EXHIBIT 10.2
EXPENSE AND INDEMNITY AGREEMENT
This Expense and Indemnity Agreement (this "Agreement") is entered into
as of o, 2003, by and between Principal Life Insurance Company, an Iowa life
insurance company ("Principal Life"), and Citibank, N.A., as indenture trustee,
registrar, transfer agent, paying agent and calculation agent ("Citibank").
WHEREAS, in consideration of Citibank providing services to each Trust
created in connection with the Program and pursuant to the Program Documents
under which Citibank will have certain duties and obligations, Principal Life
hereby agrees to the following compensation arrangements and terms of indemnity.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, each party hereby agrees as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. All capitalized terms not otherwise defined
herein will have the meanings set forth in the form of Standard Indenture Terms
attached as Exhibit 4.1 to Form S-3 Registration Statement Nos. 333-110499 and
000-000000-00 filed with the Securities and Exchange Commission by Principal
Life and Principal Financial Group, Inc. on November 14, 2003, as may be
amended. The following terms, as used herein, have the following meanings:
"Excluded Amounts" means (i) any obligation of any Trust to make any
payment to any Holder in accordance with the terms of the applicable Indenture
or such Trust's Notes, (ii) any obligation or expense of any Trust to the extent
that such obligation or expense has actually been paid utilizing funds available
to such Trust from payments under the applicable Funding Agreement or the
Guarantee, (iii) any cost, loss, damage, claim, action, suit, expense,
disbursement, tax, penalty or liability of any kind or nature whatsoever
resulting from or relating to any insurance regulatory or other governmental
authority asserting that: (a) any Trust's Notes are, or are deemed to be, (1)
participations in the applicable Funding Agreement or (2) contracts of
insurance, or (b) the offer, purchase, sale and/or transfer of any Trust's Notes
and/or the pledge and collateral assignment of the applicable Funding Agreement
by any Trust to Citibank on behalf of the Holders of such Trust's Notes (1)
constitutes the conduct of the business of insurance or reinsurance in any
jurisdiction or (2) requires such Trust or any Holder of such Trust's Notes to
be licensed as an insurer, insurance agent or broker in any jurisdiction, (iv)
any cost, loss, damage, claim, action, suit, expense, disbursement, tax, penalty
or liability of any kind or nature whatsoever imposed on Citibank that results
from the bad faith, willful misconduct or negligence of Citibank, (v) any costs
and expenses attributable solely to Citibank's administrative overhead unrelated
to the Program, (vi) any tax imposed on fees paid to Citibank, (vii) any
withholding taxes imposed on or with respect of payments made under the
applicable Funding Agreement, the applicable Indenture or a Trust's Note and
(viii) any Additional Amounts paid to any Holder.
"Fees" means the fees agreed to between Principal Life and Citibank as
set forth in the fee schedule attached as Exhibit A to this Agreement.
"Obligation" means any and all (i) costs and expenses reasonably
incurred (including the reasonable fees and expenses of counsel), relating to
the offering, sale and issuance of the Notes by each Trust under the Program and
(ii) costs, expenses and taxes of each Trust; provided, however, that
Obligations do not include Excluded Amounts.
ARTICLE II
SERVICES AND FEES
Section 2.01 Fees. Principal Life hereby agrees to pay Citibank its
Fees. Such Fees may be subject to amendment upon the written agreement of
Principal Life and Citibank in the event of a substantive change in the nature
of Citibank's duties under the Program, as agreed to by Citibank and Principal
Life.
Section 2.02 Payment of Obligations. (a) In the event that Citibank
delivers written notice and evidence, reasonably satisfactory to Principal Life,
of any Obligation of Citibank, Principal Life shall, upon receipt of such
notice, promptly pay such Obligation. Notice of any Obligation (including any
invoices) should be sent to Principal Life at its address set forth in Section
4.04, or at such other address as such party shall hereafter furnish in writing.
(b) At the written request and expense of Principal Life, Citibank will
(i) from time to time execute all such instruments and other agreements and take
all such other actions as may be reasonably necessary or desirable, or that
Principal Life may otherwise reasonably request in writing, to protect any
interest of Principal Life with respect to any Obligation or to enable Principal
Life to exercise or enforce any right, interest or remedy it may have with
respect to any such Obligation, and (ii) release to Principal Life any amount
received from Principal Life relating to any Obligation or any portion of any
Obligation, promptly after any such amount relating to such Obligation, or any
portion of any such Obligation, is otherwise received by Citibank from a party
other than Principal Life.
(c) Principal Life and Citibank hereby agree that all payments due
under this Agreement in respect of any Obligation shall be effected, and any
responsibility of Principal Life to pay such Obligation pursuant to this
Agreement shall be discharged, by the payment by Principal Life to the account
of the person to whom such Obligation is owed.
ARTICLE III
INDEMNIFICATION
Section 3.01 Subject to the remaining sections of this Article III,
Principal Life covenants to fully indemnify and defend Citibank or any
predecessor Indenture Trustee and their executive officers, directors and agents
(each, an "Indemnified Person") for, and to hold it harmless against, any and
all loss, liability, claim, damage or reasonable expense (including the
reasonable compensation, expenses and disbursements of its counsel) arising out
of the acceptance by Citibank, in its capacity as Indenture Trustee or as an
Agent, of administration of the applicable Indenture or any Trust and/or the
performance of its duties and/or the exercise of
its respective rights under the applicable Indenture, including the costs and
expenses of defending itself against or investigating any claim of liability in
the premises, except to the extent such loss, liability, claim, damage or
expense arises out of or is related to the bad faith, willful misconduct or
negligence of Citibank. Notwithstanding anything to the contrary, Principal Life
shall have no obligation to indemnify or defend Citibank for any loss,
liability, claim, damage or expense relating to (i) any costs and expenses
attributable solely to Citibank's administrative overhead unrelated to the
Program or (ii) any tax imposed on the Fees paid to Citibank.
Section 3.02 Except as otherwise set forth in Section 6.07 of the
Indenture, an Indemnified Person shall give prompt written notice to Principal
Life of any action, suit or proceeding commenced or threatened against the
Indemnified Person. Failure by an Indemnified Person to so notify Principal Life
shall not relieve Principal Life of its obligations hereunder. In case any such
action, suit or proceeding shall be brought involving an Indemnified Person,
Principal Life may, in its sole discretion, elect to assume the defense of the
Indemnified Person, and if it so elects, Principal Life shall, in consultation
with such Indemnified Person, select counsel, reasonably acceptable to the
Indemnified Person, to represent the Indemnified Person and pay the reasonable
fees and expenses of such counsel. In any such action, investigation or
proceeding, the Indemnified Person shall have the right to retain its own
counsel but Principal Life shall not be obligated to pay the fees and
disbursements of such counsel unless (i) Principal Life and the Indemnified
Person shall have mutually agreed in writing to the retention of such counsel,
(ii) the named parties to any such action, investigation or proceeding
(including any impleaded parties) include both Principal Life and the
Indemnified Person and the Indemnified Person shall have reasonably and in good
faith concluded that representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them, or
(iii) Principal Life fails, within ten (10) days prior to the date the first
response or appearance is required to be made in any such proceeding, to assume
the defense of such proceeding with counsel reasonably satisfactory to the
Indemnified Person. It is understood that Principal Life shall not, in
connection with any proceeding or related proceeding in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Indemnified Persons.
Section 3.03 Solely to the extent, if any, that the indemnification
provided for herein is finally determined by a court of competent jurisdiction
to be invalid or unenforceable, in whole or in part, in accordance with its
terms, then Principal Life shall contribute to the amount paid or payable by an
Indemnified Person as a result of such invalidity or unenforceability in such
proportion as is appropriate to reflect the relative benefits received by
Principal Life, on one hand, and Citibank on the other hand, from the
transactions contemplated by the Program Documents. For this purpose, the
benefits received by Principal Life shall be the aggregate value of the relevant
Collateral, and the benefits received by Citibank shall be the Fees it has been
paid up to that point, less costs and unreimbursed expenses incurred by it, as
Indenture Trustee, in relation to such Collateral. If, however, the allocation
provided by the immediately preceding two sentences is not permitted by
applicable law, then Principal Life shall contribute to such amount paid or
payable by the Indemnified Person in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of Principal
Life, on the one hand, and Citibank (but solely to the extent such fault results
from or is attributable to Citibank's
bad faith, willful misconduct or negligence) on the other hand, in connection
with the actions or omissions which resulted in such liability.
Section 3.04 Principal Life shall be subrogated to any right of the
Indemnified Person in respect of the matter as to which and to the extent that
any indemnity was paid hereunder.
Section 3.05 The Indemnified Person may not settle any action,
investigation or proceeding without the consent of Principal Life, not to be
unreasonably withheld.
Section 3.06 Notwithstanding any provision contained herein to the
contrary, the obligations of Principal Life under this Article III to any
Indemnified Person shall survive the termination of this Agreement pursuant to
Section 4.03.
ARTICLE IV
MISCELLANEOUS
Section 4.01 No waiver, modification or amendment of this Agreement
shall be valid unless executed in writing by the parties hereto.
Section 4.02 This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles.
Section 4.03 This Agreement shall terminate and be of no further force
and effect upon the date on which (i) there is no Obligation due and payable
under this Agreement and (ii) each Program Document has terminated; provided,
however, that this Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time Citibank must restore payment of
any sums paid under any Obligation or under this Agreement for any reason
whatsoever. This Agreement is continuing, irrevocable, unconditional and
absolute.
Section 4.04 All notices, demands, instructions and other
communications required or permitted to be given to or made upon either party
hereto shall be in writing (including by facsimile transmission) and shall be
hand delivered or sent by guaranteed overnight delivery or by facsimile
transmission (to be followed by hand or guaranteed overnight delivery) and shall
be deemed to be given for purposes of this Agreement on the day that such
writing is received by the intended recipient thereof in accordance with the
provisions of this Section. Unless otherwise specified in a notice sent or
delivered in accordance with the foregoing provisions of this Section, notices,
demands, instructions and other communications in writing shall be given to or
made upon the respective parties thereto at their respective addresses (or their
respective facsimile numbers) indicated below:
To Citibank:
Citibank, N.A.
Citibank Agency and Trust
000 Xxxx Xxxxxx, 00xx Xxxxx, Xxxx 0
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To Principal Life:
Principal Life Insurance Company
000 Xxxx Xxxxxx
Xxx Xxxxxx, XX 00000
Attention:
Telephone:
Facsimile:
Section 4.05 Citibank shall (i) provide to Principal Life, as an
exhibit to each Trust's Annual Reports on Form 10-K (each a "10-K") filed on
behalf of each such Trust by Principal Life under the Securities Exchange Act of
1934, as amended, a compliance certificate (the "Compliance Certificate" )
substantially in the form attached to this Agreement as Exhibit B and (ii) at
Principal Life's expense, cause a firm of independent public accountants
selected by Principal Life that is a member of the American Institute of
Certified Public Accountants to furnish to the management of Principal Life and
to the Trustee a report (the "Auditor's Report") substantially in the form
attached to this Agreement as Exhibit C. Principal Life shall cause the
Compliance Certificate and the Auditor's Report to be filed as exhibits to each
Trust's 10-K(s).
[The remainder of this page left intentionally blank.]
IN WITNESS WHEREOF, the parties have executed this Expense and
Indemnity Agreement by their duly authorized officers as of the date hereof.
PRINCIPAL LIFE INSURANCE COMPANY
By: ________________________
Name:
Title:
CITIBANK, N.A.
By: ________________________
Name:
Title:
EXHIBIT A
FEES
Citibank shall be entitled to receive the following fees at the times set forth
below:
[To come.]
EXHIBIT B
ANNUAL STATEMENT OF COMPLIANCE
I [identify the certifying individual], a duly elected and acting
officer of Citibank, N.A. ("Indenture Trustee"), do hereby certify on behalf of
the Indenture Trustee, that:
1. I have reviewed and examined the performance by the Indenture
Trustee of the application of trust money collected by the Indenture Trustee
pursuant to Section 5.02 and, if applicable, Section 6.06 of the Indenture
pursuant to which the Trust's notes (the "Notes") were issued during the fiscal
year ending December 31, 200o (the "Relevant Year"); and
2. Based upon my review and examination described in 1 above, and
except as provided in the Independent Auditor's Report on Applying Agreed Upon
Procedures, dated o, 200o, prepared by the Trust's independent public
accountants in accordance with Section 4.05 of the Expense and Indemnity
Agreement, to the best of my knowledge, the application of trust money collected
by the Indenture Trustee pursuant to Section 5.02 and, if applicable, Section
6.06 of the Indenture was performed in accordance with the terms of the
Indenture throughout the Relevant Year.
CITIBANK, N.A., as Indenture Trustee
By: _________________________
Name:
Title:
Date: _________________________
EXHIBIT C
Report of Independent Accountants
On Applying Agreed-Upon Procedures
To the Management of Principal Life Insurance Company ("Principal
Life"), Principal Financial Group, Inc. ("PFG") and U.S. Bank Trust National
Association, as trustee (the "Trustee") of Principal Life Income Fundings Trust
[o] (the "Trust"):
We have performed the procedures enumerated below, which were agreed to
by the Management of Principal Life, the Management of PFG and the Trustee,
solely to assist you in evaluating the proper and prompt payments of amounts by
Citibank, N.A., as indenture trustee (the "Indenture Trustee"), of amounts
payable under Principal Life's secured notes program (the "Program") for the
[year] [period] ended December 31, 2000. Principal Life's management is
responsible for the proper and prompt payments of amounts due under the funding
agreement (the "Funding Agreement") and PFG's management is responsible for the
proper and prompt payments of amounts due under the guarantee (the "Guarantee"),
each of which support the payment of amounts due on the secured notes (the
"Notes") issued by the Trust. This agreed-upon procedures engagement was
conducted in accordance with attestation standards established by the American
Institute of Certified Public Accountants. The sufficiency of these procedures
is solely the responsibility of those parties specified in this report.
Consequently, we make no representation regarding the sufficiency of the
procedures described below either for the purpose of which this report has been
requested or for any other purpose.
The procedures and the associated findings are as follows:
1. We requested and obtained a copy of the Indenture Trustee's
[History of Transactions List] which details the payments
received from Principal Life or PFG, as the case may be, on
the Funding Agreement and Guarantee, as applicable, that
secured the Notes, for the [year] [period] ended December 31,
2000. We compared each item on this [History of Transactions
List] to the [Disbursement Records] of Principal Life or PFG,
as the case may be, for the same period and found them to be
in agreement [except for the following exceptions].
2. We requested and obtained from the Indenture Trustee a copy of
the [Transmission by Database Report] for the [year] [period]
ended December 31, 2000, which details the components of the
bulk wire transfers to Cede & Co., the nominee of the
Depository Trust Company, and compared the amounts due on the
Notes for the same period to the bulk wire transfers as noted
on the [Transmission by Database Report] and found such
amounts were a component of such bulk transfers [except for
the following exceptions].
3. We requested and obtained from the Indenture Trustee a copy of
the bulk wire transfer confirmation to Cede & Co. for the
[year] [period] ended December 31, 2000, the nominee of the
Depository Trust Company, and compared the amount wired per
the confirmation to the [Transmission by Database Report] for
the same period, and found them to be in agreement [except for
the following exceptions].
We were not engaged to and did not conduct an examination, the
objective of which would be the expression of an opinion on funding agreement
liabilities or guarantee liabilities. Accordingly, we do not express such an
opinion. Had we performed additional procedures, other matters might have come
to our attention that would have been reported to you.
This report is intended solely for the information and use of the management of
Principal Life, the Management of PFG and the Trustee and is not intended to be
and should not be used by anyone other than these specified parties.
