Document:

exv10w46

 

Exhibit 10.46

Pilot Study Agreement

     This Agreement is entered into as of September 9, 2005 (the “Effective Date”) by and
between Novartis Institutes for BioMedical Research, Inc. (“Novartis”), with an office at
250 Massachusetts Ave., Cambridge, MA 02139, and Avalon Pharmaceuticals, Inc. (“Avalon”),
with an office at 20358 Seneca Meadows Parkway, Germantown, MD 20876. Novartis and Avalon are
sometimes referred to herein individually as a “Party” and collectively as the
“Parties.” A reference to a Party herein includes a reference to its Affiliates (as
defined below) unless otherwise indicated.

WHEREAS, Novartis is engaged in research and development of pharmaceutical and biotechnology
products;

WHEREAS, Avalon possesses certain assay technology suitable for discovery of potential drugs;

WHEREAS, Novartis possesses a library containing chemical compounds (the “Novartis Compound
Library”) suitable for screening and will provide Avalon certain Novartis Compounds (as
defined below) for use in the activities to be carried out under this Agreement;

WHEREAS, Avalon agrees to enter into a screening project with Novartis including assay development,
assay optimisation and hits profiling;

WHEREAS, the Parties wish to define the terms of their relationship and to protect the proprietary
and confidential nature of the Materials (as defined below) and information as hereinafter defined.

NOW, THEREFORE, in consideration of the covenants and conditions contained herein, the Parties
hereto agree as follows:

1. Definition

For purposes of this Agreement, the terms defined in this Section 1 shall have the respective
meanings set forth below. Singular and plural forms shall have the corresponding meanings:

	 	1.1.	 	“Affiliate” shall mean any corporation, partnership or other business entity, which
controls, is controlled by or is under common control with a Party. “Control” means: (i)
having the actual, present capacity to elect a majority of the directors of such affiliate;
(ii) having the power to direct at least fifty percent (50%) of the voting rights entitled
to elect directors); or (iii) in any country where the local law will not permit foreign
equity participation of a majority, ownership or control, directly or indirectly, of the
maximum percentage of such outstanding stock or voting rights permitted by local law. With
respect to Novartis, “Affiliate” shall also expressly be deemed to include the Novartis
Institute for Functional Genomics and the Friedrich Miescher Institute for BioMedical
Research.

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	 	1.2.	 	“Avalon Assay Intellectual Property” shall have the meaning set forth in Section 11.7
hereof.
	 
	 	1.3.	 	“Candidate Hit Compound” shall mean a Novartis Compound for which Avalon, through
Primary Screening as described in the Project Description, confirms its activity modulating
the Pathway.
	 
	 	1.4.	 	“Carrier” shall have the meaning set forth in Section 3.6 hereof.
	 
	 	1.5.	 	“Deliverables” shall mean the deliverables specified in the Project Description.
	 
	 	1.6.	 	“Hit Compound” shall mean a Novartis Compound for which Avalon, in the course of the
Project, finds activity modulating the Pathway at/or below the concentration threshold
defined in advance of the start of the Project by the Parties.
	 
	 	1.7.	 	“Joint Assay Intellectual Property” shall have the meaning set forth in Section 11.8.
	 
	 	1.8.	 	“Lead Compound” shall have the meaning set forth in Section 4.2 hereof.
	 
	 	1.9.	 	“Materials” shall mean Novartis Materials and Project Materials.
	 
	 	1.10.	 	“Microarrays” shall mean arrays with greater than 18,000 human gene transcripts
deposited in a predetermined spatial order allowing them to be made available as probes in
a high-throughput, parallel manner
	 
	 	1.11.	 	“Novartis Compounds” shall mean compounds from Novartis Compound Library and/or
frozen cell lysates from cells treated by compounds from the Novartis Compound Library that
Novartis provides to Avalon pursuant to this Agreement.
	 
	 	1.12.	 	"Novartis Inventions” shall have the meaning set forth in Section 11.4 hereof.
	 
	 	1.13.	 	“Novartis Materials” shall mean any and all material, including without limitation,
Novartis Compounds, provided to Avalon by Novartis to enable Avalon to perform its
obligations under this Agreement.
	 
	 	1.14.	 	“Pathway” shall mean one discrete complex cellular signalling cascade involving a set
of transducing molecules that interact (directly or indirectly) to relay a signal, selected
by Novartis for this Project.
	 
	 	1.15.	 	“Primary Contact” shall have the meaning set forth in Section 2.3 hereof.
	 
	 	1.16.	 	“Project” shall have the meaning set forth in Section 2.2 hereof.

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	 	1.17.	 	“Project Description” shall mean the Pilot Study Project Description attached hereto
as Exhibit A.
	 
	 	1.18.	 	“Project Material” shall mean materials generated by Avalon in the course of
conducting the Project, specifically including qPCR probe sets for each of the Screening
Signature genes
	 
	 	1.19.	 	“Screen Signature” shall mean a set of genes, the transcription profile of which is
unique for a specific state of a Pathway or activity of targets in a cell.
	 
	 	1.20.	 	“Validated Hit Compound” shall have the meaning set forth in Section 4.1 hereof.
	 
	 	1.21.	 	“Validated Hit Criteria” shall have the meaning set forth in Section 4.1 hereof.

2. Project.

	 	2.1	 	Novartis shall provide to Avalon certain Novartis Compounds pursuant to Section
8 hereof for the limited purpose of allowing Avalon to carry out its responsibilities
under this Agreement.
	 
	 	2.2	 	Avalon shall perform the activities set forth in the Project Description (the
“Project”) in order to identify Hit Compounds and deliver the Deliverables,
including without limitation, the list of Hit Compounds and the Project Materials, to
Novartis. Avalon will execute and perform the Project with due care, diligence, skill
and competence. Avalon shall perform these activities in compliance with all applicable
laws and regulations, including but not limited to health, safety and environmental laws
and regulations, as well as with good laboratory practices.
	 
	 	2.3	 	Novartis and Avalon will each nominate a scientist responsible for the
Parties’ interaction in relation to this Agreement (the “Primary Contact”).
During the performance of the Project, Avalon agrees to keep designated Novartis Primary
Contact, regularly informed of the progress of the performance of the Project. The
Primary Contacts will be responsible for the implementation of regular meetings and
discussions as well as the update of the progress of the work being performed on the
Project.

3. Form and Delivery of Data, Results, Materials, Reports and Record Keeping.

	 	3.1	 	Avalon shall provide Novartis with all electronic raw data produced pursuant to
the Project, in a format agreed by the Parties to allow integration of such data into
Novartis’ in-house database.
	 
	 	3.2	 	Avalon shall grant Novartis access to all data (including, without limitation,
all primary data and data contained in laboratory notebooks) produced pursuant to the
Project. Novartis shall have the right, at reasonable intervals (but not more frequently
than once

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	 	 	 	per quarter) and at Novartis’ own expense, to make copies of such data to use and
transfer in its sole discretion.
	 
	 	3.3	 	All reports and other documents submitted to Novartis under this Agreement shall
be in a form as previously agreed between the parties and shall be of a quality
acceptable to Novartis.
	 
	 	3.4	 	Avalon shall not destroy any documentation generated under this Agreement unless
Novartis has agreed to such destruction in writing. Novartis retains the option of
having such documentation sent to Novartis at Novartis’ expense.
	 
	 	3.5	 	Avalon shall perform record keeping in connection with this Agreement according
to industry standards and applicable law, whichever is stricter.
	 
	 	3.6	 	Each Party shall designate its own carrier (the “Carrier”) to deliver
Materials and documents which are required to be delivered to each other in connection
with this Agreement. Each Party shall ensure that such Carrier complies with all
applicable laws and regulations in delivering the Materials and documents. Each Party
shall instruct its Carrier adequately with respect to preservation and security of the
Materials and documents to be delivered and shall ensure that the Carrier makes
reasonable efforts to act accordingly.
	 
	 	3.7	 	Each Party shall bear the risk of loss or damage to all Materials and documents
until they are delivered to the premises of the other Party.
	 
	 	3.8	 	Avalon shall send all reports and other documents containing confidential
biological data by registered post or courier. Avalon shall not transmit any such
reports and other documents by electronic mail or facsimile.

4. Validated Hit Compounds; Lead Compounds

	 	4.1	 	Validated Hit Compounds. Novartis will test some or all of the Hit
Compounds identified by Avalon as part of the Project to identify those that
demonstrate (1) significant in vitro activity as an agonist, antagonist or other
modulator of a specific target within the Pathway; (2) specific binding of such target
and (3) in vitro selectivity of the Pathway. In vitro validation usually consists of
transcription reporter assays, cell based assays and biochemical assays. The specific
success criteria to determine Validated Hit Compounds (“Validated Hit Criteria”)
shall be mutually agreed upon by the Parties within sixty (60) days after the Effective
Date. Each Hit Compound which Novartis determines in its sole judgment meets the
Validated Hit Criteria shall hereinafter be referred to as a “Validated Hit
Compound.” For clarification, a collection of Validated Hit Compounds with similar
chemical structure shall be treated as one Validated Hit Compound for the purposes of
this Agreement.

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	 	4.2	 	Lead Compounds. The Novartis Disease Area Decision Board, or a decision
board of similar function, will select certain Validated Hit Compounds for follow-up
under the designation “Research Phase D3 or Lead Optimization” in accordance with the
standard drug development criteria used by Novartis. The basic criteria of such
designation includes such things as the demonstration of: (1) in vitro potency; (2)
specific binding; (3) in vitro selectivity; (4) patentability; (5) chemical feasibility
for derivatisation; (6) physico-chemical properties; (7) in vitro PK; (8)in vitro
toxicology and (9) in vivo PK. Each Validated Hit Compound which Novartis selects for
follow-up under the designation “Research Phase D3 or Lead Optimization” shall
hereinafter be referred to as a “Lead Compound.” For clarification, a
collection of Lead Compounds with similar chemical structure shall be treated as one
Lead Compound for the purposes of this Agreement.

5. Payment.

	 	5.1	 	Upfront Payment. In consideration for this Agreement, Novartis shall pay to
Avalon a non-refundable upfront payment in the sum of Five Hundred Thousand Dollars
(US$500,000) within *** days of receipt by Novartis of an invoice in the form attached
hereto as Exhibit B (“Invoice”) which Invoice shall be sent on or after
the Effective Date.
	 
	 	5.2	 	Research Payments. Novartis shall pay to Avalon up to a total of *** in
accordance with the following schedule:

	 	(a)	 	*** within *** days after receipt by Novartis of the related
Invoice which shall be sent by Avalon upon the initiation of Project Part A
“Establishment of Screening Signature” pursuant to the Project Description;
	 
	 	(b)	 	*** within *** days after receipt by Novartis of the related
Invoice which shall be sent by Avalon upon the initiation of Project Part C
“Primary Screening” pursuant to the Project Description; and
	 
	 	(c)	 	*** within *** days after receipt by Novartis of the related
Invoice which shall be sent by Avalon upon the initiation of Project Part D
“Microarray Characterization of Candidate Hit Compounds” pursuant to the
Project Description.

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	 	5.3	 	Milestone Payment. Novartis shall pay to Avalon the following non-refundable,
non-creditable payments within *** days of receipt by Novartis of the related Invoice
which shall be sent after the occurrence of the stated event:

	 	 	 
	EVENT

	 	PAYMENT
	Upon identification of a Validated Hit Compound*

	 	US$***
	Upon identification of a Lead Compound**

	 	US$***

	 	*	 	A collection of Validated Hit Compounds with similar chemical
structure shall be treated as one Validated Hit Compound.
	 
	 	**	 	A collection of Lead Compounds with similar chemical structure
shall be treated as one Lead Compound.

	 	 	 	To the extent that the stated event is achieved by Novartis, Novartis shall
promptly notify Avalon thereof.
	 
	 	5.4	 	All payments shall be made in U.S. dollars and shall be made by check unless
otherwise determined by Novartis.

6. Audits and Inspections. Upon 7 days notice, Novartis shall have, during normal working hours,
access to Avalon’s premises while and where work and services under this Agreement are being
performed, for the purpose of performing a scientific audit to inspect Avalon’s performance under
this Agreement. In the course of such audit, Novartis shall not have the right to observe or have
access to information or procedures that are confidential to Avalon.

7. Term and Termination. Unless sooner terminated pursuant to Section 16 hereof, this Agreement
shall be deemed effective as of the Effective Date set forth above, and shall remain effective for
18 months thereafter (the “Term”). Expiration or termination of this Agreement shall not
relieve a Party of any obligation or liability accruing prior to such expiration or termination and
shall be without prejudice to the rights of either Party against the other Party accrued or
accruing under this Agreement prior to expiration or termination, and the rights and obligations of
the parties that survive termination under Section 25.

8. Novartis Materials. Novartis shall deliver Novartis Materials to Avalon in accordance with
Exhibit A. Avalon shall use the Novartis Materials solely for the purpose of performing
the activities under the Project. Upon completion of the Project, or in the event of termination
of this Agreement for any reason whatsoever, any unused Novartis Materials will be either returned
to Novartis or disposed of under Avalon’s supervision in accordance with all applicable laws and
regulations, and any instructions of Novartis.

9. General Obligations Regarding Materials.

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	 	9.1	 	The Novartis Materials will be used in accordance with the laws and regulations
of the country and locality where the Project is to be performed.
	 
	 	9.2	 	Avalon will use the Novartis Materials solely for purpose of the Project. The
Novartis Materials will not be analyzed or modified other than necessary for the purpose
of the Project, and Avalon shall not produce any progeny or derivatives thereof.
	 
	 	9.3	 	Avalon shall not transfer the Novartis Material or make the Novartis Material
available to any Third Party other than Avalon’s employees who are bound by obligations
not less strict than those set out in the Agreement, and only to the extent necessary
for Avalon to perform its obligations under the Agreement.
	 
	 	9.4	 	Avalon and Novartis shall handle the Materials with caution and prudence since
not all of the characteristics are necessarily known.
	 
	 	9.5	 	Avalon shall return to Novartis or destroy, as requested by Novartis, any unused
Novartis Material in accordance with all applicable laws and regulations and the
instructions of Novartis, if any. Novartis shall reimburse Avalon for the cost of
returning the Novartis Material to Novartis in accordance with Novartis’ request.
	 
	 	9.6	 	All Materials transferred in accordance with this Agreement are experimental in
nature and shall be used with prudence and appropriate caution, since not all of their
characteristics are known. ALL MATERIALS ARE PROVIDED WITHOUT WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR
IMPLIED (INCLUDING, WITHOUT LIMITATION, SAFETY). MATERIALS HAVE NOT BEEN ANALYZED OR
TESTED AND MAY, THEREFORE, CONTAIN VIRUSES, BACTERIA OR OTHER POTENTIALLY DANGEROUS
COMPONENTS. AVALON AND NOVARTIS EACH ACKNOWLEDGES AND ACCEPTS THE RISKS OF SUCH VIRUSES,
BACTERIA OR OTHER POTENTIALLY DANGEROUS COMPONENTS. NEITHER PARTY MAKES ANY
REPRESENTATION OR WARRANTY TO THE OTHER PARTY THAT THE USE OF SUCH MATERIALS WILL NOT
INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.

10. Confidentiality.

	 	10.1	 	Each Party shall take all reasonable precautions to protect the confidence of,
and shall not, without the prior written authorization of the other Party, publish,
disclose or use for any purpose other than as contemplated by this Agreement any and all
confidential information disclosed by a Party to the other Party in connection with this
Agreement (collectively “Information”). These obligations of non-disclosure and non-use
shall not apply to Information: (i) which is, at the time of disclosure or thereafter,
is publicly available through no fault of the receiving Party; (ii) which the receiving
Party can

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	 	 	 	demonstrate was in its possession before receipt; (iii) which is disclosed to the
receiving Party by a third party with the legal right to do so; (iv) which is developed
independently by a Party without use of Information of the other Party; or (v) which is
required to be disclosed pursuant to judicial process, court order or administrative
request, provided that the receiving Party shall so notify the disclosing Party
sufficiently prior to disclosing such Information as to permit the disclosing Party to
seek a protective order. Each Party shall ensure that each of its employees,
subcontractors and agents who have access to Information of the other Party agree to be
bound by obligations of confidentiality and non-use consistent with those set forth in
this Section 10. The Deliverables shall be treated as confidential information of
Novartis. The foregoing obligations under this Section 10 shall continue after
expiration or termination of this Agreement until the Information falls within at least
one of the exceptions provided in this Section.
	 
	 	10.2	 	Novartis agrees not to disclose to Avalon any information with respect to the
Novartis Compounds. As a result, the obligations of Avalon under this Section 10 do not
apply to any Novartis Compounds.

11. Intellectual Property and Ownership.

	 	11.1	 	The Novartis Materials transferred to Avalon in connection with this Agreement
shall remain the confidential and proprietary property of Novartis or its Affiliates, as
the case may be, during and after the term of this Agreement. Avalon shall not acquire
any rights to any of the Novartis Materials or derivatives or progeny thereof.
	 
	 	11.2	 	All data and information provided to Avalon by or on behalf of Novartis or its
Affiliates under this Agreement shall remain the property of Novartis or its Affiliates,
as the case may be. Avalon shall not acquire any rights to any of the data or
information as a result of performing its obligations under this Agreement.
	 
	 	11.3	 	The provision of Novartis Materials to Avalon by Novartis constitutes a limited
license to Avalon to use the Novartis Materials solely for the purposes of performing
its obligations under this Agreement. Nothing herein shall be construed as a grant of
any other rights to Avalon by Novartis or its Affiliates under any patents.
	 
	 	11.4	 	Except as provided in Section 11.7, all data, results, inventions (whether
patentable or not) and know-how made, conceived, generated or obtained by Avalon
pursuant to the Project shall be the sole and exclusive property of Novartis, who shall
be free to transfer or otherwise dispose of them as it sees fit (“Novartis
Invention”). Except as provided in Section 11.7, Avalon shall have no rights to any
data, results, inventions (whether patentable or not) and know-how made, conceived,
generated or obtained by Avalon pursuant to the Project.

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	 	11.5	 	Avalon shall promptly provide notice to Novartis of all inventions (whether
patentable or not) made by Avalon pursuant to the Project, except those which relate
exclusively to assays and not to any Novartis Materials or the Deliverables. Novartis
shall, if it deems appropriate in its sole discretion, file patent applications on any
such patentable invention and shall have all rights in the resulting patent applications
and patents.
	 
	 	11.6	 	Avalon shall promptly execute all documents and take all such other action as may
be reasonably requested by Novartis to assign any Novartis Invention to Novartis or its
designee or otherwise to permit Novartis to obtain the benefit of its rights under this
Agreement thereto, and shall cause all employees and collaborators to take such action.
In particular, Avalon shall make available all relevant laboratory data in electronic
form and samples of materials obtained in the course of performing the Project, and
shall fully cooperate in the preparation, filing, prosecution and maintenance of all
intellectual property rights, in any countries with respect to Novartis Inventions.
Novartis shall reimburse Avalon for any reasonable out-of-pocket expenses required to be
incurred in connection therewith. Avalon shall inform Novartis of any matters that, in
Avalon’s reasonable opinion, may adversely affect the preparation, filing, prosecution
or maintenance of any such intellectual property rights promptly after Avalon learns of
any such matter.
	 
	 	11.7	 	Notwithstanding any other provision of this Agreement, all data, results,
inventions (whether patentable or not) and know-how made, conceived, generated or
obtained solely by employees of Avalon in performing its obligations under this
Agreement and which relate exclusively to Avalon’s processes or procedures and not to
any Novartis Materials or the Deliverables (“Avalon Assay Intellectual
Property”), shall be the sole and exclusive property of Avalon, who shall be free to
transfer or otherwise dispose of them as it sees fit. Except as provided in this
Agreement, Novartis shall have no rights to any Avalon Assay Intellectual Property.
	 
	 	11.8	 	The Parties shall jointly own all data, results, inventions (whether patentable
or not) and know-how jointly made, conceived, generated or obtained by employees of
Avalon and Novartis pursuant to the Project and which relate exclusively to Avalon’s
processes or procedures and not to any Novartis Materials (“Joint Assay Intellectual
Property”). With regard to patentable inventions referred to in this Section,
inventorship will be determined in accordance with US inventorship law.

12. Disclosure of Agreement. Neither Party shall disclose the terms or conditions of this
Agreement or make any public announcement concerning this Agreement without the consent of the
other Party, which shall not be unreasonably withheld. Once consent is obtained, a Party shall be
permitted to disclose the terms and conditions of this Agreement (a) in connection with a bona fide
equity investment, loan or similar financing transaction, (b) in connection with a consolidation,
merger, change of control or sale of all or substantially all of the assets of a Party, (c) in
connection with a legal proceeding or an order of a court or government agency, (d) where such
disclosure is

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made to attorneys, accountants and other advisors to a Party; (e) where such disclosure is required
in accordance with any applicable law, rule or regulation (including, without limitation,
disclosure requirements of the U.S. Securities and Exchange Commission, NASDAQ or any other stock
exchange on which securities are traded); provided that such disclosure is made under appropriate
terms and conditions, including reasonable efforts to obtain confidentiality provisions at least as
protective of the other Party as those in this Agreement. In the event of a required public
announcement under Section 12(e), the Party making such announcement shall provide the other Party
with a copy of the proposed text prior to such announcement sufficiently in advance of the
scheduled release of such announcement to afford such other Party a reasonable opportunity to
review and comment upon the proposed text. Once text of any press release or announcement is
approved, the substance of that which is disclosed in such text may be disclosed to the public by a
Party without the permission of the other Party.

13. Representations and Warranties.

	 	 	Avalon represents and warrants that Avalon is a corporation duly organised and validly
existing under the laws of the State of Delaware.

14. Liabilities and Indemnities.

	 	14.1	 	Avalon shall indemnify, defend and save Novartis and its Affiliates and
Authorised Designees (including officers, directors, employees and agents) harmless from
and against any and all claims, suits, and liabilities (collectively, the
“Claims”), to the extent such Claims arise out of or are attributable to any
wrongful act or omission, or to the negligence of Avalon (including, but not limited to,
Avalon’s employees, subcontractors or agents) in performing Avalon’s obligations under
this Agreement.
	 
	 	14.2	 	Novartis shall indemnify, defend and save Avalon (including officers, directors,
employees and agents) harmless from and against any and all Claims, to the extent such
Claims (i) arise out of or are attributable to the wrongful act or omission, or to the
negligence of Novartis (including, but not limited to, Novartis’ employees,
subcontractors or agents) in connection with this Agreement (ii) arise out of, incident
to, or result from: the development, manufacture, use, distribution or sale of any
Product by Novartis, its Affiliates, distributors, co-marketers or sublicensees, their
agents or any person or entity that prepares or manufactures product for or on behalf of
any of the foregoing or any person or entity who receives or obtains Product from any
source. “Product” means any pharmaceutical product containing any compound identified
in whole or in part by use of the Deliverables or that is based on the Deliverables.
	 
	 	14.3	 	Notwithstanding the foregoing, neither Party shall be liable to indemnify the
other (including Affiliates, and their officers, directors, employees and agents) to the
extent that Claims arise out of the negligence or wilful misconduct of the indemnified
parties.

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	 	14.4	 	The indemnifying Party shall have the right to select defence counsel and to
direct the defence or settlement of any Claim. The indemnified Party shall reasonably
co-operate with the indemnifying Party and its legal representatives in the
investigation and defence of any Claim. The indemnified Party may obtain representation
by separate legal counsel, at its own expense. The indemnified Party shall notify the
indemnifying Party promptly of any claim, demand, action or other proceeding under this
Section 14 and shall reasonably cooperate with all reasonable requests of the
indemnifying Party with respect thereto, provided that the failure to provide such
notice shall not affect the indemnification provided hereunder, except to the extent
that the indemnifying Party has been actually prejudiced as a result of such failure.
	 
	 	14.5	 	NEITHER PARTY SHALL BE LIABLE UNDER THIS AGREEMENT FOR INDIRECT, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES, LOSS OF ANTICIPATED PROFITS, OR INVESTMENTS, EXCEPT TO
THE EXTENT SUCH DAMAGES WERE CAUSED BY GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF THAT
PARTY. NOTWITHSTANDING THE FOREGOING, NOVARTIS SHALL NOT BE LIABLE FOR LOSS OF
ANTICIPATED PROFITS OR INVESTMENTS PURSUANT TO AN INDEMNIFICATION UNDER SECTION 14.2
(ii).
	 
	 	14.6	 	The parties agree that damages will not be an adequate remedy for a breach of
this Agreement, and that injunctive relief and other equitable remedies will be
available in respect of any such breach.
	 
	 	14.7	 	The Parties’ obligations under this Section 14 shall survive the expiry or
termination of this Agreement.

15. Disclaimer. NEITHER PARTY MAKES ANY WARRANTIES EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF NONINFRINGEMENT, ANY WARRANTIES OF MERCHANTABILITY OR ANY WARRANTIES
OF FITNESS FOR A PARTICULAR PURPOSE ALL OF WHICH ARE HEREBY SPECIFICALLY EXCLUDED AND DISCLAIMED.

16. Material Breach. If either Party believes that the other Party (the “Breaching
Party”) is in material breach of this Agreement, then the non-breaching Party may deliver
notice to the Breaching Party specifying the material breach. For all breaches other than a
failure to make a payment, the allegedly Breaching Party shall have sixty (60) days to either cure
such breach or, if cure cannot be reasonably effected within such sixty (60) day period, to deliver
to the other Party within that period a plan for curing such breach. Such a plan shall set forth a
program for achieving cure as rapidly as practicable. Following delivery of such plan, the
Breaching Party shall use diligent efforts to carry out the plan and cure the breach as promptly as
practicable. For any breach arising from a failure to make a payment, the allegedly Breaching
Party shall have twenty (20) days to cure such breach. An election of remedy by a Party for a
material breach of this Agreement under this Section 16 on one

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occasion shall not constitute a waiver as to any other remedy that may be available to such Party
under this Section 16 as to any material breach on another occasion.

17. No Agency. Nothing in this Agreement shall be deemed to create an agency, joint venture,
amalgamation, partnership or similar relationship between Avalon and Novartis. Notwithstanding any
of the provisions of this Agreement, neither Party to this Agreement shall at any time enter into,
incur, or hold itself out to third parties as having authority to enter into or incur, on behalf of
the other Party, any commitment, expense, or liability whatsoever, and all contracts, expenses and
liabilities in connection with or relating to the obligations of each Party under this Agreement
shall be made, paid, and undertaken exclusively by such Party on its own behalf and not as an agent
or representative of the other.

18. Notices. All notices required or permitted hereunder shall be given in writing and sent by
facsimile transmission, or mailed postage prepaid by first class certified or registered mail, or
sent by a nationally recognized express courier service, or hand delivered at the following
addresses:

      Novartis Institutes for BioMedical Research, Inc.

      250 Massachusetts Ave.

      Cambridge, MA 02139

      Attention: General Counsel

      Telephone No.: 617 871-3350

      Avalon Pharmaceuticals, Inc.

      20358 Seneca Meadows Parkway,

      Germantown, MD 20876,

      Attention: General Counsel

      Telephone No.: 301-556-9812

Any notice, if mailed properly addressed, postage prepaid, shall be deemed made three (3) calendar
days after the date of mailing as indicated on the certified or registered mail receipt, or on the
next business day if sent by express courier service or on the date of delivery or transmission if
hand delivered or sent by facsimile transmission.

19. Force Majeure. Neither Party shall be liable to the other for delay or failure in the
performance of the obligations on its part contained in this Agreement if and to the extent that
such failure or delay is due to circumstances beyond its control which it could not have avoided by
the exercise of reasonable diligence. It shall notify the other Party promptly should such
circumstances arise, giving an indication of the likely extent and duration thereof, and shall use
all commercially reasonable efforts to resume performance of its obligations as soon as
practicable, provided, however, that neither Party shall be required to settle any labor
dispute or disturbance. Actions taken by a Party to resume performance of its obligations with
respect to the Project shall be taken in consultation with the other Party.

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20. Amendment. No amendment, modification or supplement of any provision of this Agreement shall
be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

21. Waiver. No provision of the Agreement shall be waived by any act, omission or knowledge of a
Party or its agents or employees except by an instrument in writing expressly waiving such
provision and signed by a duly authorized officer of the waiving Party. Such waiver shall not be
deemed a waiver of any other right hereunder or of any other breach or failure by a Party whether
of similar nature or otherwise.

22. Severability. Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall be, as to such jurisdiction and to the extent practicable, modified so as to
make it valid, legal and enforceable and to maintain as nearly as practicable the intent of the
Parties without invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

23. Entire Agreement. This Agreement represents the entire understanding of the Parties with
respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or
understandings, oral or written, with respect thereto. This Agreement shall not be modified except
by a written agreement signed by the Parties hereto specifying that it is a modification to this
Agreement. The failure of a Party to insist upon strict adherence to any term of this Agreement on
any occasion shall not be considered a waiver or deprive that Party of the right to insist upon
strict adherence to that term or any other term of this Agreement. Any waiver must be in writing
and signed by the Party making the waiver. The invalidity or unenforceability of any term or
provision of this Agreement shall not affect the validity or enforceability of any other term or
provision hereof. This Agreement shall be construed by and enforced in accordance with the laws of
the State of Delaware without regard to principles of conflicts of law.

24. Descriptive Headings; Interpretation. The Section headings contained in this Agreement are
for convenience of reference only, do not form a part of this Agreement and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “but not limited to.” All
references herein to Sections and Exhibits shall be deemed references to Sections of and Exhibits
to, this Agreement unless the context shall otherwise require. All Exhibits attached to this
Agreement shall be deemed incorporated herein by reference as if fully set forth herein. Words
such as “herein,” “hereof,” “hereto,” “hereby” and “hereunder” refer to this Agreement and to the
Exhibits, taken as a whole. Except as otherwise expressly provided herein: any reference in this
Agreement to any law shall include corresponding provisions of any successor law and any
regulations and rules promulgated pursuant to such law or such successor law.

25. Survival. The provisions of Sections 4, 5, 7, 8, 10, 11, 12, 14, 15 and 25 of this Agreement
shall survive the expiration or termination of this Agreement.

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IN WITNESS WHEREOF, Novartis and Avalon have executed this AGREEMENT, by their duly authorised
representatives, as of the day and year first above written.

	 	 	 
	Novartis Institutes for BioMedical

	 	Avalon Pharmaceuticals, Inc.
	Research, Inc.
	 	 
	 
	 	 
	/s/
Mark C. Fishman

	 	/s/
Kenneth C. Carter, Ph.D.

	(signature)

	 	(signature)
	 
	 	 
	Mark C. Fishman

	 	Kenneth
C. Carter, Ph.D.

	(name printed)

	 	(name printed)
	 
	 	 
	President
& CEO

	 	President
and Chief Executive Officer

	(title)

	 	(title)
	 
	 	 
	9/9/2005

	 	9/6/2005

	(date)

	 	(date)

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Exhibit A

Pilot Study Project Description

Purpose:

Avalon will use its AvalonRxTM platform to establish a Screening Signature of a Pathway
selected by Novartis and screen *** Novartis Compounds against such Screening Signature. In
addition, Avalon will characterize Candidate Hit Compounds using its Microarrays. Hit Compounds
would then be selected by Novartis for further development at Novartis.

Experimental Outline:

Novartis will be responsible for selection of the cell line(s) to be used in this study and will
provide a stock of cells to Avalon as necessary.

A) Establishment of Screening Signature

	 	¡	 	Avalon will be responsible for the growth and treatment of cells associated with the
Establishment of Screening Signature.
	 
	 	¡	 	Avalon will generate the Screening Signature for one screen. Avalon will evaluate up
to *** cell treatments or “states” associated with a specific Pathway of interest,
including the potential use of siRNA’s, dominant negatives, antibodies and/or compounds.
	 
	 	¡	 	Novartis will supply Avalon with reagents for modulation of target expression,
including siRNAs, dominant negative constructs, antibodies and/or compounds for evaluation
of target knockdown.
	 
	 	¡	 	Each treated sample will be evaluated on a single Microarray representing greater than
18,000 human gene transcripts.
	 
	 	¡	 	In total, up to *** Microarrays will be used to establish the Screening Signature.
This may include multiple timepoints, doses, and cell lines associated with the treatments
listed above.
	 
	 	¡	 	Avalon will conduct all relevant bioinformatics data analyses utilizing its
bioinformatics platform, review the data and select genes for further evaluation. All of
the raw Microarray data generated in this Part A of the Project Description will be
provided to Novartis.

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	 	¡	 	Avalon will validate the selected genes for use in a potential Screening Signature
using Avalon’s HITS Quantitative Polymerase Chain Reaction (qPCR) platform . Based on the
performance of the genes selected from the Microarray analyses in the qPCR tests, Avalon
will select a Screening Signature that consists of a *** gene set for the HITS screen.
	 
	 	¡	 	Upon data review, if both Avalon and Novartis agree that more than *** genes are
required for the screen, then a larger set of screening genes (i.e. more than *** genes)
will be selected and the budget will be modified accordingly.

B) Screen Validation

	 	¡	 	Novartis will be responsible for the growth and treatment of cells associated with
Screen Validation. Novartis will provide Avalon frozen cell lysates of compound-treated
cells according to protocols agreed between the Parties.
	 
	 	¡	 	An initial set of *** Novartis Compounds will be selected by Novartis for screening.
The data obtained from this initial set of compounds will be reviewed by both Avalon and
Novartis to ensure acceptable performance of the screen. Upon the satisfactory review of
this data, Novartis will approve the screening of the remaining *** compounds.

C) Primary Screening

	 	¡	 	Novartis will be responsible for the growth and treatment of cells associated with
Primary Screening. Novartis will provide Avalon frozen cell lysates of compound-treated
cells according to protocols agreed between the Parties.
	 
	 	¡	 	A primary screen will be run using a total of *** Novartis Compounds
	 
	 	¡	 	The screen will be done with a single biological replicate
	 
	 	¡	 	The screen will be run against the Screening Signature
	 
	 	¡	 	Although Avalon estimates that approximately *** lysates from the *** Novartis
Compounds provided to Avalon may exhibit a gene signature similar enough to the Screening
Signature to warrant further analysis, Avalon makes no warranty or representation as to how
many, if any, lysates will be identified as matching the Screening Signature.
	 
	 	¡	 	Avalon will re-screen up to *** Novartis Compounds from the primary screen in
biological triplicates. Novartis will retreat the cell line with the Novartis Compounds
that were scored as hits and provide the lysates to Avalon. Avalon will test the new
lysates from these retreatments using the same HITS assay in order to confirm the activity

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	 		 	originally identified in the primary screen. Avalon estimates, but does not warrant or
represent, that approximately *** to *** percent (%) of the Novartis Compounds subjected to
this re-screening process will, in fact, not induce a gene signature similar enough to the
Screening Signature to warrant further analysis.
	 
	 	¡	 	Novartis will use their informatics capabilities and knowledge of the chemical
structures of Novartis Compounds to group the confirmed hits according to scaffold or
compound family. Based upon this analysis, up to *** additional new Novartis Compounds may
be selected by Novartis that represent structural analogs of confirmed hit scaffolds.
Novartis will treat the cell line with these analogs in biological triplicates and provide
the lysates to Avalon. Avalon will test these new lysates using the Screening Signature in
order to help identify preliminary SAR for confirmed hit scaffolds.
	 
	 	¡	 	Candidate Hit Compounds are those Novartis Compounds from the primary screen of ***
compounds (***initial set and *** additional compounds) that are confirmed by retesting in
biological triplicate as inducing a signature similar to the Screening Signature in
addition to those compounds from the testing of the additional *** Novartis Compounds that
are confirmed to induce a signature similar to the Screening Signature

D) Microarray Characterization of Candidate Hit Compounds

	 	¡	 	Once Candidate Hit Compounds have been identified, Novartis will evaluate such
compounds in additional secondary assays in order to determine the IC50 concentrations that
will be used for Microarray characterization.
	 
	 	¡	 	Up to *** Candidate Hit Compounds from the screen will be characterized in biological
triplicates using microarrays (single dose, single timepoint for a total of ***
microarrays) and then Avalon will use it bioinformatics platform to group the hits into
families based upon the gene expression data.
	 
	 	¡	 	Novartis will transfer the Candidate Hit Compounds selected for Microarray profiling to
Avalon and Avalon will be responsible for the growth and treatment of cells associated with
this part of the Project.

Schedule

	 	¡	 	Assay development will be performed with all due diligence by both parties.
	 
	 	¡	 	Once the initial screen of *** compounds is complete and full-scale screening is
underway, completion of the primary, single biological replicate, screening of the ***
Novartis Compounds is expected to be completed in *** months.

Deliverables

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	 	1.	 	Avalon will provide all of the raw Microarray data from the treatments of the Novartis
cells used to build the Screening Signature in Part A of this research plan.
	 
	 	2.	 	Avalon will provide a list of the genes selected from the original Microarray
experiments for evaluation using qPCR and the *** genes selected as the Screening
Signature. Avalon will provide Novartis the qPCR probe sets including sequence information
and primers for each of the Screening Signature genes.
	 
	 	3.	 	Avalon will provide a list of all apparent hits from the primary screen and a list of
all hits that are confirmed in the retest. Avalon will describe and share with Novartis
the algorithms used for hit selection. Avalon will provide raw qPCR data for all compounds
screened against the Screening Signature
	 
	 	4.	 	Avalon will provide all of the raw Microarray data from the Microarray experiments on
the selected hits as well as a list of the lysates falling into the different families and
the match of the gene data from the hits with the data from the original siRNA and compound
tests.

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Exhibit B

Sample Invoice to Novartis

[Avalon Letterhead]

[Date]

Novartis Institutes for BioMedical Research, Inc.

Attn: Finance Dept. – AP 1702

250 Massachusetts Avenue

Cambridge, MA 02139

USA

	Re:  	 	Purchase Order Number [Enter PO Number]
	 	 	Pilot Study Agreement: [Title of Research Project]

	 	 	 	 	 
	Amount and Currency:

	 	[_______________]	 	 
	Amount of VAT (if applicable):

	 	[_______________]
	 	N/A in US
	Total Amount (including VAT):

	 	[_______________]
	 	N/A in US
	 
	 	 	 	 
	VAT number (if applicable)

	 	[_______________]
	 	N/A in US

This is an invoice requesting payment in connection with the above-captioned purchase order
between Avalon Pharmaceuticals, Inc. and Novartis Institutes for BioMedical Research, Inc.

	 	 	 	 	 
	Project Contact Person in Novartis:

	 	[_______________]
	 	

	 	 	 
	SPECIFICATION:

	 	[describe in reasonable detail the services and dates, or the event,
 for which
payment is due (e.g. 1.Q.2000, 2nd funding year)]

Sincerely yours,

Avalon Pharmaceuticals, Inc.

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OMNIBUS INSTRUMENT

     WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 9th day of September, 2005, relating to the
issuance by Principal Life Income Fundings Trust 2005-90 (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 Left Intentionally Blank.]

 

SECTION A

TRUST AGREEMENT

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

W I T N E S S E T H:

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

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

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

     WHEREAS, the parties hereto desire to incorporate by reference those
certain Standard Trust Terms, dated as of 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 2005-90, filed on September 12, 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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