Document:

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;

 

 

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 

 

12

 

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, 

 

14

 

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, 

 

17

 

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

 

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.

 

19

 

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

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
  UNIVERSAL
  AMERICAN CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  A. Barasch

  
	
   

  	
         Name:        Richard
  A. Barasch

  
	
   

  	
         Title:          Chief
  Executive Officer

  

 

26

 

	
   

  	
  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

 

	
   

  	
  MEMBERHEALTH
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitchell
  J. Stier

  
	
   

  	
   

  	
  Name:

  	
  Mitchell J.
  Stier

  
	
   

  	
   

  	
  Title:

  	
  Executive
  Vice President

  and Secretary

  

 

 

 

28

 

	
   

  	
  MHRx LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sean M.
  Traynor

  
	
   

  	
   

  	
  Name:

  	
  Sean M.
  Traynor

  
	
   

  	
   

  	
  Title:

  	
  Member

  

 

 

 

 

29

	
   

  	
   

  
	
  /s/ Mark K.
  Gormley

  	
   

  
	
  Mark K.
  Gormley, Partner

  	
   

  
	
  Lee-Universal
  Holdings, LLC

  	
   

  

 

 

 

 

30

 

	
   

  	
  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

 

	
   

  	
  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

 

	
  Perry Partners International, Inc.

  	
   

  
	
  By:

  	
  Perry Corp, its Investment Manager

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Michael Neus

  	
   

  
	
  Name:  Michael Neus

  
	
  General Counsel

  
					

 

34

 

	
  Perry Capital, LLC

  	
   

  
	
  By:

  	
  Perry Corp, its Managing Member

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Michael Neus

  	
   

  
	
  Name:  Michael Neus

  
	
  General Counsel

  
					

 

35

 

	
  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

 

	
  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

 

	
   

  	
  BEACHFRONT
  ENTERPRISES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles
  E. Hallberg

  
	
   

  	
   

  	
  Name:

  	
  Charles E.
  Hallberg

  
	
   

  	
   

  	
  Title:

  	
   

  

 

39

 

	
   

  	
  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

 

	
   

  	
  IRREVOCABLE
  TRUST AGREEMENT OF

  CHARLES E. HALLBERG dated October 16, 2006

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sharon
  L. Hallberg

  
	
   

  	
   

  	
  Name:

  	
  Sharon L.
  Hallberg

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  

 

41Exhibit 10.1

 

RESTRICTED SHARE AWARD

UNDER THE

2005 OMNIBUS STOCK AND INCENTIVE PLAN

for

THOMAS GROUP, INC.

 

Effective as of March 10,
2008 (“Date of Grant”), a RESTRICTED SHARE AWARD (“Award”) is granted by Thomas Group, Inc.
(the “Company”) to Earle Steinberg
(the “Holder”), provided that this
Award is in all respects subject to the terms and provisions of the 2005
Omnibus Stock and Incentive Plan For Thomas Group, Inc. (the “Plan”), all of which are incorporated
herein by reference, except to the extent otherwise expressly provided in this
Award.  Capitalized terms used herein
without definition shall have the respective meanings specified in the Plan.

 

WITNESSETH

 

WHEREAS, the Company desires to grant to the
Holder an award of 50,000 Shares;

 

WHEREAS, the purpose of this Award is to advance
the interests of the Company and increase shareholder value by providing
additional incentives to attract, retain and motivate the Holder; and

 

WHEREAS, the terms of the Award are set forth
below;

 

NOW
THEREFORE, in consideration
of the mutual covenants hereinafter set forth and for other good and valuable
consideration, the parties agree as follows:

 

1.             Definitions. 
As used in this Award, the following words shall have the following
meanings:

 

“Cause” shall mean:

 

(1)           your
conviction or plea of guilty or nolo contendere to a crime that involves
dishonesty, disloyalty, moral turpitude, sexual harassment or discrimination,
provides for a term of imprisonment or constitutes a felony;

 

(2)           the
willful and intentional failure or willful and intentional refusal to follow
reasonable and lawful instructions of the Company’s Board of Directors;

 

(3)           a
material act or omission involving intentional misconduct, malfeasance or gross
negligence in performance of duties to the Company or involving neglect of
duties in a manner that is materially damaging to the Company or an affiliate
of the Company;

 

(4)           a
material breach or default in the performance of the Holder’s obligations under
the Holder’s employment agreement with the Company;

 

(5)           a
serious violation of any of the Company’s policies to which officers of the
Company are subject; or

 

(6)           an
act of misappropriation, embezzlement, fraud or similar conduct, whether or not
involving the Company.

 

“Change in Control” shall mean the first date, if any, upon
which any of the following occurs:

 

(1)           any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a “Person”) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50
percent or more of the combined voting power of the Company’s then outstanding
securities; provided, however,
that the term “Person” shall not include (A) the Company, (B) any
employee benefits plan of the Company, (C) a trustee or other fiduciary
holding securities 

 

 

under
an employee benefit plan of the Company and acting in such capacity, (D) a
subsidiary of a corporation owned, directly or indirectly, by the Shareholders
in substantially the same proportions as their ownership of voting securities
of the Company, or (E) General John T. Chain, Jr. or Edward P. Evans;
or

 

(2)           individuals who, as of
the Date of Grant, constitute the Board (the “Incumbent Board Members”) cease
for any reason during any 12-month period to constitute more than 50 percent of
the members of the Board and the election or appointment of the members of the
Board who are not Incumbent Board Members were not endorsed by a majority of
the Incumbent Board Members; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, nomination for election or appointment was approved
by a vote of at least two-thirds of the directors then constituting Incumbent
Board Members, shall be considered as though such individual were an Incumbent
Board Member; or

 

(3)           a sale or disposition of all or
substantially all of the Company’s assets to any other corporation or other
legal person occurs.

 

“Good Reason” means the occurrence of either
of the following circumstances without the Holder’s consent:

 

(1)           a
material reduction in the Holder’s base salary; or

 

(2)           a material diminution of the Holder’s
duties, authority or responsibilities as in effect immediately prior to such diminution.

 

“Sign-On Shares” shall mean
the Shares to be delivered pursuant to this Award.

 

2.             Sign-On Share Award. 
The Company hereby awards to the Holder 50,000 Sign-On Shares upon the
terms and subject to the conditions set forth in this Award.

 

3.             Restrictions
and Delivery.  The
Company will issue to the Holder stock certificates evidencing the Sign-On
Shares, which certificates will be registered in the name of the Holder and
will bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to the Sign-On Shares.  The
certificates evidencing the Sign-On Shares shall be held in custody by the
Company until the restrictions on such Sign-On Shares shall have lapsed, and,
as a condition of this Award, the Holder shall deliver a stock power, duly
endorsed in blank, relating to the Sign-on Shares.  The Sign-On Shares shall vest and
thereby become deliverable on the one-year anniversary of the Date of
Grant.  If the Holder’s employment with
the Company terminates (other than under circumstances to which Sections 4, 5
or 6 below apply) prior to the one-year anniversary of the Date of Grant, all
Sign-On Shares shall be forfeited.  The
Company shall deliver the Sign-On Shares promptly following the one-year
anniversary of the Date of Grant.

 

4.             Termination Without Cause. 
If, prior to the time at which all of the Sign-On Shares have been
delivered to the Holder, the Holder’s employment is terminated by the Company
without Cause, then the Sign-On Shares shall vest and thereby become deliverable
and the Company shall deliver all such undelivered Sign-On Shares to the Holder
promptly following such termination of employment.

 

5.             Change in Control. 
If after the occurrence of a Change in Control and prior to the time at
which all of the Sign-On Shares have been delivered to the Holder, the Holder’s
employment is terminated by the Company without Cause or by the Holder for Good
Reason, then the Sign-On Shares shall vest and thereby become deliverable and
the Company shall deliver all such undelivered Sign-On Shares to the Holder
promptly following such termination of employment.

 

6.             Death or Disability. 
If, prior to the time at which all of the Sign-On Shares have been
delivered to the Holder, the Holder’s employment is terminated by the Company
by reason of death or Disability of the Holder, then 

the Sign-On Shares shall
vest and thereby become deliverable and the Company shall deliver all such
undelivered Sign-On Shares to the Holder or his estate, as applicable, promptly
following such termination of employment.

 

 

7.             Withholding. 
On the date on which the Sign-On Shares are delivered, the Holder shall
be required to pay to the Company, in cash, the amount which the Company
reasonably determines to be necessary in order for the Company to comply with
applicable federal or state income tax withholding requirements and the
collection of employment taxes, provided that the Holder may elect to offset
the amount the Company reasonably determines as necessary to comply with
applicable tax requirements from the Sign-On Shares otherwise deliverable to
the Holder (valued at their Fair Market Value on the applicable date) and a net
number of Sign-On Shares shall thereafter be delivered to the Holder.  If the Holder makes an election under Section 83(b) of
the Code with respect to the Sign-On Shares, the Holder agrees to deliver a
copy of such election to the Company concurrently with the filing of such
election with the Internal Revenue Service. 
In such event, the Holder shall make arrangements satisfactory to the
Company to pay in the current year any federal, state or local taxes required
to be withheld with respect to such Sign-On Shares.  If the Holder fails to make such payments,
then any provision of this Award to the contrary notwithstanding, the Company
shall, to the extent permitted by law, have the right to deduct from any
payments of any kind otherwise due from the Company to the Holder any federal,
state or local taxes of any kind required by law to be withheld with respect to
such Sign-On Shares.

 

8.             Status of Holder With Respect to
the Shares.  Subject to the limitations and restrictions
contained herein, the Holder shall have all rights as a stockholder with
respect to the Sign-On Shares, including the right to vote and receive
dividends; provided, that any amounts of cash,
stock or other assets paid or distributed by the Company with respect to the
Sign-On Shares prior to the delivery of such Sign-On Shares to the Holder shall
be retained by the Company until the Sign-On Shares vest and become deliverable
hereunder, and then will be delivered to the Holder at the same time as the
vested Sign-On Shares are delivered to the Holder; provided,
further, that if the Sign-On Shares are forfeited then the
distributions with respect to such shares also will be forfeited.

 

9.             Representations and Warranties. 
As a condition to the delivery of the Sign-On Shares, the Board may
obtain such agreements or undertakings, if any, as the Board may deem necessary
or advisable to assure compliance with any law or regulation including, but not
limited to, the following:

 

(a)           a representation, warranty or
agreement by the Holder to the Company that he is acquiring the Sign-On Shares
for investment and not with a view to, or for sale in connection with, the
distribution of any such Sign-On Shares; and

 

(b)           a representation, warranty or
agreement to be bound by any legends that are, in the opinion of the Board,
necessary or appropriate to comply with the provisions of any securities law
deemed by the Board to be applicable to the issuance of the Sign-On Shares and
are endorsed upon the Share certificates.

 

10.          Termination of the Award. 
Except as set forth in Sections 4, 5 and 6 hereof, this Award shall
automatically terminate and expire on the earlier of (i) the date on which
the Sign-On Shares have been delivered or (ii) the date of the Holder’s
Separation, and upon the date of such termination of the Award all Sign-On
Shares which have not been delivered on or prior to such date will be
permanently forfeited.

 

11.          Interpretation of the Award
Provisions.  The Committee shall have the authority to the
full extent provided under the terms of the Plan to interpret all terms of the
Plan and this Award, and to otherwise supervise the implementation of such
terms.

 

12.          Governing Law.  TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW,
THIS AWARD SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.

 

13.          Binding Effect. 
This Award shall inure to the benefit of and be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

 

14.          Amendments.  This Award may only be amended by
a written document signed by the Company and the Holder.

 

 

15.          Severability. 
If any provision of this Award is declared or found to be illegal,
unenforceable or void, in whole or in part, the remainder of this Award will
not be affected by such declaration or finding and each such provision not so
affected will be enforced to the fullest extent permitted by law.

 

16.          Counterparts.  This Award may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

 

IN
WITNESS WHEREOF,
the Company has caused these presents to be executed on its behalf and the
Holder has hereunto set his hand, all on the day and year first above written.

 

THOMAS
GROUP, INC.

 

	
   

  	
  By:

  	
  /s/ Michael E. McGrath

  
	
   

  	
  Michael E. McGrath,
  Executive Chairman

  

 

 

 

ACKNOWLEDGMENT

 

The Holder agrees
to be bound by all the terms of this Award and the Plan.

 

	
   

  	
  /s/ Earle Steinberg

  
	
   

  	
  Earle Steinberg

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