Document:

Prepared by MerrillDirect

TIER I

 

 

 

 

EXECUTIVE SEVERANCE AGREEMENT

Cobalt Corporation

 

TABLE
OF CONTENTS

 

	ARTICLE 1	ESTABLISHMENT, TERM,
  AND PURPOSE
	 	 
	ARTICLE 2	DEFINITIONS
	 	 
	ARTICLE 3	LOSS OF
  ELIGIBILITY UNDER THIS AGREEMENT
	 	 
	ARTICLE 4	SEVERANCE
  BENEFITS
	 	 
	ARTICLE 5	FORM AND TIMING
  OF SEVERANCE BENEFITS
	 	 
	ARTICLE 6	EXCISE TAX EQUALIZATION
  PAYMENT
	 	 
	ARTICLE 7	THE COMPANY’S PAYMENT
  OBLIGATION
	 	 
	ARTICLE 8	LEGAL REMEDIES
	 	 
	ARTICLE
  9	OUTPLACEMENT
  ASSISTANCE
	 	 
	ARTICLE 10	SUCCESSORS AND ASSIGNMENT
	 	 
	ARTICLE 11	MISCELLANEOUS

 

Cobalt Corporation

Executive Severance Agreement

             THIS
AGREEMENT is made and entered into as of the 1st day of June, 2001, by and
between Cobalt Corporation (hereinafter referred to as the “Company”) and
Thomas R. Hefty (hereinafter referred to as the “Executive”).

             WHEREAS,
the Executive is a key executive of the Company;

             WHEREAS,
should the possibility of a Change in Control of the Company (as defined in
Section 2.6 hereof) arise, the Board believes it is imperative that the Company
and the Board should be able to rely upon the Executive to continue in his or
her position, and that the Company should be able to receive and rely upon the
Executive’s advice, if requested, as to the best interests of the Company
without concern that the Executive might be distracted by the personal
uncertainties and risks created by the possibility of a Change in Control;

             WHEREAS,
should the possibility of a Change in Control arise, in addition to his or her
regular duties, the Executive may be called upon to assist in the assessment of
such possible Change in Control, advise management and the Board as to whether
such Change in Control would be in the best interests of the Company, and to
take such other actions as the Board might determine to be appropriate;

             WHEREAS,
the Executive previously entered into an executive severance agreement (the
“Prior Agreement”) with Blue Cross & Blue Shield United of Wisconsin
(“BCBSUW”) which is substantially similar to this Agreement;

             WHEREAS,
through a reorganization, BCBSUW has become a subsidiary of the Company;

             WHEREAS,
the Prior Agreement would have covered a Change in Control of the Company and
imposed the financial obligations of the Prior Agreement on BCBSUW which is now
a subsidiary of the Company;

             WHEREAS,
the Board of Directors of the Company believes that the Executive Severance
Agreement and the obligations thereunder should be between the Company and the
Executive now that the Company has become BCBSUW’s parent; and

             WHEREAS,
the Board of Directors of the Company desires to substitute this Agreement for
the Prior Agreement.

             NOW,
THEREFORE, to assure the Company that it will have the continued dedication of
the Executive and the availability of his or her advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control
of the Company, and to induce the Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and the
Executive agree as follows:

Article 1    ESTABLISHMENT, TERM, AND PURPOSE

             This
Agreement will commence on the Effective Date and, subject to Article 3, shall
continue in effect for three (3) full years. 
However, at the end of such three (3) year period and, if extended, at
the end of each additional year thereafter, the term of this Agreement shall be
extended automatically for one (1) additional year, unless the Committee
delivers written notice six (6) months prior to the end of such term, or
extended term, to the Executive, that the Agreement will not be extended.  In the latter case, the Agreement will
terminate at the end of the term, or extended term, then in progress, or as
provided in Article 3.

             However,
in the event a Change in Control occurs during the original or any extended
term, this Agreement will remain in effect for the longer of:  (i) twenty-four (24) months beyond the month
in which such Change in Control occurred; or (ii) until all obligations of the
Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to the Executive.

Article 2    DEFINITIONS

             Whenever
used in this Agreement, the following terms shall have the meanings set forth
below and, when the meaning is intended, the initial letter of the word is
capitalized.

             2.1  “Base Salary” means the salary of record paid to an
Executive by the Company, or by Blue Cross & Blue Shield United of
Wisconsin or any other subsidiary of the Company as annual salary, excluding
amounts received under incentive or other bonus plans, whether or not deferred.

             2.2  “Beneficial Owner” shall have the meaning ascribed
to such term in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, but excluding those whose status arises from the holding of
proxies and including option holders on a fully diluted basis.

             2.3  “Beneficiary” means the persons or entities
designated or deemed designated by the Executive pursuant to Section 11.2
herein.

             2.4  “Board”
means the Board of Directors of the Company.

             2.5  “Cause” means: 
(a) the Executive’s willful and continued failure to substantially
perform his or her duties with the Company (other than any such failure
resulting from Disability or occurring after issuance by the Executive of a
Notice of Termination for Good Reason), after a written demand for substantial
performance is delivered to the Executive that specifically identifies the
manner in which the Company believes that the Executive has willfully failed to
substantially perform his or her duties, and after the Executive has failed to
resume substantial performance of his or her duties on a continuous basis
within thirty (30) calendar days of receiving such demand; (b) the Executive
willfully engaging in conduct (other than conduct covered under (a) above)
which is demonstrably and materially injurious to the Company, monetarily or
otherwise; or (c) 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 or her duties or
responsibilities.  For purposes of this
Section 2.5, the Executive’s actions or failures to act will be deemed
“willful” only if done or omitted in bad faith and without reasonable belief
that the action or omission was in the best interests of the Company.

             2.6  “Change in
Control” shall mean:

             (i)          Any
individual, entity or group (within the meaning of Section 13(d)(3) of the
Exchange Act) (a “Person”), other than the Wisconsin United for Health
Foundation, Inc. (the “Foundation”) becoming the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the either (x) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in an election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this
Section 2.6, the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from the Company, (B) any acquisition by
the Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored by or maintained by the Company or any corporation controlled
by the Company, (D) any acquisition by any corporation controlled by the
Company, or (E) any acquisition by any corporation pursuant to a transaction
that complies with clauses (A), (B) and (C) of Section 2.6 (iii); or (F) any
acquisition where the Person owns, after the acquisition, less of the
Outstanding Company Voting Securities or Outstanding Company Common Stock than
the Foundation then owns after such acquisition.

             (ii)         Individuals who, as of the date of this Agreement,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

             (iii)        Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a “Business Combination”), in each case, unless, following such
Business Combination: (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then Outstanding shares of common stock and
the combined voting power of the then Outstanding voting Company Securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation, a corporation that as a result of such transaction owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board providing for such
Business Combination; or

             (iv)       Approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.

             2.7  “Code”
means the United States Internal Revenue Code of 1986, as amended, and any
successors thereto.

             2.8  “Committee”
means the Management Review Committee of the Board or any other committee
appointed by the Board to perform the functions of the Management Review
Committee or any successor committee which performs the functions of the
Management Review Committee or, in the absence of one, by the Board.

             2.9  “Company”
means Cobalt Corporation, a Wisconsin corporation, or any successor thereto as
provided in Article 10 herein.

             2.10  “Disability” means a complete and permanent
disability as determined by the Committee in accordance with the Company Long-Term Disability Plan, as
in effect on the Effective Date.

             2.11  “Effective Date” means the date of this
Agreement set forth above.

             2.12  “Effective Date of Termination” means the
date on which a Qualifying Termination occurs.

             2.13  “Exchange Act” means the United States
Securities Exchange Act of 1934, as amended.

             2.14  “Good Reason” shall mean, without the
Executive’s express written consent, the occurrence of any one or more of the following:

	 	(a)	The
  assignment of the Executive to duties materially inconsistent with the
  Executive’s authorities, duties, responsibilities, and status (including
  offices and reporting requirements) as an employee of the Company, or a
  reduction or alteration in the nature or status of the Executive’s
  authorities, duties, or responsibilities from the greater of those in effect
  (i) on the Effective Date; (ii) during the fiscal year immediately preceding
  the year of the Change in Control; or (iii) immediately preceding the Change
  in Control;
	 	 	 
	 	(b)	Any
  breach of this Agreement by the Company, other than an isolated,
  insubstantial or inadvertent failure which is not taken in bad faith and
  which the Company or any successor remedies promptly after notice from the
  Executive;
	 	 	 
	 	(c)	The
  Executive’s principal office is moved to a location that is more than fifty
  (50) miles farther from the Executive’s home than the principal office
  location immediately prior to the Change in Control;
	 	 	 
	 	(d)	A
  reduction by the Company in the Executive’s Base Salary as in effect on the
  Effective Date or as the same shall be increased from time to time;
	 	 	 
	 	(e)	A
  material reduction in the Executive’s level of participation in any of the
  Company’s short- and/or long-term incentive compensation plans, or employee
  benefit or retirement plans, policies, practices, or arrangements in which
  the Executive participates from the greater of the levels in place on:  (i) the Effective Date; (ii) the fiscal
  year immediately preceding the Change in Control; or (iii) immediately preceding
  the Change in Control;
	 	 	 
	 	(f)	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 Article 10 herein; or
	 	 	 
	 	(g)	Any
  termination of Executive’s employment by the Company that is not effected
  pursuant to a Notice of Termination.

             The
existence of Good Reason shall not be affected by the Executive’s temporary
incapacity due to physical or mental illness not constituting a
Disability.  The Executive’s continued
employment shall not constitute a waiver of the Executive’s rights with respect
to any circumstance constituting Good Reason.

             2.15  “Notice of Termination” means a written
notice which shall indicate the specific provision in this Agreement governing
the Executive’s termination of employment and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive’s employment under the provision so indicated.

             2.16  “Person” shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including a “group” as provided in Section 13(d).

             2.17  “Profit Sharing Plan” means the Company
Profit Sharing Plan.

             2.18  “Qualifying Termination” means termination of
the Executive’s employment under one of the circumstances described in Section
4.2 below.

             2.19  “Retirement” shall mean termination of
employment after the Executive has attained Age 55 and completed 10 “Years of Service” (as such term is defined
in the Company’s tax-qualified defined benefit pension plan.)  “Retirement” shall be deemed to occur only
if it is pursuant to a mandatory retirement provision in such plan or if the
Executive and the Company agree in writing that “Retirement” has occurred for
purposes of this Agreement.  (Retirement
pursuant to a mandatory retirement provision added on or after a date six
months prior to a Change in Control will not be treated as mandatory retirement
for purposes of this Agreement.)

             2.20  “Severance
Benefits” means the payment of severance compensation as provided in Section
4.3 herein.

Article 3    LOSS OF ELIGIBILITY UNDER THIS
AGREEMENT

             In
the event Executive’s job classification is reduced, the Committee, in its sole
discretion, may cancel this Agreement by written notice delivered to the
Executive.  A cancellation occurring
later than six (6) months prior to a Change in Control shall be null and void.

Article 4    SEVERANCE BENEFITS

             4.1        Right
to Severance Benefits.  The Executive shall be entitled to receive from the
Company Severance Benefits, as described in Section 4.3 herein, if the
Executive incurs a Qualifying Termination during the six (6) month period
immediately prior to a Change in Control or within twenty-four (24) calendar
months following a Change in Control.

             The Executive shall not be entitled
to receive Severance Benefits if he or
she is terminated for Cause, or if his or her employment with the Company ends
due to death, Disability, or Retirement or due to termination of employment by
the Executive without Good Reason.

             4.2  Qualifying Termination of Employment.  Upon the
occurrence of any one or more of the following events the Company shall pay
Severance Benefits to the Executive under this Agreement:

                           (a)  Termination
of the Executive’s employment by the Company for reasons other than Cause.

                           (b)  Termination by the Executive for Good Reason
pursuant to a Notice of Termination delivered to the Company by the Executive.

             4.3  Description of Severance Benefits.  In the event the Executive becomes entitled to
receive Severance Benefits as provided in Sections 4.1 and 4.2 herein, the
Company shall pay to the Executive and provide him or her with the following:

	 	(a)	An amount equal to three
  (3) times the highest rate of the Executive’s annualized Base Salary in
  effect at any time up to and including the Effective Date of Termination.
	 	 	 
	 	(b)	An
  amount equal to three (3) times the Executive’s target award under the annual
  bonus plan and the Profit Sharing Plan established for the plan year in which
  the Executive’s Effective Date of Termination occurs, or the prior plan year
  if a target award has not been established for the plan year in which the
  Executive’s Effective Date of Termination occurs.
	 	 	 
	 	(c)	A
  continuation of the welfare benefits of health care, life and accidental
  death and dismemberment, and disability insurance coverage (collectively,
  “Supplemental Benefits”) for three (3) full years after the Effective Date of
  Termination.  These benefits shall be
  provided at the same cost to the Executive (if any), and at the same coverage
  level, as in effect as of the Executive’s Effective Date of Termination.  However, in the event the premium cost
  and/or level of coverage shall change for all management employees with
  respect to Supplemental Benefits, the cost and/or coverage level, likewise,
  shall change for the Executive in a corresponding manner.  COBRA-related benefits will begin as of
  the end of the three year period (or upon earlier discontinuance described
  below).
	 	 	 
	 	 	The
  continuation of any or all of the Supplemental Benefits shall be discontinued
  prior to the end of the three (3) year period in the event the Executive has
  available substantially similar benefits at a comparable cost from a
  subsequent employer.
	 	 	 
	 	 	The
  Executive must supply all information reasonably requested by the Company
  pursuant to this subsection.
	 	 	 
	 	(d)	An
  amount equal to the Executive’s unpaid targeted annual bonus, established for
  the plan year in which the Executive’s Effective Date of Termination occurs,
  multiplied by a fraction, the numerator of which is the number of days
  completed in the then-existing fiscal year through the Effective Date of
  Termination, and the denominator of which is three hundred sixty-five (365).
	 	 	 
	 	(e)	An
  amount equal to the Executive’s unpaid allocation from the Profit Sharing
  Plan, established for the plan year in which the Executive’s Effective Date
  of Termination occurs, multiplied by a fraction, the numerator of which is
  the number of days completed in the then-existing fiscal year through the
  Effective Date of Termination, and the denominator of which is three hundred
  sixty-five (365).
	 	 	 
	 	(f)	The
  Executive shall be eligible for benefits under the Company Retiree Medical
  Plan (the “Retiree Medical Plan”) beginning at age 55 regardless of whether
  the Executive: (i) is an employee of the Company on the date he attains age
  55; or (ii) has completed 10 years of service with the Company.  Executive shall be subject to all of the
  other terms and provisions of the Retiree Medical Plan (including the
  provisions limiting the cost of the Retiree Medical Plan which the Company
  will pay) except: (i) in the event that the Retiree Medical Plan is
  terminated, the Company shall obtain substitute coverage providing similar
  benefits for the Executive and shall make the same Company contributions
  toward the cost of such substitute coverage; (ii) in the event the Executive
  has available, from a subsequent employer, similar medical coverage at a
  similar employee cost, coverage under the Retiree Medical Plan shall be
  suspended until such similar coverage (other than COBRA continuation of such
  coverage) terminates; and (iii) the Executive may elect to terminate Retiree
  Medical Plan participation, or reenter the Retiree Medical Plan, at any time.

             Incentive
awards granted under the Company Equity Incentive Plan and other incentive
arrangements adopted by the Company shall be governed by the terms of the
applicable plan.

             The
aggregate benefits accrued by the Executive as of the Effective Date of
Termination under the Company Pension Plan, the UGS Pension Plan, the Company
401(k) Plan, and other qualified savings and retirement plans sponsored by the
Company shall be governed by the terms of the applicable plan.  For purposes of the Company Supplemental
Executive Retirement Plan, such benefits shall be calculated under the
assumption that the minimum service requirement under Section 4.1 of the
Company Supplemental Executive Retirement Plan (vesting requirement) shall be
deemed to have been satisfied as of the date of a Qualifying Termination and
the Executive’s employment continued following the Effective Date of
Termination for three (3) full years (i.e., three (3) additional years of
service credits shall be added); provided, however, that for purposes of
determining “final average pay” under such program, the Executive’s actual pay
history as of the Effective Date of Termination shall be used.

             Compensation
which has been deferred under the Company Deferred Compensation Plan or other
plans sponsored by the Company, as applicable, together with all interest that
has been credited with respect to any such deferred compensation balances,
shall be governed by the terms of the applicable plan.

             4.4        Termination
for Disability.  In the event the Executive’s employment is
terminated due to Disability, the Executive shall not be entitled to the
Severance Benefits described in Section 4.3. 
The terms and conditions of the Executive’s employment rights under that
circumstance shall be determined without regard to this Agreement.

             4.5        Termination
for Retirement or Death.  If the Executive’s employment is
terminated by reason of his or her Retirement or death, the Executive shall not
be entitled to the Severance Benefits described in Section 4.3.  The terms and conditions of the Executive’s
employment rights under those circumstances are to be determined without regard
to this Agreement.

             4.6        Termination
for Cause or by the Executive Other Than for Good Reason.  If the
Executive’s employment is terminated either: 
(a) by the Company for Cause; or (b) by the Executive other than for
Good Reason, the Company shall pay the Executive the amounts specified in
Section 4.8 and the Company shall have no further obligations to the Executive
under this Agreement.

             4.7        Notice
of Termination.  Any
termination of employment by the Company or by the Executive for Good Reason
shall be communicated by a Notice of Termination.  If the Executive is providing the notice, it should be delivered
to a member of the Committee.  If the
Company is providing notice, it should be delivered to the Executive.

             4.8        Payment of Accrued Compensation and
Benefits.  In all events,
Executive shall, upon termination of employment with the Company, be paid an
amount equal to Executive’s unpaid Base Salary, accrued vacation pay and any
other accrued but unpaid compensation in cash or cash equivalents within ten
(10) days of the termination except where the terms of the compensation
arrangement or plan govern instead of this Agreement and specifically provide
for later payment.

             4.9        Coordination
with Other Agreements.  The
Severance Benefits described in Section 4.3 shall be reduced by any severance
benefits paid pursuant to either: (i) other agreements between the Company and
the Executive or (ii) any plan adopted by the Company, unless such plan
or agreement expressly provides that the benefits under such plan or agreement
are in addition to the benefits payable under this Agreement.  The Severance Benefits described in Section
4.3 shall not be reduced by payments pursuant to the Supplemental Retirement
Agreement dated ___________, 2001 between the Executive and the Company.

Article 5    FORM AND TIMING OF SEVERANCE BENEFITS

             5.1        Form and Timing of
Severance Benefits.  The Severance Benefits described in Sections
4.3(a), 4.3(b), 4.3(d), and 4.3(e) herein shall be paid in cash or cash
equivalents to the Executive in a single lump sum as soon as practicable
following the Effective Date of Termination, (or, if later, the date of the
Change in Control) but in no event beyond ten (10) days from such date.  The Supplemental Benefits described in
Section 4.3(c) shall be paid at the times due under each applicable plan.

             5.2        Withholding of Taxes.  The Company shall be entitled to withhold
from any amounts payable under this Agreement the minimum taxes legally
required to be withheld (including, without limitation, any United States
Federal taxes and any other state, city, or local taxes).

Article 6    EXCISE
TAX EQUALIZATION PAYMENT

             6.1        Excise Tax Equalization Payment.  Notwithstanding anything contained in this
Agreement or any other agreement between Executive and the Company to the
contrary, or termination of this Agreement following a Change in Control, in
the event that the Executive becomes entitled to Severance Benefits or any
other payment or benefit under this Agreement, or under any other agreement
with or plan or compensation arrangement with the Company, its subsidiaries or
affiliates (in the aggregate, the “Total Payments”), if all or any part of the
Total Payments will be subject to the tax (the “Excise Tax”) imposed by Section
4999 of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to the Executive in cash an additional amount (the “Gross-Up
Payment”) such that the net amount retained by the Executive after deduction of
any Excise Tax upon the Total Payments and any federal, state, and local income
or employment tax, penalties, interest, and Excise Tax upon the Gross-Up
Payment provided for by this Section 6.1 (including FICA and FUTA), shall be
equal to the Total Payments.  Such
payment shall be made by the Company to the Executive as soon as practical
following the Effective Date of Termination, but in no event beyond thirty (30)
days from such date.

             6.2        Tax Computation.  For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amounts of such
Excise Tax:

	 	(a)	The
  Severance Benefits and any other payments or benefits received or to be
  received by the Executive in connection with a Change in Control of the
  Company or the Executive’s termination of employment (whether pursuant to the
  terms of this Agreement or any other plan, arrangement, or agreement with the
  Company and subsidiaries or affiliates, or with any Person whose actions
  result in a Change in Control of the Company or any Person affiliated with
  the Company or such Persons) shall be treated as “parachute payments” within
  the meaning of Section 280G(b)(2) of the Code, and all “excess parachute payments”
  within the meaning of Section 280G(b)(l) shall be treated as subject to the
  Excise Tax, unless in the opinion of a nationally recognized tax counsel
  selected by the Company’s independent auditors and reasonably acceptable to
  the Executive:  (i) the Severance
  Benefits and such other payments or benefits (in whole or in part) do not
  constitute parachute payments; (ii) such excess parachute payments (in whole
  or in part) represent reasonable compensation for services actually rendered
  within the meaning of Section 280G(b)(4) of the Code in excess of the base
  amount within the meaning of Section 280G(b)(3) of the Code; or (iii) are
  otherwise not subject to the Excise Tax;
	 	 	 
	 	(b)	The
  amount of the Total Payments which shall be treated as subject to the Excise
  Tax shall be equal to the lesser of: 
  (i) the total amount of the Total Payments; or (ii) the amount of
  excess parachute payments within the meaning of Section 280G(b)( 1) (after
  applying clause (a) above); and
	 	 	 
	 	(c)	The
  value of any noncash benefits or any deferred payment or benefit shall be
  determined by the Company’s independent auditors in accordance with the
  principles of Sections 280G(d)(3) and (4) of the Code.

             For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be
made, and state and local income taxes at the highest marginal rate of taxation
in the state and locality of the Executive’s residence on the Effective Date of
Termination, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes.

             6.3        Subsequent
Recalculation.  In the event the Internal
Revenue Service adjusts the computation of the Company under Section 6.2 herein
so that the Executive did not receive the greatest net benefit, the Company
shall reimburse the Executive for the full amount necessary to make the
Executive whole, plus a market rate of interest, as determined by the national
tax counsel referred to above.

             6.4        Costs
of Calculations.  The Company agrees to bear all
costs associated with, and to indemnify and hold harmless, the national tax
counsel of and from any and all claims, damages, and expenses resulting from or
relating to its determination pursuant to this Article 6, except for claims,
damages, or expenses resulting from the gross negligence or willful misconduct
of such firm.

Article 7    THE COMPANY’S PAYMENT OBLIGATION

             7.1        Payment
Obligations Absolute.  The Company’s obligation to make
the payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else.  All amounts payable by the Company hereunder
shall be paid without notice or demand. 
Subject to the provision set forth in Section 8.1 and 8.2, each and
every payment made hereunder by the Company shall be final, and the Company
shall not seek to recover all or any part of such payment from the Executive or
from whomsoever may be entitled thereto, for any reasons whatsoever.

             The
Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or arrangements made under any provision of this Agreement, and
the obtaining of any such other employment shall in no event effect any
reduction of the Company’s obligations to make the payments and arrangements
required to be made under this Agreement, except to the extent provided in
Section 4.3(c) herein.

             7.2        Contractual
Rights to Benefits.  This Agreement establishes and
vests in each Executive a contractual right to the benefits to which he or she
is entitled hereunder.  However, nothing
herein contained shall require or be deemed to require, or prohibit or be
deemed to prohibit, the Company to segregate, earmark, or otherwise set aside
any funds or other assets, in trust or otherwise, to provide for any payments
to be made or required hereunder.

Article 8    LEGAL REMEDIES

             8.1  Payment of Legal Fees.  To the
extent permitted by law, the Company shall pay all legal fees, costs of
litigation, prejudgment interest, and other expenses incurred in good faith by
the Executive as a result of the Company’s refusal to provide the Severance
Benefits, the Gross-Up Payment and/or any other benefits under this Agreement
to which the Executive becomes entitled under this Agreement, or as a result of
the Company’s contesting the validity, enforceability, or interpretation of
this Agreement, or as a result of any conflict (including conflicts related to
the calculation of parachute payments) between the parties pertaining to this
Agreement; provided, however, that the Company shall be reimbursed by the
Executive for all such fees and expenses in the event the Executive fails to
prevail with respect to any one (1) material issue of dispute in connection
with such legal action.  The Executive
shall not be liable for the Company’s fees or costs related to any such
litigation.

             8.2  Arbitration.  Executive
shall have the right and option to elect (in lieu of litigation) to have any
dispute or controversy arising under or in connection with this Agreement
settled by arbitration, conducted before a panel of three (3) arbitrators
sitting in a location selected by the Executive within fifty (50) miles from
the location of his or her employment with the Company, in accordance with the
rules of the American Arbitration Association then in effect.

             Judgment
may be entered on the award of the arbitrator in any court having proper
jurisdiction.  All expenses of such
arbitration, including the fees and expenses of the counsel for the Executive,
shall be borne by the Company; provided, however, that the Company shall be
reimbursed by the Executive for all such fees and expenses in the event the
Executive fails to prevail with respect to any one (1) material issue of
dispute in connection with such legal action. 
The Executive shall not be liable for the Company’s fees or costs
related to any such arbitration.

Article 9    OUTPLACEMENT ASSISTANCE

             Following
a Qualifying Termination (as described in Section 4.2 herein), the Executive
shall be reimbursed by the Company for the costs of all outplacement services
obtained by the Executive within the two (2) year period after the Effective
Date of Termination; provided, however, that the total reimbursement shall be
limited to an amount equal to fifteen percent (15%) of the Executive’s Base
Salary as of the Effective Date of Termination.

Article 10    SUCCESSORS AND ASSIGNMENT

             10.1     Successors
to the Company.  The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) of all or substantially all of the business and/or assets of the
Company or of any division or subsidiary thereof to expressly assume and agree
to perform the Company’s obligations under this Agreement in the same manner
and to the same extent that the Company would be required to perform them if no
such succession had taken place. 
Failure of the Company to obtain such assumption and agreement prior to
the effective date of any such succession shall be a breach of this Agreement and
shall entitle Executives to compensation from the Company in the same amount
and on the same terms as they would be entitled to hereunder if they had
terminated their employment with the Company voluntarily for Good Reason.  Except for the purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Effective Date of Termination.

             10.2     Assignment
by the Executive.  This Agreement shall inure to
the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees.  If the
Executive dies (prior to receipt of all amounts due under Sections 4.3(a), (b),
(d) or (e) and 4.8, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to the Executive’s
Beneficiary.  If the Executive has not
named a Beneficiary, then such amounts shall be paid to the Executive’s devisee,
legatee, or other designee, or if there is no such designee, to the Executive’s
estate.

Article 11    MISCELLANEOUS

             11.1     Employment
Status.  Except as may be provided under
any other agreement between the Executive and the Company, the employment of
the Executive by the Company is “at will,” and may be terminated by either the
Executive or the Company at any time, subject to applicable law.

             11.2     Beneficiaries.  The
Executive may designate one or more persons or entities as the primary and/or
contingent Beneficiaries of any Severance Benefits owing to the Executive under
this Agreement.  Such designation must
be in the form of a signed writing acceptable to the Committee.  The Executive may make or change such
designations at any time.

             11.3     Severability.  In the
event any provision of this Agreement shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of
the Agreement, and the Agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.  Further, the captions of this Agreement are not part of the
provisions hereof and shall have no force and effect.

             11.4     Modification.  No
provision of this Agreement may be modified, waived, or discharged unless such
modification, waiver, or discharge is agreed to in writing and signed by the
Executive and by the Company, or by the respective parties’ legal
representatives and successors.

             11.5     Effect
On Prior Agreement.  This Agreement shall completely
supercede the Prior Agreement between the Company and the Executive and the
Prior Agreement shall have no further force or effect.  BCBSUW shall be a third party beneficiary of
this Section 11.5.

             11.6     Applicable
Law.  To the extent not preempted by
the laws of the United States, the laws of the state of Wisconsin shall be the
controlling law in all matters relating to this Agreement.

             IN
WITNESS WHEREOF, the parties have executed this Agreement on this _____ day of
___________________, 2001.

	Cobalt Corporation 	Executive: 
	 	 	

	 	Thomas R. Hefty
	By:	 
	 	

	 
	 	 	 
	Its:	 
	 	

	 
	 	 	 
	Attest:Prepared by MerrillDirect

TIER II

 

 

 

EXECUTIVE SEVERANCE AGREEMENT

Cobalt Corporation

 

	 	 
	TABLE
  OF CONTENTS
	 	 
	 	 
	 	 
	 	 
	ARTICLE
  1	ESTABLISHMENT,
  TERM, AND PURPOSE
	 	 
	ARTICLE
  2	DEFINITIONS
	 	 
	ARTICLE
  3	LOSS
  OF ELIGIBILITY UNDER THIS AGREEMENT
	 	 
	ARTICLE 4	SEVERANCE BENEFITS
	 	 
	ARTICLE
  5	FORM
  AND TIMING OF SEVERANCE BENEFITS
	 	 
	ARTICLE
  6	EXCISE
  TAX EQUALIZATION PAYMENT
	 	 
	ARTICLE
  7	THE
  COMPANY’S PAYMENT OBLIGATION
	 	 
	ARTICLE 8	LEGAL REMEDIES
	 	 
	ARTICLE 9	OUTPLACEMENT
  ASSISTANCE
	 	 
	ARTICLE 10	SUCCESSORS
  AND ASSIGNMENT
	 	 
	ARTICLE 11	MISCELLANEOUS

 

Cobalt Corporation

Executive Severance Agreement

             THIS
AGREEMENT is made and entered into as of the ___ day of ________ 2001, by and
between Cobalt Corporation (hereinafter referred to as the “Company”) and «ExecName»
(hereinafter referred to as the “Executive”).

             WHEREAS,
the Executive is a key executive of the Company;

             WHEREAS,
should the possibility of a Change in Control of the Company (as defined in
Section 2.6 hereof) arise, the Board believes it is imperative that the Company
and the Board should be able to rely upon the Executive to continue in his or
her position, and that the Company should be able to receive and rely upon the
Executive’s advice, if requested, as to the best interests of the Company
without concern that the Executive might be distracted by the personal
uncertainties and risks created by the possibility of a Change in Control;

             WHEREAS,
should the possibility of a Change in Control arise, in addition to his or her
regular duties, the Executive may be called upon to assist in the assessment of
such possible Change in Control, advise management and the Board as to whether
such Change in Control would be in the best interests of the Company, and to
take such other actions as the Board might determine to be appropriate;

             WHEREAS,
the Executive previously entered into an executive severance agreement (the
“Prior Agreement”) with Blue Cross & Blue Shield United of Wisconsin
(“BCBSUW”) which is substantially similar to this Agreement;

             WHEREAS,
through a reorganization, BCBSUW has become a subsidiary of the Company;

             WHEREAS,
the Prior Agreement would have covered a Change in Control of the Company and
imposed the financial obligations of the Prior Agreement on BCBSUW which is now
a subsidiary of the Company;

             WHEREAS,
the Board of Directors of the Company believes that the Executive Severance
Agreement and the obligations thereunder should be between the Company and the
Executive now that the Company has become BCBSUW’s parent; and

             WHEREAS,
the Board of Directors of the Company desires to substitute this Agreement for
the Prior Agreement.

             NOW,
THEREFORE, to assure the Company that it will have the continued dedication of
the Executive and the availability of his or her advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change in Control
of the Company, and to induce the Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and the
Executive agree as follows:

Article 1    ESTABLISHMENT, TERM, AND
PURPOSE

             This
Agreement will commence on the Effective Date and, subject to Article 3, shall
continue in effect for three (3) full years. 
However, at the end of such three (3) year period and, if extended, at
the end of each additional year thereafter, the term of this Agreement shall be
extended automatically for one (1) additional year, unless the Committee
delivers written notice six (6) months prior to the end of such term, or
extended term, to the Executive, that the Agreement will not be extended.  In the latter case, the Agreement will
terminate at the end of the term, or extended term, then in progress, or as
provided in Article 3.

             However,
in the event a Change in Control occurs during the original or any extended
term, this Agreement will remain in effect for the longer of:  (i) twenty-four (24) months beyond the month
in which such Change in Control occurred; or (ii) until all obligations of the
Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to the Executive.

Article
2    DEFINITIONS

             Whenever
used in this Agreement, the following terms shall have the meanings set forth
below and, when the meaning is intended, the initial letter of the word is
capitalized.

             2.1  “Base
Salary” means the salary of record paid to an Executive by the Company, or by
Blue Cross & Blue Shield United of Wisconsin or any other subsidiary of the
Company as annual salary, excluding amounts received under incentive or other
bonus plans, whether or not deferred.

             2.2  “Beneficial
Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, but excluding those whose
status arises from the holding of proxies and including option holders on a
fully diluted basis.

             2.3 
“Beneficiary” means the persons or entities designated or deemed
designated by the Executive pursuant to Section 11.2 herein.

             2.4  “Board”
means the Board of Directors of the Company.

             2.5  “Cause”
means:  (a) the Executive’s willful and
continued failure to substantially perform his or her duties with the Company
(other than any such failure resulting from Disability or occurring after
issuance by the Executive of a Notice of Termination for Good Reason), after a
written demand for substantial performance is delivered to the Executive that
specifically identifies the manner in which the Company believes that the
Executive has willfully failed to substantially perform his or her duties, and
after the Executive has failed to resume substantial performance of his or her
duties on a continuous basis within thirty (30) calendar days of receiving such
demand; (b) the Executive willfully engaging in conduct (other than conduct
covered under (a) above) which is demonstrably and materially injurious to the
Company, monetarily or otherwise; or (c) 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 or
her duties or responsibilities.  For
purposes of this Section 2.5, the Executive’s actions or failures to act will
be deemed “willful” only if done or omitted in bad faith and without reasonable
belief that the action or omission was in the best interests of the Company.

             2.6  “Change in
Control” shall mean:

             (i)          Any
individual, entity or group (within the meaning of Section 13(d)(3) of the
Exchange Act) (a “Person”), other than the Wisconsin United for Health
Foundation, Inc. (the “Foundation”) becoming the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the either (x) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in an election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this
Section 2.6, the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from the Company, (B) any acquisition by
the Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored by or maintained by the Company or any corporation controlled
by the Company, (D) any acquisition by any corporation controlled by the
Company, or (E) any acquisition by any corporation pursuant to a transaction
that complies with clauses (A), (B) and (C) of Section 2.6 (iii); or (F) any
acquisition where the Person owns, after the acquisition, less of the Outstanding
Company Voting Securities or Outstanding Company Common Stock than the
Foundation then owns after such acquisition.

             (ii)         Individuals who, as of the date of this Agreement,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

             (iii)        Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a “Business Combination”), in each case, unless, following such
Business Combination: (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then Outstanding shares of common stock and
the combined voting power of the then Outstanding voting Company Securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation, a corporation that as a result of such transaction owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or

             (iv)       Approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.

             2.7  “Code”
means the United States Internal Revenue Code of 1986, as amended, and any
successors thereto.

             2.8  “Committee”
means the Management Review Committee of the Board or any other committee
appointed by the Board to perform the functions of the Management Review
Committee or any successor committee which performs the functions of the
Management Review Committee or, in the absence of one, by the Board.

             2.9  “Company”
means Cobalt Corporation, a Wisconsin corporation, or any successor thereto as
provided in Article 10 herein.

             2.10 
“Disability” means a complete and permanent disability as determined by
the Committee in accordance with the Company Long-Term Disability Plan, as in
effect on the Effective Date.

             2.11  “Effective
Date” means the date of this Agreement set forth above.

             2.12  “Effective
Date of Termination” means the date on which a Qualifying Termination occurs.

             2.13  “Exchange
Act” means the United States Securities Exchange Act of 1934, as amended.

             2.14  “Good
Reason” shall mean, without the Executive’s express written consent, the
occurrence of any one or more of the following:

	 	(a)	The
  assignment of the Executive to duties materially inconsistent with the Executive’s
  authorities, duties, responsibilities, and status (including offices and
  reporting requirements) as an employee of the Company, or a reduction or
  alteration in the nature or status of the Executive’s authorities, duties, or
  responsibilities from the greater of those in effect (i) on the Effective
  Date; (ii) during the fiscal year immediately preceding the year of the
  Change in Control; or (iii) immediately preceding the Change in Control;
	 	 	 
	 	(b)	Any
  breach of this Agreement by the Company, other than an isolated,
  insubstantial or inadvertent failure which is not taken in bad faith and
  which the Company or any successor remedies promptly after notice from the
  Executive;
	 	 	 
	 	(c)	The
  Executive’s principal office is moved to a location that is more than fifty
  (50) miles farther from the Executive’s home than the principal office
  location immediately prior to the Change in Control;
	 	 	 
	 	(d)	A
  reduction by the Company in the Executive’s Base Salary as in effect on the
  Effective Date or as the same shall be increased from time to time;
	 	 	 
	 	(e)	A
  material reduction in the Executive’s level of participation in any of the
  Company’s short- and/or long-term incentive compensation plans, or employee
  benefit or retirement plans, policies, practices, or arrangements in which
  the Executive participates from the greater of the levels in place on:  (i) the Effective Date; (ii) the fiscal
  year immediately preceding the Change in Control; or (iii) immediately
  preceding the Change in Control;
	 	 	 
	 	(f)	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 Article 10 herein; or
	 	 	 
	 	(g)	Any
  termination of Executive’s employment by the Company that is not effected
  pursuant to a Notice of Termination.

             The
existence of Good Reason shall not be affected by the Executive’s temporary
incapacity due to physical or mental illness not constituting a
Disability.  The Executive’s continued
employment shall not constitute a waiver of the Executive’s rights with respect
to any circumstance constituting Good Reason.

             2.15  “Notice of
Termination” means a written notice which shall indicate the specific provision
in this Agreement governing the Executive’s termination of employment and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated.

             2.16  “Person”
shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, including a “group” as
provided in Section 13(d).

             2.17  “Profit
Sharing Plan” means the Company Profit Sharing Plan.

             2.18  “Qualifying
Termination” means termination of the Executive’s employment under one of the
circumstances described in Section 4.2 below.

             2.19 
“Retirement” shall mean termination of employment after the Executive
has attained Age 55 and completed 10 “Years of Service” (as such term is
defined in the Company’s tax-qualified defined benefit pension plan.)  “Retirement” shall be deemed to occur only
if it is pursuant to a mandatory retirement provision in such plan or if the
Executive and the Company agree in writing that “Retirement” has occurred for
purposes of this Agreement.  (Retirement
pursuant to a mandatory retirement provision added on or after a date six
months prior to a Change in Control will not be treated as mandatory retirement
for purposes of this Agreement.)

             2.20  “Severance
Benefits” means the payment of severance compensation as provided in Section
4.3 herein.

Article 3    LOSS OF
ELIGIBILITY UNDER THIS AGREEMENT

             In
the event Executive’s job classification is reduced, the Committee, in its sole
discretion, may cancel this Agreement by written notice delivered to the
Executive.  A cancellation occurring
later than six (6) months prior to a Change in Control shall be null and void.

Article 4    SEVERANCE BENEFITS

             4.1        Right to Severance Benefits.  The
Executive shall be entitled to receive from the Company Severance Benefits, as
described in Section 4.3 herein, if the Executive incurs a Qualifying
Termination during the six (6) month period immediately prior to a Change in
Control or within twenty-four (24) calendar months following a Change in Control.

             The
Executive shall not be entitled to receive Severance Benefits if he or she is
terminated for Cause, or if his or her employment with the Company ends due to
death, Disability, or Retirement or due to termination of employment by the
Executive without Good Reason.

             4.2 Qualifying
Termination of Employment.  Upon the occurrence of any one
or more of the following events the Company shall pay Severance Benefits to the
Executive under this Agreement:

	 	(a)	Termination
  of the Executive’s employment by the Company for reasons other than
  Cause.   
	 	 	 
	 	(b)	Termination
  by the Executive for Good Reason pursuant to a Notice of Termination
  delivered to the Company by theExecutive.

 

             4.3  Description
of Severance Benefits.  In the event the Executive becomes
entitled to receive Severance Benefits as provided in Sections 4.1 and 4.2
herein, the Company shall pay to the Executive and provide him or her with the
following:

	 	(a)	An
  amount equal to two (2) times the highest rate of the Executive’s annualized
  Base Salary in effect at any time up to and including the Effective Date of
  Termination.
	 	 	 
	 	(b)	An
  amount equal to two (2) times the Executive’s target award under the annual
  bonus plan and the Profit Sharing Plan established for the plan year in which
  the Executive’s Effective Date of Termination occurs, or the prior plan year
  if a target award has not been established for the plan year in which the
  Executive’s Effective Date of Termination occurs.
	 	 	 
	 	(c)	A
  continuation of the welfare benefits of health care, life and accidental
  death and dismemberment, and disability insurance coverage (collectively,
  “Supplemental Benefits”) for two (2) full years after the Effective Date of
  Termination.  These benefits shall be
  provided at the same cost to the Executive (if any), and at the same coverage
  level, as in effect as of the Executive’s Effective Date of Termination.  However, in the event the premium cost
  and/or level of coverage shall change for all management employees with
  respect to Supplemental Benefits, the cost and/or coverage level, likewise,
  shall change for the Executive in a corresponding manner.  COBRA-related benefits will begin as of
  the end of the three year period (or upon earlier discontinuance described
  below).
	 	 	 
	 	 	The
  continuation of any or all of the Supplemental Benefits shall be discontinued
  prior to the end of the two (2) year period in the event the Executive has
  available substantially similar benefits at a comparable cost from a
  subsequent employer.
	 	 	 
	 	 	The
  Executive must supply all information reasonably requested by the Company
  pursuant to this subsection.
	 	 	 
	 	(d)	An
  amount equal to the Executive’s unpaid targeted annual bonus, established for
  the plan year in which the Executive’s Effective Date of Termination occurs,
  multiplied by a fraction, the numerator of which is the number of days
  completed in the then-existing fiscal year through the Effective Date of
  Termination, and the denominator of which is three hundred sixty-five (365).
	 	 	 
	 	(e)	An
  amount equal to the Executive’s unpaid allocation from the Profit Sharing
  Plan, established for the plan year in which the Executive’s Effective Date
  of Termination occurs, multiplied by a fraction, the numerator of which is
  the number of days completed in the then-existing fiscal year through the
  Effective Date of Termination, and the denominator of which is three hundred
  sixty-five (365).
	 	 	 
	 	(f)	The
  Executive shall be eligible for benefits under the Company Retiree Medical
  Plan (the “Retiree Medical Plan”) beginning at age 55 regardless of whether
  the Executive: (i) is an employee of the Company on the date he attains age
  55; or (ii) has completed 10 years of service with the Company.  Executive shall be subject to all of the
  other terms and provisions of the Retiree Medical Plan (including the
  provisions limiting the cost of the Retiree Medical Plan which the Company
  will pay) except: (i) in the event that the Retiree Medical Plan is
  terminated, the Company shall obtain substitute coverage providing similar
  benefits for the Executive and shall make the same Company contributions
  toward the cost of such substitute coverage; (ii) in the event the Executive
  has available, from a subsequent employer, similar medical coverage at a
  similar employee cost, coverage under the Retiree Medical Plan shall be
  suspended until such similar coverage (other than COBRA continuation of such
  coverage) terminates; and (iii) the Executive may elect to terminate Retiree
  Medical Plan participation, or reenter the Retiree Medical Plan, at any time.

             Incentive
awards granted under the Company Equity Incentive Plan and other incentive
arrangements adopted by the Company shall be governed by the terms of the
applicable plan.

             The
aggregate benefits accrued by the Executive as of the Effective Date of
Termination under the Company Pension Plan, the UGS Pension Plan, the Company
401(k) Plan, and other qualified savings and retirement plans sponsored by the
Company shall be governed by the terms of the applicable plan.  For purposes of the Company Supplemental Executive
Retirement Plan, such benefits shall be calculated under the assumption that
the minimum service requirement under Section 4.1 of the Company Supplemental
Executive Retirement Plan (vesting requirement) shall be deemed to have been
satisfied as of the date of a Qualifying Termination and the Executive’s
employment continued following the Effective Date of Termination for two (2)
full years (i.e., two (2) additional years of service credits shall be added);
provided, however, that for purposes of determining “final average pay” under
such program, the Executive’s actual pay history as of the Effective Date of
Termination shall be used.

             Compensation
which has been deferred under the Company Deferred Compensation Plan or other
plans sponsored by the Company, as applicable, together with all interest that
has been credited with respect to any such deferred compensation balances,
shall be governed by the terms of the applicable plan.

             4.4        Termination for
Disability.  In the event the Executive’s
employment is terminated due to Disability, the Executive shall not be entitled
to the Severance Benefits described in Section 4.3.  The terms and conditions of the Executive’s employment rights
under that circumstance shall be determined without regard to this Agreement.

             4.5        Termination for
Retirement or Death.  If the Executive’s employment is
terminated by reason of his or her Retirement or death, the Executive shall not
be entitled to the Severance Benefits described in Section 4.3.  The terms and conditions of the Executive’s
employment rights under those circumstances are to be determined without regard
to this Agreement.

             4.6  Termination for Cause or by the Executive
Other Than for Good Reason.  If the Executive’s employment is
terminated either:  (a) by the Company
for Cause; or (b) by the Executive other than for Good Reason, the Company
shall pay the Executive the amounts specified in Section 4.8 and the Company
shall have no further obligations to the Executive under this Agreement.

             4.7  Notice of Termination.  Any
termination of employment by the Company or by the Executive for Good Reason
shall be communicated by a Notice of Termination.  If the Executive is providing the notice, it should be delivered
to a member of the Committee.  If the
Company is providing notice, it should be delivered to the Executive.

             4.8        Payment of Accrued
Compensation and Benefits.  In all events, Executive shall,
upon termination of employment with the Company, be paid an amount equal to
Executive’s unpaid Base Salary, accrued vacation pay and any other accrued but
unpaid compensation in cash or cash equivalents within ten (10) days of the
termination except where the terms of the compensation arrangement or plan
govern instead of this Agreement and specifically provide for later payment.

             4.9        Coordination with Other Agreements.  The
Severance Benefits described in Section 4.3 shall be reduced by any severance
benefits paid pursuant to either: (i) other agreements between the Company and
the Executive or (ii) any plan adopted by the Company, unless such plan
or agreement expressly provides that the benefits under such plan or agreement
are in addition to the benefits payable under this Agreement.

Article 5    FORM
AND TIMING OF SEVERANCE BENEFITS

             5.1        Form and Timing of Severance
Benefits.  The Severance Benefits described
in Sections 4.3(a), 4.3(b), 4.3(d), and 4.3(e) herein shall be paid in cash or
cash equivalents to the Executive in a single lump sum as soon as practicable
following the Effective Date of Termination, (or, if later, the date of the
Change in Control) but in no event beyond ten (10) days from such date.  The Supplemental Benefits described in
Section 4.3(c) shall be paid at the times due under each applicable plan.

             5.2        Withholding of Taxes.  The Company
shall be entitled to withhold from any amounts payable under this Agreement the
minimum taxes legally required to be withheld (including, without limitation,
any United States Federal taxes and any other state, city, or local taxes).

Article 6    EXCISE TAX EQUALIZATION
PAYMENT

             6.1        Excise Tax Equalization
Payment.  Notwithstanding anything
contained in this Agreement or any other agreement between Executive and the
Company to the contrary, or termination of this Agreement following a Change in
Control, in the event that the Executive becomes entitled to Severance Benefits
or any other payment or benefit under this Agreement, or under any other
agreement with or plan or compensation arrangement with the Company, its
subsidiaries or affiliates (in the aggregate, the “Total Payments”), if all or
any part of the Total Payments will be subject to the tax (the “Excise Tax”)
imposed by Section 4999 of the Code (or any similar tax that may hereafter be
imposed), the Company shall pay to the Executive in cash an additional amount
(the “Gross-Up Payment”) such that the net amount retained by the Executive
after deduction of any Excise Tax upon the Total Payments and any federal,
state, and local income or employment tax, penalties, interest, and Excise Tax
upon the Gross-Up Payment provided for by this Section 6.1 (including FICA and
FUTA), shall be equal to the Total Payments. 
Such payment shall be made by the Company to the Executive as soon as
practical following the Effective Date of Termination, but in no event beyond
thirty (30) days from such date. 
Notwithstanding the foregoing, however, the Executive’s Severance
Benefits shall be grossed up only in the event that application of the gross-up
feature would result in the Executive receiving additional after-tax Change in
Control amounts of at least $100,000. 
In the event that a gross-up of the Executive’s Severance Benefits under
this Agreement would result in less than $100,000 additional after-tax Change
in Control related amounts, the Executive’s Severance Benefits shall be capped
at the maximum amount that may be paid without incurring Excise Tax.

             6.2        Tax Computation.  For
purposes of determining whether any of the Total Payments will be subject to
the Excise Tax and the amounts of such Excise Tax:

	 	(a)	The
  Severance Benefits and any other payments or benefits received or to be
  received by the Executive in connection with a Change in Control of the
  Company or the Executive’s termination of employment (whether pursuant to the
  terms of this Agreement or any other plan, arrangement, or agreement with the
  Company and subsidiaries or affiliates, or with any Person whose actions
  result in a Change in Control of the Company or any Person affiliated with
  the Company or such Persons) shall be treated as “parachute payments” within
  the meaning of Section 280G(b)(2) of the Code, and all “excess parachute
  payments” within the meaning of Section 280G(b)(l) shall be treated as
  subject to the Excise Tax, unless in the opinion of a nationally recognized
  tax counsel selected by the Company’s independent auditors and reasonably
  acceptable to the Executive:  (i) the
  Severance Benefits and such other payments or benefits (in whole or in part)
  do not constitute parachute payments; (ii) such excess parachute payments (in
  whole or in part) represent reasonable compensation for services actually
  rendered within the meaning of Section 280G(b)(4) of the Code in excess of
  the base amount within the meaning of Section 280G(b)(3) of the Code; or
  (iii) are otherwise not subject to the Excise Tax;
	 	 	 
	 	(b)	The
  amount of the Total Payments which shall be treated as subject to the Excise
  Tax shall be equal to the lesser of: 
  (i) the total amount of the Total Payments; or (ii) the amount of
  excess parachute payments within the meaning of Section 280G(b)( 1) (after
  applying clause (a) above); and
	 	 	 
	 	(c)	The
  value of any noncash benefits or any deferred payment or benefit shall be
  determined by the Company’s independent auditors in accordance with the
  principles of Sections 280G(d)(3) and (4) of the Code.

             For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made,
and state and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive’s residence on the Effective Date of
Termination, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes.

             6.3        Subsequent Recalculation.  In the
event the Internal Revenue Service adjusts the computation of the Company under
Section 6.2 herein so that the Executive did not receive the greatest net
benefit, the Company shall reimburse the Executive for the full amount
necessary to make the Executive whole, plus a market rate of interest, as
determined by the national tax counsel referred to above.

             6.4        Costs of Calculations.  The Company
agrees to bear all costs associated with, and to indemnify and hold harmless,
the national tax counsel of and from any and all claims, damages, and expenses
resulting from or relating to its determination pursuant to this Article 6,
except for claims, damages, or expenses resulting from the gross negligence or
willful misconduct of such firm.

Article 7    THE COMPANY’S PAYMENT
OBLIGATION

             7.1        Payment Obligations Absolute.  The
Company’s obligation to make the payments and the arrangements provided for
herein shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim,
recoupment, defense, or other right which the Company may have against the
Executive or anyone else.  All amounts
payable by the Company hereunder shall be paid without notice or demand.  Subject to the provision set forth in
Section 8.1 and 8.2, each and every payment made hereunder by the Company shall
be final, and the Company shall not seek to recover all or any part of such
payment from the Executive or from whomsoever may be entitled thereto, for any
reasons whatsoever.

             The
Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or arrangements made under any provision of this Agreement, and
the obtaining of any such other employment shall in no event effect any
reduction of the Company’s obligations to make the payments and arrangements
required to be made under this Agreement, except to the extent provided in
Section 4.3(c) herein.

             7.2        Contractual Rights to Benefits.  This
Agreement establishes and vests in each Executive a contractual right to the
benefits to which he or she is entitled hereunder.  However, nothing herein contained shall require or be deemed to
require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder.

Article
8    LEGAL REMEDIES

             8.1  Payment
of Legal Fees.  To the extent permitted by law,
the Company shall pay all legal fees, costs of litigation, prejudgment
interest, and other expenses incurred in good faith by the Executive as a
result of the Company’s refusal to provide the Severance Benefits, the Gross-Up
Payment and/or any other benefits under this Agreement to which the Executive
becomes entitled under this Agreement, or as a result of the Company’s
contesting the validity, enforceability, or interpretation of this Agreement,
or as a result of any conflict (including conflicts related to the calculation
of parachute payments) between the parties pertaining to this Agreement;
provided, however, that the Company shall be reimbursed by the Executive for
all such fees and expenses in the event the Executive fails to prevail with
respect to any one (1) material issue of dispute in connection with such legal
action.  The Executive shall not be
liable for the Company’s fees or costs related to any such litigation.

             8.2  Arbitration.  Executive
shall have the right and option to elect (in lieu of litigation) to have any
dispute or controversy arising under or in connection with this Agreement
settled by arbitration, conducted before a panel of three (3) arbitrators
sitting in a location selected by the Executive within fifty (50) miles from
the location of his or her employment with the Company, in accordance with the
rules of the American Arbitration Association then in effect.

             Judgment
may be entered on the award of the arbitrator in any court having proper
jurisdiction.  All expenses of such
arbitration, including the fees and expenses of the counsel for the Executive,
shall be borne by the Company; provided, however, that the Company shall be
reimbursed by the Executive for all such fees and expenses in the event the
Executive fails to prevail with respect to any one (1) material issue of
dispute in connection with such legal action. 
The Executive shall not be liable for the Company’s fees or costs
related to any such arbitration.

Article 9    OUTPLACEMENT ASSISTANCE

             Following
a Qualifying Termination (as described in Section 4.2 herein), the Executive
shall be reimbursed by the Company for the costs of all outplacement services
obtained by the Executive within the two (2) year period after the Effective
Date of Termination; provided, however, that the total reimbursement shall be
limited to an amount equal to fifteen percent (15%) of the Executive’s Base
Salary as of the Effective Date of Termination.

Article 10    SUCCESSORS AND ASSIGNMENT

             10.1     Successors to the Company.  The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) of all or substantially all of the business and/or
assets of the Company or of any division or subsidiary thereof to expressly
assume and agree to perform the Company’s obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform them if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement
prior to the effective date of any such succession shall be a breach of this
Agreement and shall entitle Executives to compensation from the Company in the
same amount and on the same terms as they would be entitled to hereunder if
they had terminated their employment with the Company voluntarily for Good
Reason.  Except for the purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Effective Date of Termination.

             10.2     Assignment by the Executive.  This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees, and legatees. 
If the Executive dies (prior to receipt of all amounts due under
Sections 4.3(a), (b), (d) or (e) and 4.8, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to the Executive’s Beneficiary.  If the Executive
has not named a Beneficiary, then such amounts shall be paid to the Executive’s
devisee, legatee, or other designee, or if there is no such designee, to the
Executive’s estate.

Article
11    MISCELLANEOUS

             11.1     Employment Status.  Except as
may be provided under any other agreement between the Executive and the
Company, the employment of the Executive by the Company is “at will,” and may
be terminated by either the Executive or the Company at any time, subject to
applicable law.

             11.2     Beneficiaries.  The
Executive may designate one or more persons or entities as the primary and/or
contingent Beneficiaries of any Severance Benefits owing to the Executive under
this Agreement.  Such designation must
be in the form of a signed writing acceptable to the Committee.  The Executive may make or change such
designations at any time.

             11.3     Severability.  In the
event any provision of this Agreement shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of
the Agreement, and the Agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.  Further, the captions of this Agreement are not part of the
provisions hereof and shall have no force and effect.

             11.4     Modification.  No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and by the Company, or by the
respective parties’ legal representatives and successors.

             11.5     Effect
On Prior Agreement.  This Agreement shall completely
supercede the Prior Agreement between the Company and the Executive and the
Prior Agreement shall have no further force or effect.  BCBSUW shall be a third party beneficiary of
this Section 11.5.

             11.6     Applicable
Law.  To the extent not preempted by
the laws of the United States, the laws of the state of Wisconsin shall be the
controlling law in all matters relating to this Agreement.

             IN
WITNESS WHEREOF, the parties have executed this Agreement on this _____ day of
___________________, 2001.

	Cobalt Corporation   	 	Executive:
	 	 	 	

	By:	 	 	«ExecName»
	 	

	 	 
	Its:	 	 
	 	

	 	 
	Attest:

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