and local tax withholding requirements
prior to the delivery of any certificate or certificates for such Shares. Whenever, under this
Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will
be net of an amount sufficient to satisfy any foreign, federal, state, and local tax withholding
requirements.

          10.2 Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax
withholding and the Participant must pay the Company the amount required to be withheld, the
Committee may in its sole discretion allow the Participant to satisfy the minimum tax withholding
obligation by electing to have the Company withhold from the Shares to be issued that minimum
number of Shares having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined; but in no event
will the Company withhold Shares if such withholding would result in adverse accounting
consequences to the Company. Any election by any Participant to have Shares withheld for this
purpose must be in writing on a form made in accordance with the requirements established by the
Committee for such election.

     11. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the
rights of a shareholder with respect to any Shares until the date of issuance of Shares to the
Participant (or to the Trustee on Participant’s behalf) as recorded in the shareholder records of
the Company. After Shares are issued to the Participant (or to the Trustee on Participant’s
behalf), the Participant will be a shareholder and have all the rights of a shareholder with
respect to such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such Shares are
Restricted Stock, then any new, additional or different securities the Participant may become
entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any
other change in the corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock. Notwithstanding the foregoing, in the event that a Trustee
holds Shares issued upon the exercise of 102 Stock Options, any cash dividends paid by the Company
on such Shares shall be paid directly to the Participant and any stock dividends (bonus shares)
shall be paid to the Trustee and will be subject to the same restrictions as the 102 Stock Options
or the Shares then held by the Trustee for such Participant. The Participant will have no right
to retain such stock dividends or stock distributions with respect to Unvested Shares that are
repurchased pursuant to Section 13 hereof.

     12. TRANSFERABILITY. Except as permitted by the Committee, Awards granted
under this Plan, and any interest therein, will not be transferable or assignable by Participant,
other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by
instrument to an inter vivos or testamentary trust in which the Options are to be passed to
beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that
term is defined in 17 C.F.R. 240.16a-1(e), and may not be made subject to execution, attachment or
similar process. During the lifetime of the Participant an Award will be exercisable only by the
Participant or Participant’s legal representative and any elections with respect to an Award may be
made only by the Participant or Participant’s legal representative.

     13. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase, at the
Participant’s Exercise Price or Purchase Price, as the case may be, Unvested Shares held by a
Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant’s Termination at any time within the time determined by the
Committee. The Company may, upon approval of the Board, assign its repurchase rights

7

 

to (a) one or more employees, consultants or directors of the Company, as shares under this
Plan; (b) all shareholders of the Company (excluding the Participant), on a pro rata basis,
according to the provisions of the Company’s Articles of Association and any relevant agreement; or
(c) any other third party.

     14. CERTIFICATES. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and other restrictions as
the Committee may deem necessary or advisable, including restrictions under any applicable federal,
state or foreign securities law, or any rules, regulations and other requirements of the SEC or any
stock exchange or automated quotation system upon which the Shares may be listed or quoted.

     15. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant’s
Shares set forth in Section 13 hereof, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other instruments of transfer
approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated
by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee
may cause a legend or legends referencing such restrictions to be placed on the certificates. Any
Participant who is permitted to execute a promissory note as partial or full consideration for the
purchase of Shares under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of Participant’s obligation to
the Company under the promissory note; provided, however, that the Committee may require or accept
other or additional forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the promissory note
notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any
pledge of the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The Shares purchased with
the promissory note may be released from the pledge on a pro rata basis as the promissory note is
paid.

     16. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective Participants, to issue new
Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards. The
Committee may at any time buy from a Participant an Award previously granted with payment in cash,
shares of Ordinary Shares of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee, within the parameters set by the Board, and the
Participant may agree.

     17. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable Israeli, American (both federal
and state) and other foreign securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon which the Shares may then
be listed or quoted, as they are in effect on the date of grant of the Award and also on the date
of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will
have no obligation to issue or deliver certificates for Shares under this Plan prior to (a)
obtaining any approvals from governmental agencies that the Company determines are necessary or
advisable, and/or (b) compliance with any exemption, completion of any registration or other
qualification of such Shares under any state or federal law or ruling of any governmental body that
the Company determines to be necessary or advisable. The Company will be under no obligation to
register the Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or failure to do so.

     18. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under
this Plan will confer or be deemed to confer on any Participant any right to continue as an
employee, director or consultant with, the Company or any Parent or Subsidiary or limit in any way
the right of the Company or any Parent or Subsidiary to terminate such service at any time, with or
without Cause.

     19. CORPORATE TRANSACTIONS.

          19.1 Assumption or Replacement of Awards by Successor or Acquiring Company.
If any of the following events (each, a “Corporate Transaction”) occur:

               (a) a dissolution or liquidation of the Company,

               (b) any reorganization, consolidation, merger or similar transaction or series of
related transactions in which the Company is a constituent corporation or is a party if, as a
result of such Corporate Transaction, the voting securities of the Company that are outstanding
immediately prior to the consummation of such Corporate Transaction (other than any
such securities that are held by an “Acquiring Shareholder”, as defined below) do not represent, or
are not converted into, securities of the surviving corporation of such Corporate Transaction (or
such surviving corporation’s parent corporation if the surviving corporation is owned by a parent
corporation) that, immediately after the consummation of such Corporate Transaction, together
possess at least fifty percent (50%) of the total voting power of all securities of such surviving
corporation (or its parent corporation, if applicable) that are outstanding immediately after the
consummation of such Corporate Transaction, including securities of such surviving corporation (or
its parent corporation, if applicable) that are held by the Acquiring Shareholder,

               (c) a sale of all or substantially all of the assets of the Company, that is followed
by the distribution of the proceeds to the Company’s shareholders, or

8

 

               (d) the acquisition, sale, or transfer of more than 50% of the outstanding shares of
the Company by tender offer or similar transaction;

any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring
corporation (if any), which assumption, conversion or replacement will be binding on all
Participants. In the alternative, the successor or acquiring corporation may substitute equivalent
Awards or provide substantially similar consideration to Participants as was provided to
shareholders of the Company (after taking into account the existing provisions of the Awards). The
successor or acquiring corporation may also substitute by issuing, in place of outstanding Shares
held by the Participant, substantially similar securities or other property subject to repurchase
restrictions and other provisions no less favorable to the Participant than those which applied to
such outstanding Shares immediately prior to such transaction described in this Section 19.1. For
purposes of this Section 19.1, an “Acquiring Shareholder” means a shareholder or shareholders of
the Company that (a) merges or combines with the Company in such Corporate Transaction or (b) owns
or controls a majority of another corporation that merges or combines with the Corporation in such
Corporate Transaction. In the event such successor or acquiring corporation (if any) refuses to
assume, convert, replace or substitute Awards, as provided above, pursuant to a transaction
described in this Section 19.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such conditions as the
Board will determine. The Committee, within the parameters set by the Board, may (but shall not be
obligated to), in lieu of such assumption or substitution of the Award and in its sole discretion,
provide for the cancellation of each outstanding Award at the closing of such transaction, against
payment to the Participant of an amount in cash equal to (x) the Fair Market Value of each Share
covered by the Award as reflected under the terms of such transaction, minus (y) the Exercise Price
(if any) of each Share covered by the Award.

          19.2 Other Treatment of Awards. Notwithstanding the provisions of
Section 19.1, in the event of the occurrence of any transaction described in Section 19.1 hereof,
all outstanding Awards will be treated as provided in the applicable agreement or plan of
reorganization, merger, consolidation, dissolution, liquidation or sale of assets.

          19.3 Assumption of Awards by the Company. The Company, from time to time,
also may substitute or assume outstanding awards granted by another company, whether in connection
with an acquisition of such other company or otherwise, by either (a) granting an Award under this
Plan in substitution of such other company’s award or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to an Award granted
under this Plan. Such substitution or assumption will be permissible if the holder of the
substituted or assumed award would have been eligible to be granted an Award under this Plan if the
other company had applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable upon exercise of any
such award that is an “incentive stock option” under Section 422 of the Code will be adjusted
pursuant to Section 424(a) of the Code to preserve such status). If the Company elects to grant a
new Option rather than assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.

     20. ADOPTION AND SHAREHOLDER APPROVAL. This Plan takes effect on the
Effective Date. To permit the grant of ISOs and to comply with other legal and listing
requirements, this Plan must be approved by the shareholders of the Company (excluding Shares
issued pursuant to this Plan from the determination of whether such approval has been obtained),
consistent with applicable laws, within twelve (12) months before or after the Effective Date.
Commencing on the Effective Date, the Board may grant Awards pursuant to this Plan; provided,
however, that: (a) no Shares shall be issued from an Award (or other settlement of an Award made)
prior to any required shareholder approval of Shares reserved under this Plan upon which such Award
would draw; and (b) any Award granted under this Plan, covering Shares for which shareholder
approval is required, shall be cancelled upon such shareholder approval not being timely obtained.

     21. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of
shareholder approval. This Plan and all agreements hereunder shall be governed by and construed in
accordance with the laws of the State of Israel.

     22. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
Board may at any time terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the shareholders of the
Company, amend this Plan in any manner that requires such shareholder approval pursuant to the Code
(including regulations promulgated thereunder with respect to ISOs) or the regulations of any stock
exchange upon which the Ordinary Shares are listed or traded, including the Nasdaq National Market
or the Nasdaq SmallCap Market.

     23. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for approval, nor any
provision of this Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and other equity awards otherwise than under this Plan,
and such arrangements may be either generally applicable or applicable only in specific cases.

     24. INSIDER TRADING POLICY. Each Participant who receives an Award shall
comply with any policy, adopted by the Company from time to time covering transactions in the
Company’s securities by employees, officers and/or directors of the Company.

     25. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

          “Award” means any award under this Plan, including any Option, Restricted Stock Award, Stock
Appreciation Right, or Stock Unit.

9

 

          “Award Agreement” means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the Award, including the
Stock Option Agreement, Restricted Stock Purchase Agreement, SAR Agreement, and Stock Unit
Agreement.

          “Board” means the Board of Directors of the Company.

          “Cause” means Termination because of (a) any willful, material violation by the Participant of
any law or regulation applicable to the business of the Company or a Parent or Subsidiary, the
Participant’s conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or
any willful perpetration by the Participant of a common law fraud, (b) the Participant’s commission
of an act of personal dishonesty which involves personal profit in connection with the Company or
any other entity having a business relationship with the Company, (c) any material breach by the
Participant of any provision of any agreement or understanding between the Company or any Parent or
Subsidiary and the Participant regarding the terms of the Participant’s service as an employee,
officer, director or consultant to the Company or a Parent or Subsidiary, including without
limitation, the willful and continued failure or refusal of the Participant to perform the material
duties required of such Participant as an employee, officer, director or consultant of the Company
or a Parent or Subsidiary, other than as a result of having a Disability, or a breach of any
applicable invention assignment and confidentiality agreement or similar agreement between the
Company or a Parent or Subsidiary and the Participant, (d) Participant’s disregard of the policies
of the Company or any Parent or Subsidiary so as to cause loss, damage or injury to the property,
reputation or employees of the Company or a Parent or Subsidiary, or (e) any other misconduct by
the Participant which is materially injurious to the financial condition or business reputation of,
or is otherwise materially injurious to, the Company or a Parent or Subsidiary.

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

          “Committee” means the committee created and appointed by the Board to administer this Plan, or
if required by law or if no committee is created and appointed, the Board.

          “Companies Law” shall mean the Israel Companies Law-1999, as amended.

          “Company” means Shopping.Com Ltd, or any successor corporation.

          “Disability” means a disability, whether temporary or permanent, partial or total, as
determined by the Committee.

          “Effective Date” means the date on which the registration statement filed by the Company with
the SEC under the Securities Act registering the initial public offering of the Company’s Ordinary
Shares are declared effective by the SEC.

          “Exercise Price” means the price at which a holder of an Option may purchase the Shares
issuable upon exercise of the Option.

          “Fair Market Value” means, as of any date, the value of an Ordinary Share determined as
follows:

               (a) if such Ordinary Shares are then quoted on the Nasdaq National Market, its
closing price on the Nasdaq National Market on the date of determination as reported in The
Wall Street Journal;

               (b) if such Ordinary Shares are publicly traded and is then listed on a national
securities exchange, its closing price on the date of determination on the principal national
securities exchange on which the Ordinary Shares are listed or admitted to trading as reported in
The Wall Street Journal;

               (c) if such Ordinary Shares are publicly traded but is not quoted on the Nasdaq
National Market nor listed or admitted to trading on a national securities exchange, the average of
the closing bid and asked prices on the date of determination as reported by The Wall Street
Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the
Board may determine); or

               (d) if none of the foregoing is applicable, by the Committee in good faith.

     “Insider” means an officer or director of the Company or any other person whose transactions
in the Company’s Ordinary Shares are subject to Section 16 of the Exchange Act.

     “Ordinance” means the Israeli Income Tax Ordinance (New Version) 1961, as amended, including
without limitation the revisions that came into effect on January 1, 2003 and any other future
amendments thereof, including any regulations, rules, orders or procedures promulgated thereunder.

     “Ordinary Share” means an Ordinary Share of the Company, par value NIS 0.01.

     “Option” means an award of an option to purchase Shares pursuant to Section 5 hereof.

10

 

     “Parent” means any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of such corporations other than the Company owns stock representing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

     “Participant” means a person who receives an Award under this Plan.

     “Performance Factors” means the factors selected by the Committee from among the following
measures to determine whether the performance goals established by the Committee and applicable to
Awards have been satisfied:

               (a) Net revenue and/or net revenue growth;

               (b) Earnings before income taxes and amortization and/or earnings before income taxes
and amortization growth;

               (c) Operating income and/or operating income growth;

               (d) Net income and/or net income growth;

               (e) Earnings per share and/or earnings per share growth;

               (f) Total shareholder return and/or total shareholder return growth;

               (g) Return on equity;

               (h) Operating cash flow return on income;

               (i) Adjusted operating cash flow return on income;

               (j) Economic value added; and

               (k) Individual confidential business objectives.

          “Performance Period” means the period of service determined by the Committee, not to exceed
five years, during which years of service or performance is to be measured for Awards.

          “Plan”
means this Shopping.com Ltd. 2004 Equity Incentive Plan, as amended from time to time.

          “Purchase Price” means the price at which a Participant may purchase Restricted Stock.

          “Restricted Stock” means Shares purchased pursuant to a Restricted Stock Award.

          “Restricted Stock Award” means an Award made pursuant to Section 6 hereof.

          “SEC” means the Securities and Exchange Commission.

          “Section 102” means Section 102 of the Ordinance.

          “Securities Act” means the Securities Act of 1933, as amended.

          “Shares” means Ordinary Shares reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 19 hereof, and any successor security.

          “Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than the last corporation
in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such chain.

          “Stock Appreciation Right” or “SAR” means an Award made pursuant to Section 9 hereof.

          “SAR Agreement” means an Award Agreement setting forth the terms and conditions for a Stock
Appreciation Right.

          “Stock Unit” means an Award made pursuant to Section 10 hereof.

11

 

          “Stock Unit Agreement” means an Award Agreement setting forth the terms and conditions for a
Stock Unit.

          “Ten Percent Shareholder” means any person who directly or by attribution (determined under
Section 422 of the Code) owns more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary.

          “Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant,
that the Participant has for any reason ceased to provide services as an employee, officer,
director or consultant to the Company or a Parent or Subsidiary. A Participant will not be deemed
to have ceased to provide services in the case of (a) sick leave, (b) military leave, or (c) any
other leave of absence approved by the Committee, provided that such leave is for a period of not
more than ninety (90) days unless: (i) reinstatement (or, in the case of an employee with an ISO,
reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (ii)
provided otherwise pursuant to formal policy adopted from time to time by the Company’s Board and
issued and promulgated in writing. In the case of any Participant on (A) sick leave, (B) military
leave or (C) an approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary as it
may deem appropriate, except that in no event may an Option be exercised after the expiration of
the term set forth in the Stock Option Agreement. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the “Termination Date”).

          “Trustee” shall mean the trustee, if any, appointed by the Committee or the Board, as the case
may be, to hold Options, and/or Shares for the benefit of Participants.

          “Unvested Shares” means “Unvested Shares” as defined in the Award Agreement.

          “Vested Shares” means “Vested Shares” as defined in the Award Agreement.

12exv4w1

 

OMNIBUS INSTRUMENT

     WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 26th day of August, 2005, relating to the issuance by
Principal Life Income Fundings Trust 2005-85 (the “Trust”) of Notes to investors under Principal
Life’s secured notes program;

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

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

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

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

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

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

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

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

[Remainder
of Page Intentionally Left Blank.]

 

 

SECTION A

TRUST AGREEMENT

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

W I T N E S S E T H:

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

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

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

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

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

ARTICLE 1

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

A-1

 

ARTICLE 2

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

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

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

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

     Section 2.05 Additional Terms.

     None

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

A-2

 

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

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

[Remainder of Page Intentionally Left Blank.]

A-3

 

SECTION B

LICENSE AGREEMENT

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

W I T N E S S E T H:

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

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

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

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

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

ARTICLE 1

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

ARTICLE 2

     Section 2.01 Additional Terms.

     None

B-1

 

     Section 2.02 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

[Remainder of Page Intentionally Left Blank.]

B-2

 

SECTION C

INDENTURE

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

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

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

W I T N E S S E T H:

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

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

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

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

ARTICLE 1

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

C-1

 

ARTICLE 2

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

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

     Section 2.03 Additional Terms.

     None

     Section 2.04 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

[Remainder of Page Intentionally Left Blank.]

C-2

 

SECTION D

TERMS AGREEMENT

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

W I T N E S S E T H:

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

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

ARTICLE 1

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

ARTICLE 2

     Section 2.01 Addition of Trust as Party to Distribution Agreement.

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

     Section 2.02 Purchase of Notes as Principal.

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

D-1

 

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

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

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

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

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

[Remainder of Page Intentionally Left Blank.]

D-2

 

SECTION E

COORDINATION AGREEMENT

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

W I T N E S S E T H

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

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

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

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

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

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

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

ARTICLE 1

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

E-1

 

     Section 1.02 Issuance and Purchase of the Notes.

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

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

ARTICLE 2

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

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

ARTICLE 3

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

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

ARTICLE 4

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

E-2

 

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

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

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

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

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

	 	 	 
	To the Trust:
	 	 
	 
	

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

	 	c/o U.S. Bank Trust National Association
	

	 	100 Wall Street, 16th Floor
	

	 	New York, New York 10005
	

	 	Attention: Corporate Trust Administration
	

	 	Telephone: (212) 361-2458
	

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

	 	Citibank, N.A.
	

	 	Citibank Agency & Trust
	

	 	388 Greenwich Street, 14th Floor
	

	 	New York, New York 10013
	

	 	Attention: Nancy Forte
	

	 	Telephone: (212) 816-5685
	

	 	Facsimile: (212) 816-5527

E-3

 

	 	 	 
	To Principal Life:

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

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

	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

	 	Facsimile: (515) 235-9353
	 
	To PFG:

	 
	

	 	Principal Financial Group, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

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

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

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

	 	Principal Financial Services, Inc.
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: General Counsel
	

	 	Telephone: (515) 247-5111
	

	 	Facsimile: (515) 248-3011

E-4

 

	 	 	 
	 	 	With a copy to:
	 	 
	 
	

	 	Principal Life Insurance Company
	

	 	711 High Street
	

	 	Des Moines, Iowa 50392
	

	 	Attention: Jim Fifield
	

	 	Telephone: (515) 248-9196
	

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

	 	Bankers Trust Company, N.A.
	

	 	665 Locust Street
	

	 	Des Moines, Iowa 50309-3702
	

	 	Attention: Angela C. Brick
	

	 	Telephone: (515) 245-2820
	

	 	Facsimile: (515) 247-2101

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

ARTICLE 5

     Section 5.01 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

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

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

[Remainder of Page Intentionally Left Blank.]

E-5

 

SECTION F

MISCELLANEOUS AND EXECUTION PAGES

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

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

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

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

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

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

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

[Execution Page 1 of 3]

 

 

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

 	 
	 	By: U.S. Bank Trust National Association, not in its
individual capacity but solely in its capacity as
trustee of the Trust
 	 
	 	By:  	                                            /s/ Thomas E. Tabor
 	 
	 	 	Name:  	Thomas E. Tabor 	 
	 	 	Title:  	Vice President 	 
	 
	 	U.S. BANK TRUST NATIONAL ASSOCIATION (in executing
below agrees and becomes a party to the Trust Agreement
set forth in Section A herein), as Trustee

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

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

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

[Execution Page 2 of 3]

 

 

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

 	 
	 	By:  	/s/ Patty Ashbaugh
 	 
	 	 	Name:  	Patty Ashbaugh 	 
	 	 	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
4.6 to Principal Life Insurance Company’s and Principal Financial
Group, Inc.’s Registration Statement on Form S-3 (Registration
Nos. 333-110499 and 333-110499-01).
	 
	 	 
	Exhibit B

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

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

	 	Pricing Supplement – Incorporated herein by reference to the
Pricing Supplement with respect to Principal Life Income Fundings
Trust 2005-85, filed on August 29, 2005, with the Securities and
Exchange Commission pursuant to Rule 424(b)(5) under the
Securities Act of 1933, as amended.
	 
	 	 
	Exhibit E

	 	Principal Life Insurance Company Officer’s Certificate
	 
	 	 
	Exhibit F

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

	 	Terms Agreement Specifications

 

 

EXHIBIT E

Principal Life Insurance Company

Officer’s Certificate

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

	 	 	 
	1.

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

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

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

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

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

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

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

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

E-1

 

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

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

	 	 	 
	

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

	

	 	Name:
	

	 	Title:

	 	 	 	 	 

E-2

 

EXHIBIT F

Principal Life Income Fundings Trusts

Trustee Officer’s Certificate

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

	 	 	 
	1.

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

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

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

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

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

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

F-1

 

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

	 	 	 
	

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

	

	 	Name:
	

	 	Title:

F-2

 

SCHEDULE I

Terms Agreement Specifications

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

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