Strategic Alliance Agreement

EXHIBIT 10.1


STRATEGIC ALLIANCE AGREEMENT
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This Agreement is made and entered into as of the 10th day of June, 1997, by and between Continental Casualty Company, an Illinois insurance company, and Valley Forge Life Insurance Company, a Pennsylvania life insurance company (individually and collectively "CNA") and Vencor Inc., a Delaware Corporation ("Vencor").


RECITALS
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WHEREAS, CNA issues long-term care insurance policies which, subject to the terms and conditions of the policies, provide reimbursement for eligible expenses incurred by the policyholders for specified long-term care services; and


WHEREAS, Vencor owns and operates health care facilities and, through a subsidiary, manages a network of providers of long-term care; and


WHEREAS, Vencor is or will be the sole owner of a domestic insurance company known as Vencor Insurance Company; and


WHEREAS, Vencor and CNA desire to enter into a strategic alliance whereby they will jointly develop and share the risk on a long-term care insurance product to be offered to individuals throughout the United States, and will make long-term care services available to policyholders at favorable rates; and


WHEREAS, subject to a compensation agreement between Old Colony Insurance Services and CNA which is separate and apart from this Agreement, Old Colony Insurance Services is the agency responsible for various services in support of the strategic alliance contemplated by this Agreement;


NOW, THEREFORE, in consideration of the above premises and the covenants hereinafter set forth, the parties, CNA and Vencor, hereby agree as follows:


1. DEFINITIONS


1.1. In this Agreement, the Coinsurance Agreement, and the Preferred Access
Agreement, the following terms shall have the meanings ascribed by
this Section 1 unless the term is explicitly redefined or the context
clearly requires another definition.


1.2. "Agreement" means this Strategic Alliance Agreement, including all
Exhibits which are hereby incorporated into and made a part of this
Agreement, as originally executed and as may be amended from time to
time.


1.3. "Agreement Year" means the 12-month period commencing on the effective
date of this Agreement, and each subsequent anniversary of the
effective date of this Agreement, and ending on the following
anniversary of the effective date of this Agreement.


1.4. "Coinsurance Agreement" means the agreement entered into by a wholly
owned Vencor subsidiary, Vencor Insurance Company ("VIC"), and CNA for
VIC to reinsure a fifty percent (50%) quota share of the liability of
CNA with respect to the Policies.


1.5. "Covered Services" means health care services with respect to which
benefits are payable to or on behalf of Members under the Policies.


1.6. "Member" means an individual who is insured under a Vencor Gold policy
at the time he or she receives Covered Services.


1.7. "Policies" means the individual long-term care insurance policies that
conform to the design of Vencor Gold policies, are issued by CNA, and
are in force. A Vencor Gold policy issued to and in force on an
individual is a Policy and the insured individual is a Member.


1.8. "Preferred Access Agreement" means the agreement entered into by a
wholly owned Vencor subsidiary, Vencor Provider Network, Inc. ("VPN"),
and CNA for VPN to arrange for the provision of Covered Services by
Preferred Advantage Selected Providers to Members.


1.9. "Preferred Advantage Selected Providers" means providers of long-term
care services that have entered into agreements with VPN to provide
Covered Services to Members at favorable rates pursuant to the
Preferred Access Agreement.


1.10. "Vencor Gold policy" means the long-term care insurance policy or
policies contemplated by this Agreement. In order for a policy to be a
Vencor Gold policy, it must be developed by CNA, be marketed by an
agent of CNA, be coinsured pursuant to the Coinsurance Agreement, and
provide incentives pursuant to the Preferred Access Agreement. A
sample Vencor Gold policy is attached to this Agreement as Exhibit A.


2. BUSINESS PURPOSE


2.1. The primary business purpose of this Agreement is to establish a
strategic alliance pursuant to which


2.1.1. CNA and its agents will market and issue Vencor Gold policies
to individuals and will administer the Policies;


2.1.2. Vencor Provider Network, Inc., a subsidiary of Vencor ("VPN"),
will arrange for the provision of Covered Services to Members
through a health care provider network organized and managed
by VPN; and


2.1.3. Vencor Insurance Company, a subsidiary of Vencor ("VIC"), will
coinsure the liabilities under the Policies.


2.2. In establishing the strategic alliance, Vencor and CNA in general
desire to rely upon


2.2.1. the special expertise of CNA and its agents in the offering of
long-term care insurance products, including expertise in
product design, underwriting, policy administration, loss
control and claims administration; and


2.2.2. the special expertise of Vencor and its agents in the
organization, administration and delivery of long-term care
services, including organizational skills, credentialling, and
utilization management.


2.3. The rights and obligations of the parties with respect to the
strategic alliance are evidenced and governed by this Agreement, the
Preferred Access Agreement, and the Coinsurance Agreement.


2.4. The parties will use their best efforts to establish a new
underwriting company formed, by CNA and its affiliates by themselves
or together with Vencor and its affiliates, to underwrite Vencor Gold
policies.


3. MARKETING


3.1. It is the intent of the parties to commence marketing of Vencor Gold
policies as soon as is reasonably possible following the execution of
this Agreement. Marketing will initially comprise introduction in two
states, and the parties will agree on a timetable for further
introductions.


3.2. CNA shall assure that every Policy is filed with and approved by
applicable insurance regulatory authorities. Any material
modifications to the Vencor Gold policies or premium rating structure
applicable thereto, other than as may be required by applicable law,
shall be approved by VIC prior to implementation of such
modifications; provided, however, that approval by VIC shall not be
unreasonably withheld, and shall be deemed given with respect to a
proposed modification if no written objection is made within thirty
(30) days following written notice of such modification.


3.3. CNA shall submit the Vencor Gold policies, including where required
the terms and conditions of the Preferred Access Agreement, for review
by


appropriate regulatory authorities, if and when required, before
marketing commences


3.4. Vencor Gold policies shall meet the requirements of each state in
which they are marketed and sold.


3.5. CNA shall be responsible for implementing a marketing and sales plan
for Vencor Gold policies, including the appointment of qualified and
appropriately licensed agents and brokers and the establishment of
appropriate promotional policies, procedures, and sales training.


3.6. The premium for Vencor Gold policies shall be competitive with that of
other long-term care insurance policies offered in the same market and
shall comply with applicable regulatory requirements.


3.7. Vencor and CNA shall cooperate with and assist each other in the
performance of their respective obligations under this Agreement,
including, but not limited to, requiring Members to comply in all
respects with the terms and conditions of the Policies and encouraging
Members to obtain Covered Services from Preferred Advantage Selected
Providers.


4. COINSURANCE


4.1. Vencor shall use its best efforts to cause VIC to enter into, with
CNA, within 90 days of the execution of this Agreement, an agreement
which is substantively identical to the Coinsurance Agreement which is
attached to this Agreement as Exhibit B.


4.2. Notwithstanding any provision of this Agreement or the Coinsurance
Agreement to the contrary, and subject to the following proviso,
Vencor is and shall remain liable to CNA for the performance of all
obligations of VIC to CNA thereunder.


4.2.1. Provided, however, that the immediately preceding subsection
shall apply only to obligations of VIC that are related to
Policies that became effective on or before the earlier of


4.2.1.1. the third anniversary of the effective date of this
Agreement; or


4.2.1.2. the date on which a viable marketing presence is
established by a new underwriting company formed, by
CNA and its affiliates by themselves or together
with Vencor and its affiliates, to underwrite Vencor
Gold policies.


5. PREFERRED ACCESS


5.1. Vencor shall use its best efforts to cause VPN to enter into, with
CNA, within 60 days of the execution of this Agreement, an agreement
which is substantively identical to the Preferred Access Agreement
which is attached to this Agreement as Exhibit C.


5.2. Notwithstanding any provision of this Agreement or the Preferred
Access Agreement to the contrary, Vencor is and shall remain liable to
CNA for the performance of all obligations of VPN to CNA thereunder.


6. EXCLUSIVITY


6.1. For purposes of this Section 6, "Vencor" shall mean Vencor Inc. or
any entity controlled by or under common control with Vencor Inc.; and
"CNAF" shall mean CNA Financial Corporation or any entity controlled
by or under common control with CNAF.


6.2. Until the expiration of ten years from the date of this Agreement,
Vencor shall not enter into any contract or other transaction or
relationship pursuant to which Vencor


6.2.1. prominently uses the name "Vencor" in the marketing materials
for an individual long-term care insurance product; or


6.2.2. by law is only allowed to participate in the risk of an
individual long-term care insurance product through a licensed
insurance company; or


6.2.3. guarantees, for the life of an individual insured covered
under an individual long-term care insurance product, a
discount or network access.
6.3. Until the expiration of ten years from the date of this Agreement,
CNAF shall not enter into any contract or other transaction or
relationship pursuant to which CNAF, with regard to an individual,
domestic, long-term care insurance product underwritten by a
subsidiary of CNAF


6.3.1. prominently uses the name of a health care provider in the
marketing materials; or


6.3.2. shares any long-term care insurance risk with an entity,
affiliated with a contracted provider of long-term care
services to CNAF on those same long-term care risks, where
such sharing by law is allowed only with a licensed insurance
company; or


6.3.3. receives guarantees, for the life of an individual insured, a
discount or network access.


6.4. Notwithstanding any other provision of this Agreement to the contrary,
either party may waive the provisions of this Section 6 only by
delivery to the other party of an unambiguous written waiver executed
by a duly authorized officer, vice-president or above, of the party
giving the waiver.


7. REPRESENTATIONS AND WARRANTIES OF VENCOR

7.1. To induce CNA to enter into this Agreement and consummate the
transactions contemplated hereby, Vencor hereby represents and
warrants as follows:


7.1.1. Vencor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and
has all requisite corporate power and authority to conduct its
business and own, operate and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.


7.1.2. VPN is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to conduct its
business and own, operate and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.


7.1.3. VIC is or will be an insurance company duly organized, validly
existing and in good standing under the laws of the state of
Indiana, has all requisite corporate power and authority to
conduct its business and own, operate and lease its properties
as and in the places where such business is now conducted and
such properties are now owned, leased, or operated, and is
authorized to transact accident and health insurance business
in the states of ____________.


7.1.4. This Agreement, the Coinsurance Agreement, and the Preferred
Access Agreement have been or will be duly executed by Vencor,
VIC, and VPN, as applicable, as provided herein, and each
constitutes the valid and binding obligation of Vencor, VIC,
and VPN, as applicable, enforceable in accordance with its
terms.


7.1.5. Neither Vencor, VIC, nor VPN is: (a) subject to any contract
or other commitment that would impair its or their ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the


Preferred Access Agreement; (b) subject to any laws,
regulations, or orders of any court, administrative agency, or
governmental body that would impair its or their ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement; or (c) subject
to any pending or threatened judicial or administrative
action, suit, investigation, or other proceeding that would
adversely affect its or their ability to perform the
obligations of this Agreement, the Coinsurance Agreement, or
the Preferred Access Agreement.


7.1.6. Vencor, VIC, and VPN each has all licenses, franchises,
permits and government authorizations necessary for the
conduct of its business, none of which will be terminated or
otherwise adversely affected as a result of the execution of
this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement or the performance of its obligations
thereunder.


7.1.7. VIC will not assign any of the Policies to another insurance
company unless the other insurance company


7.1.7.1. Is owned by Vencor; and

7.1.7.2. Has at least 200% of the company action level risk
based capital required by then current statutes or
regulations.


8. REPRESENTATIONS AND WARRANTIES OF CNA


8.1. To induce Vencor to enter into this Agreement and consummate the
transactions contemplated hereby, CNA hereby represents and warrants
as follows:


8.1.1. Continental Casualty Company is wholly owned by CNA Financial
Corporation, a publicly traded company. Valley Forge Life
Insurance Company is wholly owned by Continental Assurance
Company which in turn is wholly owned by Continental Casualty
Company.


8.1.2. Continental Casualty Company and Valley Forge Life Insurance
Company possess and shall maintain in good standing during the
term of this Agreement any and all valid certificates of
authority and licenses under any applicable laws. Continental
Casualty Company and Valley Forge Life Insurance Company are
and shall remain at all times during this Agreement authorized
to do all acts necessary or convenient to carry out the terms
and purposes of this Agreement. The parties agree that failure
of CNA to maintain active, necessary licenses constitutes a
breach of this Agreement


that cannot be remedied at law and that actions in equity,
including injunctions, are appropriate.


8.1.3. Continental Casualty Company is an insurance company duly
organized, validly existing, and in good standing under the
laws of the State of Illinois, and has all requisite corporate
power and authority to conduct its business and own, operate,
and lease its properties as and in the places where such
business is now conducted and such properties are now owned,
leased, or operated.


8.1.4. Valley Forge Life Insurance Company is a life insurance
company duly organized, validly existing, and in good standing
under the laws of the State of Pennsylvania, and has all
requisite corporate power and authority to conduct its
business and own, operate, and lease its properties as and in
the places where such business is now conducted and such
properties are now owned, leased, or operated.


8.1.5. This Agreement, the Coinsurance Agreement, and the Preferred
Access Agreement have been or will be duly executed by CNA, as
provided herein, and each constitutes the valid and binding
obligation of CNA, enforceable in accordance with its terms.


8.1.6. CNA is not: (a) subject to any contract or other commitment
that would impair its ability to perform the obligations of
this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement; (b) subject to any laws, regulations, or
orders of any court, administrative agency, or governmental
body that would impair its ability to perform the obligations
of this Agreement, the Coinsurance Agreement, or the Preferred
Access Agreement; or (c) subject to any pending or threatened
judicial or administrative action, suit, investigation, or
other proceeding that would adversely affect its ability to
perform the obligations of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement.


8.1.7. CNA has all licenses, franchises, permits and government
authorizations necessary for the conduct of its business, none
of which will be terminated or otherwise adversely affected as
a result of the execution of this Agreement, the Coinsurance
Agreement, or the Preferred Access Agreement or the
performance of its obligations thereunder.


8.1.8. Neither Continental Casualty Company nor Valley Forge Life
Insurance Company will assign any of the Policies to another
insurance company unless the other insurance company


8.1.8.1. Is owned by a parent of either Continental Casualty
Company or Valley Forge Life Insurance Company; and


8.1.8.2. Has at least 200% of the company action level risk
based capital required by then current statutes or
regulations.


9. INDEMNIFICATION


9.1. Indemnification of CNA. Vencor hereby agrees to indemnify and hold
harmless CNA, its affiliates and subsidiaries and its and their
directors, officers, employees, agents, and any successors in interest
or at law (collectively "CNA" for purposes of this Section), from any
and all costs, claims, expenses, demands, actions, suits, or
proceedings, liabilities and damages (including, but not limited to,
awards, statutory or regulatory penalties, and attorneys fees)
directly or indirectly arising out of or resulting from any acts or
omissions of Vencor, its subsidiaries or affiliates or its or their
directors, officers, employees, agents, contractors or authorized
representatives (collectively "Vencor" for the purposes of this
Section) in the performance of their duties under this Agreement or
the breach of any covenant, condition, warranty, or representation
contained in this Agreement, the Coinsurance Agreement or the
Preferred Access Agreement excluding, however, any acts or omissions
of Vencor to the extent they are caused or contributed to by CNA.


9.2. Indemnification of Vencor. CNA hereby agrees to indemnify and hold
harmless Vencor, as defined in subsection 9.1, from any and all
costs, claims, expenses, demands, actions, suits, or proceedings,
liabilities and damages (including but not limited to, awards,
statutory or regulatory penalties, and attorneys fees) directly or
indirectly arising out of or resulting from any acts or omissions of
CNA, as defined in subsection 9.1, in the performance of their duties
under this Agreement or the breach of any covenant, condition,
warranty or representation contained in this Agreement, the
Coinsurance Agreement, or the Preferred Access Agreement, excluding,
however, any acts or omissions of CNA to the extent they are caused or
contributed to by Vencor, as defined in subsection 9.1.


9.3. Notice. Neither party shall be entitled to be indemnified if it fails
to notify the party bearing liability to indemnify ("indemnifying
party") of the proceedings and does not furnish the indemnifying party
a copy of the legal documents (e.g., complaint, notice of hearing,
etc.), if available, within a reasonable time after the non-
indemnifying party or its designated service of process agent is
served with the summons or other legal process which initially
notifies the non-indemnifying party of the nature of the proceeding.


9.4. Defense. With respect to any claim by a third party for which
indemnification is due hereunder ("third party indemnification
claim"), the indemnifying party shall defend, in good faith and its
own expense, any such indemnification claim and the indemnitee, at its
expense, shall have the right to participate in the defense of any
such third party indemnification claim. In connection with its defense
of a third party indemnification claim, the indemnifying party shall
have the absolute right to choose or approve counsel for the defense
or prosecution of such action. So long as the indemnifying party is
defending in good faith any such third party indemnification claim,
the indemnitee shall not settle or compromise such third party
indemnification claim. The indemnitee shall make available to the
indemnifying party or its representatives all records and other
materials reasonably required by them for its use in contesting any
third party indemnification claim and shall cooperate fully with the
indemnifying party in the defense of all such indemnification claims.


10. AUDIT


10.1. CNA shall have the authority to inspect and audit the books and
records of Vencor and its assignees which directly pertain to this
Agreement provided that all of the following terms and conditions are
met:


10.1.1. The party being audited agrees on the place and time of the
audit; and


10.1.2. At least 24 months has elapsed since the last audit of Vencor
by CNA.


10.2. Vencor shall have the authority to inspect and audit the books and
records of CNA and its assignees which directly pertain to this
Agreement provided that all of the following terms and conditions are
met:


10.2.1. The party being audited agrees on the place and time of the
audit; and


10.2.2. At least 24 months has elapsed since the last audit of CNA by
Vencor.


11. CONFIDENTIALITY


11.1. Member Information. Neither CNA nor Vencor shall disclose or use or
permit the disclosure or use of individually identifiable medical or
other personal information about any Member except as reasonably
necessary for the administration of this Agreement, the Coinsurance
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