Document:

EXHIBIT 10.2

 

 

 

SURPLUS NOTE PURCHASE AGREEMENT

 

Between

 

ALLSTATE LIFE
INSURANCE COMPANY,

as Seller

 

and

 

KENNETT CAPITAL, INC.,

as Purchaser

 

Dated as of August 1, 2005

 

 

 

 

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

  

 

i

 

	
  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

  	
   

  

 

ii

 

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

 

RECITALS

 

WHEREAS, the Seller desires to sell to the Purchaser on the date hereof
and from time to time hereafter, and the Purchaser desires to purchase from the
Seller, surplus notes (the “Surplus Notes”) issued by ALIC Reinsurance
Company (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 Seller
shall receive one or more notes (the “Kennett Notes”) from the Purchaser
with an aggregate principal amount equal to the aggregate principal amount of
the Surplus Notes, which shall not exceed the Authorized Principal Amount;

 

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

 

ARTICLE I

DEFINITIONS

 

Section 1.01                                Definitions.  The following capitalized terms shall have
the following meanings:

 

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

 

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

 

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

 

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

 

“Holder” means, with respect to any Kennett Note, the Person in
whose 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 Business
Day, the next succeeding Business Day.

 

“Interest Period” means, with respect to any Kennett Note, (a) in
the case of the initial interest period with respect to such Kennett Note, the
period from, and including, the date such Kennett Note was issued to the Seller
to, 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 final
interest period with respect to such Kennett Note, the period from, and
including, the preceding Payment Date to, but excluding, the Maturity Date.

 

 

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

 

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

 

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

 

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

 

“Maturity Date” means, with respect to a Kennett Note, the date
on which all outstanding unpaid principal on such Kennett Note becomes due and
payable, 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 business
trust), partnership, limited liability company, joint venture, association,
joint stock company, trust (including any beneficiary thereof), unincorporated
association or government or any agency or political subdivision thereof.

 

“Purchaser” has the meaning specified in the introduction to
this Agreement.

 

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

 

“Seller” has the meaning specified in the introduction to this
Agreement.

 

“Series” means a series of Surplus Notes all having the same
maturity date and terms authorized by the Issuer by or pursuant to a particular
board resolution duly adopted by the Issuer’s board of directors authorizing
corporate action by the Issuer.

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

Section 1.02                                Other Definitional
Provisions.

 

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

 

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

 

ARTICLE II

PURCHASE AND SALE OF SURPLUS NOTES

 

Section 2.01                                Purchase and Sale of
Surplus Notes.  Upon the terms and
subject to the conditions set forth in this Agreement, and in reliance on the
covenants and agreements herein set forth, on the date hereof, the Seller shall
sell and the Purchaser may purchase the Series 2005-A Notes and the Series 2005-B
Notes of the Issuer.  From time to time
from 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 may
purchase, additional Series of Surplus Notes as may be purchased by Seller
from the Issuer, up to the Authorized Principal Amount.  As security for the performance of the
Purchaser’s obligations under this Agreement, the parties hereto shall,
concurrent with this Agreement, enter into a Pledge and Security Agreement
wherein Purchaser grants a pledge of and security interest in the Purchaser’s
right, title and interest in the Surplus Notes and the other collateral
identified therein.

 

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

 

Section 2.03                                Forms of Kennett
Notes.  The Kennett Notes shall be
issued substantially in the form of the Kennett Note attached as Exhibit A
hereto and shall be duly executed and delivered by the Purchaser as hereinafter
provided.

 

ARTICLE III

TERMS AND CONDITIONS OF REPAYMENT OF KENNETT NOTES; MATURITY

 

Section 3.01                                Interest.  The Kennett Notes shall bear interest during
each Interest Period at the Interest Rate. 
Interest shall be due and payable on each Interest Payment Date.  Interest shall
be 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 be
due and payable on the Stated Maturity Date.

 

Section 3.03                                Payments by the
Purchaser.

 

(a)                 On any Payment
Date, the Purchaser shall pay in accordance with the terms of this Agreement: (i) all
accrued but unpaid interest on the Kennett Notes and (ii) any principal
payments due with respect to the Kennett Notes, if any.

 

3

 

(b)                Any interest or
principal that has not been paid when due shall accrue interest at a rate per
annum equal to the Interest Rate from and including, for each such amount, the
Payment Date therefor, up to but excluding the date on which each such amount
is actually paid.

 

(c)                 All payments
required to be made by the Purchaser with respect to this Article III
shall be made:  (i) by Wire Transfer
of immediately available funds and/or the transfer of marketable securities
(valued at their fair market value) not later than 1:00 p.m., Chicago
time, and (ii) to the account of the Seller, or to such other account as
the Seller may have most recently designated in writing for such purpose by
notice to the Purchaser.

 

(d)                The Purchaser and any agent of the Purchaser may treat
the Person in whose name any Kennett Note is registered on the Kennett Note
Register as the owner of such Kennett Note on the applicable Record Date for
the purpose of receiving payments of principal and interest on such Kennett
Note and on any other date for all other purposes whatsoever (whether or not
such payment is overdue), and neither the Purchaser nor any agent of the
Purchaser 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 amounts
with respect to the Surplus Notes.  In
addition, the Purchaser shall prepay principal and accrued interest on the
Kennett Notes to the extent that the Issuer prepays or redeems the Surplus
Notes, such prepayment to be made within three (3) Business Days of
prepayment or redemption of the Surplus Notes and in the manner specified in Section 3.03(c).

 

ARTICLE IV

REGISTRATION OF KENNETT NOTES; TRANSFER AND EXCHANGE

 

Section 4.01                                Kennett Note
Register.  The Purchaser shall keep a
register (the “Kennett Note Register”) at its office in Northbrook,
Illinois, in which it shall provide for the registration of the Kennett Notes
and the registration of transfers of the Kennett Notes.   Such Kennett Note Register shall be in
written form or in any other form capable of being converted into written form
within a reasonable time.  Upon surrender
for registration of transfer of any Kennett Note at the office of the Purchaser
and in compliance with the restrictions set forth in any legend appearing on
any Kennett Note, the Purchaser shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Kennett Notes of any
authorized denomination and of like terms.

 

Section 4.02                                Exchanges and
Transfers.  At the option of any
Holder, Kennett Notes may be exchanged for one or more Kennett Notes, of any
authorized denomination and of like terms, upon surrender of the Kennett Notes
to be exchanged at the office of the Purchaser or such other office as the
Purchaser may designate for such purposes. 
Whenever any Kennett Note is surrendered for exchange, the Purchaser
shall execute and deliver the Kennett Note that the Holder making the exchange
is entitled to receive.  Any Kennett
Notes issued upon any registration of transfer or exchange of a Kennett Note
shall be the valid obligations of the Purchaser, evidencing the same debt, and
entitled to the same benefits under this Agreement, as the Kennett Note
surrendered upon such registration of transfer or exchange.  Every Kennett Note presented or surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Purchaser duly executed by the Holder thereof or its attorney duly authorized
in writing.  No service charge shall be
made to a purchaser for any registration of transfer or exchange of a Kennett
Note, but the Purchaser may

 

4

 

require
payment of a sum sufficient to cover the expenses of delivery (if any) not made
by regular mail or any tax or other governmental charge payable in connection
therewith.

 

ARTICLE V

EVENTS OF DEFAULT

 

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

 

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

 

(b)                default is made in
the payment of the principal of the Kennett Notes when such principal becomes
due and payable.

 

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

 

ARTICLE VI

MISCELLANEOUS

 

Section 6.01                                Notices.  Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be delivered by the following
means:  (i) hand delivery, (ii) overnight
courier service (e.g., FedEx, Airborne Express, or DHL); (iii) registered
or certified U.S. mail, postage prepaid and return receipt requested; or (iv) facsimile
transmission.  If any notice or other
communication provided for herein is sent by any party by electronic e-mail it
shall not be deemed to have been delivered to the addressee if the party
sending such notice or communication receives a response from the intended
addressee 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 the
parties as set forth on Schedule I hereof.  All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.

 

Section 6.02                                Amendments, Waivers.

 

(a)                 Except as
otherwise expressly provided herein, no amendment or waiver of any provision of
this Agreement shall in any event be effective unless the same shall be in
writing and signed by the parties hereto.

 

(b)                The Seller and the
Purchaser may amend any provision of this Agreement to effectuate the division
of any Kennett Notes held by the Seller into paid and unpaid portions and the
surrender of the paid portion.

 

(c)                 Each such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. 
A failure or delay in exercising any right, power or privilege with
respect to this Agreement will not be

 

5

 

presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not 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 and
Assigns; Third Party Beneficiaries. 
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors.  This Agreement shall not be transferred or
assigned under any circumstances. 
Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto and their respective
successors and permitted transferees) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

 

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

 

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

 

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

 

Section 6.07                                Execution in
Counterparts.  This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.  Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.

 

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

 

Section 6.09                                Headings.  Article and Section headings used
herein are for convenience of reference only, are not part of this Agreement
and shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

6

 

IN WITNESS WHEREOF, the parties
have caused this Agreement to be executed by their respective officers
thereunto 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

 

SCHEDULE I

to

Surplus Note Purchase Agreement between Allstate Life Insurance Company

and Kennett
Capital, Inc.

 

NOTICE INFORMATION

 

 

Address
for Notices to Seller:

 

Allstate Life
Insurance Company

3100 Sanders
Road

Northbrook, Illinois  60062

Attention:  Allstate Financial - Chief Financial Officer

Facsimile:  847-326-5052

 

 

Address
for 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

 

 

EXHIBIT A

 

FORM OF
KENNETT NOTE

[ISSUE DATE]

 

Kennett Capital, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (the “Company”), for value received
hereby promises to pay to Allstate Life Insurance Company, or its assigns, the
outstanding balance of the principal sum of [                                                     ]
in cash on [STATED MATURITY DATE], and to pay interest thereon semi-annually on
the first day of December and June in each year, commencing [FIRST
INTEREST DATE], at the rate per annum set forth below, until the principal
hereof is paid in full, except that the final payment of any accrued and unpaid
interest shall be concurrent with the final payment of
principal.  The initial per annum rate of
interest 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 ten
year Constant Maturity Treasury Yield as reported in the Wall Street Journal
plus [          % (an amount
equal to the spread for the corresponding Surplus Notes purchased by the
Purchaser, less 20 basis points)]. 
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.  All principal and interest shall
be 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 designate
in writing to the Company, in collected and immediately available funds in
lawful money of the United States of America. 
Principal and interest shall be payable on the terms and conditions set
forth below

 

1.                                       The Company
covenants that if:

 

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

 

(b)                                 default
is made in the payment of the principal of this Kennett Note when such
principal becomes due and payable,

 

the Company will, upon demand by the holder of this Kennett Note, pay
to it the whole amount of the principal of this Kennett Note, plus accrued
interest, with interest upon the overdue principal and upon overdue
installments of interest at the rate borne by this Kennett Note; and, in
addition thereof, such further amount as shall be sufficient to cover the costs
and expenses of collection, including reasonable attorneys’ fees.

 

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

 

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

 

4.                                       In the event the
Company consolidates or merges into another entity or transfers substantially
all of its assets to another entity, the entity into which the Company
consolidates or merges

 

 

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

 

5.                                       This Kennett
Note shall be construed in accordance with, and governed by, the laws of the
State of Illinois.

 

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

 

 

	
   

  	
  KENNETT
  CAPITAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  (CORPORATE SEAL)

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Attest: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

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