Document:

exv10w3

 

Exhibit 10.3

CONFORMED COPY

AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT

     AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT, dated as of July 16, 2007 (this
“Amendment”), by and between Bally Total Fitness Holding Corporation, a corporation
organized under the laws of Delaware (the “Borrower”), the Guarantors listed on Exhibit
A hereto (the “Guarantors”), the lenders parties to the Credit Agreement (as defined in
the Forbearance Agreement referred to below) (the “Lenders”), JPMORGAN CHASE BANK, N.A., as
agent for the Lenders (in such capacity, the “Agent”), and MORGAN STANLEY SENIOR FUNDING,
INC., as Syndication Agent. Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Forbearance Agreement (as defined below).

     WHEREAS, pursuant to a Forbearance Agreement, dated as of April 5, 2007 (the “Forbearance
Agreement”), by and between the Borrower, the Guarantors, the Lenders and the Agent, the
Lenders and the Agent (i) agreed to implement a forbearance period in respect of certain Defaults
or Events of Defaults under the Credit Agreement relating to the Known Defaults and (ii) agreed to
forbear from taking or exercising any Enforcement Action in connection with the Known Defaults;

     WHEREAS, the Lenders and the Agent desire to extend the forbearance period in respect of the
Known Defaults and, in addition, to forbear at all times through the Forbearance Period Termination
Date (as extended hereby), from taking or exercising any Enforcement Action in connection with the
Borrower’s failure (i) to make a scheduled payment of interest on the Senior Notes as due on July
15, 2007 in accordance with Section 10.1 of the Senior Notes Indenture and (ii) to furnish reports
as required under Section 7.4 of the Subordinated Notes Indenture or under Section 7.4 of the
Senior Notes Indenture; and

     WHEREAS, the Borrower has requested an extension of the Forbearance Period Termination Date to
July 31, 2007.

     NOW, THEREFORE, in consideration of the promises and the representations, warranties,
covenants and agreements herein contained, and intending to be legally bound hereby, the Borrower,
the Guarantors, the Lenders and the Agent hereby agree as follows:

ARTICLE I.

AMENDMENTS

     Section 1.1 Amendments to Forbearance Agreement. The Forbearance Agreement is,
effective as of the date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 2.1 hereof, hereby amended as follows:

          (a) The fourth recital of the Forbearance Agreement is amended by deleting the recital in its
entirety and substituting the following in its place:

“WHEREAS, (i) the Borrower’s failure to make an interest payment on the Subordinated
Notes on April 16, 2007, (the “Sub Notes Interest Payment Default”); and
(ii) the Borrower’s failure to make a scheduled payment of interest on the Senior
Notes as due on July 15, 2007 (the “Senior Notes Interest Payment 

 

 

Default”), would constitute an event of default under the Senior Notes
Indenture and the Subordinated Notes Indenture, as applicable.”

          (b) The eighth recital of the Forbearance Agreement is amended by inserting the phrase “the
Senior Notes Interest Payment Default, any failure by the Borrower to furnish the reports required
by Section 7.4 of the Senior Notes Indenture or Section 7.4 of the Subordinated Notes Indenture,”
immediately preceding the phrase “the Notes Quarterly Financial Statement Default” in the third
line thereof.

          (c) Section 3.1(i) of the Forbearance Agreement is amended by deleting the phrase “July 13,
2007” and replacing it with the phrase “July 31, 2007”.

          (d) Section 3.1(ii)(B) of the Forbearance Agreement is amended by inserting the phrase “or on
the Senior Notes” immediately following the phrase “on the Subordinated Notes”.

          (e) Section 3.1(ii)(C) of the Forbearance Agreement is amended by (i) deleting the phrase “or
(II) the issuance of any enforcement notice by the trustee under the Senior Notes Indenture or the
Subordinated Notes Indenture, including in each case,” therein and replacing it with the phrase
“but not” and (ii) inserting the phrase “without the taking of any enforcement action” immediately
following the word “acceleration” therein.

ARTICLE II.

CONDITIONS OF EFFECTIVENESS

     Section 2.1 Conditions of Effectiveness. This Amendment shall become effective as of
the date first above written when the Agent shall have received (a) counterparts of this Amendment
executed by the Borrower, the Guarantors and the Majority Lenders and (b) copies of the fully
executed amendments to (i) the Senior Notes Forbearance Agreement duly executed and delivered by
the Borrower and Persons holding more than 50% of the face principal amount of the Senior Notes,
and (ii) the Subordinated Notes Forbearance Agreement duly executed and delivered by the Borrower
and Persons holding more than 75% of the face principal amount of the Subordinated Notes, which
amendments, in each case, shall extend the termination of the forbearance periods described therein
to at least July 31, 2007, shall waive the Senior Notes interest payment due on July 15, 2007
during such forbearance period, and shall not provide for the payment of any consent, amendment or
similar fee to the holders of the Senior Notes and/or the Subordinated Notes in connection with the
execution and delivery of the Senior Notes Forbearance Agreement and/or the Subordinated Notes
Forbearance Agreement, as applicable.

ARTICLE III.

MISCELLANEOUS

     Section 3.1 Reference to Forbearance Agreement. On and after the effectiveness of
this Amendment, each reference in the Forbearance Agreement to “this Agreement,” “hereunder,”
“hereof” or words of like import referring to the Forbearance Agreement shall mean and be a
reference to the Forbearance Agreement as amended by this Amendment.

     Section 3.2 Full Force and Effect. The Forbearance Agreement, as specifically

2

 

amended by this Amendment, is and shall continue to be in full force and effect and is hereby
in all respects ratified and confirmed.

     Section 3.3 No Waiver. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy
of any party under the Forbearance Agreement, nor constitute a waiver of any provision of the
Forbearance Agreement.

     Section 3.4 Execution in Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same instrument, and each
of the parties hereto may execute this Amendment by signing any such counterpart. A facsimile or
electronic mail transmission of this Amendment bearing a signature on behalf of a party hereto
shall be legal and binding on such party.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

3

 

     IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this
Amendment to be executed by their respective duly authorized officers, as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	BALLY TOTAL FITNESS HOLDING CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ronald G. Eidell	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Ronald G. Eidell	 	 
	 	 	Title: Senior Vice President, CFO	 	 
	 
	 	 	 	 	 	 
	 	 	THE GUARANTORS	 	 
	 
	 	 	 	 	 	 
	 	 	Each Guarantor Listed on Exhibit A Hereto	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ronald G. Eidell	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Ronald G. Eidell	 	 
	 	 	Title: Senior Vice President, CFO	 	 

 

 

	 	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A., as Agent and as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Douglas A. Jenks	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Douglas A. Jenks	 	 
	 	 	Title: Managing Director	 	 

 

 

	 	 	 	 	 	 	 
	 	 	CREDIT GENESIS CLO 2005-1 LTD., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Christopher Mackey	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Christopher Mackey	 	 
	 	 	Title: Managing Principal	 	 

 

 

	 	 	 	 	 	 	 
	 	 	GOLDMAN SACHS CREDIT PARTNERS, L.P., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Pedro Ramirez	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Pedro Ramirez	 	 
	 	 	Title: Authorized Signatory	 	 

 

 

	 	 	 	 	 	 	 
	 	 	HARBOUR TOWN FUNDING LLC, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Tara E. Kenny	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Tara E. Kenny	 	 
	 	 	Title: Assistant Vice Principal	 	 

 

 

	 	 	 	 	 	 	 
	 	 	MORGAN STANLEY SENIOR FUNDING, INC., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Dan Gioia	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Dan Gioia	 	 
	 	 	Title: Authorized Signatory	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for AVERY	 	 
	 	 	POINT CLO, LTD., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for	 	 
	 	 	CASTLE HILL I-INGOTS, LTD., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for	 	 
	 	 	CASTLE HILL II-INGOTS, LTD., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for LOAN	 	 
	 	 	FUNDING XI LLC, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for	 	 
	 	 	PROSPECT FUNDING I, LLC, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	PROSPECT HARBOR CREDIT PARTNERS, LP, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for RACE	 	 
	 	 	POINT CLO, LIMITED, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for RACE	 	 
	 	 	POINT II CLO, LIMITED, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	Sankaty Advisors, LLC, as Collateral Manager for RACE	 	 
	 	 	POINT III CLO, LIMITED, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	SANKATY HIGH YIELD PARTNERS II, L.P., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	SANKATY HIGH YIELD PARTNERS III, L.P., as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alan K. Halfenger	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alan K. Halfenger	 	 
	 	 	Title: Chief Compliance Officer	 	 
	 

	 	 	 	Assistant Secretary	 	 

 

 

	 	 	 	 	 	 	 
	 	 	WELLS FARGO FOOTHILL, LLC, as Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Juan Barrera	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Juan Barrera	 	 
	 	 	Title: Vice President	 	 

 

 

EXHIBIT A

Bally Fitness Franchising, Inc.

Bally Franchise RSC, Inc.

Bally Franchising Holdings, Inc.

Bally Total Fitness Corporation

Bally Total Fitness Franchising, Inc.

Bally Total Fitness Holding Corporation

Bally Total Fitness International, Inc.

Bally Total Fitness of Missouri, Inc.

Bally Total Fitness of Toledo, Inc.

Bally Total Fitness of Connecticut Coast, Inc.

Bally Total Fitness of Connecticut Valley, Inc.

Greater Philly No. 1 Holding Company

Greater Philly No. 2 Holding Company

Health & Tennis Corporation of New York

Holiday Health Clubs of the East Coast, Inc.

Bally Total Fitness of Upstate New York, Inc.

Bally Total Fitness of Colorado, Inc.

Bally Total Fitness of the Southeast, Inc.

Holiday/Southeast Holding Corp.

Bally Total Fitness of California, Inc.

Bally Total Fitness of the Mid-Atlantic, Inc.

BTF/CFI, Inc.

Bally Total Fitness of Greater New York, Inc.

Jack La Lanne Holding Corp.

Bally Sports Clubs, Inc.

New Fitness Holding Co., Inc.

Nycon Holding Co., Inc.

Bally Total Fitness of Philadelphia, Inc.

Bally Total Fitness of Rhode Island, Inc.

Rhode Island Holding Company

Bally Total Fitness of the Midwest, Inc.

Bally Total Fitness of Minnesota, Inc.

Tidelands Holiday Health Clubs, Inc.

U.S. Health, Inc.

A-1exv4w1

 

OMNIBUS INSTRUMENT

     WHEREAS, the parties named herein desire to enter into certain Program Documents contained
herein, each such document dated as of this 10th day of July, 2007, relating to the issuance by
Principal Life Income Fundings Trust 31 (the “Trust”) of Notes with a principal amount/face amount
of $250,000,000 to investors under Principal Life’s secured notes program;

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

     WHEREAS, certain expense and indemnification arrangements between Principal Life and the
Trustee, on behalf of itself and on behalf of the Trust, are governed pursuant to the provisions of
the Expense and Indemnity Agreement dated as of February 16, 2006, by and between Principal Life
and the Trustee;

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

     WHEREAS, certain custodial arrangements of the Funding Agreement and the Guarantee will be
governed pursuant to the provisions of the Custodial Agreement (the “Custodial Agreement”) dated as
of February 16, 2006 by and among Bankers Trust Company, N.A., acting as custodian (the
“Custodian”), the Indenture Trustee and the Trustee, on behalf of the Trust;

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

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

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

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

[Remainder of Page Left Intentionally Blank.]

 

SECTION A

TRUST AGREEMENT

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

W I T N E S S E T H:

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

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

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

     WHEREAS, the parties hereto desire to incorporate by reference those certain Standard Trust
Terms, dated as of February 16, 2006, and attached to the Omnibus Instrument as Exhibit A
(the “Standard Trust Terms”) and all capitalized terms not otherwise defined herein (including the
recitals hereof) shall have the meanings set forth in the Standard Trust Terms (the Standard Trust
Terms and this Trust Agreement, collectively, the “Trust Agreement”).

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

ARTICLE 1

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

A-1

 

ARTICLE 2

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

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

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

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

     Section 2.05 Additional Terms.

     None

     Section 2.06 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

A-2

 

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

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

[Remainder of Page Left Intentionally Blank.]

A-3

 

SECTION B

LICENSE AGREEMENT

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

W I T N E S S E T H:

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

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

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

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

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

ARTICLE 1

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

ARTICLE 2

     Section 2.01 Additional Terms.

     None

B-1

 

     Section 2.02 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

[Remainder of Page Left Intentionally Blank.]

B-2

 

SECTION C

INDENTURE

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

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

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

W I T N E S S E T H:

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

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

     WHEREAS, the parties hereto desire to incorporate by reference those certain Standard
Indenture Terms, dated as of February 16, 2006, and attached to the Omnibus Instrument as
Exhibit C (the “Standard Indenture Terms”) and all capitalized terms not otherwise defined
herein (including the recitals hereof) shall have the meanings set forth in the Standard Indenture
Terms (the Standard Indenture Terms and this Indenture, collectively, the “Indenture”).

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

ARTICLE 1

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

C-1

 

ARTICLE 2

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

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

     Section 2.03 Additional Terms.

     None

     Section 2.04 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

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

[Remainder of Page Left Intentionally Blank.]

C-2

 

SECTION D

TERMS AGREEMENT

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

W I T N E S S E T H:

     WHEREAS,
Principal Life, PFG and the agents named therein, including the Purchasing Agents have
entered into that certain Distribution Agreement dated February 16, 2006 (the “Distribution
Agreement”).

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

ARTICLE 1

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

ARTICLE 2

     Section 2.01 Addition of Trust as Party to Distribution Agreement.

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

     Section 2.02 Purchase of Notes as Principal.

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

D-1

 

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

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

     Section 2.04 Applicable Time.
For purposes of the Distribution Agreement, the
Applicable Time shall be 9:30 am Central Time, July 10, 2007.

     Section 2.05 Free Writing Prospectus. For purposes of the Distribution Agreement,
each item of Free Writing Prospectus (identified in Exhibit G to this Omnibus Instrument)
constitutes a part of the Time of Sale Prospectus.

     Section 2.06 Governing Law. This Terms Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to the principles of conflicts
of laws thereof.

     Section 2.07 Notices. For purposes of Section 14 of the Distribution Agreement, the
Trust’s communications details are as set forth in Section E of the Omnibus Instrument.

     Section 2.08 Omnibus Instrument; Execution and Incorporation of Terms.

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

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

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

     Section 2.09 Counterparts. This Terms Agreement, through the Omnibus Instrument, may
be executed in any number of counterparts, each of which counterparts shall be deemed to be an
original, and all of which counterparts shall constitute but one and the same instrument.

[Remainder of Page Left Intentionally Blank.]

D-2

 

SECTION E

COORDINATION AGREEMENT

     This COORDINATION AGREEMENT (this “Coordination Agreement”), dated as of the date of the
Pricing Supplement, is entered into by and among Principal Life Insurance Company (“Principal
Life”), Principal Financial Group, Inc. (“PFG”), the Principal Life Income Fundings Trust specified
in the Omnibus Instrument (the “Trust”), 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 Terms Agreement) has 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; and

     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.

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

ARTICLE 1

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

E-1

 

     Section 1.02 Issuance and Purchase of the Notes.

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

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

ARTICLE 2

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

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

ARTICLE 3

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

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

ARTICLE 4

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

E-2

 

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

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

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

     Section 4.05 Notices. All demands, notices and communications under this Coordination
Agreement shall be in writing and shall be deemed to have been duly given upon receipt at the
addresses set forth below:

     To the Trust:

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

   Omnibus Instrument)

c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, New York 10005

Attention: Corporate Trust Administration

Telephone: (212) 361-2184

Facsimile: (212) 509-3384

     To the Indenture Trustee:

Citibank, N.A.

Corporate and Investment Banking

388 Greenwich Street, 14th Floor

New York, New York 10013

Attention: Jennifer H. McCourt

Telephone: (212) 816-5680

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: (866) 496-6527

     To PFG:

Principal Financial Group, Inc.

711 High Street

Des Moines, Iowa 50392

Attention: General Counsel

Telephone: (515) 247-5111

Facsimile: (515) 248-3011

With a copy to:

Principal Life Insurance Company

711 High Street

Des Moines, Iowa 50392

Attention: Jim Fifield

Telephone: (515) 248-9196

Facsimile: (866) 496-6527

E-4

 

     To Bankers Trust Company, N.A:

Bankers Trust Company, N.A.

453 7th Street

Des Moines, Iowa 50309-2728

Attention: Diana L. Cook

Telephone: (515) 245-2418

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, the Custodian and the Indenture Trustee.

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

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

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

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

[Remainder of Page Left Intentionally Blank.]

E-5

 

SECTION F

MISCELLANEOUS AND EXECUTION PAGES

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

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

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

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

 	 
	 	By:  	/s/
JoEllen J. Watts	 
	 	 	Name:  	JoEllen J. Watts	 
	 	 	Title:  	Counsel	 
	 

	 	 	 	 	 
	 	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/ JoEllen J. Watts	 
	 	 	Name:  	JoEllen J. Watts	 
	 	 	Title:  	Counsel	 
	 

	 	 	 	 	 
	 	PRINCIPAL FINANCIAL SERVICES, INC. (in executing below
agrees and becomes a party to the License Agreement
set forth in Section B herein

 	 
	 	By:  	/s/ JoEllen J. Watts	 
	 	 	Name:  	JoEllen J. Watts	 
	 	 	Title:  	Counsel	 
	 

 

 

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

By: U.S. Bank Trust National Association, not in its

individual capacity but solely in its capacity as

trustee of the Trust

 	 
	 	By:  	/s/
Janet P. O’Hara 	 
	 	 	Name:  	Janet P. O’Hara 	 
	 	 	Title:  	Assistant Vice President 	 
	 

	 	 	 	 	 
	 	U.S. BANK TRUST NATIONAL ASSOCIATION (in executing
below agrees and becomes a party to the Trust Agreement
set forth in Section A herein), as Trustee

 	 
	 	By:  	/s/
Janet P. O’Hara 	 
	 	 	Name:  	Janet P. O’Hara 	 
	 	 	Title:  	Assistant Vice President 	 
	 

	 	 	 	 	 
	 	GSS HOLDINGS II, INC. (in executing below agrees and

becomes a party to the Trust Agreement set forth in

Section A herein), as Trust Beneficial Owner

 	 
	 	By:  	/s/
Andrew L. Stidd	 
	 	 	Name:  	Andrew L. Stidd	 
	 	 	Title:  	Vice President	 
	 

	 	 	 	 	 
	 	CITIBANK, N.A. (in executing below agrees and becomes a
party to (i) the Indenture set forth in Section C
herein, as Indenture Trustee, Registrar, Transfer
Agent, Paying Agent and Calculation Agent and (ii) the
Coordination Agreement set forth in Section E herein),
as Indenture Trustee, Registrar, Transfer Agent, Paying
Agent and Calculation Agent

 	 
	 	By:  	/s/
Jennifer McCourt	 
	 	 	Name:  	Jennifer McCourt 	 
	 	 	Title:  	Vice President 	 
	 

 

 

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

 	 
	 	By:  	/s/
Diana L. Cook	 
	 	 	Name:  	Diana L. Cook	 
	 	 	Title:  	Vice President	 
	 

	 	 	 	 	 
	 	BARCLAYS CAPITAL INC. (in executing below
agrees and becomes a party to the Terms Agreement set
forth in Section D herein)

 	 
	 	By:  	/s/
Pamela Kendall	 
	 	 	Name:  	Pamela Kendall	 
	 	 	Title:  	Director	 

	 	 	 	 	 
	 

 

 

INDEX OF EXHIBITS AND SCHEDULES TO THE OMNIBUS INSTRUMENT

	 	 	 
	Exhibit A

	 	Standard Trust Terms – Incorporated herein by reference to Exhibit
99.2 to Principal Life Insurance Company’s Current Report on Form
8-K, filed on March 1, 2006.
	 
	 	 
	Exhibit B

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

	 	Standard Indenture Terms – Incorporated herein by reference to
Exhibit 4.1 to Principal Life Insurance Company’s Current Report
on Form 8-K, filed on December 6, 2006.
	 
	 	 
	Exhibit D

	 	Pricing Supplement – Incorporated herein by reference to the
Pricing Supplement with respect to Principal Life Income Fundings
Trust 31, to be filed on July 12, 2007 with the Securities and Exchange
Commission pursuant to Rule 424(b)(2) under the Securities Act of
1933, as amended.
	 
	 	 
	Exhibit E

	 	Principal Life Insurance Company Officer’s Certificate
	 
	 	 
	Exhibit F

	 	Principal Life Income Fundings Trusts Trustee Officer’s Certificate
	 
	 	 
	Exhibit G

	 	Free Writing Prospectus(es)
	 
	 	 
	Schedule I

	 	Terms Agreement Specifications

 

 

EXHIBIT E

Principal Life Insurance Company

Officer’s Certificate

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

	 	1.	 	each of the representations and warranties of Principal Life contained in each
Expense and Indemnity Agreement entered into in connection with the Registration
Statement (defined below), and each Funding Agreement issued in connection with the
Program (the “Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and correct on and as of
the date hereof, with the same effect as though such representation or warranty had
been made on and as of the date hereof;
	 
	 	2.	 	no default under any of the Specified Agreements and no event or any condition
which, with notice or lapse of time or both, would become a default, has occurred and
is continuing as of the date hereof;
	 
	 	3.	 	Principal Life has performed and complied with, respectively, in all material
respects, all of the agreements, covenants, obligations and conditions applicable to
Principal Life required by the Specified Agreements to be performed or complied with by
Principal Life on or before the date hereof;
	 
	 	4.	 	the Registration Statement filed on Form S-3 (File Nos. 333-129763 and
333-129763-01) (the “Registration Statement”) by Principal Life and Principal Financial
Group, Inc. has been declared effective by the Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “Act”) and no stop
order suspending the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been commenced by or are pending before or
contemplated by the Commission;
	 
	 	5.	 	all filings, if any, required by Rule 424 and Rule 430A under the Act have been
made in a timely manner;
	 
	 	6.	 	since ___, the Trusts organized in connection with the program contemplated
by the Registration Statement have issued the following series of Notes:
	 
	 	 	 	     [List each series of Notes.] [(collectively, the “Designated Notes”)]; and
	 
	 	7.	 	the Funding Agreements issued in connection with the Designated Notes have been
executed and delivered by Principal Life in accordance with the terms and conditions of the
Program Documents.

E-1

 

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

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

	 	 	 	 	 
	 	[Name], [in his/her] capacity as an

authorized officer of Principal Life

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	

E-2

 

EXHIBIT F

Principal Life Income Fundings Trusts

Trustee Officer’s Certificate

     U.S. Bank Trust National Association, not in its individual capacity but solely in its
capacity as trustee acting on behalf of each common law trust organized under the laws of the State
of New York (in such capacity, the “Trustee,” and each such common law trust being referred to
herein as, a “Trust”) in connection with the program contemplated by Registration Statement Nos.
333-129763 and 333-129763-01 filed on Form S-3 (the “Registration Statement”) by Principal Life
Insurance Company and Principal Financial Group, Inc. with the Securities and Exchange Commission,
does hereby certify to Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., in such capacity and on behalf of each Trust, to the knowledge of the Trustee, that:

	 	1.	 	each of the representations and warranties of each Trust contained in the Notes
issued in connection with the Program, each Indenture entered into in connection with
the Registration Statement and the Expense and Indemnity Agreement concerning the
Trusts (the “Specified Agreements”) (other than any representation or warranty
expressly made as of a date prior to the date hereof) are true and correct on and as of
the date hereof, with the same effect as though such representation or warranty had
been made on and as of the date hereof;
	 
	 	2.	 	no default under any of the Specified Agreements and no event or any condition
which, with notice or lapse of time or both, would become a default, has occurred and
is continuing as of the date hereof;
	 
	 	3.	 	each Trust has performed and complied with, respectively, in all material
respects, all of the agreements, covenants, obligations and conditions applicable to
such Trust required by the Specified Agreements to be performed or complied with by
such Trust on or before the date hereof;
	 
	 	4.	 	the Notes issued in connection with the Program, have been issued, in all
material respects, in accordance with the terms and conditions of the Program
Documents; and
	 
	 	5.	 	each Funding Agreement has been executed and delivered by the related Trust in
accordance with the terms and conditions of the Program Documents.

     Capitalized terms used herein and not otherwise defined herein shall have the meanings set
forth in the Standard Indenture Terms dated as of February 16, 2006. In no
event shall U.S. Bank Trust National Association in its personal corporate capacity have any
liability for any of the certifications or statements contained in this Trustee Officer’s
Certificate, such liability being solely that of each Trust.

F-1

 

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

	 	 	 	 	 
	 	U.S. Bank Trust National Association, not in its

capacity but solely in its capacity as Trustee acting

on behalf of each Trust

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

F-2

 

	 	 	 	 	 

EXHIBIT G

Free Writing Prospectus(es)

 

G-1

 

Free Writing Prospectus dated July 10, 2007

Filed pursuant to Rule 433

Registration Statement Nos. 333-129763 and 333-129763-01

TERMS AND CONDITIONS

 

Principal Life Income Fundings Trust 31

2-Year Floating Rate MTN Final Termsheet

	 	 	 
	Issuer:

	 	Principal Life Income Fundings Trust 31
	 
	 	 
	Security:

	 	Secured Medium Term Notes
	 
	 	 
	Ratings:

	 	Aa2 (Moody’s) / AA (S&P)
	 
	 	 
	Trade Date:

	 	July 10, 2007
	 
	 	 
	Settlement Date:

	 	July 17, 2007
	 
	 	 
	Maturity:

	 	July 17, 2009
	 
	 	 
	Principal Amount:

	 	$250,000,000 
	 
	 	 
	Dollar Price:

	 	100% 
	 
	 	 
	Net Proceeds:

	 	$250,000,000 
	 
	 	 
	Coupon:

	 	3m$L — 1.5bps 
	 
	 	 
	Coupon Payment Dates:

	 	Pay quarterly on the 17th of October, January, April, and July beginning October 17, 2007; modified following business convention using London business days. Interest accrues up to but not including payment dates.
	 
	 	 
	Coupon Reset Dates:

	 	Resets quarterly on the 17th of October, January, April, and July
	 
	 	 
	Coupon Determination Date:

	 	Two New York and London business days preceding the settlement date and each applicable coupon reset date
	 
	 	 
	Basis:

	 	Actual/360 day basis
	 
	 	 
	Minimum Denomination:

	 	$1,000 and integral multiples of $1,000 in excess thereof 
	 
	 	 
	CUSIP#:

	 	74254PSX1 
	 
	 	 
	Underwriter:

	 	Barclays Capital Inc. (Sole)
	 
	 	 
	DTC:

	 	7256 

Principal Life Insurance Company (“Principal Life”), as statutory issuer and depositor, and
Principal Financial Group, Inc. (“PFG”) have filed a registration statement (including a prospectus
and prospectus supplement) with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus and prospectus supplement in that registration
statement and other documents Principal Life and PFG have filed with the SEC for more complete
information about Principal Life, PFG and this offering. You may get these documents for free by
visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, Barclays Capital Inc. will
arrange to send you the prospectus and prospectus supplement if you request it by calling Barclays
Capital Inc. toll-free at (888) 227-2275 ext. 2663

 

SCHEDULE I

Terms Agreement Specifications

     In connection with Section 3(a)(iv) of the Distribution Agreement, the Institutional Program under which the
Notes are issued is rated Aa2 by Moody’s Investors Service, Inc. (“Moody’s”) and AA by Standard &
Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. (“S&P”). Principal Life and
PFG expect that the Notes will be rated Aa2 by Moody’s. The Company’s financial strength rating is
Aa2 by Moody’s and AA by S&P.

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

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

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

I-1

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