**EXHIBIT 10.2**

 

 

 

**SURPLUS NOTE PURCHASE AGREEMENT**

 

Between

 

**ALLSTATE LIFEINSURANCE COMPANY,**

as Seller

 

and

 

**KENNETT CAPITAL, INC.,**

as Purchaser

 

Dated as of August 1, 2005

 

 

 

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**TABLE OF CONTENTS**

 
| ** **        | ** **                                                    | ** ** | **Page** |
|-------------------|---------------------------------------------------------------|------------|----------|
|              |                                                          |       |     |
| ARTICLE I    | DEFINITIONS                                                   | 1          |
|              |                                                          |       |     |
| Section 1.01 | Definitions                                                   | 1          |
|              |                                                          |       |     |
| Section 1.02 | Other Definitional Provisions                                 | 3          |
|              |                                                          |       |     |
| ARTICLE II   | PURCHASE AND SALE OF SURPLUS  NOTES                           | 3          |
|              |                                                          |       |     |
| Section 2.01 | Purchase and Sale of Surplus Notes                            | 3          |
|              |                                                          |       |     |
| Section 2.02 | Delivery and Payment                                          | 3          |
|              |                                                          |       |     |
| Section 2.03 | Forms of Kennett Notes                                        | 3          |
|              |                                                          |       |     |
| ARTICLE III  | TERMS AND CONDITIONS OF  REPAYMENT OF KENNETT NOTES; MATURITY | 3          |
|              |                                                          |       |     |
| Section 3.01 | Interest                                                      | 3          |
|              |                                                          |       |     |
| Section 3.02 | Principal                                                     | 3          |
|              |                                                          |       |     |
| Section 3.03 | Payments by the Purchaser                                     | 3          |
|              |                                                          |       |     |
| Section 3.04 | Prepayment                                                    | 4          |
|              |                                                          |       |     |
| ARTICLE IV   | REGISTRATION OF KENNETT NOTES;  TRANSFER AND EXCHANGE         | 4          |
|              |                                                          |       |     |
| Section 4.01 | Kennett Note Register                                         | 4          |
|              |                                                          |       |     |
| Section 4.02 | Exchanges and Transfers                                       | 4          |
|              |                                                          |       |     |
| ARTICLE V    | EVENTS OF DEFAULT                                             | 5          |
|              |                                                          |       |     |
| Section 5.01 | Events of Default                                             | 5          |
|              |                                                          |       |     |
| Section 5.02 | Remedies Upon an Event of Default                             | 5          |
|              |                                                          |       |     |
| ARTICLE VI   | MISCELLANEOUS                                                 | 5          |
|              |                                                          |       |     |
| Section 6.01 | Notices                                                       | 5          |
|              |                                                          |       |     |
| Section 6.02 | Amendments, Waivers.                                          | 5          |
|              |                                                          |       |     |
| Section 6.03 | Successors and Assigns; Third Party  Beneficiaries            | 6          |
|              |                                                          |       |     |
| Section 6.04 | Severability                                                  | 6          |
|              |                                                          |       |
| Section 6.05 | Binding Effect                                                | 6          |

 

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| Section 6.06      | GOVERNING LAW; CONSENT TO JURISDICTION | 6      |
|------------------------|----------------------------------------|--------|
|                   |                                   |   |   |
| Section 6.07      | Execution in Counterparts              | 6      |
|                   |                                   |   |   |
| Section 6.08      | Entire Agreement                       | 6      |
|                   |                                   |   |   |
| Section 6.09      | Headings                               | 6      |
|                   |                                   |   |   |
| SCHEDULES AND EXHIBITS |                                   |
|                   |                                   |   |   |
| Schedule I        | Notice Information                     |   |
| Exhibit A         | Form of Kennett Note              |   |

 

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This SURPLUS NOTE PURCHASE AGREEMENT, dated as of August 1, 2005,is made by and between Allstate Life Insurance Company, a life insurancecompany domiciled in Illinois (together with its successors and assigns, the “Seller”),and Kennett Capital, Inc., a corporation organized under the laws of theState of Delaware (together with its successors and assigns, the “Purchaser”).

 

**RECITALS**

 

WHEREAS, the Seller desires to sell to the Purchaser on the date hereofand from time to time hereafter, and the Purchaser desires to purchase from theSeller, surplus notes (the “Surplus Notes”) issued by ALIC ReinsuranceCompany (the “Issuer”) in an aggregate principal amount up to$750,000,000 (the “Authorized Principal Amount”); and

 

WHEREAS, as consideration for the sale of the Surplus Notes the Sellershall receive one or more notes (the “Kennett Notes”) from the Purchaserwith an aggregate principal amount equal to the aggregate principal amount ofthe Surplus Notes, which shall not exceed the Authorized Principal Amount;

 

NOW, THEREFORE, for full and fair consideration, the parties heretoagree as follows:

 

# **ARTICLE IDEFINITIONS**

 

## Section 1.01                                Definitions.  The following capitalized terms shall havethe following meanings:

##  

“Agreement” means this Surplus Note Purchase Agreement, as thesame may from time to time be amended, supplemented or otherwise modified inaccordance with the terms hereof.

 

“Authorized Principal Amount” has the meaning specified in thefirst WHEREAS clause in the recitals hereof.

 

“Business Day” means any day other than a Saturday or a Sundayor any day on which banking institutions in Chicago, Illinois, are authorizedor obligated by law, regulation or executive order to be closed.

 

“Event of Default” has the meaning specified in Section 5.01hereof.

 

“Holder” means, with respect to any Kennett Note, the Person inwhose name such Kennett Note is registered in the Kennett Note Register.

 

“Interest Payment Date” means each December 1 and June 1,commencing December 1, 2005, provided that if such day is not a BusinessDay, the next succeeding Business Day.

 

“Interest Period” means, with respect to any Kennett Note, (a) inthe case of the initial interest period with respect to such Kennett Note, theperiod from, and including, the date such Kennett Note was issued to the Sellerto, but excluding, the immediately following Payment Date, (b) thereafter,the period from, and including, the preceding Payment Date to, but excluding,the next succeeding Payment Date, and (c) in the case of the finalinterest period with respect to such Kennett Note, the period from, andincluding, the preceding Payment Date to, but excluding, the Maturity Date.

 

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“Interest Rate” means, with respect to each Kennett Note, theyield calculated as the sum of (a) the 10 Year CMT Rate, as set forth inthe corresponding Surplus Notes, plus (b) such spread as set forthin the corresponding Surplus Notes less 20 basis points.

 

“Issuer” has the meaning specified in the first WHEREAS clausein the recitals hereof.

 

“Kennett Note Register” has the meaning specified in Section 4.01hereof.

 

“Kennett Notes” has the meaning specified in the second WHEREASclause in the recitals hereof.

 

“Maturity Date” means, with respect to a Kennett Note, the dateon which all outstanding unpaid principal on such Kennett Note becomes due andpayable, whether at the Stated Maturity Date or by acceleration pursuant to Section 5.02.

 

“Payment Date” means any Interest Payment Date or Maturity Date.

 

“Person” means an individual, corporation (including a businesstrust), partnership, limited liability company, joint venture, association,joint stock company, trust (including any beneficiary thereof), unincorporatedassociation or government or any agency or political subdivision thereof.

 

“Purchaser” has the meaning specified in the introduction tothis Agreement.

 

“Record Date” means the date on whichthe Holders of any Kennett Note entitled to receive a payment with respect toprincipal or interest on the next succeeding Payment Date are determined, suchdate as to any Payment Date being five (5) Business Days prior to suchPayment Date.

 

“Seller” has the meaning specified in the introduction to thisAgreement.

 

“Series” means a series of Surplus Notes all having the samematurity date and terms authorized by the Issuer by or pursuant to a particularboard resolution duly adopted by the Issuer’s board of directors authorizingcorporate action by the Issuer.

 

“Series 2005-A Notes” means Surplus Notes of the Issuer inthe principal amount of $50,000, 000 denominated as Series 2005-A Notesissued on July 1, 2005.

 

“Series 2005-B Notes” means Surplus Notes of the Issuer inthe principal amount of $50,000,000 denominated as Series 2005-B Notesissued on July 1, 2005.

 

“Stated Maturity Date” means, with respect to each Kennett Note,the thirtieth (30th) anniversary of the issuance date of suchKennett Note, provided such date is a Business Day.

 

“Surplus Notes” has the meaning specified in the first WHEREASclause in the recitals hereof.

 

“10 Year CMT Rate” means the 10 Year Constant Maturity TreasuryYield, and shall be recalculated every ten years on the anniversary date of thefirst Interest Payment Date for each Series of Surplus Notes.

 

“10 Year Constant Maturity Treasury Yield” means the ten yearConstant Maturity Treasury Yield as reported in the Wall Street Journal.

 

2

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## Section 1.02                                Other DefinitionalProvisions.

 

### (a)                 All terms definedin this Agreement shall have the defined meanings when used in any certificateor other document made or delivered pursuant hereto.

###  

### (b)                The words “hereof,”“herein” and “hereunder” and words of similar import when used in this Agreementshall refer to this Agreement as a whole and not to any particular provision ofthis Agreement; and Section and subsection references contained inthis Agreement are references to Sections or subsections in or to thisAgreement unless otherwise specified.

###  

# **ARTICLE IIPURCHASE AND SALE OF SURPLUS NOTES**

 

## Section 2.01                                Purchase and Sale ofSurplus Notes.  Upon the terms andsubject to the conditions set forth in this Agreement, and in reliance on thecovenants and agreements herein set forth, on the date hereof, the Seller shallsell and the Purchaser may purchase the Series 2005-A Notes and the Series 2005-BNotes of the Issuer.  From time to timefrom and after the date hereof, the Seller may, on ten (10) Business Days’notice to the Purchaser, offer to sell to the Purchaser, and the Purchaser maypurchase, additional Series of Surplus Notes as may be purchased by Sellerfrom the Issuer, up to the Authorized Principal Amount.  As security for the performance of thePurchaser’s obligations under this Agreement, the parties hereto shall,concurrent with this Agreement, enter into a Pledge and Security Agreementwherein Purchaser grants a pledge of and security interest in the Purchaser’sright, title and interest in the Surplus Notes and the other collateralidentified therein.

##  

## Section 2.02                                Delivery and Payment.  The Seller shall deliver the Series 2005-ANotes and the Series 2005-B Notes to the Purchaser on the datehereof.  Against delivery of the Series 2005-ANotes, the Series 2005-B Notes or any additional Series of SurplusNotes, the Purchaser shall transfer to a Seller Kennett Notes with an aggregateprincipal amount equal to the aggregate principal amount of such Surplus Notes.

##  

## Section 2.03                                Forms of KennettNotes.  The Kennett Notes shall beissued substantially in the form of the Kennett Note attached as Exhibit Ahereto and shall be duly executed and delivered by the Purchaser as hereinafterprovided.

##  

# **ARTICLE IIITERMS AND CONDITIONS OF REPAYMENT OF KENNETT NOTES; MATURITY**

 

## Section 3.01                                Interest.  The Kennett Notes shall bear interest duringeach Interest Period at the Interest Rate. Interest shall be due and payable on each Interest Payment Date.  Interest shallbe computed on the basis of a 360-day year comprised of twelve 30-day months.

##  

## Section 3.02                                Principal.  The principal of each Kennett Note shall bedue and payable on the Stated Maturity Date.

##  

## Section 3.03                                Payments by thePurchaser.

 

### (a)                 On any PaymentDate, the Purchaser shall pay in accordance with the terms of this Agreement: (i) allaccrued but unpaid interest on the Kennett Notes and (ii) any principalpayments due with respect to the Kennett Notes, if any.

 

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### (b)                Any interest orprincipal that has not been paid when due shall accrue interest at a rate perannum equal to the Interest Rate from and including, for each such amount, thePayment Date therefor, up to but excluding the date on which each such amountis actually paid.

###  

### (c)                 All paymentsrequired to be made by the Purchaser with respect to this Article IIIshall be made:  (i) by Wire Transferof immediately available funds and/or the transfer of marketable securities(valued at their fair market value) not later than 1:00 p.m., Chicagotime, and (ii) to the account of the Seller, or to such other account asthe Seller may have most recently designated in writing for such purpose bynotice to the Purchaser.

###  

### (d)                The Purchaser and any agent of the Purchaser may treatthe Person in whose name any Kennett Note is registered on the Kennett NoteRegister as the owner of such Kennett Note on the applicable Record Date forthe purpose of receiving payments of principal and interest on such KennettNote and on any other date for all other purposes whatsoever (whether or notsuch payment is overdue), and neither the Purchaser nor any agent of thePurchaser shall be affected by notice to the contrary.

###  

## Section 3.04                                Prepayment.  The Purchaser may prepay the Kennett Notes,in part or in full, irrespective of whether the Issuer has prepaid any amountswith respect to the Surplus Notes.  Inaddition, the Purchaser shall prepay principal and accrued interest on theKennett Notes to the extent that the Issuer prepays or redeems the SurplusNotes, such prepayment to be made within three (3) Business Days ofprepayment or redemption of the Surplus Notes and in the manner specified in Section 3.03(c).

##  

# **ARTICLE IVREGISTRATION OF KENNETT NOTES; TRANSFER AND EXCHANGE**

 

## Section 4.01                                Kennett NoteRegister.  The Purchaser shall keep aregister (the “Kennett Note Register”) at its office in Northbrook,Illinois, in which it shall provide for the registration of the Kennett Notesand the registration of transfers of the Kennett Notes.   Such Kennett Note Register shall be inwritten form or in any other form capable of being converted into written formwithin a reasonable time.  Upon surrenderfor registration of transfer of any Kennett Note at the office of the Purchaserand in compliance with the restrictions set forth in any legend appearing onany Kennett Note, the Purchaser shall execute and deliver, in the name of thedesignated transferee or transferees, one or more new Kennett Notes of anyauthorized denomination and of like terms.

##  

## Section 4.02                                Exchanges andTransfers.  At the option of anyHolder, Kennett Notes may be exchanged for one or more Kennett Notes, of anyauthorized denomination and of like terms, upon surrender of the Kennett Notesto be exchanged at the office of the Purchaser or such other office as thePurchaser may designate for such purposes. Whenever any Kennett Note is surrendered for exchange, the Purchasershall execute and deliver the Kennett Note that the Holder making the exchangeis entitled to receive.  Any KennettNotes issued upon any registration of transfer or exchange of a Kennett Noteshall be the valid obligations of the Purchaser, evidencing the same debt, andentitled to the same benefits under this Agreement, as the Kennett Notesurrendered upon such registration of transfer or exchange.  Every Kennett Note presented or surrenderedfor registration of transfer or exchange shall be duly endorsed, or beaccompanied by a written instrument of transfer in form satisfactory to thePurchaser duly executed by the Holder thereof or its attorney duly authorizedin writing.  No service charge shall bemade to a purchaser for any registration of transfer or exchange of a KennettNote, but the Purchaser may

 

4

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## requirepayment of a sum sufficient to cover the expenses of delivery (if any) not madeby regular mail or any tax or other governmental charge payable in connectiontherewith.

##  

# **ARTICLE VEVENTS OF DEFAULT**

 

## Section 5.01                                Events of Default.  The occurrence of either of the followingevents shall constitute an “Event of Default” hereunder:

##  

### (a)                 default is madein the payment of any installment of interest on the Kennett Notes when suchinterest becomes due and payable and such default continues for a period of 30days, or

###  

### (b)                default is made inthe payment of the principal of the Kennett Notes when such principal becomesdue and payable.

###  

## Section 5.02                                Remedies Upon anEvent of Default.  Upon theoccurrence of an Event of Default, the Seller may give notice of such Event ofDefault to the Purchaser and demand payment of the entire outstanding principalamount of such Kennett Notes, plus all accrued but unpaid interest, plusinterest on such overdue principal and overdue interest at the Interest Rate, plussuch further amounts as shall be necessary to cover the Seller’s costs andexpenses of collection, including reasonable attorneys’ fees.

##  

# **ARTICLE VIMISCELLANEOUS**

 

## Section 6.01                                Notices.  Except in the case of notices and othercommunications expressly permitted to be given by telephone, all notices andother communications provided for herein shall be delivered by the followingmeans:  (i) hand delivery, (ii) overnightcourier service (e.g., FedEx, Airborne Express, or DHL); (iii) registeredor certified U.S. mail, postage prepaid and return receipt requested; or (iv) facsimiletransmission.  If any notice or othercommunication provided for herein is sent by any party by electronic e-mail itshall not be deemed to have been delivered to the addressee if the partysending such notice or communication receives a response from the intendedaddressee that he or she will not be able to retrieve e-mail due to vacation,other absence from the office, system failure or other reason.  All such notices shall be delivered to theparties as set forth on Schedule I hereof.  All notices and other communications given toany party hereto in accordance with the provisions of this Agreement shall bedeemed to have been given on the date of receipt.

##  

## Section 6.02                                Amendments, Waivers.

 

### (a)                 Except asotherwise expressly provided herein, no amendment or waiver of any provision ofthis Agreement shall in any event be effective unless the same shall be inwriting and signed by the parties hereto.

###  

### (b)                The Seller and thePurchaser may amend any provision of this Agreement to effectuate the divisionof any Kennett Notes held by the Seller into paid and unpaid portions and thesurrender of the paid portion.

###  

### (c)                 Each suchamendment, waiver or consent shall be effective only in the specific instanceand for the specific purpose for which given. A failure or delay in exercising any right, power or privilege withrespect to this Agreement will not be

 

5

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### presumed to operate as awaiver, and a single or partial exercise of any right, power or privilege willnot be presumed to preclude any subsequent or further exercise of that right,power or privilege or the exercise of any other right, power or privilege.

###  

## Section 6.03                                Successors andAssigns; Third Party Beneficiaries. The provisions of this Agreement shall be binding upon and inure to thebenefit of the parties hereto and their respective successors.  This Agreement shall not be transferred orassigned under any circumstances. Nothing in this Agreement, expressed or implied, shall be construed toconfer upon any Person (other than the parties hereto and their respectivesuccessors and permitted transferees) any legal or equitable right, remedy orclaim under or by reason of this Agreement.

##  

## Section 6.04                                Severability.  Any provision of this Agreement held to beinvalid, illegal or unenforceable in any jurisdiction shall, as to suchjurisdiction, be ineffective to the extent of such invalidity, illegality orunenforceability without affecting the validity, legality and enforceability ofthe remaining provisions hereof; and the invalidity of a particular provisionin a particular jurisdiction shall not invalidate such provision in any otherjurisdiction.

##  

## Section 6.05                                Binding Effect.  This Agreement shall remain in full force andeffect until such time as all of the Kennett Notes issued by the Purchasershall have been repaid in full and cancelled.

##  

## Section 6.06                                GOVERNING LAW;CONSENT TO JURISDICTION.  THISAGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITHTHE LAWS OF THE STATE OF ILLINOIS.

##  

## Section 6.07                                Execution inCounterparts.  This Agreement may beexecuted in any number of counterparts and by different parties hereto inseparate counterparts, each of which when so executed shall be deemed to be anoriginal and all of which when taken together shall constitute one and the sameagreement.  Delivery of an executedcounterpart of a signature page of this Agreement by telecopy shall beeffective as delivery of a manually executed counterpart of this Agreement.

##  

## Section 6.08                                Entire Agreement.  This Agreement constitutes the entireagreement between the parties relating to the subject matter hereof andsupersedes any and all previous agreements and understandings, oral or written,relating to the subject matter hereof.

##  

## Section 6.09                                Headings.  Article and Section headings usedherein are for convenience of reference only, are not part of this Agreementand shall not affect the construction of, or be taken into consideration ininterpreting, this Agreement.

##  

*[SIGNATURE PAGE FOLLOWS]*

 

6

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IN WITNESS WHEREOF, the partieshave caused this Agreement to be executed by their respective officersthereunto duly authorized, as of the first date written above.

 
|   | ALLSTATE  LIFE INSURANCE COMPANY |
|--------|----------------------------------|
|   | as Seller                        |
|   |                             |
|   | By:                              | /s/ Barry S.  Paul |   |
|   | Name:                            | Barry S.  Paul |
|   | Title:                           | Assistant  Vice President and Assistant Treasurer |
|   |                             |
|   |                             |
|   | KENNETT  CAPITAL, INC.           |
|   | as Purchaser                     |
|   |                             |
|   | By:                              | /s/ Steven  C. Verney |   |
|   | Name:                            | Steven C.  Verney |
|   | Title:                           | Treasurer |
|        |                                  |  |  |  |  |  |  |

 

7

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**SCHEDULE ItoSurplus Note Purchase Agreement between Allstate Life Insurance Company**

**and KennettCapital, Inc.**

 

**NOTICE INFORMATION**

 

 

**Addressfor Notices to Seller:**

 

Allstate LifeInsurance Company

3100 SandersRoad

Northbrook, Illinois  60062

Attention:  Allstate Financial - Chief Financial Officer

Facsimile:  847-326-5052

 

 

**Addressfor Notices to Purchaser:**

 

Kennett Capital, Inc.

42 Read’s Way, Suite 124

New Castle Corporate Commons

New Castle, Delaware 19720-1642

Attention:  Executive Vice President

Facsimile:  302-324-5253

 

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**EXHIBIT A**

 

**FORM OFKENNETT NOTE**

[ISSUE DATE]

 

Kennett Capital, Inc., a corporation duly organized and existingunder the laws of the State of Delaware (the “Company”), for value receivedhereby promises to pay to Allstate Life Insurance Company, or its assigns, theoutstanding balance of the principal sum of [                                                     ]in cash on [STATED MATURITY DATE], and to pay interest thereon semi-annually onthe first day of December and June in each year, commencing [FIRSTINTEREST DATE], at the rate per annum set forth below, until the principalhereof is paid in full, except that the final payment of any accrued and unpaidinterest shall be concurrent with the final****payment ofprincipal.  The initial per annum rate ofinterest will be [         %].  Thereafter, once every ten years beginning on[DATE (10 years after FIRST INTEREST DATE)], the rate of interest will reset(effective as of that date) to a per annum rate equal to the then current tenyear Constant Maturity Treasury Yield as reported in the Wall Street Journalplus [          % (an amountequal to the spread for the corresponding Surplus Notes purchased by thePurchaser, less 20 basis points)]. Interest will be computed on the basis of a 360-day year of twelve 30-daymonths.  All principal and interest shallbe paid at the principal corporate office of the Company or such other place,which shall be acceptable to the Company, as the holder hereof shall designatein writing to the Company, in collected and immediately available funds inlawful money of the United States of America. Principal and interest shall be payable on the terms and conditions setforth below

 

1.                                       The Companycovenants that if:

 

(a)                                  defaultis made in the payment of any installment of interest on this Kennett Note whensuch interest becomes due and payable and such default continues for a periodof 30 days, or

 

(b)                                 defaultis made in the payment of the principal of this Kennett Note when suchprincipal becomes due and payable,

 

the Company will, upon demand by the holder of this Kennett Note, payto it the whole amount of the principal of this Kennett Note, plus accruedinterest, with interest upon the overdue principal and upon overdueinstallments of interest at the rate borne by this Kennett Note; and, inaddition thereof, such further amount as shall be sufficient to cover the costsand expenses of collection, including reasonable attorneys’ fees.

 

2.                                       Each paymentmade hereunder will be credited first to accrued but unpaid interest, if any,and the balance of such payment will be credited to the principal amounthereof.

 

3.                                       In the eventthat any payment of principal or interest on this Kennett Note is scheduled tobe made on a day that is not a Business Day, then such payment shall be made onthe next following Business Day and no additional interest shall accrue as aresult of payment on such following Business Day.  For the purpose of this Paragraph 5, “BusinessDay” shall mean any day that is not a Saturday, Sunday or any other day onwhich banking institutions in the State of Illinois are permitted or requiredby any applicable law to close.

 

4.                                       In the event theCompany consolidates or merges into another entity or transfers substantiallyall of its assets to another entity, the entity into which the Companyconsolidates or merges

 

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or to which the assets of the Company are transferred must assume theliability of the Company hereunder.

 

5.                                       This KennettNote shall be construed in accordance with, and governed by, the laws of theState of Illinois.

 

IN WITNESS WHEREOF, the Company has caused this Kennett Note to beexecuted in its name and attested to by its authorized officer, and itscorporate seal to be hereunto affixed, all as of the date first written above.

 

 
|             | KENNETT  CAPITAL, INC. |
|------------------|------------------------|
|             |                   |
|             |                   |
| (CORPORATE SEAL) |                   |
|             |                   |
|             | By:                    |   |   |
|             |                   | Name: |
|             |                   | Title: |
|             |                   |
| Attest:          |                   |   |   |
|                  |                        |  |  |  |  |

 

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