Exhibit 10.1

 

Execution Copy

 

SETTLEMENT AGREEMENT AND AMENDMENT TO MERGER AGREEMENT

 

This Settlement Agreement, dated as of March 5, 2008 (the “Agreement”), is made
and entered into among Universal American Corp., a New York corporation
(“Universal American”), Welsh, Carson, Anderson & Stowe IX, L.P., a Delaware
limited partnership, solely in its capacity as the Shareholder Representative
(the “Shareholder Representative”) under that Agreement and Plan of Merger and
Reorganization dated as of May 7, 2007 (the “Merger Agreement”) pursuant to
which, on September 21, 2007, Universal American acquired by means of certain
mergers all of the capital stock of MemberHealth, Inc. (“MemberHealth”), a
wholly owned subsidiary of MHRx LLC (“MHRx”), and Lee-Universal Holdings, LLC,
Welsh, Carson, Anderson & Stowe X, L.P., Union Square Universal Partners, L.P.,
Perry Partners, L.P., Perry Partners International, Inc., Perry Capital, LLC,
Perry Private Opportunities Fund, L.P. and Perry Private Opportunities Offshore
Fund, L.P. (collectively, the “Equity Investors”).

 

WHEREAS, Universal American has advised the Shareholder Representative that
Universal American believes that it has certain claims under the Merger
Agreement;

 

WHEREAS, the Shareholder Representative believes that any such claims would lack
merit factually and legally;

 

WHEREAS, the Shareholder Representative has concluded that it is advisable to
enter into this Agreement in order to, among other things, avoid the expense,
inconvenience, burden, uncertainty and risk of litigation, and that so doing is
in the best interests of the Indemnifying Members (as defined below) of MHRx;

 

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WHEREAS, Universal American has concluded that it is advisable to enter into
this Agreement in order to, among other things, avoid the expense,
inconvenience, burden, uncertainty and risk of litigation, and that so doing is
in the best interests of Universal American and its shareholders;

 

WHEREAS, as a condition and inducement to the Shareholder Representative’s and
Universal American’s willingness to enter into this Agreement, each of the
Equity Investors has agreed to release certain claims, as set forth in Sections
4 and 5 hereof;

 

WHEREAS, Universal American and the Shareholder Representative have each been
advised by Charles E. Hallberg (“Hallberg”) that, without conceding the
correctness of the assumption underlying this recital, at the time of the
closing of the Mergers (as defined in the Merger Agreement) and other
Transactions (as defined in the Merger Agreement) (collectively, the
“Transactions”), Hallberg did not have actual knowledge of intentional fraud in
connection with the Risk Corridor Calculations (as defined below) or the 2008
Bids (as defined below);

 

WHEREAS, Universal American has been advised by the Shareholder Representative
that, without conceding the correctness of the assumption underlying this
recital, at the time of the closing of the Transactions, the Shareholder
Representative did not have actual knowledge of intentional fraud in connection
with the Risk Corridor Calculations or the 2008 Bids;

 

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WHEREAS, on or prior to the date hereof, Universal American has not provided the
Shareholder Representative or Hallberg with information that is inconsistent
with the two immediately preceding recitals to this Agreement; and

 

WHEREAS, the parties hereto intend that the provisions of this Agreement shall
amend the Merger Agreement to the extent provided herein.

 

NOW, THEREFORE, in consideration of the mutual covenants contained below and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties hereby agree
as follows:

 

1.             PAYMENT TERMS.  (a)     Subject to the provisions of this
Section 1, the Shareholder Representative hereby agrees, in its capacity as
such, on behalf of each Indemnifying Member (as such term is defined in the
Merger Agreement), each of whom is listed on Exhibit A hereto (collectively, the
“Indemnifying Members”), that the Indemnifying Members shall pay to Universal
American an aggregate of $100.0 million, consisting of the following: (i) $15.0
million in cash (which amount is equal to the CMS Reconciliation Payment Amount,
as more fully described in paragraph 1(b) below) (the “CMS Reconciliation
Settlement Amount”), (ii) $17,363,002 (which amount is equal to the total value
of the Escrow Cash (as defined in the Merger Agreement) plus accrued interest
thereon and the Escrow Shares (as defined in the Merger Agreement) (valued at
$18.59 per share) in the Escrow Fund (as defined in the Merger Agreement) (the
“Escrow Settlement Amount”) and (iii) $54,461,298, of which amount 45% shall be
payable in shares of Parent Common Stock (as defined in the Merger Agreement)
(valued

 

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at $18.59 per share) and 55% shall be payable in cash (collectively, the “Third
Tier Settlement Amount” and, together with the CMS Reconciliation Settlement
Amount and the Escrow Settlement Amount, collectively, the “Settlement
Amount”).  Subject to paragraph 1(d) below, the aggregate liability of each
Indemnifying Member hereunder is set forth on Exhibit A and is equal to the
Settlement Amount multiplied by such Indemnifying Member’s Indemnification
Percentage (as such term is defined in the Merger Agreement) set forth on
Exhibit A hereto.  Each Indemnifying Member’s Indemnification Percentage of the
Settlement Amount (on a total value basis), the CMS Reconciliation Settlement
Amount, the Escrow Settlement Amount (with an allocation of stock and cash) and
the Third Tier Settlement Amount (with an allocation of stock and cash) is set
forth on Exhibit A hereto.  The Settlement Amount shall be payable to Universal
American in accordance with the provisions of paragraph 1(b), (c) and (d) below.

 

(b)           Payment of the CMS Payment Settlement Amount.  Universal American
hereby acknowledges and agrees and the Shareholder Representative hereby
acknowledges and agrees, in its capacity as such, on behalf of the Indemnifying
Members that the CMS Reconciliation Payment Amount (as defined in the Merger
Agreement) shall be deemed to have been finally determined to be a positive
number equal to $15.0 million.  Universal American hereby acknowledges and
agrees and the Shareholder Representative hereby acknowledges and agrees, in its
capacity as such, on behalf of the Indemnifying Members that, notwithstanding
anything to the contrary contained in the Merger Agreement, the CMS
Reconciliation Payment Amount shall be withheld by the Company and shall not be
paid to any person who received the Initial

 

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Merger Consideration in accordance with Section 2.12(a) of the Merger Agreement,
and shall be immediately credited against each Indemnifying Member’s obligation
with respect to the Settlement Amount in accordance with each such Indemnifying
Member’s Indemnification Percentage.

 

(c)           Payment of the Escrow Settlement Amount.  Each of Universal
American and the Shareholder Representative hereby agree to provide the Escrow
Agent (as defined in the Merger Agreement), on the date hereof, with joint
instructions (which joint instructions shall be in the form attached as
Exhibit B hereto) for the Escrow Agent to release (x) the entire remaining
balance of the Escrow Cash (which amount is equal to (A) $17,325,000 plus
(B) accrued interest thereon in an amount equal to $38,002) and (y) 708,752
Escrow Shares.  The parties shall use their reasonable best efforts to cause the
Escrow Cash (and accrued interest thereon) and the Escrow Shares to be released
to Universal American within one (1) business day after the date hereof in
accordance with the terms of the Escrow Agreement (as defined in the Merger
Agreement).

 

(d)           Payment of the Third Tier Settlement Amount.  The balance of the
Settlement Amount not payable pursuant to paragraph 1(b) and (c) above shall be
paid directly by the Indemnifying Members in accordance with each such
Indemnifying Member’s Indemnification Percentage set forth on Exhibit A hereto
as soon as practicable, but in any event within 20 calendar days (the “Payment
Date”) after the date hereof (x) in the case of the cash portion of such
Indemnifying Member’s Indemnification Percentage of the Third Tier Settlement
Amount, by wire transfer of immediately available funds to the Universal
American account designated in writing by

 

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Universal American to the Shareholder Representative within one day after the
date hereof and (y) in the case of the Parent Common Stock portion of each such
Indemnifying Member’s Indemnification Percentage of the Third Tier Settlement
Amount, by delivery of the original stock certificates representing such shares,
together with stock powers duly executed in blank (or, if such original stock
certificates shall be lost, an affidavit of loss together with a customary
indemnification agreement in form and substance reasonably satisfactory to
Universal American) to Universal American (provided, that Welsh, Carson,
Anderson & Stowe IX, L.P., Hallberg and David Azzolina shall deliver such
original stock certificates to Universal American as soon as practicable, but in
any event on or prior to March 20, 2008, it being understood and agreed that for
purposes of this Agreement, the term “Payment Date” with respect to each such
Indemnifying Member’s obligation to pay the Parent Common Stock portion of such
Indemnifying Member’s Indemnification Percentage of the Third Tier Settlement
Amount pursuant to this paragraph 1(d) shall be deemed to be March 28, 2008). 
In the event that any Indemnifying Member shall fail to deliver any portion of
the Third Tier Settlement Amount to Universal American by the applicable Payment
Date, then (x) Universal American shall provide the non-paying Indemnifying
Member with written notice of such non-payment (a “Payment Default Notice”) with
a copy to the Shareholder Representative, and (y) commencing on such Payment
Date, the unpaid portion of the Third Tier Settlement Amount (valuing shares of
Parent Common Stock at $18.59 per share) shall begin to accrue interest at the
rate of 15% per annum (or, if such rate exceeds the maximum rate permissible by
law, such lesser rate as shall be legally permissible).  The non-paying
Indemnifying Member shall have an additional 20 calendar days

 

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following the date of the Payment Default Notice in which to pay such unpaid
Third Tier Settlement Amount (together with default interest thereon).  If such
Indemnifying Member shall fail to pay such unpaid Third Tier Settlement Amount
in full (together with default interest thereon) by the expiration of such
additional 20 calendar day period, then the release described in paragraph 2
below with respect to such non-paying Indemnifying Member only shall
automatically and without any further action on the part of Universal American,
the Shareholder Representative or any other party, be of no further force and
effect (and Universal American shall retain all rights to assert a claim for
indemnification against such non-paying Indemnifying Member pursuant to the
terms of the Merger Agreement and any other claims which Universal American may
have under the Merger Agreement).  The termination of the release described in
the immediately preceding sentence shall be in addition to any and all remedies
that Universal American shall have in law or in equity with respect to such
non-paying Indemnifying Member.

 

(e)           The Shareholder Representative, in its capacity as such, on behalf
of the Indemnifying Members, agrees to use its commercially reasonable efforts
to take all further action required to effectuate the purposes of paragraph 1
hereto, as soon as practicable, including, without limitation, preparing and
delivering all such additional documents as are required by the Escrow Agent to
deliver the Escrow Fund to Universal American and any such other documents
(including, without limitation, stock transfer powers) as may be required to
complete the transfer of record ownership of the Escrow Shares to Universal
American.  Universal American hereby agrees to use its commercially reasonable
efforts to cooperate with its transfer agent to facilitate the payment of any
portion of the Settlement Amount payable in shares of Parent Common

 

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Stock, including, without limitation, in connection with the issuance of new
share certificates evidencing any shares of Parent Common Stock held by any such
Indemnifying Member and not payable pursuant to the terms hereof.

 

(f)            Payments made hereunder will be treated as adjustments to the
Merger Consideration (as defined in the Merger Agreement) for all tax purposes.

 

(g)           Notwithstanding anything to the contrary contained herein, it is
understood and agreed that the Shareholder Representative is not guaranteeing
the obligations (or the enforceability thereof) of any Indemnifying Member
(other than Welsh, Carson, Anderson & Stowe IX, L.P.) pursuant to Sections 1, 6
or 7 hereof.  Accordingly, the maximum liability of Welsh, Carson, Anderson &
Stowe IX, L.P., whether in its individual capacity as an Indemnifying Member or
in its capacity as Shareholder Representative shall not exceed, without
duplication, the Settlement Amount multiplied by Welsh, Carson, Anderson & Stowe
IX, L.P.’s Indemnification Percentage set forth on Exhibit A hereto, other than
in the case that the representation set forth in Section 16 is untrue and only
to the extent of such breach.

 

2.             RELEASE BY UNIVERSAL AMERICAN OF THE INDEMNIFYING MEMBERS, THE
SHAREHOLDER REPRESENTATIVE AND MHRX.  Universal American and each of its direct
and indirect subsidiaries, controlled affiliates, officers, directors, members,
managers, partners, employees, agents and other representatives (collectively,
the “Universal American Releasors”) hereby fully, finally and forever release,
relinquish and discharge as against any and all of the Indemnifying Members, the
Shareholder Representative and MHRx, and their respective past or present

 

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directors, officers, members, managers, managing members, managing directors,
fiduciaries, employees, associates, parent entities, subsidiaries, affiliates,
joint ventures, limited liability companies, general or limited partners,
partnerships, controlling persons, consultants, accountants, auditors,
attorneys, investment bankers, insurers, co-insurers, reinsurers, heirs,
executors, administrators, representatives, advisors, agents, personal
representatives, estates, predecessors, successors and assigns, and the
respective past or present direct or indirect equity holders, controlling
persons, affiliates, general or limited partners, partnerships, directors,
officers, agents, partners, members, managers or employees of any of the
foregoing (collectively, the “Released Persons”) from and against any and all
actual or potential claims, demands, rights, actions, causes of action,
liabilities, damages, losses, contractual or other obligations, judgments,
duties, suits, fees, costs, expenses, matters and issues of any kind or nature
whatsoever, whether known or unknown, contingent or absolute, suspected or
unsuspected, disclosed or undisclosed, hidden or concealed, matured or
unmatured, accrued or unaccrued, apparent or unapparent (including but not
limited to any claims for fraudulent inducement, actual or constructive fraud,
or claims arising under the federal securities laws or under federal, state,
local, statutory or common law or any other law, rule or regulation, including
the law of any jurisdiction outside of the United States), and whether legal or
equitable or of any other type, that the Universal American Releasors ever had,
now have or may have, that have arisen, arise now or hereafter may arise out of
or relate in any manner to, or involve, directly or indirectly, any facts,
practices, matters, transactions, acts, occurrences, events, statements,
representations, omissions, claims or any other matter, thing or cause
whatsoever, or any series thereof, in any way embraced, involved, set forth

 

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in, referred to in, or otherwise related to, directly or indirectly, the Merger
Agreement (including any representations or warranties made pursuant thereto),
any documents, instruments, agreements or certificates delivered or executed
pursuant to the Merger Agreement, the Transactions, the registration statement
on Form S-4 filed by Universal American with the Securities and Exchange
Commission (the “SEC”) on June 18, 2007, and amended on July 5, 2007 and
July 17, 2007 (the “Registration Statement”), the proxy statement/prospectus
filed with the SEC by Universal American and mailed by Universal American to its
shareholders on or about July 25, 2007 in connection with the meeting of
Universal American’s shareholders held on August 23, 2007 (the “Proxy”),
MemberHealth, MHRx, the information supplied by MemberHealth for inclusion in
the Proxy or the Registration Statement, including all financial statements and
related footnote and MD&A disclosure (collectively, the “MH Information”),  the
calculation of MemberHealth’s “risk corridor” adjustment receivable for fiscal
year 2006 and for the fiscal quarter ended March 31, 2007 (the “Risk Corridor
Calculations”), MemberHealth’s contract bids submitted to the Center for
Medicare and Medicaid Services (“CMS”) for fiscal year 2008 (the “2008 Bids”),
any public disclosures by Universal American including those relating to its
actual or estimated revenues, earnings or other financial results for 2007, 2008
or beyond, any and all claims or matters that are based upon, arise out of,
relate in any way to, or involve directly or indirectly, the Transactions, any
debt or equity financing arrangements or related agreements entered into with
financing sources for the Transactions, any agreements or arrangements entered
into with any reinsurers relating to any of the foregoing, or any submissions
made to any person, entity, governmental agency or other third party based on
any of the foregoing

 

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(including without limitation in any document filed with or provided to the SEC
or CMS) (collectively, the “Released Claims”); PROVIDED, that, notwithstanding
that the foregoing release, among other things, discharges, extinguishes and
releases all obligations and liabilities of the Released Persons under all other
sections of the Merger Agreement, the release set forth above does not terminate
the Merger Agreement and is not intended to terminate and does not terminate or
otherwise affect the following provisions of the Merger Agreement: Sections 2.13
(Contingent Payments), 2.14 (Certain Adjustments), 5.9 (Employee Benefit Plans),
5.10 (Indemnification of Directors and Officers), 5.11(a), (b) and (c) (first
three sentences only) (Certain Tax Matters; Plan of Reorganization), 5.13
(Anti-Takeover Statutes), 5.16 (Shareholder Representative), 8.3 (Notices), 8.5
(Time of the Essence; Computation of Time), 8.7 (Governing Law), 8.8
(Jurisdiction and Venue; Waiver of Jury Trial), 8.9 (Assignment; Successors and
Assigns; No Third Party Rights), 8.10 (Counterparts), 8.11 (Titles and
Headings), 8.12 (Entire Agreement), 8.13 (Severability), 8.14 (No Strict
Construction), 8.16 (Failure or Indulgence not Waiver), 8.17 (Amendments), and,
solely with respect to the foregoing specified provisions of the Merger
Agreement, Section 8.15 (Specific Performance), (collectively, the “Continuing
Merger Agreement Provisions”) the provisions of Section 2 (Shareholder
Representative) of any Joinders in the form of Exhibit C to the Merger Agreement
that were executed in connection with the Transactions by Indemnifying Members,
any provisions of any lock-up agreements in the form of Exhibit 6.2(e)(v) to the
Merger Agreement that were executed in connection with the Transactions by
Indemnifying Members, or the registration rights agreement and shareholders
agreement (in the forms of Exhibits 6.3(i)(iv) and 6.3(i)(v), respectively, to
the Merger Agreement)

 

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executed in connection with the Transactions.  For the avoidance of doubt,
except as specifically and expressly provided in the immediately preceding
proviso, the Released Claims shall be deemed to include a full release of all
liabilities and obligations of the Released Persons under or relating to the
Merger Agreement (including, without limitation, those under Section 8.2 of the
Merger Agreement) and all documents, instruments, certificates and agreements
executed in connection therewith and no representations or warranties contained
in Article 3 of the Merger Agreement or any certificate delivered at any time
pursuant thereto shall be deemed to survive the date of this Agreement and the
giving of this release; PROVIDED FURTHER that this release is not intended to
have any application to employees of MemberHealth other than employees who are
Indemnifying Members; and PROVIDED FURTHER that nothing in this release shall
affect the enforceability of this Agreement.  The Universal American Releasors
agree and covenant never to assert, or to voluntarily assist another person,
entity or group in asserting, any of the Released Claims against any of the
Released Persons, in any court of law or equity, or in any other forum.

 

3.             UNKNOWN CLAIMS.  The release given pursuant to Section 2 hereof
extends to “unknown” claims within the definition of Released Claims, which
unknown claims include claims that the Universal American Releasors do not know
or suspect to exist at the time of the release, which if known, might have
affected the decision to enter into the release.  The Universal American
Releasors irrevocably waive any and all provisions, rights and benefits
conferred by any law of the United States or any state or territory of the
United States, or principle of common law, or the law of any jurisdiction
outside the United States, which governs or limits a person’s release of

 

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unknown claims.  The Universal American Releasors expressly waive and
relinquish, to the fullest extent permitted by law, the provisions, rights and
benefits of § 1542 of the California Civil Code (and any other similar law or
provision with respect to Released Claims), which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

The Universal American Releasors waive any and all provisions, rights and
benefits conferred by any law of the United States, any law of any state or
territory of the United States, and any principle of common law, and the law of
any jurisdiction outside the United States, which is similar, comparable, or
equivalent to California Civil Code §1542.  The Universal American Releasors
acknowledge that they may discover facts in addition to or different from those
that they now know or believe to be true with respect to the subject matter of
their release, but that it is their intention, as set forth above, to among
other things fully, finally and forever settle and release the Released Claims,
including unknown claims, as that term is defined herein, and the subsequent
discovery or existence of any such facts shall not in any way affect the
effectiveness of this Agreement or the release given by the Universal American
Releasors.

 

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4.             RELEASE BY THE EQUITY INVESTORS OF THE INDEMNIFYING MEMBERS, THE
SHAREHOLDER REPRESENTATIVE, MHRX AND UNIVERSAL AMERICAN.  Each of the Equity
Investors and each of their respective direct and indirect subsidiaries,
affiliates, officers, directors, members, managers, partners, employees, agents
and other representatives (collectively, the “Equity Investors Releasors”)
hereby fully, finally and forever release, relinquish and discharge as against
the Indemnifying Members, the Shareholder Representative, MHRx, and Universal
American, and their respective past or present directors, officers, members,
managers, managing members, managing directors, fiduciaries, employees,
associates, parent entities, subsidiaries, controlled affiliates, joint
ventures, limited liability companies, general or limited partners,
partnerships, controlling persons, heirs, executors, administrators,
representatives, agents, personal representatives, estates, predecessors,
successors and assigns, and the respective past or present direct or indirect
equity holders, controlling persons, controlled affiliates, general or limited
partners, partnerships, directors, officers, agents, partners, members, managers
or employees of any of the foregoing (collectively, the “Equity
Investors-Released Persons”) from and against any and all actual or potential
claims, demands, rights, actions, causes of action, liabilities, damages,
losses, contractual or other obligations, judgments, duties, suits, fees, costs,
expenses, matters and issues of any kind or nature whatsoever, whether known or
unknown, contingent or absolute, suspected or unsuspected, disclosed or
undisclosed, hidden or concealed, matured or unmatured, accrued or unaccrued,
apparent or unapparent (including but not limited to any claims for fraudulent
inducement, actual or constructive fraud, or claims arising under the federal
securities laws or under federal,

 

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state, local, statutory or common law or any other law, rule or regulation,
including the law of any jurisdiction outside of the United States), and whether
legal or equitable or of any other type, that any of the Equity Investors
Releasors ever had, now has or may have, that have arisen, arise now or
hereafter may arise out of or relate in any manner to, or involve, directly or
indirectly, any facts, practices, matters, transactions, acts, occurrences,
events, statements, representations, omissions, claims or any other matter,
thing or cause whatsoever, or any series thereof, (a) in the case of the Equity
Investors-Released Persons other than Universal American and its successors and
assigns, that are in any way embraced, involved, set forth in, referred to in,
or otherwise related to, directly or indirectly, the Merger Agreement, the
Transactions, the Proxy, the Registration Statement, MemberHealth, MHRx, the MH
Information, the Risk Corridor Calculations or the 2008 Bids, or that are based
upon, arise out of, relate in any way to, or involve directly or indirectly, any
of the foregoing or any related disclosures by Universal American to its
shareholders relating to any of the foregoing (including without limitation in
any document filed with the SEC), and (b) in the case of Universal American and
its successors and assigns, only insofar as such facts, practices, matters,
transactions, acts, occurrences, events, statements, representations, omissions,
claims or other matters, things or causes relate directly or indirectly to the
MH Information, the Risk Corridor Calculations or the 2008 Bids, and in the case
of each of (a) and (b), whether or not arising under or relating to the
Securities Purchase Agreement (as defined in the Merger Agreement) or the Other
Securities Purchase Agreement (as defined in the Merger Agreement)
(collectively, the “Equity Investors Released Claims”); PROVIDED, that the
foregoing shall not constitute a release of any rights under and shall not
affect the

 

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Equity Investors’ (or any other person’s) rights under the registration rights
agreement entered into in connection with the Transactions, the stockholders
agreement entered into in connection with the Transactions or any rights of any
person under Universal American’s articles of incorporation or bylaws, any
indemnification agreements in favor of directors of Universal American or any
insurance policies; PROVIDED FURTHER that the foregoing shall not affect the
Investors’ rights under Section 5.9 of the Securities Purchase Agreement or
under Section 5.9 of the Other Securities Purchase Agreement; and PROVIDED
FURTHER that nothing in this release shall affect the enforceability of this
Agreement.  Each of the Equity Investors Releasors agrees and covenants never to
assert, or voluntarily assist another person, entity or group in asserting, any
of the Equity Investors Released Claims against any of the Equity
Investors-Released Persons, in any court of law or equity, or in any other
forum.

 

5.             UNKNOWN CLAIMS.  The release given pursuant to Section 4 hereof
extends to “unknown” claims within the definition of Equity Investors Released
Claims, which unknown claims include claims that the Equity Investors Releasors
do not know or suspect to exist at the time of the release, which if known,
might have affected the decision to enter into the release.  The Equity
Investors Releasors irrevocably waive any and all provisions, rights and
benefits conferred by any law of the United States or any state or territory of
the United States, or principle of common law, or the law of any jurisdiction
outside the United States, which governs or limits a person’s release of unknown
claims.  The Equity Investors Releasors expressly waive and relinquish, to the
fullest extent permitted by law, the provisions, rights and benefits of § 1542
of the California Civil Code (and any other similar law or provision with
respect to Equity

 

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Investors Released Claims), which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

The Equity Investors Releasors waive any and all provisions, rights and benefits
conferred by any law of the United States, any law of any state or territory of
the United States, and any principle of common law, and the law of any
jurisdiction outside the United States, which is similar, comparable, or
equivalent to California Civil Code §1542.  The Equity Investors Releasors
acknowledge that they may discover facts in addition to or different from those
that they now know or believe to be true with respect to the subject matter of
their release, but that it is their intention, as set forth above, to among
other things fully, finally and forever settle and release the Equity Investors
Released Claims, including unknown claims, as that term is defined herein, and
the subsequent discovery or existence of any such facts shall not in any way
affect the effectiveness of this Agreement or the release given by the Equity
Investors Releasors.

 

6.             RELEASE BY THE SHAREHOLDER REPRESENTATIVE AND THE INDEMNIFYING
MEMBERS OF UNIVERSAL AMERICAN.  The Shareholder Representative, on behalf of
itself, and in its capacity as such, on behalf of the Indemnifying Members,
hereby releases Universal American, its past or present directors, officers, 
members, managers, managing members, managing directors, fiduciaries, employees,
associates, parent entities, subsidiaries, affiliates, joint ventures, limited
liability companies, general or limited partners, partnerships, controlling
persons,

 

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consultants, accountants, auditors, attorneys, investment bankers, insurers,
co-insurers, reinsurers, heirs, executors, administrators, representatives,
advisors, agents, personal representatives, estates, predecessors, successors
and assigns, and the respective past or present direct or indirect equity
holders, controlling persons, affiliates, general or limited partners,
partnerships, directors, officers, agents, partners, members, managers or
employees of any of the foregoing (collectively, the “Universal Released
Persons”), from any claim that the Shareholder Representative or the
Indemnifying Members, in their capacity as shareholders of Universal American,
have under the federal securities laws or the laws of any state, due to any
alleged breaches of fiduciary duty, or alleged misstatements or omissions in
public disclosures by Universal American, up through and including the issuance
of the press release annexed hereto as Exhibit C hereto, as well as from any
claim under Section 8.2(c) of the Merger Agreement (collectively, the “Universal
Released Claims”), PROVIDED, that notwithstanding the foregoing, the release set
forth above is not intended to terminate and does not terminate or otherwise
affect the Continuing Merger Agreement Provisions; PROVIDED FURTHER that nothing
in this release shall affect the enforceability of this Agreement.  The
Shareholder Representative, on behalf itself and, in its capacity as such, on
behalf of the Indemnifying Members, releases unknown claims encompassed within
this release to the same extent described in Section 5, but with respect to the
Universal Released Claims.  The Shareholder Representative, on behalf of itself
and, in its capacity as such, on behalf of the Indemnifying Members, agrees and
covenants never to assert, or to voluntarily assist another person, entity or
group in asserting, any of the Universal Released Claims against any of the
Universal Released Persons in any court of law or equity or in any other

 

18

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forum.

 

7.             NO ADMISSIONS.  Neither this Agreement or its provisions, nor any
negotiations, statements or proceedings in connection therewith, shall in any
event be construed as, or deemed to be evidence of, an admission or concession
on the part of any Released Persons of any fault, liability or wrongdoing by
them, or any of them, or as to any fact or claim that might be alleged or
asserted against any of them, and shall not be discovered, interpreted,
construed, deemed, invoked, offered or received in evidence or otherwise used in
any action or proceeding, whether civil, criminal or administrative, for any
purpose other than as  expressly provided in this Agreement, or be used in any
way as an admission, concession or evidence of any liability or wrongdoing of
any nature, and shall not be construed as, or deemed to be evidence of, an
admission or concession that Universal American has suffered any damage caused
by any Released Person.

 

8.             BINDING EFFECT.  This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto, and each of the Indemnifying Members and
any of their respective executors, administrators, heirs, successors and
assigns.  Any person released pursuant to this Agreement is an express third
party beneficiary of this Agreement and may enforce the release given in favor
of that person.

 

9.             CHOICE OF LAW.  This Agreement, and any claim arising out of or
relating hereto, shall be governed by, and interpreted and enforced pursuant to,
the substantive laws of the State of New York, without regard to New York’s
choice of law or conflict of laws principles that would cause the application of
the substantive laws of any other jurisdiction.

 

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10.           JURISDICTION; WAIVER OF JURY TRIAL.  In the event of any claim
arising out of or relating to this Agreement or its subject matter, the parties
hereto agree that such claim will be adjudicated only in the United States
District Court for the Southern District of New York or the Supreme Court of the
State of New York, County of New York, to whose jurisdiction and venue the
parties hereto exclusively consent for such purpose.  EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT.

 

11.           ENTIRE AGREEMENT.  Sections 1-17, inclusive, of this Agreement,
together with the Exhibits hereto, constitute the entire agreement among the
parties with respect to its subject matter, and supersede all prior or
contemporaneous oral or written agreements, understandings or representations
with respect thereto.  No party is relying upon any statement, agreement or
representation other than those contained in Sections 1-17 hereof and the
Exhibits hereto, in determining to enter into and perform this Agreement.  For
the avoidance of doubt, the recitals to this Agreement (other than the defined
terms contained therein) are not part of this Agreement, no party is relying
upon any such recitals for any purpose, and such recitals are not intended to
have any legal effect.

 

12.           COUNTERPARTS.  This Agreement may be executed in two or more
counterparts, by original, telecopied, or PDF transmitted signature, all of
which shall be considered one and the same agreement, and shall become binding
pursuant to its terms when such counterparts have been signed by each of the
parties and delivered to the other parties.

 

20

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13.           DUE AUTHORIZATION.  Each of the individuals executing this
Agreement on behalf of one or more parties hereto warrants and represents that
he or she has been duly authorized and empowered to execute this Agreement on
behalf of each such respective party and to bind each such respective party to
the terms hereof.

 

14.           AMENDMENT.  This Agreement and any of the Exhibits hereto may be
amended or modified only by a written instrument signed by the parties hereto,
and any other purported amendment or modification shall be null and void.

 

15.           JOINTLY DRAFTED.  This Agreement, together with any Exhibits,
shall be deemed to have been mutually prepared by the parties and shall not be
construed against any of them by reason of authorship.

 

16.           REPRESENTATION BY THE SHAREHOLDER REPRESENTATIVE.  The Shareholder
Representative hereby represents and warrants to Universal American that it has
not entered into any instrument, agreement or arrangement amending any of the
joinder agreements executed and delivered by the Indemnifying Members.  The
representation and warranty set forth in this Section 16 shall survive the
execution and delivery of this Agreement.

 

17.           NOTICES.  Whenever notice is required to be given pursuant to this
Agreement, it shall be delivered by hand, or by nationally recognized overnight
courier service (in which case it shall be deemed delivered the next business
day) addressed as follows:

 

21

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If to Universal American:

 

Universal American Financial Corp.

6 International Drive

Rye Brook, New York 10573-1068

Telephone: (914) 934-5200

Facsimile:  (914) 934-0700
Attention:   Mitchell Stier, Esq.

 

With a copy to:

 

Andrew J. Levander, Esq.

DECHERT LLP

30 Rockefeller Plaza

New York, NY 10112

 

If to the Shareholder Representative:

 

 

Welsh, Carson, Anderson & Stowe IX, L.P.,

as Shareholder Representative

c/o Welsh, Carson, Anderson & Stowe

320 Park Avenue, Suite 2500

New York, NY 10022-6815

Attn: Sean M. Traynor

 

With a copy to:

 

William I. Sussman, Esq.

ROPES & GRAY LLP

1211 Avenue of the Americas

New York, NY 10036-8704

 

If to the Equity Investors:

 

If to Welsh, Carson, Anderson & Stowe X, L.P., to:

 

Welsh, Carson, Anderson & Stowe, L.P.

320 Park Avenue, Suite 2500

New York, New York 10022-6815

Telephone number:  (212) 893-9500

Facsimile number:  (212) 893-9583
Attention:  Sean M. Traynor

 

22

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with a copy to:

 

Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036
Telephone number:  (212) 596-9000
Facsimile number:  (212) 596-9090
Attention:  Othon A. Prounis, Esq. and Christopher W. Rile, Esq.

 

If to Lee-Universal Holdings, LLC:

 

Lee Equity Partners

767 Fifth Avenue

New York, New York 10153

Telephone number:  (212) 888-1500

Facsimile number:  (212) 888-6388
Attention:  Mark Gormley/Benjamin Hochberg

 

with a copy to:

 

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Telephone number:  (212) 310-8000

Facsimile number:  (212) 310-8007

Attention:  Malcolm Landau, Esq.

 

If to Perry Partners, L.P., Perry Partners International, Inc., Perry Capital,
LLC, Perry Private Opportunities Fund, L.P. or Perry Private Opportunities
Offshore Fund, L.P.:

 

Perry Capital, LLC

767 Fifth Avenue

New York, New York 10153

Telephone number:  (212) 583-4000

Facsimile number:  (212) 583-4146

Attention:  Michael C. Neus

 

with a copy to:

 

Cravath, Swaine & Moore LLP

825 Eighth Avenue

New York, New York 10019-7475

Telephone number:  (212) 474-1000

Facsimile number:  (212) 474-3700

 

23

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Attention:  Mark Greene, Esq.

 

- and -

 

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Telephone number:  (212) 310-8000

Facsimile number:  (212) 310-8007

Attention:  Malcolm Landau, Esq.

 

If to Union Square Universal Partners, L.P.:

 

Union Square Partners

230 Park Avenue South, 11th floor

New York, New York 10003

Telephone number:  (212) 965-2400

Facsimile number:  (212) 343-5206

Attention:  Bob Spass/Eric Leathers

 

With a copy to:

 

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

Telephone number:  (212) 310-8000

Facsimile number:  (212) 310-8007

Attention:  Malcolm Landau, Esq.

 

With a copy to:

 

Joseph S. Allerhand, Esq.

WEIL, GOTSHAL & MANGES LLP

767 Fifth Avenue

New York, NY 10153

 

24

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, by their duly authorized signatories, as of the date first above
written.

 

25

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UNIVERSAL AMERICAN CORP.

 

 

 

 

 

By:

/s/ Richard A. Barasch

 

       Name:        Richard A. Barasch

 

       Title:          Chief Executive Officer

 

26

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WELSH, CARSON, ANDERSON &
STOWE IX, L.P., as Shareholder
Representative

 

 

 

 

 

 

By:

WCAS IX ASSOCIATES LLC,

 

 

its General Partner

 

 

 

 

 

 

 

By:

/s/ Russell L. Carson

 

 

Name:      Russell L. Carson

 

 

Title:        Managing Member

 

27

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MEMBERHEALTH LLC

 

 

 

 

 

By:

/s/ Mitchell J. Stier

 

 

Name:

Mitchell J. Stier

 

 

Title:

Executive Vice President
and Secretary

 

 

 

28

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MHRx LLC

 

 

 

 

 

By:

/s/ Sean M. Traynor

 

 

Name:

Sean M. Traynor

 

 

Title:

Member

 

 

 

 

29

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/s/ Mark K. Gormley

 

Mark K. Gormley, Partner

 

Lee-Universal Holdings, LLC

 

 

 

 

 

30

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WELSH, CARSON, ANDERSON &
STOWE X, L.P.

 

 

 

 

 

 

By:

WCAS X ASSOCIATES LLC,

 

 

its General Partner

 

 

 

 

 

 

 

By:

/s/ Russell L. Carson

 

 

Name:      Russell L. Carson

 

 

Title:        Managing Member

 

31

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UNION SQUARE UNIVERSAL
PARTNERS, L.P.

 

 

 

 

 

 

By:

UNION SQUARE UNIVERSAL GP,
LLC,

 

 

its General Partner

 

 

 

 

 

 

 

By:

/s/ Eric Leathers

 

 

Name:      Eric Leathers

 

 

Title:        Partner

 

32

--------------------------------------------------------------------------------

 

Perry Partners, LP

 

By:

Perry Corp, its Managing General Partner

 

 

 

 

 

/s/ Michael Neus

 

Name:  Michael Neus

General Counsel

 

33

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Perry Partners International, Inc.

 

By:

Perry Corp, its Investment Manager

 

 

 

 

 

/s/ Michael Neus

 

Name:  Michael Neus

General Counsel

 

34

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Perry Capital, LLC

 

By:

Perry Corp, its Managing Member

 

 

 

 

 

/s/ Michael Neus

 

Name:  Michael Neus

General Counsel

 

35

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Perry Private Opportunities Fund, L.P.

 

By:

Perry Private Opportunities Fund GP, L.L.C.

By:

Perry Corp, its Managing Member

 

 

 

 

 

/s/ Michael Neus

 

Name:  Michael Neus

General Counsel

 

36

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Perry Private Opportunities Offshore Fund, L.P.

By:

Perry Private Opportunities Offshore Fund (Cayman) G.P., L.L.C.

By:

Perry Corp, its Managing Member

 

 

 

 

 

/s/ Michael Neus

 

Name:  Michael Neus

General Counsel

 

37

--------------------------------------------------------------------------------

 

 

/s/ Charles E. Hallberg

 

Charles E. Hallberg

 

38

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BEACHFRONT ENTERPRISES, LLC

 

 

 

 

 

By:

/s/ Charles E. Hallberg

 

 

Name:

Charles E. Hallberg

 

 

Title:

 

 

39

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GRANTOR RETAINED ANNUITY TRUST
AGREEMENT OF CHARLES E. HALLBERG
dated October 16, 2006

 

 

 

 

 

By:

/s/ Charles E. Hallberg

 

 

Name:

Charles E. Hallberg

 

 

Title:

Trustee

 

40

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IRREVOCABLE TRUST AGREEMENT OF
CHARLES E. HALLBERG dated October 16, 2006

 

 

 

 

 

By:

/s/ Sharon L. Hallberg

 

 

Name:

Sharon L. Hallberg

 

 

Title:

Trustee

 

41

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