SERVICES AGREEMENT
This Agreement is effective as of September 16, 2002 by and between Cobalt
Corporation and Blue Cross & Blue Shield United of Wisconsin (collectively known
as the "Company") and Xxxxx Xxxxxxx, M.D. ("Xx. Xxxxxxx").
RECITALS
1. Xx. Xxxxxxx is the Company's Vice President and Chief Medical Officer.
2. Xx. Xxxxxxx is a knowledgeable and experienced executive familiar with
the Company and its operations.
3. Xx. Xxxxxxx'x position as Vice President and Chief Medical Officer has
been eliminated but the Company desires to retain the availability of Xx.
Xxxxxxx'x services on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the Company and
Xx. Xxxxxxx,
IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
CONTINUED EMPLOYMENT
1.1 Effective September 16, 2002, Xx. Xxxxxxx'x position as Vice President
and Chief Medical Officer of the Company is eliminated and he is no longer an
officer of the Company.
1.2 For the period of September 16, 2002 through March 31, 2003, Xx.
Xxxxxxx shall continue to serve as an employee of the Company providing such
services as the Company may require consistent with Xx. Xxxxxxx'x skills and
experience. It is expressly provided, however, that Xx. Xxxxxxx shall not be
required to maintain regular hours of employment nor to devote his full-time
efforts to his employment with the Company. At such times as Xx. Xxxxxxx'x
physical presence at the Company's office is necessary for the performance of
certain services, the Company and Xx. Xxxxxxx will mutually agree on a date and
time. The Company acknowledges that, subject to Section 4.2, below, Xx. Xxxxxxx
may gain other employment prior to March 31, 2003, and that that will not change
his status as an employee hereunder, nor reduce the compensation and benefits
provided for herein. It is further understood that Xx. Xxxxxxx will not be
provided office or administrative support by the Company and that Xx. Xxxxxxx'x
employment will terminate on March 31, 2003.
1.3 Xx. Xxxxxxx shall report to Xxxxxxx X. Xxxxxxxx while he is employed
by the Company.
ARTICLE II
COMPENSATION, BENEFITS AND OTHER CONSIDERATION
2.1 Compensation and Benefits. Xx. Xxxxxxx shall receive the following
compensation and benefits from the Company through March 31, 2003:
(a) Salary at Xx. Xxxxxxx'x current monthly rate of $24,099 payable
according to the Company's normal management payroll procedures;
(b) Benefits under the 401(k) Plan, Pension Plan and Supplemental
Executive Retirement Plan ("SERP") accrued according to the respective plan
documents;
(c) Continued participation in all Company welfare benefit plans
excluding the executive reimbursement of health expenses. Group health
insurance coverage will cease during this period if Xx. Xxxxxxx becomes
eligible for other group health insurance coverage. After March 31, 2003,
Xx. Xxxxxxx will be able to continue his group insurance coverage through
the Company by paying the full COBRA continuation cost. Xx. Xxxxxxx may
also elect to continue the executive reimbursement of health expenses
benefit by paying the full COBRA continuation cost for that benefit after
September 15, 2002;
(d) Benefits according to the terms of the following named
compensation plans prorated through September 2002 and paid at the time
normally applicable to participants in these plans:
(i) 2002 Profit Sharing Plan (for purposes of this plan, Xx.
Xxxxxxx will be treated as a Cobalt Corporate Employee);
(ii) 2002 Management Incentive Plan (individual performance goals
to be rated at target level, which is 12% of eligible
earnings).
Notwithstanding anything to the contrary contained in the referenced plans, the
payments enumerated in this Section 2.1(d) will be made even if paid after March
31, 2003, and even if Xx. Xxxxxxx is no longer employed by the Company on the
date of payment.
(e) Three (3) weeks of accrued and unused vacation pay and five (5)
unused personal days as of March 31, 2003, to be paid on or before April
15, 2003; and
(f) Continued participation in the Company's Equity Incentive Plan
through March 31, 2003. Continued vesting of options issued to Xx. Xxxxxxx
under the Company's Equity Incentive Plan, through March 31, 2003,
consistent with his employee status through that date, with the continued
exercise of vested options after that date being governed by the terms of
the Plan and the grants thereunder.
2.2 Conference Attendance. The Company shall pay reasonable expenses,
including transportation costs, registration fees, hotel and meals, associated
with Xx. Xxxxxxx'x attendance at two professional meetings. Those meetings are:
The American Association of Health Plans held
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in Chicago, Illinois on October 10 and 11, 2002 and The National Forum of
Quality Improvement in Health Care to be held December 10 and 11, 2002 in
Orlando, Florida.
2.3 Business Expenses. The Company shall reimburse Xx. Xxxxxxx for all
reasonable expenses incurred in the course of the performance of his duties and
responsibilities pursuant to this Agreement and consistent with the Company's
policies with respect to travel, entertainment and miscellaneous expenses, and
the Company's requirements with respect to the reporting of such expenses.
ARTICLE III
EXECUTIVE SEVERANCE AGREEMENT
3.1 Coordination with Executive Severance Agreement. Xx. Xxxxxxx'x
termination shall be deemed a termination "by the Company for reasons other than
Cause" as that phrase is used in Section 4.2(a) of the Executive Severance
Agreement dated June 19, 2001, between Cobalt Corporation and Xx. Xxxxxxx. Xx.
Xxxxxxx'x termination is thus a Qualifying Termination under the Executive
Severance Agreement which will entitle Xx. Xxxxxxx to the benefits described in
the Severance Agreement in the event a "Change in Control," as that term is used
in the Executive Severance Agreement, occurs in the-six month period immediately
following Xx. Xxxxxxx'x March 31, 2003 termination of employment. If Xx. Xxxxxxx
is entitled to benefits under the Executive Severance Agreement as a result of
such a "Change in Control," any such benefits will offset any corresponding
benefits that he is still entitled to under this Agreement.
ARTICLE IV
CONFIDENTIAL INFORMATION; NONCOMPETITION
4.1 Confidential Information. Xx. Xxxxxxx acknowledges that he already has
and may acquire information of a confidential nature relating to the operation,
finances, business relationships and trade secrets of the Company. During Xx.
Xxxxxxx'x employment by the Company and for a period of two years following
termination thereof (that is, through March 31, 2005), within the geographical
area in which such use, publication or disclosure would reasonably be expected
to harm the Company's existing or potential business interests, Xx. Xxxxxxx will
not use (except for use in the course of Xx. Xxxxxxx'x authorized duties on
behalf of the Company), publish, disclose or authorize anyone else to use,
publish or disclose, without the prior written consent of the Company, any
confidential information pertaining to the Company or its affiliated entities,
including, without limitation, any information relating to existing or potential
business, customers, trade or industrial practices, fees, costs, processes or
technical data; provided, however, that following termination of Xx. Xxxxxxx'x
employment, Xx. Xxxxxxx shall be prohibited from using, publishing, disclosing
or authorizing anyone else to use, publish or disclose, any confidential
information which constitutes a trade secret under applicable law. The foregoing
notwithstanding, Xx. Xxxxxxx has no obligation to refrain from using, publishing
or disclosing any such confidential information which is or hereafter shall
become available to the public otherwise than by use, publication or disclosure
by Xx. Xxxxxxx. This prohibition also does not prohibit Xx. Xxxxxxx'x use of
general skills and know-how acquired during and prior to employment, as long as
such use does not involve the use, publication or disclosure of the Company's
confidential information.
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4.2 Noncompetition. During Xx. Xxxxxxx'x employment with the Company, and
until September 15, 2003, Xx. Xxxxxxx shall not, without the prior written
consent of the Company, accept employment by, or directly or indirectly render
consulting services to, a "Competitor of the Company." For purposes of this
Section 4.2, "Competitor of the Company" shall mean: the Wisconsin Operations
and/or Wisconsin Subsidiaries of Humana, WPS, Blue Cross of Minnesota (Atrium),
Medica, United Healthcare and Healthpartners; American Medical Security;
Touchpoint HMO; Network HMO; Xxxx HMO; and Physicians Plus HMO. For purposes of
this Section 4.2, accepting employment by or rendering services to Wisconsin
Operations and/or Wisconsin Subsidiaries of the named entities means a position,
in which any of Xx. Xxxxxxx'x primary responsibilities are with, or supervising,
the named companies' operations in Wisconsin or in which he assists anyone else
at such Competitor of the Company to compete with the Company in Wisconsin. It
would not include jobs with the company-wide responsibilities that included
oversight of the same type of operation in multiple states, other than in
Wisconsin. For example, Xx. Xxxxxxx could serve as the chief medical officer,
COO or CEO of a company where the majority of its business was in Minnesota, as
opposed to Wisconsin, as long as he does not assist such company to compete with
the Company in Wisconsin as described in this section through September 15,
2003.
4.3 Non-Solicitation. For a period of one year following March 31, 2003,
Xx. Xxxxxxx will not solicit, or assist any person or entity to solicit, any
employee, agent, supplier or other person having business relations with the
Company to terminate such employee's employment or terminate or curtail such
supplier's or other person's business relationship with the Company.
4.4 Return of Documents and Property.
(a) Xx. Xxxxxxx represents that he has, to the best of his knowledge
and belief, returned all of the Company's papers, documents and things,
including information stored for use in or with computers and software
applicable to the Company business (and all copies thereof), which were in
Xx. Xxxxxxx'x possession or under Xx. Xxxxxxx'x control, regardless whether
such papers, documents or things contain confidential information or trade
secrets, except such papers, documents, and things as the Company may deem
necessary for Xx. Xxxxxxx to fulfill his employment under this Agreement.
To the extent Xx. Xxxxxxx receives any papers, documents or things
belonging to the Company, in the course of rendering services to the
Company, in the period starting with the date of this Agreement and ending
on his last day of employment, he will return them to the Company.
(b) Xx. Xxxxxxx has returned to the Company his Company-leased car
and gasoline credit card.
4.5 No Conflicts. Xx. Xxxxxxx represents and warrants that he has not
previously assumed any obligations inconsistent with those of this Agreement and
that employment by the Company does not conflict with any prior obligations to
third parties.
4.6 Agreement and Fairness. Xx. Xxxxxxx acknowledges that (i) this
Agreement has been specifically bargained between the parties and reviewed by
him, (ii) Xx. Xxxxxxx has been
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advised to consult with legal counsel regarding this Agreement, and (iii) the
covenants made by and duties imposed on Xx. Xxxxxxx hereby are fair, reasonable
and necessary to protect the legitimate business interests of the Company, and
such covenants and duties will not place an undue burden upon Xx. Xxxxxxx'x
livelihood by the strict enforcement of the covenants contained herein.
4.7 Equitable Relief. Xx. Xxxxxxx acknowledges that any material breach of
this Agreement may cause substantial and irreparable harm to the Company for
which money damages would be an inadequate remedy. Accordingly, the Company
shall in any such event be entitled to obtain injunctive and other forms of
equitable relief to prevent such breach and to recover from Xx. Xxxxxxx the
monetary value of the consideration that he has received from the Company under
this Agreement.
ARTICLE V
RELEASES
5.1 Company Release. Xx. Xxxxxxx on behalf of himself, his heirs, and his
assignees, releases the Company and each of its employee benefit plans from any
and all claims or causes of action, whether known or unknown, asserted or
unasserted, he may have against the Company, including claims under local, state
and federal employment discrimination laws, the Americans with Disabilities Act,
the Age Discrimination in Employment Act, the Employee Retirement Income
Security Act, or claims under any benefit plan or executive compensation
arrangement, or claims under state law, including actions for defamation, breach
of contract or wrongful termination, and from any other liability, obligation or
responsibility of whatever kind. This Section 5.1, however, does not apply or
adversely affect any claims by Xx. Xxxxxxx which involve the following: (i) his
rights to receive vested benefits to which he is entitled as of the date of this
Agreement or the date his employment with the Company terminates under any
qualified or nonqualified employee benefit plans and arrangements of the
Company, including the Company's Equity Incentive Plan; (ii) any benefits under
the Wisconsin Worker's Compensation Act; (iii) claims for indemnification as
provided under applicable law, directors and officers insurance, an agreement
with the Company, or the Articles of Incorporation or By-Laws of the Company; or
(iv) obligations owed by the Company to him under this Agreement.
5.2 Xx. Xxxxxxx Release. The Company hereby releases Xx. Xxxxxxx, his
heirs and his assignees from any and all claims or causes of action, whether
known or unknown, asserted and unasserted, it may have against Xx. Xxxxxxx,
including claims under any benefit plan or executive compensation arrangement,
or claims under state law, and from any other liability, obligation or
responsibility of whatever kind except for a claim to enforce this Agreement.
5.3 Older Worker Benefit Protection Act. Xx. Xxxxxxx agrees and
acknowledges as follows:
(a) He has read the terms of this Agreement, understands its
contents, and agrees to the terms and conditions set forth herein of his
own free will.
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(b) He has been advised to consult with and be represented by legal
counsel prior to executing this Agreement.
(c) He has made an independent investigation of all material facts
and does not rely on any statement or representation of the Company in
entering into this Agreement.
(d) He understands that this Agreement includes a general release and
that he can make no claims against the Company except as provided in the
general release.
(e) He acknowledges that he has been offered a period of twenty-one
(21) days to consider whether to enter into this Agreement.
(f) He acknowledges and understands that he may rescind the waiver of
claims and release contained herein within seven (7) calendar days of the
date on which he executes this document. Should he wish to exercise his
right to rescind this waiver and release, the rescission must be in writing
and must be delivered by hand or mail within seven (7) calendar days of the
date set forth herein. If he wishes to deliver his rescission by mail, the
rescission must be postmarked within the seven (7) calendar days set forth
above; must be sent by certified mail, return receipt requested; and must
be properly addressed as follows:
Xxxxxxx Xxxxxx Potos
Vice President, Human Resources
Cobalt Corporation
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
ARTICLE VI
GENERAL PROVISIONS
6.1 Notices. Any and all notices provided for in this Agreement shall be
given in writing and shall be deemed given to a party at the earlier of (i) when
actually delivered to such party, (ii) if by fax, the confirmation of receipt,
(iii) if by overnight courier, the business day following mailing, or (iv) when
mailed to such party by registered or certified mail (return receipt requested)
or sent to such party by courier, confirmed by receipt, and addressed to such
party at the address designated below for such party as follows (or to such
other address for such party as such party may have substituted by notice
pursuant to this Section 6.1):
(a) If to the Company:
Cobalt Corporation
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: President
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(b) Copy to:
Xxxxxxx Xxxxxx Potos
Vice President, Human Resources
Cobalt Corporation
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
(c) If to Xx. Xxxxxxx:
Xx. Xxxxx Xxxxxxx
00000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
(d) Copy to:
Xxxxx Xxxxx Xxxxxx
Xxxxxxx & Xxxx, S.C.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
6.2 Non-Disparagement. Neither Xx. Xxxxxxx nor the Company and/or its
corporate officers shall make or publish any disparaging or derogatory
statements about the other or the corporate officers of the Company to Company
employees, customers, vendors, media, the investment community or to any other
person.
6.3 Confidentiality of Agreement. The Company and Xx. Xxxxxxx agree not to
disclose the contents of this Agreement to any other person (including to
nonexecutive personnel of the Company) except to (a) Xx. Xxxxxxx'x immediate
family, (b) Xx. Xxxxxxx'x legal or tax advisors, or (c) where disclosure is
required by law or by valid legal process.
6.4 Fees and Costs. Within thirty (30) days of presentation of an itemized
invoice by Xxxxxxx & Xxxx, S.C. to the Company (in care of Xxxxxxx Xxxxx) in
connection with representing Xx. Xxxxxxx as regards this Agreement, the Company
will pay Xxxxxxx & Xxxx, S.C. up to $5,000 for his reasonable legal fees and
costs that are supported by such an itemized invoice. In addition, if there is a
dispute as regards this Agreement, the prevailing party will be entitled to
receive from the other party reimbursement of its costs (including, without
limitation, reasonable attorneys' fees) incurred in connection with such
dispute.
6.5 Reference. If a potential employer or partner of Xx. Xxxxxxx should
contact any of the corporate officers of the Company for a reference, any such
calls will be directed to Xxxxxxx X. Xxxxxxxx. The Company, Xx. Xxxxxxxx and Xx.
Xxxxxxx have agreed that the points contained on the attached Appendix A shall
be the basis for any such reference.
6.6 Entire Agreement. This Agreement contains the entire understanding and
the full and complete agreement of the parties and supersedes and replaces any
prior understandings and agreements between the parties with respect to the
subject matter hereof.
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6.7 Amendment. This Agreement may be altered, amended or modified only in
writing, signed by both of the parties hereto. Headings included in this
Agreement are for convenience only and are not intended to limit or expand the
rights of the parties hereto. References to Sections herein shall mean sections
of the text of this Agreement, unless otherwise indicated.
6.8 Assignability. This Agreement shall be binding on and inure to the
benefit of each party and such party's respective heirs, legal representatives,
successors and assigns.
6.9 Severability. If any court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other provisions
hereof, which shall remain valid, binding and enforceable and in full force and
effect, and such invalid or unenforceable provision shall be construed in a
manner so as to give the maximum valid and enforceable effect to the intent of
the parties expressed therein.
6.10 Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
6.11 Governing Law; Construction. This Agreement shall be governed by the
internal laws of the State of Wisconsin, without regard to any rules or
construction concerning the draftsman hereof, and without regard to its
conflicts of law provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
shown below.
COBALT CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx 11/13/02
---------------------------------------- -------------------------
Date
XXXXX XXXXXXX, M.D.
By: /s/ Xxxxx Xxxxxxx, MD. 11/8/02
---------------------------------------- -------------------------
Date
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APPENDIX A
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Talking points for requests for references for Xxxxx X. Xxxxxxx, MD
Xxx has been an admirable member of the executive team of our organization since
joining us in 1996. He has a solid track record of advancement in title and
scope of responsibility with Cobalt. Of particular note Xxx was a serious
candidate to succeed Xxx Xxxxx as Cobalt CEO.
To his credit Xxx, worked himself out of a job. The Cobalt Board of Directors
chose me to succeed Xxx as CEO. As Xxx executed his own succession plan, he
successfully sold his business unit, Innovative Resource Group and developed a
competent Medical Management infrastructure. As I faced a need for
reorganization and cost reduction, Jim's position as Chief Medical Officer was
expendable.
Among his many accomplishments during his tenure with Cobalt were:
Consolidated and integrated 10 Cobalt subsidiaries or lines of business
-----------------------------------------------------------------------
into Innovative Resource Group, LLC
-----------------------------------
Xxx led IRG until it's strategic sale in March 2002 to APS Healthcare.
Xxx identified APS as a suitor, coordinated the due diligence,
negotiated and closed the sale. This sale generated a significant
profit over book value.
Restructured Medical Management processes to exceed industry benchmarks
-----------------------------------------------------------------------
He moved Medical Management of Cobalt HMO's from non-compliance with
NCQA requirements to 3-Year NCQA accreditation for Cobalt's largest
HMO's.
Held pharmacy cost trends well below industry and competitor averages for
-------------------------------------------------------------------------
past 3 years
------------
He developed and executed a multi-faceted pharmacy strategy that
included PBM contracting, network recontracting, 3-tiered open
formulary design, expanded clinical programs and aggressive
introduction of STEP therapy claim processing.
Enhanced the reputation of Cobalt through community visibility
--------------------------------------------------------------
He regularly represented Cobalt to the community via print and
television media; presentations to community groups; testimony to
governmental entities and participation at BCBSA and on national
committees.
Supported the reorganization of Cobalt
--------------------------------------
He professionally, quietly and successfully executed his own
succession plan while objectively advising me on the reorganization of
Cobalt that is currently under way.
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