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                                                                    EXHIBIT 10.3

                                                                  EXECUTION COPY

                              EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 29th day of May, 2002 (the "Effective Date"), between Stephen E.
Bablitch, an individual resident of the State of Wisconsin (the "Executive"),
and Cobalt Corporation, a Wisconsin corporation (the "Company").

                              W I T N E S S E T H:

          WHEREAS, the Company desires to retain the services of the Executive
and the Executive desires to be employed by the Company on the terms and
conditions set forth in this Agreement.

          NOW, THEREFORE, in consideration of the mutual promises set forth
herein and the mutual benefits to be derived from this Agreement, the parties
hereto, intending to be legally bound, hereby agree as follows:

     1.   POSITIONS AND DUTIES. Subject to the terms and conditions of this
Agreement, from the Effective Date until such date not later than December 1,
2002 that Thomas R. Hefty ceases to be the Company's Chief Executive Officer and
Chairman of the Board, the Company shall employ the Executive as its President,
and after such date through the remainder of the Employment Term (as defined
herein), the Company shall employ the Executive as its Chief Executive Officer
and Chairman of the Board. The Company shall cause the Executive to be appointed
as a member of the Board of Directors (the "Board") of the Company on the first
day following the Effective Date that a vacancy on the Board shall exist, but
not later than December 1, 2002, and the Board shall propose the Executive for
re-election to the Board thereafter and throughout the Employment Term. In each
case, the Executive shall have such duties and responsibilities as are
prescribed to such positions in the Company's bylaws, and such other duties and
responsibilities not inconsistent therewith as may from time to time be assigned
to him by the Board. The Company shall take all steps necessary to effect such
appointments, including amending the Company's bylaws if necessary. The
Executive agrees to serve, as and when reasonably requested by the Board, on the
board of directors of any entity that during the Employment Term is a subsidiary
of the Company. The Executive agrees to devote his full business attention and
time to the business affairs of the Company and its affiliates and to faithfully
and efficiently perform his duties hereunder.

     2.   TERM. Unless this Agreement is earlier terminated in accordance with
the terms hereof, the Company's employment of the Executive hereunder shall
continue until the third (3rd) anniversary of the Effective Date; provided,
however, that the term of this Agreement shall be automatically extended for an
additional one-year period on each anniversary of the Effective Date unless, at
least thirty (30) days prior to such anniversary of the Effective Date, either
party shall deliver written notice to the other party of such party's intent not
to extend the term of this Agreement as of the end of its then current term.
References herein to the "Employment Term" shall refer to both the initial term
and any extended term.

     3.   PLACE OF PERFORMANCE. In performing the services required under this
Agreement, the Executive shall be based at the Company's principal executive
offices located in Milwaukee, Wisconsin. During the Employment Term, the
Executive shall not be required to relocate from the Milwaukee metropolitan
area. In the event of a relocation of the Company's principal offices, the
Company will promptly pay (or reimburse the Executive for) all reasonable moving
expenses

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incurred by the Executive relating to a change of his principal residence in
connection with any such relocation of the Company's principal executive
offices, and will indemnify the Executive for any losses incurred by the
Executive in connection with the sale of his principal residence. Such
indemnification shall be computed as the difference (if such difference is a
positive number) between (a) the average of two (2) appraisal prices determined
by such two (2) independent appraisers, one of which shall be designated by the
Company and one designated by the Executive; and (b) the actual sale price of
the Executive's principal residence.

     4.   COMPENSATION. During the Employment Term, the Executive shall be
entitled to the following compensation:

          a.   ANNUAL BASE SALARY. From the Effective Date through December 31,
     2002, the Executive shall be entitled to an initial annual base salary
     ("Base Salary") at the rate of Five Hundred Thousand Dollars ($500,000) per
     year payable ratably in monthly installments. For 2003, the Executive shall
     be entitled to a Base Salary at the rate of Five Hundred Fifty Thousand
     Dollars ($550,000) per year. Thereafter, the Management Review Committee of
     the Board shall determine the Base Salary of the Executive; provided,
     however, that the Base Salary of the Executive will not decrease from any
     previous level, except that the Executive's Base Salary may be reduced as
     part of, and consistent with, any across-the-board reduction in the
     salaries of senior executives of the Company. To that end, the Management
     Review Committee will review annually the performance of the Executive and
     a written copy thereof will be forwarded to the Executive. The Executive's
     performance will be evaluated based upon mutually approved criteria
     developed jointly by the Management Review Committee and the Executive. In
     connection with the annual review of the Executive's performance, the
     Management Review Committee shall also review and consider appropriate
     adjustments to the Executive's Base Salary and other compensation
     commensurate with the Executive's position and may retain a qualified
     compensation consultant to assist in its review.

          b.   SHORT-TERM INCENTIVE COMPENSATION. In addition to Base Salary,
     the Executive shall be entitled to receive such incentive compensation as
     the Management Review Committee may approve pursuant to the Company's
     short-term incentive programs commensurate with the Executive's position
     ("Short-Term Incentive Compensation"), including, without limitation, the
     following:

               i.   PROFIT SHARING PLAN. Without limiting the generality of the
          foregoing, the Executive shall be entitled to participate in the
          Company's Profit Sharing Plan (the "Profit Sharing Plan") to the same
          extent as other senior executives of the Company. For the purpose of
          computing the Executive's payment under the Profit Sharing Plan for
          2002, the Executive shall be entitled to an aggregate profit sharing
          payment up to twenty-one percent (21%) of his total Base Salary for
          2002.

               ii.  MANAGEMENT INCENTIVE PLAN. Without limiting the generality
          of the foregoing, the Executive shall be entitled to participate in
          the Company's Management Incentive Plan (the "Management Incentive
          Plan") to the same extent as other senior executives of the Company.
          For the purpose of computing the Executive's payment under the
          Management Incentive Plan for 2002, the Executive's Target Award (as
          such term is defined in the Management Incentive Plan) shall not be
          less than fifty percent (50%) of his total Base Salary for 2002,

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          which Target Award shall include payments under the following
          components of the Management Incentive Plan:

<Table>
<Caption>

           COMPONENT               PERCENT OF PRORATED BASE SALARY DURING PERIOD
          --------------------  ------------------------------------------------
                                JANUARY 1-MAY 28, 2002  MAY 29-DECEMBER 31, 2002
                                ----------------------  ------------------------
          <S>                            <C>                     <C>
          Profit Sharing Match           0-21%                   0-42%
          Objectives/Individual          0-18%                   0-18%
</Table>

          For the purpose of computing the Executive's payment under the
          Management Incentive Plan after 2002, the Executive's Target Award for
          each year during the Employment Term after 2002 shall not be less than
          eighty percent (80%) of his Base Salary for such year.

          For any period less than a full year during the Employment Term, the
     Executive shall be entitled to receive an amount equal to the prorated
     portion of the Short-Term Incentive Compensation payable pursuant the
     Company's short-term incentive programs.

          c.   LONG-TERM INCENTIVE COMPENSATION. On the Effective Date, the
     Company shall grant to the Executive pursuant to terms of the Company's
     Equity Incentive Plan, as amended (the "Equity Plan"), an option to
     purchase 90,000 shares of the Company's common stock, no par value ("Common
     Stock"), at a per share exercise price equal to one hundred percent (100%)
     of the Fair Market Value (as such term is defined in the Equity Plan) of
     one share of Common Stock on the Effective Date. The Executive shall
     thereafter be eligible to participate in the Company's current long-term
     incentive programs (including annual grants of options under the Equity
     Plan) and any other long-term incentive programs hereafter established for
     senior officers of the Company (subject to modifications to such programs
     as the Management Review Committee shall determine to be necessary and
     appropriate to preserve the deductibility of bonus awards) at participation
     levels commensurate with the Executive's position determined in connection
     with the Executive's annual performance evaluation and granted on each
     anniversary of the Effective Date during the Employment Term. In
     determining the value of each annual option grant to be made to the
     Executive under the Equity Plan, the economic value of each such annual
     option grant shall be set at the grant value range midpoint of the
     benchmark competitive data for the Executive's position within the
     Company's industry as annually recommended by Hewitt Associates, an
     independent compensation consultant, or its successor.

          d.   FRINGE BENEFITS. During the Employment Term, (i) the Executive
     shall be entitled to participate in all applicable incentive, savings and
     retirement plans, practices, policies and programs of the Company and its
     affiliates to the same extent as other senior executives of the Company;
     and (ii) the Executive and/or the Executive's family, as the case may be,
     shall be eligible for immediate participation in (and without any
     limitation for preexisting conditions), and shall receive all benefits
     under, all applicable welfare benefit plans, practices, policies and
     programs provided by the Company and its affiliates, other than severance
     plans, practices, policies and programs, but including, without limitation,
     medical, prescription, dental, disability, salary continuance, employee
     life insurance, group life insurance, accidental death and travel accident
     insurance plans and programs, to the same extent as other senior executives
     of the Company.

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          e.   PERQUISITES. During the Employment Term, the Executive shall be
     entitled to receive such perquisites as the Company may establish from time
     to time which are commensurate with his position and not less favorable
     than those received by any other senior executive at the Company.

          f.   EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
     for all reasonable and documented expenses incurred by the Executive in the
     performance of the Executive's duties under this Agreement.

          g.   VACATIONS. The Executive shall be entitled to the number of paid
     vacation days in each calendar year determined by the Company from time to
     time for its senior executive officers, but not less than four (4) weeks in
     any calendar year (prorated in any calendar year during which the Executive
     is employed hereunder for less than the entire year in accordance with the
     days in such calendar year during which he is so employed). The Executive
     shall also be entitled to all paid holidays given by the Company to its
     senior executive officers.

          h. RELOCATION EXPENSES. The Company shall reimburse the Executive for
     all reasonable moving expenses, including reasonable legal fees and
     expenses, incurred by the Executive relating to a change of his principal
     residence from his current principal residence located in Dane County,
     Wisconsin to a new principal residence located in the Milwaukee, Wisconsin
     metropolitan area, and the Company will indemnify the Executive for any
     losses incurred by the Executive in connection with the sale of his current
     principal residence. Such indemnification shall be computed as the
     difference (if such difference is a positive number) between (a) the
     average of two (2) appraisal prices determined by such two (2) independent
     appraisers, one of which shall be designated by the Company and one by the
     Executive; and (b) the actual sale price of the Executive's current
     principal residence. It is the intention of the parties that the benefits
     provided in this Paragraph (h) be at least equal to (although they may
     exceed) the benefits provided by the Company's relocation package.

     5.   TERMINATION OF EMPLOYMENT.

          a.   DEATH OR DISABILITY. The Executive's employment shall terminate
     automatically upon the Executive's death during the Employment Term. The
     Company shall be entitled to terminate the Executive's employment because
     of the Executive's Disability (as defined herein) during the Employment
     Term. For the purposes of this Agreement, the term "Disability" means that
     (i) the Executive has been unable, for a period of 180 consecutive days, to
     perform the Executive's duties under this Agreement, as a result of
     physical or mental illness or injury, and (ii) a physician selected by the
     Company or its insurers, and acceptable to the Executive or the Executive's
     legal representative, has determined that the Executive's incapacity is
     total and permanent. A termination of the Executive's employment by the
     Company for Disability shall be communicated to the Executive by written
     notice, and shall be effective on the thirtieth (30th) day after receipt of
     such notice by the Executive (the "Disability Effective Date"), unless the
     Executive returns to full-time performance of the Executive's duties before
     the Disability Effective Date.

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          b.   BY THE COMPANY. The Company may terminate the Executive's
     employment at any time for Cause (as defined herein) or without Cause. For
     the purposes of this Agreement, the term "Cause" means:

               i.   the willful and continued failure of the Executive to
          substantially perform the Executive's duties under this Agreement
          (other than as a result of physical or mental illness or injury) after
          the Board delivers to the Executive a written demand for substantial
          performance that specifically identifies the manner in which the Board
          believes that the Executive has willfully failed to substantially
          perform the Executive's duties and after the Executive has failed to
          resume substantial performance of his duties on a continuous basis
          within thirty (30) calendar days of receiving such demand;

               ii.  the Executive willfully engaging in conduct (other than
          conduct covered under paragraph (1) above) which is demonstrably and
          materially injurious to the Company, monetarily or otherwise; or

               iii. the Executive having been convicted of a felony (as
          evidenced by binding and final judgment, order or decree of a court of
          competent jurisdiction, in effect after exhaustion of all rights of
          appeal) which substantially impairs the Executive's ability to perform
          his duties or responsibilities.

     No act or failure to act on the part of the Executive shall be considered
     "willful" unless it is done, or omitted to be done, by the Executive in bad
     faith or without reasonable belief that the Executive's action or omission
     was in the best interests of the Company.

          c.   BY THE EXECUTIVE FOR GOOD REASON.

               i.   The Executive may terminate his employment at any time for
          Good Reason (as defined herein) or without Good Reason. For the
          purposes of this Agreement, the term "Good Reason" means:

                    (1)  the assignment to the Executive of any duties
               materially inconsistent with Section 1 of this Agreement, or any
               other action by the Company that results in a diminution in the
               Executive's position, authority, duties or responsibilities,
               other than an isolated, insubstantial and inadvertent action that
               is not taken in bad faith and is remedied by the Company promptly
               after receipt of notice thereof from the Executive;

                    (2)  the failure of the Company to cause the Executive to be
               named the Company's Chief Executive Officer and Chairman of the
               Board by December 1, 2002;

                    (3)  any breach of this Agreement by the Company, other than
               an isolated, insubstantial and inadvertent failure that is not
               taken in bad faith and which the Company or any successor
               remedies promptly after notice from the Executive;

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                    (4)  the failure of the Company to obtain a satisfactory
               agreement from any successor to the Company to assume and agree
               to perform this Agreement, as contemplated in (c) of Section 18
               of this Agreement;

                    (5)  any purported termination of the Executive's employment
               by the Company for a reason or in a manner not expressly
               permitted by this Agreement; or

                    (6)  any other substantial breach of this Agreement by the
               Company that either is not taken in good faith or is not remedied
               by the Company promptly after receipt of notice thereof from the
               Executive.

               ii.  A termination of employment by the Executive for Good Reason
          shall be effectuated by giving the Company written notice ("Notice of
          Termination for Good Reason") of the termination, setting forth in
          reasonable detail the specific conduct of the Company that constitutes
          Good Reason and the specific provision(s) of this Agreement on which
          the Executive relies. A termination of employment by the Executive for
          Good Reason shall be effective on the fifth (5th) business day
          following the date when the Notice of Termination for Good Reason is
          given, unless the notice sets forth a later date (which date shall in
          no event be later than thirty (30) days after the notice is given).

               iii. A termination of the Executive's employment by the Executive
          without Good Reason shall be effected by giving the Company written
          notice of the termination.

          d.   DATE OF TERMINATION. The term "Date of Termination" means the
     date of the Executive's death, the Disability Effective Date, the date on
     which the termination of the Executive's employment by the Company for
     Cause or without Cause or by the Executive for Good Reason is effective, or
     the date on which the Executive gives the Company notice of a termination
     of employment without Good Reason, as the case may be.

     6.   OBLIGATIONS OF THE COMPANY UPON TERMINATION.

          a.   DEATH AND DISABILITY. If the Executive's employment is terminated
     by reason of the Executive's death or Disability during the Employment
     Term, then the Executive shall be entitled to the following benefits:

               i.   A lump sum cash payment from the Company to the Executive
          or, in the case of the Executive's death, to the Executive's
          designated beneficiaries (or, if there is no such beneficiary, to the
          Executive's estate or legal representative), made within thirty (30)
          days after the Date of Termination, equal to the sum of the following
          amounts (the "Accrued Obligations"): (1) any portion of the
          Executive's Base Salary through the Date of Termination that has not
          yet been paid; (2) an amount representing any Short-Term Incentive
          Compensation for the period that includes the Date of Termination,
          computed by assuming that the amount of all such Short-Term Incentive
          Compensation would be equal to the maximum amount of such Short-Term
          Incentive Compensation that the Executive would have been eligible to
          earn for such period, and multiplying that amount by a fraction, the
          numerator of

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          which is the number of days in such period through the Date of
          Termination, and the denominator of which is the total number of days
          in the relevant period; (3) any compensation previously deferred by
          the Executive (together with any accrued interest or earnings thereon)
          that has not yet been paid; and (4) any accrued but unpaid Short-Term
          Incentive Compensation and vacation pay; and the Company shall have no
          further obligations under this Agreement, except as specified in
          Section 7 below. Any deferred compensation (together with any accrued
          interest or earnings thereon, if any) that has not yet been paid, will
          be paid in accordance with the terms and conditions applicable to such
          deferred compensation.

               ii.  All options to purchase equity interests in the Company
          granted to the Executive by the Company under the terms of the Equity
          Plan outstanding on the Date of Termination shall immediately become
          fully vested and exercisable in accordance with the terms of the
          Equity Plan and the respective option agreements covering such options
          and shall remain in effect and exercisable through the end of the
          respective option agreements covering such options, without regard to
          the termination of the Executive's employment.

          b.   BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; OR BY
     THE EXECUTIVE FOR GOOD REASON. If, during the Employment Term, the Company
     terminates the Executive's employment, other than for Cause, death, or
     Disability, or the Executive terminates employment for Good Reason, then
     the Executive shall be entitled, subject to Section 12 below, to the
     following benefits:

               i.   The Company shall continue to provide the Executive with the
          compensation and benefits set forth in paragraphs (a), (b), (c) and
          (d) of Section 4 as if he had remained employed by the Company
          pursuant to this Agreement through the end of the Employment Term and
          then retired (at which time he will be treated as eligible for all
          retiree welfare benefits and other benefits provided to retired senior
          executives); provided, that any Short-Term Incentive Compensation for
          such period shall be equal to the maximum Short-Term Incentive
          Compensation that the Executive would have been eligible to earn for
          such period; provided further that in lieu of stock options and other
          stock-based awards, the Executive shall be paid in cash equal to 100%
          of the fair market value (without regard to any restrictions) of the
          stock-based awards that would otherwise have been granted; and
          provided, further, that to the extent any benefits described in
          paragraph (d) of Section 4 cannot be provided pursuant to the plan or
          program maintained by the Company for its executives, the Company
          shall provide such benefits outside such plan or program at no
          additional cost (including without limitation tax cost) to the
          Executive and his family; and provided, finally, that during any
          period when the Executive is eligible to receive benefits of the type
          described in paragraph (d) of Section 4 under another
          employer-provided plan, the benefits provided by the Company under
          this paragraph may be made secondary to those provided under such
          other plan.

               ii.  All options to purchase equity interests in the Company
          granted to the Executive by the Company under the terms of the Equity
          Plan outstanding on the Date of Termination shall immediately become
          fully vested and exercisable in accordance with the terms of the
          Equity Plan and the respective option agreements covering such options
          and shall remain in effect and exercisable through the end of

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          their respective option agreements covering such options, without
          regard to the termination of the Executive's employment.

               iii. The Company shall cause the Executive to be fully and
          immediately vested in his accrued benefit under any supplemental
          executive retirement plan of the Company providing benefits for the
          Executive (the "SERP"). In addition, the Executive shall be credited
          with not less than 15 years of credited service under the SERP for
          subsidized early retirement benefits regardless of the Executive's age
          and service at the Date of Termination. In the event that the
          Executive is credited with additional years of credited service under
          the SERP pursuant to this Section 6(b)(iii), the Executive's
          annualized Base Salary and Target Award in effect immediately
          preceding the Date of Termination shall be used for purposes of
          calculating the amounts credited to the Executive under the SERP for
          those additional years and such additional years of credited service
          shall be treated as the Executive's most recent years of service for
          purposes of calculating Final Average Earnings under the SERP.

               iv.  In the event that on the Date of Termination the Executive's
          principal residence is located in the Milwaukee, Wisconsin
          metropolitan area and within six (6) months following the Date of
          Termination the Executive changes his principal residence to a new
          principal residence located in Dane County, Wisconsin, the Company
          will promptly pay (or reimburse the Executive for) all reasonable
          moving expenses, including reasonable legal fees and expenses,
          incurred by the Executive relating to such change of his principal
          residence, and will indemnify the Executive for any losses incurred by
          the Executive in connection with the sale of his principal residence
          in the Milwaukee, Wisconsin metropolitan area on the Date of
          Termination. Such indemnification shall be computed as the difference
          (if such difference is a positive number) between (a) the average of
          two (2) appraisal prices determined by such two (2) independent
          appraisers, one of which shall be designated by the Company and one
          designated by the Executive; and (b) the actual sale price of the
          Executive's principal residence.

               v.   In the event that the Date of Termination occurs prior to
          January 1, 2003 and at such time the Executive has contracted to
          purchase, but has not yet then closed the purchase of, a principal
          residence in the Milwaukee, Wisconsin metropolitan area, as
          contemplated by Section 4(h) above, the Company will indemnify the
          Executive for any loss resulting from the Executive's inability to
          recover any earnest money actually paid by the Executive in connection
          with such pending purchase of his principal residence.

     The benefits provided pursuant to this paragraph (b) of Section 6 are
     intended as liquidated damages for a termination of the Executive's
     employment by the Company other than for Cause, death or Disability or for
     actions of the Company leading to a termination of the Executive's
     employment by the Executive for Good Reason, and shall be the sole and
     exclusive remedy thereof.

          c.   BY THE COMPANY FOR CAUSE; OR BY THE EXECUTIVE OTHER THAN FOR GOOD
     REASON. If the Executive's employment is terminated by the Company for
     Cause during the Employment Term, then the Company shall pay the Executive
     his Base Salary through the Date of Termination and the amount of any
     compensation previously deferred by the

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     Executive (together with any accrued interest or earnings thereon), in each
     case to the extent not yet paid, and the Company shall have no further
     obligations under this Agreement, except as specified in Section 7 below.
     If the Executive voluntarily terminates employment during the Employment
     Term, other than for Good Reason, the Company shall pay the Accrued
     Obligations to the Executive in a lump sum cash payment within thirty (30)
     days of the Date of Termination, and the Company shall have no further
     obligations under this Agreement, except as specified in Section 7 below.

     7.   NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates for which
the Executive may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates relating to subject matter
other than that specifically addressed herein. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of, or any contract or agreement with, the Company or any of
its affiliates on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice, program, contract
or agreement, as the case may be, except as explicitly modified by this
Agreement.

     8.   MITIGATION. In the event the Executive's employment is terminated by
the Company (other than for Cause, death or Disability), or by the Executive for
Good Reason, the Executive shall be obligated to seek other full-time employment
for a business that does not violate Section 11 hereof and to take such other
reasonable action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, provided, however, that this
shall not prevent Executive from accepting part-time employment, being
self-employed, consulting (including without limitation, government relations
consulting) or the private practice of law (the "Exceptions"). The amounts
otherwise payable to the Executive under Section 6(b)(i) hereof shall be reduced
(but not less than zero) by the amount of any compensation earned or received by
the Executive as a result of such other full-time employment (but not for any of
the Exceptions) engaged in by the Executive after termination of his employment
hereunder and prior to the expiration of the Employment Term (determined without
regard to Section 5 hereof). As a condition to the Company's obligation to make
payments under Section 6(b)(i), the Executive agrees to provide to the Company,
annually, true and correct copies of any employment agreements or other
contracts setting forth compensation arrangements for full-time employment (but
not for any of the Exceptions) that may be in effect between the Executive and
any third party and copies of his Form W-2; provided, however, that the Company
agrees that it will not cease making payments to the Executive until it has
served notice to the Executive as to any claimed deficiency in the provision of
the foregoing documents and the Executive fails to cure such deficiency within
thirty (30) days following delivery of such notice. The Executive further agrees
to provide to the Company true and correct copies of his federal and state
income tax returns in the event that his compensation cannot be verified by the
information and documents referred to above.

     9.   WITHHOLDING. All compensation and other benefits to or on behalf of
the Executive pursuant to this Agreement shall be subject to such deductions and
withholding as may be agreed to by the Executive or required by applicable law.

     10.  CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains

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during the Executive's employment by the Company or any of its affiliated
companies and that is not public knowledge (other than as a result of the
Executive's violation of this Section 10) ("Confidential Information"). The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Company, except
with the prior written consent of the Company or as otherwise required by law or
legal process. In no event shall any asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.

     11.  COVENANT NOT TO COMPETE. The Executive agrees that during the
Employment Term and for a period of one (1) year thereafter, he will not,
directly or indirectly:

          a.   engage in, continue in or carry on any business of the type, or
     which competes with the business, conducted by Company or any of its
     affiliates during the Employment Term, including owning or controlling any
     financial interest in any corporation, partnership, firm or other form of
     business organization which is so engaged;

          b.   solicit for employment any person who is or was employed by the
     Company or any of its affiliates during the then immediately preceding
     twelve (12) months, or actively induce or otherwise assist any other person
     or entity in soliciting for employment any person who is or was employed by
     the Company of any of its affiliates during the then immediately preceding
     twelve (12) months, without the prior written consent of the Company; or

          c.   solicit, request or seek any business from any then current
     client or customer of the Company or any of its affiliates, or request,
     induce or advise any such clients or customers to withdraw, curtail or
     cancel their business with the Company or any of its affiliates;

PROVIDED, HOWEVER, that the foregoing shall not prohibit the ownership of
securities of businesses which are listed on a national securities exchange or
traded in the national over-the-counter market in an amount which shall not
exceed 5% of the outstanding shares of any such corporation; and PROVIDED,
FURTHER, that the foregoing shall not prohibit the Executive from the private
practice of law or the provision of government relations consulting services.
The parties agree that the geographic scope of this covenant not to compete
shall extend throughout the State of Wisconsin and, in the event the Company or
any of its affiliates provides products or services in jurisdictions outside of
the State of Wisconsin, then with respect only to the provision of such products
and services, in such other respective jurisdictions that the Company or any of
its affiliates provided such products or services during the twelve (12) months
immediately preceding the Date of Termination.

     12.  COORDINATION WITH OTHER AGREEMENTS. If at any time the Executive shall
be entitled to receive severance benefits under Section 6(b) of this Agreement
and Severance Benefits (as such term is defined in Article 4 of that certain
Executive Severance Agreement between the Company and the Executive, dated as of
June 19, 2001, as amended from time to time, including as provided in Section 13
hereof (the "Severance Agreement"), or in any subsequently adopted similar plan
or agreement), then the terms of the Severance Agreement shall control and the
Executive shall be entitled to receive such Severance Benefits as are provided
in the Severance Agreement, which Severance Benefits shall be in lieu of, and
acceptance by the Executive of such Severance Benefits shall constitute the
Executive's release of any rights to, any severance benefits under this
Agreement. The Company, or any successor to the Company following a Change of
Control (as such term is defined the Severance Agreement), shall be obligated to
provide all rights and benefits to which the

                                       10
<Page>

Executive is entitled under this Agreement or under any plan or program of the
Company contemplated by this Agreement, and shall, as a condition to the
consummation of such Change of Control, agree to continue and assume all
obligations to provide all such rights and benefits to the Executive.

     13.  AMENDMENT OF SEVERANCE AGREEMENT. The parties hereby agree to cause
the Severance Agreement to be amended as follows:

          a.   Subsections (a) and (b) of Section 4.3 of the Severance Agreement
     shall be amended so that the Severance Benefits provided thereunder shall
     include an amount equal to three (3) times the Executive's annualized Base
     Salary (as such term is defined in the Severance Agreement and target
     award, as defined in Section 4.3(b) of the Severance Agreement);

          b.   Subsection (c) of Section 4.3 of the Severance Agreement shall be
     amended so that the Severance Benefits provided thereunder shall include a
     continuation of Supplemental Benefits (as defined in the Severance
     Agreement) for three (3) full years after the Effective Date of Termination
     (as defined in the Severance Agreement);

          c.   Section 4.3 of the Severance Agreement shall be amended so that
     the Severance Benefits provided thereunder shall include the severance
     benefits provided in subsections (ii), (iii), (iv) and (v) of Section 6(b)
     hereof; and

          d.   Section 6.1 of the Severance Agreement shall be amended by
     deleting the last two sentences of such section.

     14.  INDEMNIFICATION AND INSURANCE.

          a.   The Company shall at all times during and after the Employment
     Term, to the fullest extent permitted or required by the applicable
     Wisconsin Statutes, including any amendments thereto (but in the case of
     any such amendment, only to the extent such amendment permits or requires
     the Company to provide broader indemnification rights than prior to such
     amendment), indemnify the Executive against any and all Liabilities (as
     defined below), and advance any and all reasonable Expenses (as defined
     below), incurred by him in any Proceeding (as defined below) in which the
     Executive was a party because he is or was a director, officer or employee
     of the Company. The rights to indemnification hereunder shall not be deemed
     exclusive of any other rights to indemnification against Liabilities or the
     advancement of Expenses to which the Executive may be entitled under any
     other written agreement, bylaw of the Company, resolution approved by the
     directors or shareholders of the Company, Wisconsin Statutes or otherwise.

          b.   For purposes of this Section 14:

               i.   "Liabilities" shall include, without limitation, judgments,
          amounts incurred in settlement, fines, penalties and, with respect to
          any employee benefit plan, any excise tax or penalty incurred in
          connection therewith, and any and all liabilities of every type or
          nature whatsoever.

                                       11
<Page>

               ii.  "Expenses" shall include, without limitation, any and all
          expenses, fees, costs, charges, attorneys' fees and disbursements,
          other out-of-pocket costs, reasonable compensation for time spent by
          the Executive in connection with the Proceeding for which he is not
          otherwise compensated by the Company or any third party, and any and
          all other direct or indirect costs of any type or nature whatsoever.

               iii. "Proceeding" shall include, without limitation, any
          threatened, pending or completed action, claim, litigation, suit or
          proceeding, whether civil, criminal, administrative, arbitrative or
          investigative, whether predicated on foreign, federal, state or local
          law, whether brought under and/or predicated upon the Securities Act
          of 1933, as amended, and/or the Securities Exchange Act of 1934, as
          amended, and/or their respective state counterparts and/or any rule or
          regulation promulgated thereunder, whether a derivative action and
          whether formal or informal.

     15.  ARBITRATION.

          a.   Any disputes arising out of or in connection with this Agreement
     or employment of the Executive by the Company that are not resolved between
     the Company and the Executive shall be submitted to arbitration in
     accordance with the rules of Commercial Arbitration of the American
     Arbitration Association.

          b.   Any such arbitration shall take place in the city in which the
     Executive resides at the time of the arbitration. The arbitrator shall be a
     person experienced in employment and compensation of corporate business
     executives who is mutually acceptable to the Company and the Executive. If
     an arbitrator cannot be agreed upon within fifteen (15) days after a
     dispute is submitted to arbitration, then the parties shall each select one
     representative who is not and has never been associated with the Company
     and who is nor related to the Executive, and these two representatives
     shall choose a neutral arbitrator with the qualifications described above.

          c.   All actions and proceedings under this Section 15 shall be kept
     confidential and neither party shall divulge any part thereof to third
     parties without the prior written consent of the other party.

     16.  LEGAL FEES. The Company shall pay or reimburse the Executive for the
Executive's reasonable legal fees and expenses in connection with the
negotiation and execution of this Agreement.

     17.  NOTICE. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed, return receipt requested, postage
prepaid, addressed as follows:

          If to the Executive:

          Mr. Stephen E. Bablitch
          Cobalt Corporation
          401 W. Michigan Avenue
          Milwaukee, WI  53202
          Facsimile: (414) 226-2697 (AFTER PRIOR NOTICE TO LANA HERTEL BY
          TELEPHONE AT (414) 226-6918)

                                       12
<Page>

          (with a copy to)

          DeWitt Ross & Stevens S.C.
          8000 Excelsior Drive, Suite 401
          Madison, WI  53717
          Attention:  John Rashke, Esq.
          Facsimile:  (608) 831-2106

          If to the Company:

          Cobalt Corporation
          401 West Michigan Avenue
          Milwaukee, WI  53202
          Attention:  Vice President of Human Resources
          Facsimile:  (414) 226-6229

          (with a copy to)

          Foley & Lardner
          777 E. Wisconsin Avenue
          Milwaukee, WI  53202
          Attention:  Harry V. Carlson, Esq.
          Facsimile:  (414) 297-4900

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

     18.  SUCCESSORS AND ASSIGNMENT.

          a.   This Agreement is personal to the Executive and without the prior
     written consent of the Company shall not be assigned by the Executive other
     than by will or the laws of descent and distribution. This Agreement shall
     inure to the benefit of and be enforceable by the Executive's legal
     representatives.

          b.   This Agreement shall inure to the benefit of and be binding upon
     the Company and its successors and assigns.

          c.   The Company will require any successor (whether direct or
     indirect, by purchase, merger, consolidation or otherwise) to all or
     substantially all of the business and/or assets of the Company to assume
     expressly and agree to perform this Agreement in the same manner and to the
     same extent that the Company would be required to perform it if no such
     succession had taken place.

     19.  MISCELLANEOUS.

          a.   AMENDMENT. No provisions of this Agreement may be modified,
     waived or discharged unless such waiver, modification or discharge is
     agreed to in a writing signed by

                                       13
<Page>

     Executive and an executive officer of the Company (other than Executive)
     who has been authorized to execute such agreement by the Board.

          b.   NO WAIVER. No waiver by either party hereto at any time of any
     breach by the other party hereto of, or compliance with, any condition or
     provision of this Agreement to be performed by such other party shall be
     deemed a waiver of similar or dissimilar provisions or conditions at the
     same or at any prior or subsequent time.

          c.   MERGER CLAUSE. Other than the Severance Agreement, no agreements
     or representations, oral or otherwise, express or implied, with respect to
     the subject matter hereof have been made by either party which are not set
     forth expressly in this Agreement, and, except for the Severance Agreement,
     this Agreement supersedes any prior agreements with respect to the subject
     matter hereof.

          d.   ENFORCEABILITY. The invalidity or unenforceability of any
     provision of this Agreement shall not affect the validity or enforceability
     of any other provision of this Agreement. If any provision of this
     Agreement shall be held invalid or unenforceable in part, the remaining
     portion of such provision, together with all other provisions of this
     Agreement, shall remain valid and enforceable and continue in full force
     and effect to the fullest extent consistent with law.

          e.   GOVERNING LAW. The validity, interpretation, construction and
     performance of this Agreement shall be governed by and construed and
     enforced in accordance with the internal laws of the State of Wisconsin.

          f.   WAIVER. The waiver or failure of either party to insist in any
     one or more instances upon performance of any term, covenant or condition
     of this Agreement shall not be construed as a waiver of future performance
     of any such term, covenant or condition, but the obligations of either
     party with respect to such term, covenant or condition shall continue in
     full force and effect. No course of dealing shall be implied or arise from
     any waiver or series of waivers of any right or remedy hereunder.

          g.   HEADINGS. The paragraph and section headings in this Agreement
     are intended for reference only, are not part of the provisions hereof and
     shall have no force or effect.

          h.   COUNTERPARTS. This Agreement may be executed in one or more
     counterparts, each of which shall be deemed an original, but all of which
     together shall constitute one and the same instrument.

                                       14
<Page>

          IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first set forth above.

                                   COBALT CORPORATION

                                   By: /s/ Thomas R. Hefty
                                      ------------------------------------------
                                        Name: Thomas R. Hefty
                                        Title: Chairman & CEO

                                   EXECUTIVE

                                   /s/ Stephen E. Bablitch
                                   ---------------------------------------------
                                   Stephen E. Bablitch

                                       15<Page>

                                                                    EXHIBIT 10.4

                                                                  EXECUTION COPY

                              EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 29th day of May, 2002 (the "Effective Date"), between Michael E.
Bernstein, an individual resident of the State of Wisconsin (the "Executive"),
and Cobalt Corporation, a Wisconsin corporation (the "Company").

                              W I T N E S S E T H:

          WHEREAS, the Company desires to retain the services of the Executive
and the Executive desires to be employed by the Company on the terms and
conditions set forth in this Agreement.

          NOW, THEREFORE, in consideration of the mutual promises set forth
herein and the mutual benefits to be derived from this Agreement, the parties
hereto, intending to be legally bound, hereby agree as follows:

     1.   POSITIONS AND DUTIES. Subject to the terms and conditions of this
Agreement, from the Effective Date until such date not later than December 1,
2002 that Stephen E. Bablitch ceases to be the Company's President, the Company
shall employ the Executive as its Executive Vice President, and after such date
through the remainder of the Employment Term (as defined herein), the Company
shall employ the Executive as its President and Chief Operating Officer. The
Executive shall have such duties and responsibilities as are prescribed to such
positions in the Company's bylaws, and such other duties and responsibilities
not inconsistent therewith as may from time to time be assigned to him by the
Board. The Executive agrees to devote his full business attention and time to
the business affairs of the Company and its affiliates and to faithfully and
efficiently perform his duties hereunder.

     2.   TERM. Unless this Agreement is earlier terminated in accordance with
the terms hereof, the Company's employment of the Executive hereunder shall
continue until the third (3rd) anniversary of the Effective Date; provided,
however, that the term of this Agreement shall be automatically extended for an
additional one-year period on each anniversary of the Effective Date unless, at
least thirty (30) days prior to such anniversary of the Effective Date, either
party shall deliver written notice to the other party of such party's intent not
to extend the term of this Agreement as of the end of its then current term.
References herein to the "Employment Term" shall refer to both the initial term
and any extended term.

     3.   PLACE OF PERFORMANCE. In performing the services required under this
Agreement, the Executive shall be based at the Company's principal executive
offices located in Milwaukee, Wisconsin. During the Employment Term, the
Executive shall not be required to relocate from the Milwaukee metropolitan
area. In the event of a relocation of the Company's principal offices, the
Company will promptly pay (or reimburse the Executive for) all reasonable moving
expenses incurred by the Executive relating to a change of his principal
residence in connection with any such relocation of the Company's principal
executive offices, and will indemnify the Executive for any losses incurred by
the Executive in connection with the sale of his principal residence. Such
indemnification shall be computed as the difference (if such difference is a
positive number) between (a) the average of two (2) appraisal prices determined
by such two (2) independent appraisers, one of which shall be designated by the
Company and one designated by the Executive; and (b) the actual sale price of
the Executive's principal residence.

<Page>

     4.   COMPENSATION. During the Employment Term, the Executive shall be
entitled to the following compensation:

          a.   ANNUAL BASE SALARY. From the Effective Date through December 31,
     2002, the Executive shall be entitled to an initial annual base salary
     ("Base Salary") at the rate of Four Hundred Fifty Thousand Dollars
     ($450,000) per year payable ratably in monthly installments. For 2003, the
     Executive shall be entitled to a Base Salary at the rate of Five Hundred
     Thousand Dollars ($500,000) per year. Thereafter, the Management Review
     Committee of the Board shall determine the Base Salary of the Executive;
     provided, however, that the Base Salary of the Executive will not decrease
     from any previous level, except that the Executive's Base Salary may be
     reduced as part of, and consistent with, any across-the-board reduction in
     the salaries of senior executives of the Company. To that end, the
     Management Review Committee will review annually the performance of the
     Executive and a written copy thereof will be forwarded to the Executive.
     The Executive's performance will be evaluated based upon mutually approved
     criteria developed jointly by the Management Review Committee and the
     Executive. In connection with the annual review of the Executive's
     performance, the Management Review Committee shall also review and consider
     appropriate adjustments to the Executive's Base Salary and other
     compensation commensurate with the Executive's position and may retain a
     qualified compensation consultant to assist in its review.

          b.   SHORT-TERM INCENTIVE COMPENSATION. In addition to Base Salary,
     the Executive shall be entitled to receive such incentive compensation as
     the Management Review Committee may approve pursuant to the Company's
     short-term incentive programs commensurate with the Executive's position
     ("Short-Term Incentive Compensation"), including, without limitation, the
     following:

               i.   PROFIT SHARING PLAN. Without limiting the generality of the
          foregoing, the Executive shall be entitled to participate in the
          Company's Profit Sharing Plan (the "Profit Sharing Plan") to the same
          extent as other senior executives of the Company. For the purpose of
          computing the Executive's payment under the Profit Sharing Plan for
          2002, the Executive shall be entitled to an aggregate profit sharing
          payment up to twenty-one percent (21%) of his total Base Salary for
          2002.

               ii.  MANAGEMENT INCENTIVE PLAN. Without limiting the generality
          of the foregoing, the Executive shall be entitled to participate in
          the Company's Management Incentive Plan (the "Management Incentive
          Plan") to the same extent as other senior executives of the Company.
          For the purpose of computing the Executive's payment under the
          Management Incentive Plan for 2002, the Executive's Target Award (as
          such term is defined in the Management Incentive Plan) shall not be
          less than fifty percent (50%) of his total Base Salary for 2002, which
          Target Award shall include payments under the following components of
          the Management Incentive Plan:

                                       2
<Page>

<Table>
<Caption>
                                 PERCENT OF PRORATED BASE SALARY DURING PERIOD
                                ------------------------------------------------
          COMPONENT             JANUARY 1-MAY 28, 2002  MAY 29-DECEMBER 31, 2002
          --------------------  ----------------------  ------------------------
          <S>                           <C>                 <C>
          Profit Sharing Match          0-21%               0-42%

          Objectives/Individual
                                        0-18%               0-18%
</Table>

          For the purpose of computing the Executive's payment under the
          Management Incentive Plan after 2002, the Executive's Target Award for
          each year during the Employment Term after 2002 shall not be less than
          eighty percent (80%) of his Base Salary for such year.

          For any period less than a full year during the Employment Term, the
     Executive shall be entitled to receive an amount equal to the prorated
     portion of the Short-Term Incentive Compensation payable pursuant the
     Company's short-term incentive programs.

          c.   LONG-TERM INCENTIVE COMPENSATION. On the Effective Date, the
     Company shall grant to the Executive pursuant to terms of the Company's
     Equity Incentive Plan, as amended (the "Equity Plan"), an option to
     purchase 90,000 shares of the Company's common stock, no par value ("Common
     Stock"), at a per share exercise price equal to one hundred percent (100%)
     of the Fair Market Value (as such term is defined in the Equity Plan) of
     one share of Common Stock on the Effective Date. The Executive shall
     thereafter be eligible to participate in the Company's current long-term
     incentive programs (including annual grants of options under the Equity
     Plan) and any other long-term incentive programs hereafter established for
     senior officers of the Company (subject to modifications to such programs
     as the Management Review Committee shall determine to be necessary and
     appropriate to preserve the deductibility of bonus awards) at participation
     levels commensurate with the Executive's position determined in connection
     with the Executive's annual performance evaluation and granted on each
     anniversary of the Effective Date during the Employment Term. In
     determining the value of each annual option grant to be made to the
     Executive under the Equity Plan, the economic value of each such annual
     option grant shall be set at the grant value range midpoint of the
     benchmark competitive data for the Executive's position within the
     Company's industry as annually recommended by Hewitt Associates, an
     independent compensation consultant, or its successor.

          d.   FRINGE BENEFITS. During the Employment Term, (i) the Executive
     shall be entitled to participate in all applicable incentive, savings and
     retirement plans, practices, policies and programs of the Company and its
     affiliates to the same extent as other senior executives of the Company;
     and (ii) the Executive and/or the Executive's family, as the case may be,
     shall be eligible for immediate participation in (and without any
     limitation for preexisting conditions), and shall receive all benefits
     under, all applicable welfare benefit plans, practices, policies and
     programs provided by the Company and its affiliates, other than severance
     plans, practices, policies and programs, but including, without limitation,
     medical, prescription, dental, disability, salary continuance, employee
     life insurance, group life insurance, accidental death and travel accident
     insurance plans and programs, to the same extent as other senior executives
     of the Company.

          e.   PERQUISITES. During the Employment Term, the Executive shall be
     entitled to receive such perquisites as the Company may establish from time
     to time which are

                                       3
<Page>

     commensurate with his position and not less favorable than those received
     by any other senior executive at the Company.

          f.   EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
     for all reasonable and documented expenses incurred by the Executive in the
     performance of the Executive's duties under this Agreement.

          g.   VACATIONS. The Executive shall be entitled to the number of paid
     vacation days in each calendar year determined by the Company from time to
     time for its senior executive officers, but not less than four (4) weeks in
     any calendar year (prorated in any calendar year during which the Executive
     is employed hereunder for less than the entire year in accordance with the
     days in such calendar year during which he is so employed). The Executive
     shall also be entitled to all paid holidays given by the Company to its
     senior executive officers.

     5.   TERMINATION OF EMPLOYMENT.

          a.   DEATH OR DISABILITY. The Executive's employment shall terminate
     automatically upon the Executive's death during the Employment Term. The
     Company shall be entitled to terminate the Executive's employment because
     of the Executive's Disability (as defined herein) during the Employment
     Term. For the purposes of this Agreement, the term "Disability" means that
     (i) the Executive has been unable, for a period of 180 consecutive days, to
     perform the Executive's duties under this Agreement, as a result of
     physical or mental illness or injury, and (ii) a physician selected by the
     Company or its insurers, and acceptable to the Executive or the Executive's
     legal representative, has determined that the Executive's incapacity is
     total and permanent. A termination of the Executive's employment by the
     Company for Disability shall be communicated to the Executive by written
     notice, and shall be effective on the thirtieth (30th) day after receipt of
     such notice by the Executive (the "Disability Effective Date"), unless the
     Executive returns to full-time performance of the Executive's duties before
     the Disability Effective Date.

          b.   BY THE COMPANY. The Company may terminate the Executive's
     employment at any time for Cause (as defined herein) or without Cause. For
     the purposes of this Agreement, the term "Cause" means:

               i.   the willful and continued failure of the Executive to
          substantially perform the Executive's duties under this Agreement
          (other than as a result of physical or mental illness or injury) after
          the Board delivers to the Executive a written demand for substantial
          performance that specifically identifies the manner in which the Board
          believes that the Executive has willfully failed to substantially
          perform the Executive's duties and after the Executive has failed to
          resume substantial performance of his duties on a continuous basis
          within thirty (30) calendar days of receiving such demand;

               ii.  the Executive willfully engaging in conduct (other than
          conduct covered under paragraph (1) above) which is demonstrably and
          materially injurious to the Company, monetarily or otherwise; or

                                       4
<Page>

               iii. the Executive having been convicted of a felony (as
          evidenced by binding and final judgment, order or decree of a court of
          competent jurisdiction, in effect after exhaustion of all rights of
          appeal) which substantially impairs the Executive's ability to perform
          his duties or responsibilities.

     No act or failure to act on the part of the Executive shall be considered
     "willful" unless it is done, or omitted to be done, by the Executive in bad
     faith or without reasonable belief that the Executive's action or omission
     was in the best interests of the Company.

          c.   BY THE EXECUTIVE FOR GOOD REASON.

               i.   The Executive may terminate his employment at any time for
          Good Reason (as defined herein) or without Good Reason. For the
          purposes of this Agreement, the term "Good Reason" means:

                    (1)  the assignment to the Executive of any duties
               materially inconsistent with Section 1 of this Agreement, or any
               other action by the Company that results in a diminution in the
               Executive's position, authority, duties or responsibilities,
               other than an isolated, insubstantial and inadvertent action that
               is not taken in bad faith and is remedied by the Company promptly
               after receipt of notice thereof from the Executive;

                    (2)  the failure of the Company to cause the Executive to be
               named the Company's President and Chief Operating Officer by
               December 1, 2002;

                    (3)  any breach of this Agreement by the Company, other than
               an isolated, insubstantial and inadvertent failure that is not
               taken in bad faith and which the Company or any successor
               remedies promptly after notice from the Executive;

                    (4)  the failure of the Company to obtain a satisfactory
               agreement from any successor to the Company to assume and agree
               to perform this Agreement, as contemplated in (c) of Section 18
               of this Agreement;

                    (5)  any purported termination of the Executive's employment
               by the Company for a reason or in a manner not expressly
               permitted by this Agreement; or

                    (6)  any other substantial breach of this Agreement by the
               Company that either is not taken in good faith or is not remedied
               by the Company promptly after receipt of notice thereof from the
               Executive.

               ii.  A termination of employment by the Executive for Good Reason
          shall be effectuated by giving the Company written notice ("Notice of
          Termination for Good Reason") of the termination, setting forth in
          reasonable detail the specific conduct of the Company that constitutes
          Good Reason and the specific provision(s) of this Agreement on which
          the Executive relies. A termination of employment by the Executive for
          Good Reason shall be effective on the fifth (5th) business day

                                       5
<Page>

          following the date when the Notice of Termination for Good Reason is
          given, unless the notice sets forth a later date (which date shall in
          no event be later than thirty (30) days after the notice is given).

               iii. A termination of the Executive's employment by the Executive
          without Good Reason shall be effected by giving the Company written
          notice of the termination.

          d.   DATE OF TERMINATION. The term "Date of Termination" means the
     date of the Executive's death, the Disability Effective Date, the date on
     which the termination of the Executive's employment by the Company for
     Cause or without Cause or by the Executive for Good Reason is effective, or
     the date on which the Executive gives the Company notice of a termination
     of employment without Good Reason, as the case may be.

     6.   OBLIGATIONS OF THE COMPANY UPON TERMINATION.

          a.   DEATH AND DISABILITY. If the Executive's employment is terminated
     by reason of the Executive's death or Disability during the Employment
     Term, then the Executive shall be entitled to the following benefits:

               i.   A lump sum cash payment from the Company to the Executive
          or, in the case of the Executive's death, to the Executive's
          designated beneficiaries (or, if there is no such beneficiary, to the
          Executive's estate or legal representative), made within thirty (30)
          days after the Date of Termination, equal to the sum of the following
          amounts (the "Accrued Obligations"): (1) any portion of the
          Executive's Base Salary through the Date of Termination that has not
          yet been paid; (2) an amount representing any Short-Term Incentive
          Compensation for the period that includes the Date of Termination,
          computed by assuming that the amount of all such Short-Term Incentive
          Compensation would be equal to the maximum amount of such Short-Term
          Incentive Compensation that the Executive would have been eligible to
          earn for such period, and multiplying that amount by a fraction, the
          numerator of which is the number of days in such period through the
          Date of Termination, and the denominator of which is the total number
          of days in the relevant period; (3) any compensation previously
          deferred by the Executive (together with any accrued interest or
          earnings thereon) that has not yet been paid; and (4) any accrued but
          unpaid Short-Term Incentive Compensation and vacation pay; and the
          Company shall have no further obligations under this Agreement, except
          as specified in Section 7 below. Any deferred compensation (together
          with any accrued interest or earnings thereon, if any) that has not
          yet been paid, will be paid in accordance with the terms and
          conditions applicable to such deferred compensation.

               ii.  All options to purchase equity interests in the Company
          granted to the Executive by the Company under the terms of the Equity
          Plan outstanding on the Date of Termination shall immediately become
          fully vested and exercisable in accordance with the terms of the
          Equity Plan and the respective option agreements covering such options
          and shall remain in effect and exercisable through the end of their
          respective option agreements covering such options, without regard to
          the termination of the Executive's employment.

                                       6
<Page>

          b.   BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; OR BY
     THE EXECUTIVE FOR GOOD REASON. If, during the Employment Term, the Company
     terminates the Executive's employment, other than for Cause, death, or
     Disability, or the Executive terminates employment for Good Reason, then
     the Executive shall be entitled, subject to Section 12 below, to the
     following benefits:

               i.   The Company shall continue to provide the Executive with the
          compensation and benefits set forth in paragraphs (a), (b), (c) and
          (d) of Section 4 as if he had remained employed by the Company
          pursuant to this Agreement through the end of the Employment Term and
          then retired (at which time he will be treated as eligible for all
          retiree welfare benefits and other benefits provided to retired senior
          executives); provided, that any Short-Term Incentive Compensation for
          such period shall be equal to the maximum Short-Term Incentive
          Compensation that the Executive would have been eligible to earn for
          such period; provided further that in lieu of stock options and other
          stock-based awards, the Executive shall be paid in cash equal to 100%
          of the fair market value (without regard to any restrictions) of the
          stock-based awards that would otherwise have been granted; and
          provided, further, that to the extent any benefits described in
          paragraph (d) of Section 4 cannot be provided pursuant to the plan or
          program maintained by the Company for its executives, the Company
          shall provide such benefits outside such plan or program at no
          additional cost (including without limitation tax cost) to the
          Executive and his family; and provided, finally, that during any
          period when the Executive is eligible to receive benefits of the type
          described in paragraph (d) of Section 4 under another
          employer-provided plan, the benefits provided by the Company under
          this paragraph may be made secondary to those provided under such
          other plan.

               ii.  All options to purchase equity interests in the Company
          granted to the Executive by the Company under the terms of the Equity
          Plan outstanding on the Date of Termination shall immediately become
          fully vested and exercisable in accordance with the terms of the
          Equity Plan and the respective option agreements covering such options
          and shall remain in effect and exercisable through the end of their
          respective option agreements covering such options, without regard to
          the termination of the Executive's employment.

               iii. The Company shall cause the Executive to be fully and
          immediately vested in his accrued benefit under any supplemental
          executive retirement plan of the Company providing benefits for the
          Executive (the "SERP"). In addition, the Executive shall be credited
          with not less than 15 years of credited service under the SERP for
          subsidized early retirement benefits regardless of the Executive's age
          and service at the Date of Termination. In the event that the
          Executive is credited with additional years of credited service under
          the SERP pursuant to this Section 6(b)(iii), the Executive's
          annualized Base Salary and Target Award in effect immediately
          preceding the Date of Termination shall be used for purposes of
          calculating the amounts credited to the Executive under the SERP for
          those additional years and such additional years of credited service
          shall be treated as the Executive's most recent years of service for
          purposes of calculating Final Average Earnings under the SERP.

     The benefits provided pursuant to this paragraph (b) of Section 6 are
     intended as liquidated damages for a termination of the Executive's
     employment by the Company other than for

                                       7
<Page>

     Cause or Disability or for actions of the Company leading to a termination
     of the Executive's employment by the Executive for Good Reason, and shall
     be the sole and exclusive remedy thereof.

          c.   BY THE COMPANY FOR CAUSE; OR BY THE EXECUTIVE OTHER THAN FOR GOOD
     REASON. If the Executive's employment is terminated by the Company for
     Cause during the Employment Term, then the Company shall pay the Executive
     his Base Salary through the Date of Termination and the amount of any
     compensation previously deferred by the Executive (together with any
     accrued interest or earnings thereon), in each case to the extent not yet
     paid, and the Company shall have no further obligations under this
     Agreement, except as specified in Section 7 below. If the Executive
     voluntarily terminates employment during the Employment Term, other than
     for Good Reason, the Company shall pay the Accrued Obligations to the
     Executive in a lump sum cash payment within thirty (30) days of the Date of
     Termination, and the Company shall have no further obligations under this
     Agreement, except as specified in Section 7 below.

     7.   NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates for which
the Executive may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates relating to subject matter
other than that specifically addressed herein. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of, or any contract or agreement with, the Company or any of
its affiliates on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice, program, contract
or agreement, as the case may be, except as explicitly modified by this
Agreement.

     8.  MITIGATION. In the event the Executive's employment is terminated by
the Company (other than for Cause, death or Disability), or by the Executive for
Good Reason, the Executive shall be obligated to seek other full-time employment
for a business that does not violate Section 11 hereof and to take such other
reasonable action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, provided, however, that this
shall not prevent Executive from accepting part-time employment, being
self-employed, consulting (including, without limitation, government relations
consulting) or the private practice of law (the "Exceptions"). The amounts
otherwise payable to the Executive under Section 6(b)(i) hereof shall be reduced
(but not less than zero) by the amount of any compensation earned or received by
the Executive as a result of such other full-time employment (but not for any of
the Exceptions) engaged in by the Executive after termination of his employment
hereunder and prior to the expiration of the Employment Term (determined without
regard to Section 5 hereof). As a condition to the Company's obligation to make
payments under Section 6(b)(i), the Executive agrees to provide to the Company,
annually, true and correct copies of any employment agreements or other
contracts setting forth compensation arrangements for full-time employment that
may be in effect between the Executive and any third party and copies of his
Form W-2; provided, however, that the Company agrees that it will not cease
making payments to the Executive until it has served notice to the Executive as
to any claimed deficiency in the provision of the foregoing documents and the
Executive fails to cure such deficiency within thirty (30) days following
delivery of such notice. The Executive further agrees to provide to the Company
true and correct copies of his federal and state income tax returns in the event
that his compensation cannot be verified by the information and documents
referred to above.

                                       8
<Page>

     9.   WITHHOLDING. All compensation and other benefits to or on behalf of
the Executive pursuant to this Agreement shall be subject to such deductions and
withholding as may be agreed to by the Executive or required by applicable law.

     10.  CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 10) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.

     11.  COVENANT NOT TO COMPETE. The Executive agrees that during the
Employment Term and for a period of one (1) year thereafter, he will not,
directly or indirectly:

          a.   engage in, continue in or carry on any business of the type, or
     which competes with the business, conducted by Company or any of its
     affiliates during the Employment Term, including owning or controlling any
     financial interest in any corporation, partnership, firm or other form of
     business organization which is so engaged;

          b.   solicit for employment any person who is or was employed by the
     Company or any of its affiliates during the then immediately preceding
     twelve (12) months, or actively induce or otherwise assist any other person
     or entity in soliciting for employment any person who is or was employed by
     the Company of any of its affiliates during the then immediately preceding
     twelve (12) months, without the prior written consent of the Company; or

          c.   solicit, request or seek any business from any then current
     client or customer of the Company or any of its affiliates, or request,
     induce or advise any such clients or customers to withdraw, curtail or
     cancel their business with the Company or any of its affiliates;

PROVIDED, HOWEVER, that the foregoing shall not prohibit the ownership of
securities of businesses which are listed on a national securities exchange or
traded in the national over-the-counter market in an amount which shall not
exceed 5% of the outstanding shares of any such corporation; and PROVIDED,
FURTHER, that the foregoing shall not prohibit the Executive from the private
practice of law or the provision of government relations consulting services.
The parties agree that the geographic scope of this covenant not to compete
shall extend throughout the State of Wisconsin and, in the event the Company or
any of its affiliates provides products or services in jurisdictions outside of
the State of Wisconsin, then with respect only to the provision of such products
and services, in such other respective jurisdictions that the Company or any of
its affiliates provided such products or services during the twelve (12) months
immediately preceding the Date of Termination.

     12.  COORDINATION WITH OTHER AGREEMENTS. If at any time the Executive shall
be entitled to receive severance benefits under Section 6(b) of this Agreement
and Severance Benefits (as such term is defined in Article 4 of that certain
Executive Severance Agreement between the Company and the Executive, dated as of
June 19, 2001, as amended from time to time, including as provided in

                                       9
<Page>

Section 13 hereof (the "Severance Agreement"), or in any subsequently adopted
similar plan or agreement), then the terms of the Severance Agreement shall
control and the Executive shall be entitled to receive such Severance Benefits
as are provided in the Severance Agreement, which Severance Benefits shall be in
lieu of, and acceptance by the Executive of such Severance Benefits shall
constitute the Executive's release of any rights to, any severance benefits
under this Agreement. The Company, or any successor to the Company following a
Change of Control (as such term is defined the Severance Agreement), shall be
obligated to provide all rights and benefits to which the Executive is entitled
under this Agreement or under any plan or program of the Company contemplated by
this Agreement, and shall, as a condition to the consummation of such Change of
Control, agree to continue and assume all obligations to provide all such rights
and benefits to the Executive.

     13.  AMENDMENT OF SEVERANCE AGREEMENT. The parties hereby agree to cause
the Severance Agreement to be amended as follows:

          a.   Subsections (a) and (b) of Section 4.3 of the Severance Agreement
     shall be amended so that the Severance Benefits provided thereunder shall
     include an amount equal to three (3) times the Executive's annualized Base
     Salary (as such term is defined in the Severance Agreement and target award
     as defined in Section 4.3(b) of the Severance Agreement);

          b.   Subsection (c) of Section 4.3 of the Severance Agreement shall be
     amended so that the Severance Benefits provided thereunder shall include a
     continuation of Supplemental Benefits (as defined in the Severance
     Agreement) for three (3) full years after the Effective Date of Termination
     (as defined in the Severance Agreement);

          c.   Section 4.3 of the Severance Agreement shall be amended so that
     the Severance Benefits provided thereunder shall include the severance
     benefits provided in subsections (ii) and (iii) of Section 6(b) hereof; and

          d.   Section 6.1 of the Severance Agreement shall be amended by
     deleting the last two sentences of such section.

     14.  INDEMNIFICATION AND INSURANCE.

          a.   The Company shall at all times during and after the Employment
     Term, to the fullest extent permitted or required by the applicable
     Wisconsin Statutes, including any amendments thereto (but in the case of
     any such amendment, only to the extent such amendment permits or requires
     the Company to provide broader indemnification rights than prior to such
     amendment), indemnify the Executive against any and all Liabilities (as
     defined below), and advance any and all reasonable Expenses (as defined
     below), incurred by him in any Proceeding (as defined below) in which the
     Executive was a party because he is or was a director, officer or employee
     of the Company. The rights to indemnification hereunder shall not be deemed
     exclusive of any other rights to indemnification against Liabilities or the
     advancement of Expenses to which the Executive may be entitled under any
     other written agreement, bylaw of the Company, resolution approved by the
     directors or shareholders of the Company, Wisconsin Statutes or otherwise.

                                       10
<Page>

          b.   For purposes of this Section 14:

               i.   "Liabilities" shall include, without limitation, judgments,
          amounts incurred in settlement, fines, penalties and, with respect to
          any employee benefit plan, any excise tax or penalty incurred in
          connection therewith, and any and all liabilities of every type or
          nature whatsoever.

               ii.  "Expenses" shall include, without limitation, any and all
          expenses, fees, costs, charges, attorneys' fees and disbursements,
          other out-of-pocket costs, reasonable compensation for time spent by
          the Executive in connection with the Proceeding for which he is not
          otherwise compensated by the Company or any third party, and any and
          all other direct or indirect costs of any type or nature whatsoever.

               iii. "Proceeding" shall include, without limitation, any
          threatened, pending or completed action, claim, litigation, suit or
          proceeding, whether civil, criminal, administrative, arbitrative or
          investigative, whether predicated on foreign, federal, state or local
          law, whether brought under and/or predicated upon the Securities Act
          of 1933, as amended, and/or the Securities Exchange Act of 1934, as
          amended, and/or their respective state counterparts and/or any rule or
          regulation promulgated thereunder, whether a derivative action and
          whether formal or informal.

     15.  ARBITRATION.

          a.   Any disputes arising out of or in connection with this Agreement
     or employment of the Executive by the Company that are not resolved between
     the Company and the Executive shall be submitted to arbitration in
     accordance with the rules of Commercial Arbitration of the American
     Arbitration Association.

          b.   Any such arbitration shall take place in the city in which the
     Executive resides at the time of the arbitration. The arbitrator shall be a
     person experienced in employment and compensation of corporate business
     executives who is mutually acceptable to the Company and the Executive. If
     an arbitrator cannot be agreed upon within fifteen (15) days after a
     dispute is submitted to arbitration, then the parties shall each select one
     representative who is not and has never been associated with the Company
     and who is nor related to the Executive, and these two representatives
     shall choose a neutral arbitrator with the qualifications described above.

          c.   All actions and proceedings under this Section 15 shall be kept
     confidential and neither party shall divulge any part thereof to third
     parties without the prior written consent of the other party.

     16.  LEGAL FEES. The Company shall pay or reimburse the Executive for the
Executive's reasonable legal fees and expenses in connection with the
negotiation and execution of this Agreement.

     17.  NOTICE. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed, return receipt requested, postage
prepaid, addressed as follows:

                                       11
<Page>

          If to the Executive:

          Mr. Michael E. Bernstein
          Cobalt Corporation
          401 W. Michigan Avenue
          Milwaukee, WI 53202
          Facsimile: (414) 226-2697 (AFTER PRIOR NOTICE TO LANA HERTEL BY
          TELEPHONE AT (414) 226-6918

          (with a copy to)

          DeWitt Ross & Stevens S.C.
          8000 Excelsior Drive, Suite 401
          Madison, WI  53717
          Attention: John Rashke, Esq.
          Facsimile: (608) 831-2106

          If to the Company:

          Cobalt Corporation
          401 West Michigan Avenue
          Milwaukee, WI 53202
          Attention: Vice President of Human Resources
          Facsimile: (414) 226-6229

          (with a copy to)

          Foley & Lardner
          777 E. Wisconsin Avenue
          Milwaukee, WI  53202
          Attention:  Harry V. Carlson, Esq.
          Facsimile:  (414) 297-4900

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

     18.  SUCCESSORS AND ASSIGNMENT.

          a.   This Agreement is personal to the Executive and without the prior
     written consent of the Company shall not be assigned by the Executive other
     than by will or the laws of descent and distribution. This Agreement shall
     inure to the benefit of and be enforceable by the Executive's legal
     representatives.

          b.   This Agreement shall inure to the benefit of and be binding upon
     the Company and its successors and assigns.

          c.   The Company will require any successor (whether direct or
     indirect, by purchase, merger, consolidation or otherwise) to all or
     substantially all of the business and/or assets of the Company to assume
     expressly and agree to perform this Agreement in the same

                                       12
<Page>

     manner and to the same extent that the Company would be required to perform
     it if no such succession had taken place.

     19.  MISCELLANEOUS.

          a.   AMENDMENT. No provisions of this Agreement may be modified,
     waived or discharged unless such waiver, modification or discharge is
     agreed to in a writing signed by Executive and an executive officer of the
     Company (other than Executive) who has been authorized to execute such
     agreement by the Board.

          b.   NO WAIVER. No waiver by either party hereto at any time of any
     breach by the other party hereto of, or compliance with, any condition or
     provision of this Agreement to be performed by such other party shall be
     deemed a waiver of similar or dissimilar provisions or conditions at the
     same or at any prior or subsequent time.

          c.   MERGER CLAUSE. Other than the Severance Agreement, no agreements
     or representations, oral or otherwise, express or implied, with respect to
     the subject matter hereof have been made by either party which are not set
     forth expressly in this Agreement, and, except for the Severance Agreement,
     this Agreement supersedes any prior agreements with respect to the subject
     matter hereof.

          d.   ENFORCEABILITY. The invalidity or unenforceability of any
     provision of this Agreement shall not affect the validity or enforceability
     of any other provision of this Agreement. If any provision of this
     Agreement shall be held invalid or unenforceable in part, the remaining
     portion of such provision, together with all other provisions of this
     Agreement, shall remain valid and enforceable and continue in full force
     and effect to the fullest extent consistent with law.

          e.   GOVERNING LAW. The validity, interpretation, construction and
     performance of this Agreement shall be governed by and construed and
     enforced in accordance with the internal laws of the State of Wisconsin.

          f.   WAIVER. The waiver or failure of either party to insist in any
     one or more instances upon performance of any term, covenant or condition
     of this Agreement shall not be construed as a waiver of future performance
     of any such term, covenant or condition, but the obligations of either
     party with respect to such term, covenant or condition shall continue in
     full force and effect. No course of dealing shall be implied or arise from
     any waiver or series of waivers of any right or remedy hereunder.

          g.   HEADINGS. The paragraph and section headings in this Agreement
     are intended for reference only, are not part of the provisions hereof and
     shall have no force or effect.

          h.   COUNTERPARTS. This Agreement may be executed in one or more
     counterparts, each of which shall be deemed an original, but all of which
     together shall constitute one and the same instrument.

                                       13
<Page>

          IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first set forth above.

                                        COBALT CORPORATION

                                        By: /s/ Thomas R. Hefty
                                           -------------------------------------
                                             Name: Thomas R. Hefty
                                             Title: Chairman & CEO

                                        EXECUTIVE

                                        /s/ Michael E. Bernstein
                                        ----------------------------------------
                                        Michael E. Bernstein

                                       14

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