EXHIBIT 10.3


 


PLEDGE AND
SECURITY AGREEMENT


 


THIS PLEDGE
AND SECURITY AGREEMENT (this “Pledge Agreement”) is dated as of August 1,
2005 and made by and between KENNETT CAPITAL, INC. (the “Pledgor”) and
ALLSTATE LIFE INSURANCE COMPANY (the “Secured Party”).


 


W I T N E S S E T H


 


WHEREAS, the
Secured Party and the Pledgor have entered into a Surplus Note Purchase
Agreement dated August 1, 2005 (the “Surplus Note Purchase Agreement”),
under which the Secured Party has agreed to sell, and the Pledgor may purchase
from the Secured Party, certain surplus notes issued by ALIC Reinsurance
Company (the “Issuer”); and


 


WHEREAS, as
security for the payment and performance by the Pledgor of its obligations
under the Surplus Note Purchase Agreement, the Pledgor has agreed to grant a
pledge of and security interest in the Pledgor’s right, title and interest in
and to the surplus notes issued by the Issuer and purchased by the Pledgor (the
“Surplus Notes”);


 


NOW,
THEREFORE, in consideration of the premises and of the mutual covenants herein
contained, the Pledgor and the Secured Party hereby agree as follows:


 


ARTICLE I



GRANT OF PLEDGE AND SECURITY INTEREST


 


Section 1.1                                      Grant
of Security Interest.  To secure the
payment in full when due by the Pledgor to the Secured Party under the Surplus
Note Purchase Agreement of all amounts (including fees, charges and expenses)
which accrue and become due thereunder and the timely performance by the
Pledgor of each of its other obligations thereunder (collectively, the “Secured
Obligations”), the Pledgor hereby pledges and grants to the Secured Party a
security interest in all of the Pledgor’s right, title and interest in, to and
under the following (collectively, the “Collateral”): (a) the Surplus
Notes and all certificates or instruments evidencing the same and all proceeds
thereof, all accessions thereto and substitutions therefor; (b) all
interest, distributions and other proceeds from time to time received,
receivable or otherwise distributed to Pledgor in respect of or in exchange for
any or all of the Surplus Notes; and (c) all “Proceeds” (as such term is
defined in the Uniform Commercial Code as in effect in the State of Illinois or
any other relevant jurisdiction (the “UCC”)) of any of the foregoing.


 


Section 1.2                                      Perfection
of Security Interest; Delivery of Collateral.


 


(a)                                  All
certificates, agreements or instruments representing or evidencing the
Collateral, to the extent not previously delivered to the Secured Party, shall
immediately upon receipt thereof by Pledgor be delivered to and held by the
Secured Party pursuant to the provisions hereof.  All Collateral shall be in suitable form for
transfer by delivery or shall be


 





















 


accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance satisfactory
to the Secured Party.  The Secured Party
shall have the right, at any time upon the occurrence of an Event of Default
and without notice to Pledgor, to endorse, assign or otherwise transfer to or
to register in its own name any or all of the Collateral.  In addition, the Secured Party shall have the
right at any time to exchange certificates representing or evidencing
Collateral for certificates of smaller or larger denominations.


 


(b)                                 The
Pledgor agrees to take all other actions which may be necessary under the laws
of the State of Illinois or may be requested by the Secured Party to protect
and perfect the interest of the Secured Party in the Collateral created hereby
and to ensure that such interest is senior in rank to the claims of any other creditor
of the Pledgor claiming an interest in and to the Collateral, including the
filing of UCC-1 financing statements (including any continuation statements
with respect to such financing statements when applicable) identifying the
Surplus Notes and naming the Pledgor as debtor and the Secured Party as secured
party.  The Pledgor shall deliver to the
Secured Party file-stamped copies or other evidence of such filings.  Notwithstanding the agreements set forth in
this Section 1.2, the Pledgor hereby authorizes the Secured Party to take,
and appoints the Secured Party as its attorney-in-fact for the purpose of
taking, any action necessary under the UCC to perfect, and to maintain the
perfection and priority of, the Secured Party’s interest in the Collateral,
including, without limitation, the filing of any such financing and
continuation statements.


 


ARTICLE II



REPRESENTATIONS, WARRANTIES AND COVENANTS


 


Section 2.1                                      Representations,
Warranties and Covenants as to the Pledgor. 
The Pledgor hereby represents, warrants and covenants to the Secured
Party:


 


(a)                                  Title
to Collateral.  The Surplus Notes and
all of the other Collateral in existence on the date hereof are, and all
Surplus Notes and all of the other Collateral issued subsequent to the date
hereof will be, owned by the Pledgor free and clear of any lien or
encumbrance.  The Pledgor has not (i) filed
or consented to the filing with any governmental authority of any financing
statement or analogous document under the UCC or any other applicable laws
covering any Collateral, (ii) made any assignment to any other person of
any interest in the Collateral or (iii) entered into any security
agreement or similar instrument or arrangement covering all or any part of the
Collateral with any other person, which financing statement or analogous
document, assignment, security agreement or similar instrument is still in
effect.


 


(b)                                 Organization.  The Pledgor is a corporation organized under
the laws of the State of Delaware.


 


(c)                                  Principal
Office.  The Pledgor maintains its
chief executive office at 42 Read’s Way, Suite 124, New Castle, Delaware
19720-1642.


 


(d)                                 No
Liens.  Pledgor is as of the date
hereof, and at the time of any delivery of any Collateral to the Secured Party
pursuant to Article I of this Pledge Agreement, Pledgor


 


2





















 


will be, the sole legal and
beneficial owner of the Collateral.  All
Collateral is on the date hereof, and will be, so owned by Pledgor free and
clear of any lien except for the lien created by this Pledge Agreement.


 


(e)                                  Due
Authorization.  The execution and
delivery to the Secured Party of this Pledge Agreement by the Pledgor, the
delivery to the Secured Party of the Surplus Notes together with any necessary
endorsements, and the consummation of the transactions provided for in this
Pledge Agreement have been duly authorized by the Pledgor by all necessary
corporate action on its part and this Pledge Agreement constitutes a legal,
valid and binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, and except in each case as enforcement may be
limited by bankruptcy, insolvency, examination, suspension of payments,
fraudulent transfer, reorganization, moratorium and other similar laws of
general applicability affecting the enforcement of creditors’ rights generally,
public policy and general principles of equity (regardless of whether such
proceeding is considered in a proceeding in equity or law).


 


(f)                                    No
Conflict.  The execution and delivery
of this Pledge Agreement, the delivery of the Collateral, the consummation of
the transactions contemplated hereby and the fulfillment of the terms hereof
will not conflict with or result in the breach of any of the material terms and
provisions of, constitute (with or without notice or lapse of time or both) a
default under, or result in the creation of any lien upon any property or
assets of the Pledgor pursuant to, any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Pledgor is a party or
by which it or any of its properties is bound.


 


(g)                                 No
Violation.  The execution and
delivery of this Pledge Agreement, the delivery of the Collateral, the
consummation of the transactions contemplated hereby and the fulfillment of the
terms hereof will not conflict with or violate any organizational or governing
documents of the Pledgor or any law, treaty, rule or regulation, or any
judgment, order or decree, or determination of an arbitrator or governmental
authority applicable to or binding upon the Pledgor.


 


(h)                                 No
Proceedings.  There are no actions at
law, suits in equity or proceedings by or before any governmental commission,
bureau or administrative agency pending or, to the best knowledge of the
Pledgor, threatened against the Pledgor or any of its assets, that would
adversely affect the ability of the Pledgor to perform its obligations under
this Pledge Agreement.


 


(i)                                     No
Authorization Required.  Except for
such authorizations or approvals as shall have been obtained prior to the date
hereof, no authorization or approval of any governmental agency or commission
or public or quasi-public body or authority with jurisdiction over the Pledgor
or any of its assets is necessary for the due execution and delivery of this
Pledge Agreement or for the validity or enforceability hereof.


 


Section 2.2                                      Delivery
of Pledged Collateral; Filings.


 


Pledgor has
delivered, or will deliver, to the Secured Party all certificates representing
the Surplus Notes and has delivered, or will deliver, to the Secured Party an


 


3





















 


appropriate UCC-1 financing statement to be filed with the Secretary of
State of the State of Delaware, the State in which the Pledgor is located,
evidencing the lien created by this Pledge Agreement, and such delivery, filing
and pledge of the Collateral pursuant to this Pledge Agreement will create a
valid and perfected first priority security interest in the Collateral securing
the payment of the Secured Obligations pursuant to the UCC in effect in each
applicable jurisdiction, including, without limitation, the States of Illinois
and Delaware.


 


Section 2.3                                      Distributions;
etc.  So long as no Event of Default
shall have occurred, Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Pledge Agreement and all
distributions of interest or other funds in respect of the Surplus Notes to the
extent made in accordance with the provisions of the Surplus Note Purchase
Agreement; provided, however, that any and all such distributions
consisting of rights or interests in the form of securities shall be, and shall
be forthwith delivered to the Secured Party to hold as additional Collateral
and shall, if received by Pledgor, be received in trust for the benefit of the
Secured Party, be segregated from the other property or funds of Pledgor, and
shall be forthwith delivered to the Secured Party as Collateral in the same
form as so received (with any necessary endorsement).


 


Section 2.4                                      Transfers
and Other Liens.  Pledgor shall not (i) sell,
convey, assign or otherwise dispose of, or grant any option or right with
respect to, any of the Collateral except as permitted by the Surplus Note
Purchase Agreement or (ii) create or permit to exist any lien or
encumbrance upon or with respect to any Collateral, other than the lien and
security interest granted to the Secured Party pursuant to this Pledge
Agreement.


 


ARTICLE III



EVENTS OF DEFAULT; REMEDIES


 


Section 3.1                                      Events
of Default.  Each of the following
events shall constitute an event of default (each, an “Event of Default”)
under this Pledge Agreement: (i) any material breach by the Pledgor of any
term, provision or covenant of the Surplus Note Purchase Agreement; (ii) any
material breach by the Pledgor of any term, provision or covenant of this
Pledge Agreement; (iii) the Secured Party ceases to have a perfected first
priority lien on, and security interest in, the Collateral; or (iv) the
Pledgor becomes subject to bankruptcy, insolvency, reorganization, liquidation,
conservation, rehabilitation or other similar proceedings.


 


Section 3.2                                      Remedies
Upon Default.


 


(a)                                  Upon
the occurrence of an Event of Default, all rights of Pledgor to receive
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 2.3 hereof shall cease and all such rights shall
thereupon become vested in the Secured Party, which shall thereupon have the
sole right to receive and hold as Collateral such distributions.


 


(b)                                 All
distributions which are received by Pledgor contrary to the provisions of
paragraph (a) of this Section 3.2 shall be received in trust for the
benefit of the Secured Party,


 


4





















 


shall be segregated from other
funds of Pledgor and shall immediately be paid over to the Secured Party as
Collateral in the same form as so received (with any necessary endorsement).


 


(c)                                  If
an Event of Default shall have occurred, Secured Party shall have the right, in
addition to the other rights and remedies provided for herein or otherwise
available to it to be exercised from time to time, (i) to retain and apply
the distributions to the Secured Obligations, and (ii) to exercise all the
rights and remedies of a secured party on default under the UCC in effect in
the State of Illinois at that time, and the Secured Party may also in its sole
discretion, without notice except as specified below, sell the Collateral or
any part thereof (including, without limitation, any partial interest in the
Surplus Notes) in one or more parcels at public or private sale, at any
exchange, broker’s board or at any of the Secured Party’s offices or elsewhere,
at such price or prices and upon such other terms as the Secured Party may deem
commercially reasonable.  Secured Party
may be the purchaser of any or all of the Collateral at any such sale and shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at such sale, to
use and apply any of the Secured Obligations owed to it as a credit on account
of the purchase price of any Collateral payable by it at such sale.  Each purchaser at any such sale shall acquire
the property sold absolutely free from any claim or right on the part of
Pledgor, and Pledgor hereby waives, to the fullest extent permitted by law, all
rights of redemption, stay and/or appraisal which it now has, or may at any
time in the future have, under any rule of law or statute now existing or
hereafter enacted.  Pledgor acknowledges
and agrees that five days’ notice to Pledgor of the time and place of any
public sale or the time after which any private sale or other intended
disposition is to take place shall constitute reasonable notification of such
matters.  No notification need be given
to Pledgor if it has signed, after the occurrence of an Event of Default, a
statement renouncing or modifying any right to notification of sale or other
intended disposition.  The Secured Party
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given.  The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefore, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.  Pledgor hereby waives, to the fullest extent
permitted by law, any claims against the Secured Party arising by reason of the
fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if the Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. 
The Secured Party shall not be liable for any incorrect or improper
payment made pursuant to this Section in the absence of gross negligence
or willful misconduct.


 


(d)                                 Pledgor
recognizes that, by reason of certain prohibitions contained in the Securities
Act of 1933, as amended (the “Securities Act”), and applicable state securities
law, the Secured Party may be compelled, with respect to any sale of all or any
part of the Collateral, to limit purchasers to persons who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof.  Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable to the Secured Party than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act), and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Secured Party shall have no obligation to engage
in public sales and no obligation to delay the sale of any


 


5





















 


Collateral for the period of
time necessary to permit the issuer thereof to register it for a form of public
sale requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would agree to do so.


 


Section 3.3                                      Application
of Proceeds.  All distributions held
from time to time by the Secured Party and all proceeds received by the Secured
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral pursuant to the exercise by the Secured Party of
its remedies as a secured creditor as provided herein shall be applied,
together with any other sums then held by the Secured Party pursuant to this
Pledge Agreement, promptly by the Secured Party as follows:


 


First,
to the payment of all costs and expenses, fees, commissions and taxes of such
sale, collection or other realization, including, without limitation,
compensation to the Secured Party and its agents and counsel, and all expenses,
liabilities and advances made or incurred by the Secured Party in connection
therewith, together with interest on each such amount at the highest rate then
in effect under the Surplus Note Purchase Agreement from and after the date
such amount is due, owing or unpaid until paid in full;


 


Second,
without duplication of amounts applied pursuant to clause First above, to the
indefeasible payment in full in cash of the Secured Obligations in accordance
with the terms of the Surplus Note Purchase Agreement; and


 


Third,
the balance, if any, to the persons lawfully entitled thereto (including
Pledgor or its successors or assigns).


 


Section 3.4                                      Expenses.  Pledgor will upon demand pay to the Secured
Party the amount of any and all expenses, including the fees and expenses of
its counsel and the fees and expenses of any experts and agents, which the
Secured Party may incur in connection with (i) the collection of the Secured
Obligations, (ii) the enforcement and administration of this Pledge
Agreement, (iii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iv) the
exercise or enforcement of any of the rights of the Secured Party hereunder or (v) the
failure by Pledgor to perform or observe any of the provisions hereof.  All amounts payable by Pledgor under this Section 3.4
shall be due upon demand and shall be part of the Secured Obligations.  Pledgor’s obligations under this Section 3.4
shall survive the termination of this Pledge Agreement and the discharge of
Pledgor’s other obligations hereunder.


 


ARTICLE IV


 


MISCELLANEOUS


 


Section 4.1                                      Notices.  All demands, notices, instructions and
communications hereunder shall be in writing and shall be deemed to have been
duly given when received.  All notices or
communications under this Pledge Agreement shall be addressed as follows:


 


6





















 


Notices to Secured Party:


 


Allstate Life Insurance Company

3100 Sanders Road

Northbrook, Illinois  60062

Attention:  Allstate Financial – Chief
Financial Officer

Facsimile:  847-326-5052


 


Notices to Pledgor:


 


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


 


Section 4.2                                      Termination;
Release.  When all the Secured
Obligations have been paid in full, this Pledge Agreement shall terminate.  Upon termination of this Pledge Agreement,
the Secured Party shall, upon the request and at the sole cost and expense of
Pledgor, forthwith assign, transfer and deliver to Pledgor, against receipt and
without recourse to or warranty by the Secured Party, such of the Collateral to
be released (in the case of a release) as may be in the possession of the
Secured Party and as shall not have been sold or otherwise applied pursuant to
the terms hereof, and, with respect to any other Collateral, proper instruments
(including UCC termination statements on Form UCC-3) acknowledging the
termination of this Pledge Agreement or the release of such pledged Collateral,
as the case may be.


 


Section 4.3                                      Continuing
Security Interest; Assignment.  This
Pledge Agreement shall create a continuing security interest in the Collateral
and shall (i) be binding upon Pledgor, its successors and assigns and (ii) inure,
together with the rights and remedies of the Secured Party hereunder, to the
benefit of the Secured Party and each of its successors, transferees and
assigns; no other persons (including, without limitation, any other creditor of
Pledgor) shall have any interest herein or any right or benefit with respect
hereto.


 


Section 4.4                                      Severability
of Provisions.  If any one or more of
the covenants, agreements, provisions or terms of this Pledge Agreement shall
for any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Pledge Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Pledge
Agreement.


 


Section 4.5                                      Further
Assurances.  The Pledgor agrees to do
and perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the Secured Party to maintain
the perfection and the priority of the Secured Party’s interest and to effect
more fully the purposes of this Pledge Agreement.


 


7





















 


Section 4.6                                      No
Waiver; Cumulative Remedies.  No
failure to exercise and no delay in exercising, on the part of the Secured
Party, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.


 


Section 4.7                                      Amendment.  This Pledge Agreement may not be modified,
amended, waived or supplemented except by a writing signed by each of the
parties hereto.


 


Section 4.8                                      Headings.  The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.


 


Section 4.9                                      GOVERNING LAW.  THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LOCAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO ITS PRINCIPLES OF CHOICE OF LAW.


 


Section 4.10                                Submission
to Jurisdiction.  Pledgor hereby
irrevocably submits to the jurisdiction of the federal and state courts of
competent jurisdiction in the State of Illinois in any suit or proceeding
arising out of this Pledge Agreement or the transactions contemplated hereby
and agrees to be bound by any judgment rendered by such courts in connection
with this Pledge Agreement and waives any and all objections to jurisdiction
that it may have under the laws of Illinois or any other jurisdiction.


 


8





















 


IN WITNESS
WHEREOF, the undersigned have caused this Pledge Agreement to be duly executed
and delivered by their respective duly authorized officers as of the day and
year first above written.


 


	
   

  	
  KENNETT
  CAPITAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven
  C. Verney 

  
	
   

  	
  Name: Steven
  C. Verney

  
	
   

  	
  Title:
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ALLSTATE
  LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry S.
  Paul

  
	
   

  	
  Name: Barry
  S. Paul

  
	
   

  	
  Title:
  Assistant Vice President and Assistant Treasurer

  
				



 


9