Document:

Exhibit 4.1

REGISTRATION RIGHTS AGREEMENT

THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
is entered into as of May 7, 2007 among Universal American Financial Corp., a
New York corporation (the “Company”),
and the other parties named on the signature pages hereto (or which become a
party to this Agreement after the date hereof pursuant to the terms hereof)
(each, a “Holder” and, collectively,
the “Holders”).

WHEREAS,
the Company is entering into this Agreement as contemplated by that certain
Securities Purchase Agreement dated as of the date of this Agreement (the “Securities Purchase Agreement”).

NOW,
THEREFORE, in consideration of the premises, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the Company, the parties hereto, intending to be legally bound, hereby agree as
follows:

ARTICLE 1 — DEFINITIONS

The
following terms, as used herein, have the following meanings:

“Affiliate” means, with respect to
any Person, any other Person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person.  The term “control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms “controlled” and
“controlling” have meanings correlative
thereto.  For purposes hereof, the
Company shall not be considered an Affiliate of any Initial Investor
Holder.  In addition, for purposes of the
definition of “Registrable Securities” hereunder, the Affiliates of an Initial
Investor Holder shall be deemed to include one or more funds or other
investment vehicles under common management with such Initial Investor Holder.

“Business Day” means any day except a
Saturday, Sunday or other day on which commercial banks in New York City are
authorized by law to close.

“Common Stock” means the Company’s
authorized shares of common stock, par value $0.01 per share.

“Exchange Act” means the United
States Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

“Initial Holders” means the Initial
Investor Holders and Richard Barasch, and an “Initial Holder”
means any of the foregoing.

“Initial Investor Holders” means each
of (1) Capital Z
Financial Services Fund II, L.P., Capital Z Financial Services Private Fund II,
L.P., Union Square Universal Partners, L.P. (the entities in this clause
(1) collectively, the “CapZ/USP Group”),
(2) Lee-Universal Holdings, LLC (the “Lee Group”),
(3) Perry Partners, L.P., Perry Partners International, Inc., Perry Commitment
Fund, L.P., Perry Commitment Master Fund, L.P. (the entities in this clause (3)
collectively, the

“Perry
Group”), (4) Welsh,
Carson, Anderson & Stowe IX, L.P. and Welsh, Carson, Anderson & Stowe
X, L.P. (the entities in this clause (4) collectively, the “WCAS Group”); and an “Initial Investor Holder” means any
of the foregoing entities.  The CapZ/USP
Group, the Lee Group, the Perry Group and the WCAS Group are sometimes referred
to herein each as “Initial Investor Group.”

“MH Merger Agreement” means that
certain Agreement and Plan of Merger and Reorganization, dated as of the date
of this Agreement, among the Company, MHRx LLC, MemberHealth, Inc. and the
other parties thereto.

“Person” means an individual,
corporation, limited liability company, partnership, association, trust or
other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.

“Preferred Shares” means shares of
Series A Preferred Stock and Series B Preferred Stock of the Company.

“Registrable Securities” means (i)
all shares of Common Stock respectively owned by the Initial Holders and their
respective Affiliates as of the date of this Agreement, (ii) any and all shares
of Common Stock respectively acquired by the Initial Holders or their
respective Affiliates on, and from and after, the date of this Agreement
(whether directly or indirectly through conversion or exchange of Preferred
Shares or non-voting common shares, or other convertible or exchangeable
securities, of the Company, or pursuant to the exercise of options, warrants or
rights, or pursuant to the MH Merger Agreement, or otherwise), and (iii) any securities issued
directly or indirectly with respect to such shares described in clause (i) or
(ii) by way of a stock dividend, split, or other division of securities, or in
connection with a combination or reclassification of securities, or in
connection with a recapitalization, merger, consolidation, share exchange or
other reorganization of the Company.  As
to any particular Registrable Securities, such Registrable Securities shall
cease to be Registrable Securities when they (A) have been sold pursuant to a
registration statement that was filed with the SEC and declared effective under
the Securities Act, (B) have been sold to the public through a broker, dealer
or market maker pursuant to Rule 144 under the Securities Act, (C) are eligible
for sale to the public by the holder thereof, without limitation as to manner
of sale or volume, pursuant to Rule 144(k) under the Securities Act (provided that this clause (C) shall not apply to shares held
by any Initial Investor Holder), (D) have been sold in a private transaction in
which the transferor’s registration rights under this Agreement with respect to
such securities were not assigned to the transferee of such securities, or (E)
ceased to be outstanding.

“Registration Expenses”
means any and all expenses incident to the performance of or compliance with
any registration of securities, or marketing of securities in a public
offering, including all (i) registration and filing fees, and all fees and
expenses payable in connection with the listing of securities on any securities
exchange or quotation system, (ii) fees and expenses of compliance with any
securities or “blue sky” laws (including reasonable fees and disbursements of
counsel in connection with “blue sky” qualifications of the securities
registered), (iii) expenses in connection with the preparation, printing,
mailing and delivery of any registration statements, prospectuses and other
documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing
expenses, (v) internal expenses of the Company (including all salaries and
expenses of its officers and employees performing legal or accounting

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duties
and the expenses of any annual audit or quarterly review), (vi) fees and
disbursements of counsel for the Company and fees and expenses for independent
certified public accountants retained by the Company (including the
expenses associated with the delivery by independent certified public
accountants of any comfort letters to be provided pursuant to Article 2
hereof), (vii) fees and expenses of any special experts retained by the Company
in connection with such registration, (viii) the reasonable fees and
out-of-pocket expenses of one firm of counsel to the Holders participating in
the offering selected by the Holders holding the majority of the Registrable
Securities to be sold for the account of all Holders in the offering, (ix) fees
and expenses in connection with any review by the NASD of the underwriting
arrangements or other terms of the offering, and all fees and expenses of any “qualified
independent underwriter” or other independent appraiser participating in any
offering pursuant to the Bylaws of the NASD, including the fees and expenses of
any counsel thereto, (x) fees and disbursements of underwriters customarily
paid by issuers or sellers of securities, provided, however,
that any underwriting fees, discounts and commissions attributable to the sale
of Registrable Securities shall not be “Registration Expenses” hereunder, (xi)
costs of printing and producing any agreements among underwriters, underwriting
agreements, any “blue sky” or legal investment memoranda and any selling
agreements and other documents in connection with the offering, sale or
delivery of the Registrable Securities, (xii) transfer agents’, registrars’,
stock custodians’ and DTC fees and expenses, and (xiii) expenses relating to
any analyst or investor presentations undertaken pursuant to Article 2 hereof
in connection with the registration, marketing or selling of Registrable
Securities.

“SEC” means the United States
Securities and Exchange Commission.

“Securities Act” means the United
States Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

Other
Definitional and Interpretive Matters.  Unless otherwise expressly provided, for
purposes of this Agreement the following rules of interpretation shall
apply:  (i) When calculating the period
of time before which, within which or following which any act is to be done or
step taken pursuant to this Agreement, the date that is the reference date in
calculating such period shall be excluded. 
If the last day of such period is a non-Business Day, the period in
question shall end on the next succeeding Business Day.  (ii) The division of this Agreement into
Articles, Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement.  (iii)
The word “including” shall be deemed followed by “(but not limited to)”.

ARTICLE
2 — REGISTRATION RIGHTS

SECTION 2.01.      Demand
Registration.

(a)           If
at any time or from time to time the Company shall receive a written request
from (x) a Holder or Holders holding more than 15% of the then outstanding
Registrable Securities (assuming for this purpose that all Preferred Shares are
converted in full, and irrespective of any limitations on conversion
contemplated by the Certificates of Designations of such stock) or (y) any
Initial Investor Holder (such requesting Person(s), the “Requesting
Holders”), that the Company effect the registration under the
Securities Act of all or any portion of such Requesting Holders’ Registrable
Securities, and specifying the intended method of disposition thereof, then the

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Company shall promptly give notice of such requested registration (each
such request, a “Demand Registration”)
at least 21 days prior to the anticipated
filing date of the registration statement relating to such Demand Registration
to the other Holders, and the Company shall effect (subject to the limitations
set forth in Sections 2.01(e) hereof), as expeditiously as possible, the
registration under the Securities Act of:

(i)            all
Registrable Securities for which the Requesting Holders have requested
registration under this Section 2.01, and

(ii)           all
other Registrable Securities that any other Holders (all such Holders, together
with the Requesting Holders, the “Registering Holders”)
have requested the Company to register by request received by the Company
within 14 days after such Holders receive
the Company’s notice of the Demand Registration, all to the extent necessary to
permit the disposition (in accordance with the intended methods of disposition
specified in such request) of the Registrable Securities so to be registered; provided that no Person may participate in any registration
statement pursuant to this Section 2.01(a) for an underwritten offering unless
such Person agrees to sell its Registrable Securities to the underwriters
selected as provided in Section 2.05(f) on the same terms and conditions as
apply to the Requesting Holders (including pursuant to the terms of any
over-allotment or “green shoe” option requested by the managing underwriter; provided that no Holder will be required to sell more than
the number of Registrable Securities that such Holder has requested the Company
to include in such transaction) and completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements; provided, however, that no such Registering Holder shall be
required to make any representations or warranties in connection with any such
registration other than representations and warranties as to (i) such Person’s
ownership of its Registrable Securities to be transferred free and clear of all
liens, claims and encumbrances, (ii) such Person’s power and authority to
effect such transfer, and (iii) such matters as may be reasonably requested
pertaining to such Person’s compliance with securities laws; provided further, however, that the obligation of such
Person to indemnify pursuant to any such underwriting arrangements shall be
several, not joint and several, among such Persons selling Registrable
Securities, and the liability of each such Person shall be in proportion
thereto; and provided, further, that such
liability shall be limited to the net amount received by such Person from the
sale of its Registrable Securities pursuant to such offering;

provided that, subject to Section 2.01(d) hereof, the
Company shall not be obligated to:

(A)          effect
any Demand Registration pursuant to clause (x) of the first paragraph of this
Section 2.01(a) unless the aggregate gross proceeds expected to be received
from the sale of the Registrable Securities requested to be included by all
Registering Holders in such Demand Registration are at least $50 million (prior
to deducting underwriting discounts and commissions);

(B)           effect
more than one Demand Registration per Initial Investor Holder pursuant to
clause (y) of the first paragraph of this Section 2.01(a) or effect more than
two Demand Registrations per Initial Investor Group pursuant to clause (y) of
the first paragraph

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of this Section 2.01(a) (it being understood that the limitations in
this clause (B) shall not limit rights to Demand Registrations pursuant to
clause (x) of the first paragraph of this Section 2.01(a));

(C)           effect
a Demand Registration within 180 days of having effected a prior Demand Registration
pursuant to this Section 2.01.

(b)           Promptly
after the expiration of the 14-day period referred to in Section 2.01(a)(ii)
hereof, the Company will notify all Registering Holders of the identities of
the other Registering Holders and the number of shares of Registrable
Securities requested to be registered. 
At any time prior to the effective date of the registration statement
relating to such registration, the Requesting Holders holding a majority of the
Registrable Securities requested by such Requesting Holders to be included in
such registration may revoke such request without liability to any of the other
Registering Holders, by providing a notice to the Company revoking such
request.

(c)           The
Company shall be liable for and pay all Registration Expenses in connection
with each Demand Registration, regardless of whether such registration is
effected.

(d)           A
Demand Registration shall not be deemed to have occurred:

(i)            unless
(A) the registration statement relating thereto shall have become effective
under the Securities Act and shall have remained effective for a period of at
least 180 consecutive days (or such shorter period in which all Registrable
Securities of the Registering Holders included in such registration have
actually been sold thereunder), provided that
such registration shall not be considered a Demand Registration if, after such
registration statement becomes effective, such registration statement (or the
use of the related prospectus) is interfered with by any stop order, injunction
or other order or requirement of the SEC or other governmental agency or court,
and (B) if in connection with an underwritten offering, all customary
conditions in the applicable underwriting agreement shall have been satisfied,
other than any failure primarily due to an act, omission or misrepresentation
of a Holder participating therein; or

(ii)           if
due to the Demand Maximum Offering Size provision of Section 2.01(e) hereof,
less than 75% of the Registrable Securities of the Requesting Holders sought to
be included in such registration are included.

(e)           If
a Demand Registration involves an underwritten public offering and the managing
underwriter advises the Requesting Holders that, in its view, the number of
shares that the Registering Holders propose to include in such registration
exceeds the largest number of shares that can be sold without having an adverse
effect on such offering, including the price at which such shares can be sold
(the “Demand Maximum Offering Size”), the
Company shall include in such registration, in the priority listed below, up to
the Demand Maximum Offering Size:

(i)            first,
all Registrable Securities requested to be registered by the Requesting Holders
and all Registrable Securities requested to be included in such registration by
any other Registering Holders (allocated, if necessary for the offering not to
exceed the Demand Maximum Offering Size, pro rata among
such Requesting Holders and

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other Registering Holders on the basis of the relative number of
Registrable Securities so requested to be included in such registration by
each); and

(ii)           second,
any shares of Common Stock proposed to be registered by the Company for its own
account.

(f)            The
Company may defer the filing (but not the preparation) of a registration
statement required by Section 2.01 hereof until a date not later than 90 days
after the date of the request to file such registration statement if (i) at the
time the Company receives the request to register shares, the Company is
engaged in confidential negotiations or other confidential business activities
or the Board of Directors of the Company determines that the Company is at such
time otherwise in possession of material non-public information with respect to
the Company, in each case, disclosure of which would be required in such
registration statement (but would not be required if such registration
statement were not filed), and the Board of Directors of the Company determines
in good faith that such public disclosure at that time would be materially
detrimental to the Company and its stockholders (other than, if applicable, the
Holders requesting such registration), or (ii) prior to receiving the request
to register shares, the Board of Directors of the Company had resolved to
effect a registered underwritten public offering of Company equity securities
for the Company’s account and the Company had taken substantial steps
(including, but not limited to, selecting a managing underwriter for such
offering) and is actively proceeding with reasonable diligence to effect such
offering.  A deferral of the filing of a
registration statement pursuant to this Section 2.01(f) shall be lifted, and
the requested registration statement shall be filed forthwith, if, in the case
of a deferral pursuant to clause (i) of the preceding sentence, the
negotiations or other activities are terminated or publicly disclosed (or such
material non-public information has been publicly disclosed), or, in the case
of a deferral pursuant to clause (ii) of the preceding sentence, the proposed
registration for the Company’s account is abandoned.  In order to defer the filing of a
registration statement pursuant to this Section 2.01(f), the Company shall
promptly (but in any event within 7 days), upon determining to seek such
deferral, deliver to each Holder requesting such registration a certificate
signed by an executive officer of the Company stating that the Company is
deferring such filing pursuant to this Section 2.01(f) and (unless such Holder
had previously requested in writing that the Company not disclose to it such
information under this paragraph) a general statement of the reason for such
deferral and an approximation of the anticipated delay (to the extent it shall
be legally permissible for the Company to so disclose such information to such
Holder).  The Company may defer the
filing of a registration statement pursuant to this Section 2.01(f) only once
in any 360-day period and the period of deferrals shall not exceed 90 days in
the aggregate over any 360-day period.

SECTION 2.02.      Piggyback
Registration.

(a)           If
the Company proposes to register any equity securities under the Securities Act
(other than pursuant to Section 2.01 hereof and other than (i) a registration
on Form S-4 related to a merger, business acquisition or business combination
involving the Company, (ii) a registration on Form S-8 relating to a Company
equity compensation plan for directors or employees of the Company and its
subsidiaries, (iii) a registration on Form S-2 relating to shares issued prior
to the date of this Agreement, or relating to shares issuable upon exercise of
incentive stock options, in each case, issued to the Company’s agents under the
Company’s incentive compensation plans for agents of the Company and its
subsidiaries or (iv) a registration on Form S-3 filed as contemplated

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by that certain registration rights letter agreement executed by the
Company pursuant to the MH Merger Agreement and covering exclusively shares of
Common Stock issued pursuant to the MH Merger Agreement), the Company shall at
each such time give prompt written notice at least 21 days prior to the anticipated filing date of the registration
statement relating to such registration to each Holder, which notice shall
offer such Holder the opportunity to include in such registration statement all
or any portion of the Registrable Securities held by such Holder (a “Piggyback Registration”), subject to
the limitations set forth herein.  Upon
the request of any such Holder made within 14 days after the receipt of notice
from the Company (which request shall specify the number of Registrable
Securities intended to be registered by such Holder), the Company shall use its
reasonable best efforts to effect the registration under the Securities Act of
all Registrable Securities that the Company has been so requested to register
by all such Holders, to the extent required to permit the disposition of the
Registrable Securities so to be registered, provided that
if such registration involves an underwritten public offering, all such Holders
requesting to be included in the Company’s registration must sell their
Registrable Securities to the underwriters on the same terms and conditions as
apply to other selling stockholders, to the extent applicable to the Holders
(including pursuant to the terms of any over-allotment or “green shoe” option
requested by the managing underwriter; provided that
no Holder will be required to sell more than the number of Registrable
Securities that such Holder has requested the Company to include in such
transaction) and consistent with the provisions of this Agreement (including
Sections 2.06, 2.07, 2.08 and 2.09 hereof); provided, however,
that no such Holder shall be required to make any representations or warranties
in connection with any such registration other than representations and
warranties as to (i) such Person’s ownership of its Registrable Securities to
be transferred free and clear of all liens, claims and encumbrances, (ii) such
Person’s power and authority to effect such transfer, and (iii) such matters as
may be reasonably requested pertaining to such Person’s compliance with
securities laws; provided further, however, that
the obligation of such Holder to indemnify pursuant to any such underwriting
arrangements shall be several, not joint and several, among such Persons
selling Registrable Securities, and the liability of each such Person shall be
in proportion thereto, and provided further,
that such liability shall be limited to the net amount received by such Holder
from the sale of its Registrable Securities pursuant to such offering.  If, at any time after giving notice pursuant
to this Section 2.02(a) of its intention to register any shares and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
shares, the Company shall give notice to all such Holders and, thereupon, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration.  No
registration effected under this Section 2.02 shall relieve the Company of its
obligations to effect a registration to the extent required by Section 2.01
hereof.  The Company shall be liable for
and pay all Registration Expenses in connection with each Piggyback
Registration, regardless of whether such registration is effected.

(b)           If
a Piggyback Registration involves an underwritten public offering (for the
avoidance of doubt, other than any Demand Registration, in which case the
provisions with respect to priority of inclusion in such offering set forth in
Section 2.01(e) hereof shall apply) and the managing underwriter advises the
Company that, in its view, the number of shares that the Company and selling
Holders propose to include in such registration exceeds the largest number of
shares that can be sold without having an adverse effect on such offering,
including the price at which such shares can be sold (the “Piggyback
Maximum Offering Size”), the Company shall include in such
registration, in the following priority, up to the Piggyback Maximum Offering
Size:

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(i)            first,
such number of shares proposed to be registered for the account of the Company,
if any, as would not cause the offering to exceed the Piggyback Maximum
Offering Size;

(ii)           second,
such number of shares owned by Persons exercising “demand” registration rights
with respect to such registration (which rights shall not have been granted in
violation of this Agreement), if any, as would not cause the offering to exceed
the Piggyback Maximum Offering Size; and

(iii)          third,
all Registrable Securities requested to be included in such registration by any
Holders pursuant to this Section 2.02 (allocated, if necessary for the offering
not to exceed the Piggyback Maximum Offering Size, pro rata
among such Holders based on the relative number of Registrable Securities
requested to be included in the Piggyback Registration).

SECTION 2.03.      Subsequent
Registration Rights.  The Company
shall not enter into any agreement with respect to any equity securities that
grants or provides holders of such securities with registration rights that
have terms more favorable than the registration rights granted to holders of
the Registrable Securities in this Agreement unless similar rights are granted
to holders of Registrable Securities. 
For the avoidance of doubt, this Section is not intended to relate to
registration rights granted in relation to the MH Merger Agreement as in effect
on the date of this Agreement.

SECTION 2.04.      Acknowledgement.  The Company acknowledges that its covenants
and agreements set forth in this Agreement are in addition to, and not in
substitution of, any covenants and agreements that may otherwise run in favor
of a Holder or its Affiliates.

SECTION 2.05.      Registration
Procedures.  Whenever any Holders
request that any Registrable Securities be registered pursuant to Section 2.01
or Section 2.02 hereof, the Company shall (subject to the provisions of such
Sections) effect the registration of such Registrable Securities in accordance
with the Holders’ respective intended method of disposition thereof as quickly
as practicable and, in connection with any such request:

(a)           The
Company shall as expeditiously as possible prepare and file with the SEC a
registration statement on a form for which the Company then qualifies and that
counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the Holders’ respective intended method of
distribution thereof, and promptly prepare and file with SEC such necessary or
appropriate amendments and supplements, and take such other action, to cause
such filed registration statement to become and remain effective for a period
of not less than 180 days (or such shorter period in which all of the
Registrable Securities of the Holders included in such registration statement
shall have actually been sold thereunder).

(b)           Prior
to filing a registration statement or prospectus or any amendment or supplement
thereto, the Company shall furnish to each participating Holder and each
underwriter, if any, of the Registrable Securities covered by such registration
statement, copies of such registration statement as proposed to be filed, and
thereafter the Company shall furnish to such Holder and underwriter, if any,
such number of copies of such registration statement, each amendment and

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supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 or Rule 430A under
the Securities Act and such other documents as such Holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holder.

(c)           After
the filing of the registration statement, the Company shall as promptly as
practicable (i) cause the related prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act, (ii) comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in such
registration statement or supplement to such prospectus, (iii) notify each
Holder holding Registrable Securities covered by such registration statement
when such registration statement shall have been declared effective by the SEC,
and (iv) notify each Holder holding Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC or any
state securities commission, and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.

(d)           The
Company shall (i) register or qualify the Registrable Securities covered by
such registration statement under such other securities or “blue sky” laws of
such jurisdictions in the United States as any Holder holding such Registrable
Securities reasonably (in light of such Holder’s intended plan of distribution)
requests and (ii) cause such Registrable Securities to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company and do any and all
other acts and things that may be reasonably necessary or advisable to enable
such Holder to consummate the disposition of the Registrable Securities owned
by such Holder in accordance with the intended methods of disposition; provided that the Company shall not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 2.05(d), (B) subject
itself to taxation in any such jurisdiction or (C) consent to general service
of process in any such jurisdiction.

(e)           The
Company shall as promptly as practicable notify each Holder holding Registrable
Securities covered by a registration statement of the occurrence of an event or
other circumstance requiring the preparation of a supplement or amendment to
the related prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and promptly
prepare and make available to each such Holder and file with the SEC any such
supplement or amendment.

(f)            The
Board of Directors of the Company shall have the right to select the
underwriter or underwriters in connection with any public offering described in
Section 2.02 hereof.  In connection with
any public offering of Registrable Securities pursuant to Section 2.01 hereof
that is to be underwritten, the Holders owning at least 51% of the Registrable
Securities of the Registering Holders to be registered in such offering shall
select the underwriter or underwriters (which underwriter(s) shall be
reasonably acceptable to the Company, with confirmation of such acceptability
not to be unreasonably conditioned, withheld or delayed).  In connection with any

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public offering contemplated by this Article 2 that is to be
underwritten, the Company shall enter into customary agreements (including an
underwriting agreement in customary form, which shall include customary
representations, warranties, covenants, indemnification provisions and “lock-up”/holdback
provisions of the Company in favor of the underwriters, provided that any
obligations of Holders shall be consistent with the provisions in this
Agreement), and take all such reasonable other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities in any such public offering, including (if necessary) the engagement
of a “qualified independent underwriter” in connection with the qualification
of the underwriting arrangements with the NASD. 
Each Holder participating in such underwriting shall also enter into
such agreement, provided that the terms of any
such agreement are consistent with this Agreement and provided
that the scope of the indemnity from Holders in favor of the underwriters and
the Company contained in such agreement shall not be more extensive in any
material respect than the comparable provisions in this Agreement.

(g)           Upon
execution of customary confidentiality agreements in form and substance
reasonably satisfactory to the Company, the Company shall make available for
inspection by any Holder and any underwriter participating in any disposition
pursuant to a registration statement being filed by the Company pursuant to
this Article 2 and any attorney, accountant or other professional retained by
any such Holder or underwriter (collectively, the “Inspectors”),
all financial and other records, pertinent corporate documents and properties
of the Company (collectively, the “Records”) as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection
with such registration statement. 
Records that the Company determines, in good faith, to be confidential
and that it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such registration statement or (ii)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or is otherwise required by law.

(h)           In
connection with each such registration for an underwritten public offering, the
Company shall cause to be furnished to each Holder and underwriter
participating therein a signed counterpart, addressed to such Persons, of (i)
opinions of counsel to the Company and (ii) “comfort letters” from the Company’s
independent public accountants, each in customary form and covering such
matters of the kind customarily covered by opinions of counsel or comfort
letters in connection with consummation of similar transactions.

(i)            The
Company shall otherwise comply with all applicable rules and regulations of the
SEC, and make available to its security holders, as soon as reasonably
practicable, an earnings statement or such other document that shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

(j)            The
Company may require each Holder with Registrable Securities proposed to be
included in such registration, by written notice given to each such Holder not
less than 10 days prior to the filing date of such registration statement, to
promptly furnish in writing to the Company such information regarding such
Holder and its distribution of Registrable Securities as the Company may
reasonably request as being legally required in connection with such
registration.  The Company shall file, as
promptly as reasonably practicable, such supplements and/or

 10
 

amendments from time to time to any registration statement or
prospectus as may be requested by a Holder from time to time in writing to
reflect changes in the list of selling securityholders contained in such
registration statement or prospectus.

(k)           Each
Holder agrees that, upon receipt of any written notice from the Company of the
occurrence of any event or other circumstance requiring the preparation of a
supplement or amendment of a prospectus relating to the Registrable Securities
covered by a registration statement that is required to be delivered under the
Securities Act so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated
therein or to make the statements therein not misleading, such Holder shall (i)
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder’s
receipt of the copies of a supplemented or amended prospectus, and (ii) if so
directed by the Company, such Holder shall deliver to the Company all copies,
other than any permanent file copies then in such Holder’s possession, of the
most recent prospectus covering such Registrable Securities at the time of
receipt of such notice.  If the Company
shall give such notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 2.05(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 2.05(e) hereof
to the date when the Company shall make available to such Holder a prospectus
supplemented or amended to conform with the requirements of Section 2.05(e)
hereof.

(l)            The
Company shall list all Registrable Securities covered by such registration
statement on the principal securities exchange or quotation system on which the
Common Stock is then listed or traded, and if the Common Stock is not listed on
any securities exchange, the Company shall use its reasonable best efforts to
list all such Registrable Securities on any domestic securities exchange.

(m)          In
connection with each such registration for an underwritten public offering
where the aggregate proceeds (net of underwriting discounts and commissions)
from the sale of Registrable Securities in such offering are estimated to be in
excess of $50 million, the Company shall have appropriate officers of the
Company (i) prepare and make presentations at any “road shows” and before
analysts and rating agencies, as the case may be, and (ii) otherwise use their
reasonable efforts to cooperate as requested by underwriters in the offering,
marketing or selling of the Registrable Securities.

(n)           If
requested by a Holder, the Company shall include in any registration statement
or prospectus naming such Holder language to the effect that such Holder’s
participation in such offering does not constitute an endorsement or
recommendation by such Holder or any of its Affiliates of the Company or any of
the Company’s securities (or the investment quality thereof) or create any
inference that such Holder or any of its Affiliates would necessarily help the
Company meet any financial or other requirements.

SECTION 2.06.      Indemnification
by the Company.  The Company agrees
to indemnify and hold harmless each Holder, such Holders’ officers, directors,
employees, managers, members, partners and agents, and each Person, if any, who
controls any such Persons within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against

 11
 

any and all losses, claims, damages, liabilities and expenses
(including reasonable expenses of investigation and reasonable attorneys’ fees
and expenses) (collectively, “Damages”)
insofar as such Damages shall have been caused by, based upon, arose out of,
resulted from or related to any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus (or
preliminary prospectus) relating to the Registrable Securities owned by such
Holder (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such Damages are
caused by or related to any such untrue statement or omission or alleged untrue
statement or omission so made based upon information furnished in writing to
the Company by such Holder or on such Holder’s behalf expressly for use
therein.

SECTION 2.07.      Indemnification
by the Participating Holders.  Each
Holder with Registrable Securities included in any registration statement
agrees, severally but not jointly, to indemnify and hold harmless, from and
against all Damages, the Company, its officers, directors and each Person, if
any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, but only insofar as such
Damages shall have been caused by or based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus (or preliminary prospectus) relating to the Registrable
Securities owned by such Holder or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case under clause (i)
and (ii) of this Section 2.07, only to the extent such untrue statement or
omission (or alleged untrue statement or omission) was based upon information furnished
in writing to the Company by such Holder or on such Holder’s behalf expressly
for use in such prospectus (or preliminary prospectus) or registration
statement (or amendment or supplement thereto). 
No Holder shall be liable under this Section 2.07 for any Damages in
excess of the net proceeds realized by such Holder in the sale of Registrable
Securities of such Holder to which such Damages relate.

SECTION 2.08.      Conduct
of Indemnification Proceedings.  If
any proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 2, such Person (an “Indemnified Party”)
shall promptly notify the Person against whom such indemnity may be sought (the
“Indemnifying Party”) in writing and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses, provided that
the failure of any Indemnified Party so to notify the Indemnifying Party shall
not relieve the Indemnifying Party of its obligations hereunder except to the
extent that the Indemnifying Party is materially prejudiced by such failure to
notify.  In any such proceeding, any Indemnified
Party shall have the right to retain its own separate counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party shall have agreed to the retention of such
counsel at its expense or (ii) in the reasonable judgment of such Indemnified
Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.  The Indemnifying Party shall not be liable
for any settlement of any claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against all indemnified Damages (to the extent

 12
 

stated above) by reason of such settlement or judgment.  Without the prior written consent of the
Indemnified Party, no Indemnifying Party shall effect any settlement of any
pending or threatened claim in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.

SECTION 2.09.      Contribution.  If the indemnification provided for in this
Article 2 is unavailable to the Indemnified Parties or insufficient in respect
of any Damages (other than by reason of the exceptions provided herein), then
each such Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Damages, as between the Company on the one hand and each such
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each such Holder in connection with such
statements or omissions, as well as any other relevant equitable
considerations.  The relative fault of
the Company on the one hand and of each such Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

The
Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 2.09 were determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph.  The
amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. 
Notwithstanding the provisions of this Section 2.09, no Holder shall be
required to contribute any amount in excess of the amount by which the net
proceeds realized by such Holder in the sale of Registrable Securities of such
Holder to which such Damages relate exceeds the amount of any Damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.  Subject to
the foregoing and as among the Holders, each Holder’s obligation to contribute
pursuant to this Section 2.09 is several in the proportion that the proceeds of
the offering received by such Holder bears to the total proceeds of the
offering received by all such Holders and not joint.

ARTICLE 3 — OTHER PROVISIONS AND MISCELLANEOUS

SECTION 3.01.      Rule 144.  The Company agrees to cause the conditions of
Rule 144(c) under the Securities Act to be satisfied with respect to the
Company at all times during which any of the Registrable Securities are
outstanding.

SECTION 3.02.      Binding
Effect; Assignability; Benefit.

(a)           This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors, legal representatives and permitted assigns; provided that

 13
 

rights granted to any Holder
hereunder may only be assigned in connection with a transfer of Registrable
Securities to the assignee in accordance with the following paragraph; and provided further that an Initial Investor Holder’s demand
registration rights under clause (y) of the first paragraph of Section 2.01(a)
may not be assigned without the Company’s consent.  The Company shall not assign this Agreement,
in whole or in part.  Any purported
assignment not in accordance with this Agreement shall be null and void.

Each Holder agrees not to transfer any portion of its Registrable
Securities unless (i) there is then in effect a registration statement under
the Securities Act covering such proposed transfer or (ii) such transfer is
made in accordance with Rule 144 under the Securities Act or another available
exemption from registration under the Securities Act.  In connection with any transfer of
Registrable Securities described in clause (ii) of the preceding sentence, the
transferring Holder may also assign to the transferee rights and obligations
under this Agreement with respect to any Registrable Securities so transferred,
and upon the Company’s receipt from the assignee a completed and executed
Joinder substantially in the form of Exhibit A hereto, such assignee will be
deemed to also be a Holder under this Agreement.

(b)           The Company shall promptly provide to
any Holder that, together with its Affiliates, owns 10% or more of the
Registrable Securities (assuming for this purpose that all Preferred Shares are
converted in full, and irrespective of any limitations on conversion
contemplated by the Certificate of Designations of such stock), upon its
request, a copy of the most current listing in the Company’s or its agents’
possession of the names and addresses of the then-current Holders of
Registrable Securities and the number of Registrable Securities respectively
held by them.

(c)           Nothing in this Agreement, expressed
or implied, is intended to confer on any Person (other than the parties hereto,
their respective successors, legal representatives and permitted assigns, and
Indemnified Parties under Sections 2.06, 2.07, 2.08 and 2.09 hereof), any
rights or remedies under or by reason of this Agreement.

SECTION 3.03.      Notices.  All notices, requests and other communications
to any party shall be in writing and shall be delivered in person, sent by
reputable overnight courier service, or sent by facsimile transmission,

if to the Company, to
Universal American Financial Corp., 6 International Drive, Rye Brook, NY 10573-1068;  Attention: General Counsel; Facsimile:  (914) 934-0700,

if
to the Initial Holders, at their respective addresses set forth in Schedule
I,

or,
in each case, at such other address or fax number as such party may hereafter
specify for the purpose of notices hereunder by written notice to the other
party.  All notices, requests and other
communications shall be deemed received on the date of receipt by the recipient
thereof if received prior to 5:00 p.m. in the place of receipt and such day is
a Business Day in the place of receipt. 
Otherwise, any such notice, request or communication shall be deemed not
to have been received until the next succeeding Business Day in the place of
receipt.  Any notice, request or other
written communication sent by facsimile transmission shall be confirmed by
personal delivery or by

 14
 

reputable
overnight courier, made within 2 Business Days after the date of such facsimile
transmissions.

SECTION 3.04.      Waiver;
Amendment.  Except as otherwise
provided herein, no failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof or the exercise of any other right, power or
privilege.  No provision of this
Agreement may be waived except by an instrument in writing executed by the
party against whom the waiver is to be effective.  Except as otherwise provided herein, no
provision of this Agreement may be amended or otherwise modified except by an
instrument in writing executed by the Company and Holders holding more than 51%
of the Registrable Securities held by the Holders (assuming for this purpose
that all Preferred Shares and non-voting common shares of the Company are converted in full, and irrespective of
any limitations on conversion contemplated by the respective Certificates of
Amendment to the Certificate of Incorporation of the Company for such stock); provided, however, that any amendment or modification of
this Agreement that treats a Holder individually in an inconsistent and adverse
manner with respect to all other Holders shall require the consent of such
Holder; provided further that protections
afforded to a Holder and its related Indemnified Parties pursuant to Sections
2.06, 2.07, 2.08 and 2.09 hereof in respect of any antecedent registration may
not be adversely modified without the consent of such Holder; and provided further, that this Agreement may be amended by the
Company solely to add stockholders who receive shares of Common Stock pursuant
to the Merger Agreement as Holders hereunder and who agree to be bound by all
of the terms of this Agreement applicable to a Holder.

SECTION 3.05.      Fees
and Expenses.  Each party
shall pay its own costs and expenses incurred in connection with the
preparation and execution of this Agreement, or any amendment or waiver hereof,
and (except as otherwise provided herein or separately agreed in writing) the
transactions contemplated hereby and all matters related hereto.  In
any action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof or thereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys’ fees in
addition to any other available remedy.

SECTION 3.06.      Governing Law; Jurisdiction;
Enforcement; Waiver of Jury Trial.

(a)           All issues and questions concerning
the construction, validity, interpretation and enforceability of this Agreement
shall be governed by, and construed in accordance with, the laws of the State
of New York, without giving effect to any choice of law or conflict of law
rules or provisions (whether of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than New York.

(b)           Each of the parties hereto
irrevocably agrees that any legal action or proceeding that may be based upon,
arise out of or relate to this Agreement or the negotiation, execution or
performance hereof, shall be brought and determined exclusively in any state
courts of New York County of the State of New York, or in the event (but only
in the event) that such court does not have subject matter jurisdiction over
such action or proceeding, in any federal District Court sitting in New York
City. Each of the parties hereto hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect of its property, generally
and unconditionally,

 15
 

to the exclusive personal jurisdiction of the
aforesaid courts and agrees that it will not bring any such action in any court
other than the aforesaid courts.  Each of
the parties hereto hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (i) any claim that it is not personally subject
to the jurisdiction of the above named courts for any reason other than the
failure to serve in accordance with this Section, (ii) any claim that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise) and (iii) to the fullest extent permitted
by the applicable law, any claim that (A) the suit, action or proceeding in
such court is brought in an inconvenient forum, (B) the venue of such suit,
action or proceeding is improper or (C) this Agreement, or the subject mater
hereof, may not be enforced in or by such courts.  Each of the parties hereto irrevocably
consents to process being served by any party to this Agreement in any legal
action or proceeding by delivery of a copy thereof in accordance with the
provisions of Section 3.03 without prejudice to the right of any party to serve
process pursuant to applicable laws.  The
consents to jurisdiction set forth in this paragraph shall not constitute
general consents to service of process in the State of New York and shall have
no effect for any purpose except as provided in this paragraph and shall not be
deemed to confer rights on any Person other than the parties hereto.

(c)           The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement (including in the courts of New York County of the State of
New York or in the United States District Court for the Southern District of
New York), without bond or other security being required, this being in
addition to any other remedy to which they are entitled at law or in equity.

(d)           Each of the parties hereto hereby
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or related to this Agreement.

SECTION 3.07.      Cumulative
Remedies.  All rights, powers and
remedies provided under this Agreement or otherwise available in respect hereof
at law or in equity shall be cumulative and not alternative, and the exercise
or beginning of the exercise of any thereof by any party shall not preclude the
simultaneous or later exercise of any other such rights, powers or remedies by
such party.

SECTION 3.08.      Entire
Agreement.  This Agreement
constitutes the entire agreement and understanding among the parties hereto in
respect of the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings, both oral and written, among the
parties hereto, or between any of them, with respect to the subject matter
hereof (including the registration rights granted by the Company under that
certain agreement dated as of July 30, 1999).

SECTION 3.09.      Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement

 16
 

shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.  Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby
be consummated as originally contemplated to the fullest extent possible.

SECTION 3.10.      Counterparts;
Effectiveness.  This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

SECTION 3.11.      Drafting.  The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as jointly drafted by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.

SECTION 3.12.      Nature
of Holder’s Obligations.  The
obligations of each Holder under this Agreement are several and not joint with
the obligations of any other Holder, and no Holder shall be responsible in any
way for the performance of the obligations of any other Holder under this
Agreement.  Nothing contained herein, and
no action taken by any Holder pursuant hereto or in connection herewith, shall
be deemed to constitute the Holders as a partnership, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement.

[signature pages follow]

 17

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.

	
   

  	
  UNIVERSAL AMERICAN FINANCIAL
  CORP.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Richard A. Barasch

  	
   

  
	
   

  	
  Name: Richard A. Barasch

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  INITIAL HOLDERS:

  
	
   

  	
   

  
	
   

  	
  CAPITAL Z FINANCIAL SERVICES FUND II, L.P.

  
	
   

  	
  By: Capital Z Partners, L.P., its General Partner

  
	
   

  	
  By: Capital Z Partners, Ltd., its General Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Craig Fisher

  	
   

  
	
   

  	
  Name: Craig Fisher

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
  CAPITAL Z FINANCIAL SERVICES PRIVATE FUND II, L.P.

  
	
   

  	
  By: CAPITAL Z PARTNERS, L.P., its General Partner

  
	
   

  	
  By: CAPITAL Z PARTNERS, LTD., its General Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Craig Fisher

  	
   

  
	
   

  	
  Name: Craig Fisher

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
  UNION SQUARE UNIVERSAL PARTNERS, L.P.

  
	
   

  	
  By: UNION SQUARE UNIVERSAL GP, LLC, its General
  Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Eric Leathers

  	
   

  
	
   

  	
  Name: Eric Leathers

  
	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
  LEE-UNIVERSAL HOLDINGS, LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Joseph B. Rotberg

  	
   

  
	
   

  	
  Name: Joseph B. Rotberg

  
	
   

  	
  Title: CFO

  
	
   

  	
   

  
	
   

  	
  PERRY PARTNERS, L.P.,

  
	
   

  	
  By: PERRY CORP., its General Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  

 

 18
 

 

	
  

  	
  PERRY PARTNERS INTERNATIONAL, INC.

  
	
   

  	
  By: PERRY CORP., its Investment Manager

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
  PERRY COMMITMENT FUND, L.P.,

  
	
   

  	
  By: PERRY COMMITMENT ASSOCIATES, LLC, its General
  Partner,

  
	
   

  	
  By: PERRY CORP., its Managing Member

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
  PERRY COMMITMENT MASTER FUND, L.P.,

  
	
   

  	
  By: PERRY COMMITMENT ASSOCIATES, LLC, its General
  Partner,

  
	
   

  	
  By: PERRY CORP., its Managing Member

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

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

  
	
   

  	
  By: WCAS X ASSOCIATES, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Sean M. Traynor

  	
   

  
	
   

  	
  Name: Sean M. Traynor

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

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

  
	
   

  	
  By: WCAS X ASSOCIATES, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Sean M. Traynor

  	
   

  
	
   

  	
  Name: Sean M. Traynor

  
	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  /s/ Richard Barasch

  	
   

  
	
   

  	
  Richard Barasch

  
					

 

 19
 

SCHEDULE
I

Addresses for Notices to Initial Holders

If to a member of the
CapZ/USP Group, to it c/o:

Capital Z / Union Square

230 Park Avenue South, 11th floor

New York, NY  10003

Telephone number:  (212) 965-2400

Facsimile
number:  (212) 343-5206

Attention:  Bob Spass/Brad Cooper

If to a member of the Lee
Group, to it c/o:

Lee Equity Partners

767 Fifth Avenue

New York, NY   10153

Telephone number:  (212) 888-1500

Facsimile
number:  (212) 888-6388

Attention:  Mark Gormley/Benjamin
Hochberg

If to a member of the
Perry Group, to it c/o:

Perry Capital

767 Fifth Avenue

New York, NY   10153

Telephone number:  (212) 583-4000

Facsimile
number:  (212) 583-4146

Attention:  Michael C. Neus

If to a member of the
WCAS Group, to it c/o:

Welsh, Carson, Anderson
& Stowe

320 Park Avenue, Suite
2500

New York, NY  10022-6815

Telephone number:  (212) 893-9500

Facsimile
number:  (212) 893-9583

Attention:  Sean M. Traynor

Richard Barasch

c/o Universal American
Financial Corp.

6 International Drive

Rye Brook, NY 10573-1068

Facsimile
number:  (914) 934-0700

 20
 

EXHIBIT A

[FORM OF] JOINDER

[Date]

Universal American
Financial Corp.

6 International Drive

Rye Brook, NY 10573-1068

Attention: General
Counsel

Ladies and Gentlemen:

Reference is made to the
Registration Rights Agreement, dated as of [Date] (the “Agreement”),
with Universal American Financial Corp. (the “Company”).  Capitalized terms used and not otherwise
defined herein are used herein as defined in the Agreement.

The undersigned (“Transferee”)
hereby: (i) acknowledges receipt of a copy of the Agreement; (ii) notifies the
Company that, on [Date], Transferee acquired from [insert name of assigning Holder] (pursuant to a private
transfer that was exempt from the registration requirements under the
Securities Act) [describe the Registrable Securities that
were transferred] (the “Transferred Securities”) and an assignment
of such transferor’s rights under the Agreement with respect and to the
Transferred Securities, and the Transferee has assumed from such transferor the
liability for any and all obligations under the Agreement related to the
Transferred Securities; and (iii) agrees to be bound by all terms of the
Agreement with respect to the Transferred Securities applicable to a Holder of
such Transferred Securities as if the Transferee was an original signatory to
the Agreement.

Notices to the Transferee
for purposes of the Agreement may be addressed to: [                      ],
[                      ],
Attn: [              ],
Fax: [                ].

This document shall be
governed by, and construed in accordance with, the laws of the State of New
York, applicable to contracts executed in and to be performed entirely within
that State.

	
   

  	
  [Transferee]

  
	
   

  	
   

  
	
   

  	
  [By:]

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  [Title:]

  

 

cc:  [Transferor]

 21Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

among

UNIVERSAL AMERICAN FINANCIAL CORP.

and

THE SEVERAL INVESTORS PARTY HERETO

Dated as of May 7, 2007

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
  Page

  
	
  ARTICLE 1

  	
  CERTAIN DEFINITIONS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Certain
  Definitions

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 1.2

  	
  Interpretive
  Provision

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  ISSUANCE AND PURCHASE OF CONVERTIBLE SHARES

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Issuance and
  Purchase of Convertible Shares

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 2.2

  	
  Deliveries

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 2.3

  	
  Closing

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  INVESTOR REPRESENTATIONS AND WARRANTIES

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Organization,
  Good Standing, Qualification and Power

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.2

  	
  Authority;
  Execution and Delivery; Enforceability

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.3

  	
  Non-contravention

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.4

  	
  Consents

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.5

  	
  [Intentionally
  Omitted]

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.6

  	
  Brokers

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.7

  	
  Acquisition for
  Investment

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.8

  	
  Disclosure of
  Information

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.9

  	
  Restricted
  Securities

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  REPRESENTATIONS AND WARRANTIES OF PARENT

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Organization,
  Good Standing, Qualification and Power

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.2

  	
  Authority;
  Execution and Delivery; Enforceability

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.3

  	
  Non-contravention

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.4

  	
  Consents

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.5

  	
  Capitalization
  of Parent; Parent Subsidiaries

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.6

  	
  Parent SEC
  Documents

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.7

  	
  No Undisclosed
  Liabilities

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.8

  	
  Title to
  Tangible Personal Property

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.9

  	
  Absence of
  Certain Developments

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.10

  	
  Governmental
  Authorizations; Licenses; Etc

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.11

  	
  Litigation

  	
   

  	
  19

  

 

 i
 

 

	
  Section 4.12

  	
  Taxes

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.13

  	
  Employee Matters

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.14

  	
  Employee Benefit
  Plans

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.15

  	
  Intellectual
  Property Rights

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.16

  	
  Contracts

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.17

  	
  Insurance

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.18

  	
  Real Property

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.19

  	
  Transactions
  With Affiliates

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.20

  	
  Financing

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.21

  	
  Information
  Supplied

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.22

  	
  Required Parent
  Shareholder Approval

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.23

  	
  Valid Issuance
  of Parent Shares

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.24

  	
  Anti-Takeover
  Statutes

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.25

  	
  Exemption from
  Registration

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.26

  	
  Brokers

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.27

  	
  Fairness
  Opinion; Acknowledgement

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.28

  	
  Merger Agreement

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  COVENANTS AND AGREEMENTS

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Access;
  Documents and Information

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.2

  	
  Certificates of
  Designations

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.3

  	
  Conduct of
  Business by Parent.

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.4

  	
  Closing
  Documents

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.5

  	
  Exchange of
  Series A Preferred Stock for Series B Preferred Stock; Further Assurances;
  Charter Amendment

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.6

  	
  Public
  Announcements

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.7

  	
  Availability of
  Shares

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.8

  	
  Certificates

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.9

  	
  Certain Claims

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.10

  	
  Certain Tax
  Matters

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.11

  	
  [Intentionally
  Omitted]

  	
   

  	
  32

  

 

 ii
 

 

	
  Section 5.12

  	
  Anti-Takeover
  Statutes

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.13

  	
  Nasdaq National
  Market Listing

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.14

  	
  Legends

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.15

  	
  Use of Proceeds

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  CONDITIONS TO CLOSING

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Mutual
  Conditions

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.2

  	
  Conditions to
  the Obligations of Parent

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.3

  	
  Conditions to
  the Obligations of the Investors

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.4

  	
  Frustration of
  Closing Conditions

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  TERMINATION

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Termination

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 7.2

  	
  Effect of
  Termination

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  MISCELLANEOUS

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Survival

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.2

  	
  Indemnification

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.3

  	
  Notices

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.4

  	
  Exhibits and
  Schedules

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.5

  	
  Time of the
  Essence; Computation of Time

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.6

  	
  Expenses and
  Fees

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.7

  	
  Governing Law

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.8

  	
  Jurisdiction and
  Venue; Waiver of Jury Trial

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.9

  	
  Assignment;
  Successors and Assigns; No Third Party Rights

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.10

  	
  Counterparts

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.11

  	
  Titles and
  Headings

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.12

  	
  Entire Agreement

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.13

  	
  Severability

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.14

  	
  No Strict
  Construction

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.15

  	
  Specific
  Performance

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.16

  	
  Failure or
  Indulgence not Waiver

  	
   

  	
  43

  

 

 iii
 

 

	
  Section 8.17

  	
  Amendments

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.18

  	
  Nature of
  Investors’ Obligations and Rights

  	
   

  	
  43

  

 

 iv

SECURITIES PURCHASE
AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”),
dated as of May 7, 2007, is entered into by and among Universal American
Financial Corp., a New York corporation (“Parent”), Lee-Universal
Holdings, LLC (“Lee”), Welsh, Carson, Anderson & Stowe X, L.P. (“WCAS”),
Union Square Universal Partners, L.P. (“Union Square”), Perry Partners,
L.P., Perry Partners International, Inc., Perry Commitment Fund, L.P. and Perry
Commitment Master Fund, L.P. (the afore-named Perry entities are referred to
herein collectively as “Perry”). 
Lee, WCAS, Union Square and Perry are herein sometimes referred to each
as an “Investor” and collectively as the “Investors”.

RECITALS

WHEREAS, concurrently with the execution and delivery
of this Agreement, Parent has entered into the Agreement and Plan of Merger and
Reorganization, dated as of the date of this Agreement, among Parent, MHRx LLC,
a Delaware limited liability company, MemberHealth, Inc., an Ohio corporation (“MemberHealth”),
and the other parties named therein, a copy of which is attached as Exhibit
A hereto (the “Merger Agreement”);

WHEREAS, pursuant to the Merger Agreement, Parent has
agreed to acquire, through the merger transactions set forth therein, 100% of
the issued and outstanding shares of capital stock and other equity interests
of and in MemberHealth on the terms, for the consideration and subject to the
conditions set forth in the Merger Agreement (the “Merger”);

WHEREAS, the Board of Directors of Parent has duly
authorized and approved, and created and provided for the issuance of, (a)
Series A Participating Convertible Preferred Stock, par value $1.00 per share,
of Parent (“Series A Preferred Stock”), which Series A Preferred Stock
shall have such powers, preferences and rights as set forth in the Certificate
of Amendment to Parent’s Certificate of Incorporation for the Series A
Preferred Stock attached hereto as Exhibit B-1 (the “Series A
Preferred Stock Certificate of Designations”) and (b) Series B
Participating Convertible Preferred Stock, par value $1.00 per share, of Parent
(“Series B Preferred Stock”), which Series B Preferred Stock shall have
such powers, preferences and rights as set forth in the Certificate of
Amendment to Parent’s Certificate of Incorporation for the Series B Preferred
Stock attached hereto as Exhibit B-2 (the “Series B Preferred Stock
Certificate of Designations” and, together with the Series A Preferred
Stock Certificate of Designations, the “Certificates of Designations”);

WHEREAS, concurrently with the execution and delivery
of this Agreement, Parent and the Investors are also entering into (i) another
Securities Purchase Agreement, dated as of the date of this Agreement, pursuant
to which Parent has agreed to issue and sell to the Investors, and the Investors
have agreed to purchase from Parent, shares of Series B Preferred Stock on the
terms and subject to the conditions set forth therein, a copy of which is
attached as Exhibit C hereto (the “Stage 2 Purchase Agreement”),
and (ii) a Registration Rights Agreement in the form attached hereto as Exhibit
D (the “Registration Rights Agreement”);

WHEREAS, at or prior to the closing under the Stage 2
Purchase Agreement, a Shareholders Agreement substantially in the form attached
hereto as Exhibit E (the “Shareholders Agreement”) will be
executed and delivered by the parties hereto and any other Persons contemplated
therein to be initial parties thereto;

WHEREAS, the Board of Directors of Parent has (a)
approved this Agreement, the Stage 2 Purchase Agreement, the Registration
Rights Agreement and the Shareholders Agreement (collectively, the “Transaction
Agreements”), and the Merger Agreement, and all of the transactions
contemplated hereby and thereby (collectively, the “Transactions”),
including, without limitation, (i) the issuance to the Investors pursuant to
this Agreement of an aggregate of 30,473 shares of Series A Preferred Stock and
19,527 shares of Series B Preferred Stock (collectively, the “Convertible
Shares”), the shares of Series B Preferred Stock for which shares of Series
A Preferred Stock may be exchanged as contemplated by this Agreement, and all
shares of common stock, par value $.01 per share, of Parent (“Parent Common
Stock”) issuable upon transfer or conversion, as the case may be, of the
Convertible Shares and shares of Series B Preferred Stock for which shares of
Series A Preferred Stock may be exchanged as contemplated by this Agreement,
(ii) the issuance to the Investors pursuant to the Stage 2 Purchase Agreement
of an aggregate of 125,000 shares of Series B Preferred Stock (a portion of
which may be issued to and purchased by an Investor under the Stage 2 Purchase
Agreement instead in the form of Series A Preferred Stock at the request of
such Investor) (collectively, the “Stage 2 Shares”) and all shares of
Parent Common Stock issuable upon transfer or conversion, as the case may be,
of Stage 2 Shares, and (iii) the issuance of the shares of Parent Common Stock
contemplated to be issued as merger consideration pursuant to the Merger Agreement
as in effect on the date of this Agreement ((ii) and (iii) collectively, the “Share
Issuances”); and (b) determined that the Transaction Agreements, the Merger
Agreement, and all of the Transactions, are fair to and in the best interests
of Parent and its shareholders;

WHEREAS, as contemplated by Rule 4350(i) of The Nasdaq
Stock Market, Inc. (“Nasdaq”) Marketplace Rules, Parent shall call a
special meeting of its shareholders (the “Parent Shareholder Meeting”)
and, at such meeting, seek the affirmative vote of the holders of a majority of
the shares of Parent Common Stock voting in person or by proxy at such meeting
in favor of the Share Issuances (such vote, together with the Parent Charter
Vote referred to below, being hereinafter referred to as the “Required
Parent Shareholder Approval”);

WHEREAS, at the Parent Shareholder Meeting, Parent
shall also seek the affirmative vote of the holders of a majority of the shares
of Parent Common Stock then outstanding on a proposal to amend the Certificate
of Incorporation of Parent to authorize a new class of Parent non-voting common
stock and increase the number of authorized shares of Parent capital stock on
terms substantially in the form attached hereto as Exhibit F (the “Charter
Amendment”) (the “Parent Charter Vote”);

WHEREAS, the Board of Directors of Parent has resolved
to recommend that the shareholders of Parent vote in favor of and approve the
Share Issuances and the Charter Amendment;

 2
 

WHEREAS, each of the Investors, severally but not
jointly, wishes to purchase from Parent, and Parent wishes to sell to each
Investor, upon the terms and subject to the conditions set forth in this
Agreement, the number of Convertible Shares respectively set forth by the name
of such Investor in Section 2.1 below at a purchase price of $2,000 per
Convertible Share;

WHEREAS, Parent and the Investors are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act, and Rule 506 of
Regulation D promulgated under the Securities Act; and

WHEREAS, concurrently with the execution and delivery
of this Agreement, certain of the Investors are also entering into a Share
Purchase Agreement in the form attached hereto as Exhibit G pursuant to
which they will respectively acquire certain outstanding shares of Parent
Common Stock (the transactions contemplated thereby, collectively with the
Transactions, the “Collective Transactions”);

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

ARTICLE 1

CERTAIN DEFINITIONS

Section 1.1             Certain  Definitions.  As used in this Agreement, the following
terms have the respective meanings set forth below.

“A/B Preferred Exchange” has the meaning set
forth in Section 5.5(a).

“Affiliate” means, with respect to any Person,
any other Person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person.  The term “control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms “controlled”
and “controlling” have meanings correlative thereto.  For purposes hereof, (i) Parent shall not be
considered an Affiliate of any Investor and (ii) the Affiliates of an Investor
shall be deemed to include one or more funds under common management with such
Investor.

“Agreement” has the meaning set forth in the
preamble.

“Antitrust Division” has the meaning set forth
in Section 5.5(b).

“Business Day” means a day, other than a
Saturday or Sunday, on which commercial banks in New York City and Cleveland,
Ohio are open for the general transaction of business.

“Capitalization Date” has the meaning set forth
in Section 4.5(a).

 3
 

“Closing” has the meaning set forth in Section
2.3.

“Closing Date” has the meaning set forth in Section
2.3.

“CMS” means the Centers for Medicare &
Medicaid Services.

“COBRA” means Part 6 of Subtitle B of Title I
of ERISA, Section 4980B of the Code and any similar state law.

“Code” has the meaning set forth in the
recitals.

“Consents” has the meaning set forth in Section
5.5(b).

“Contracts” means the Parent Contracts.

“Contractual Obligation” means, with respect to
any Person, any contract, obligation, agreement, deed, mortgage, lease, sublease,
license or legally binding commitment, promise, undertaking or instrument,
whether written or oral, to which or by which such Person is a party or
otherwise bound or to which or by which any property, business, operation or
right of such Person is bound.

“Conversion Shares” means the shares of Parent
Common Stock issuable upon conversion of (i) the Convertible Shares, (ii)
shares of Series B Preferred Stock that may be issued in exchange for shares of
Series A Preferred Stock as contemplated by this Agreement, (iii) the Stage 2
Shares and (iv) the shares of Parent non-voting common stock that may be issued
upon conversion or exchange of any of the shares referred to in clauses
(i)-(iii).

“Debt Commitment Letter” has the meaning set
forth in Section 4.20.

“Disclosure Schedules” means the Investor
Disclosure Schedules and Parent Disclosure Schedules.

“Employee Benefit Plan” means any “employee
benefit plan” (as such term is defined in Section 3(3) of ERISA) and any other
material employee benefit plan, program or arrangement maintained, sponsored or
contributed to by a Person or any of its Subsidiaries.

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended.

“Exchange Act” means the Securities Exchange
Act of 1934, as amended (together with the rules and regulations promulgated
thereunder).

“Financing” has the meaning set forth in Section
4.20.

“FTC” has the meaning set forth in Section
5.5(b)

“Funded Indebtedness” means, as of any date,
without duplication, the outstanding principal amount of, accrued and unpaid
interest on and other payment obligations (including any prepayment premiums
payable as a result of the consummation of 

 4
 

the Collective Transactions) arising under any
obligations of a Person or any of its Subsidiaries consisting of
(i) indebtedness for borrowed money, (ii) indebtedness evidenced by
any note, bond, debenture or other debt security, or (iii) obligations
under any interest rate, currency or other hedging agreements, to the extent
payable if terminated, in each case, as of such date.

“GAAP” means generally accepted accounting
principles as in effect in the United States on the date of this Agreement,
applied on a consistent basis.

“Governing Documents” means the legal
document(s) by which any Person (other than an individual) establishes its
legal existence or which govern its internal affairs.  For example, the “Governing Documents” of a
corporation are its certificate of incorporation and by-laws (or equivalent),
the “Governing Documents” of a limited partnership are its certificate of
formation and its limited partnership agreement and the “Governing Documents”
of a limited liability company are its certificate of formation and its
operating agreement.

“Government Order” means any order, writ,
judgment, injunction, decree, stipulation, ruling, determination or award
entered by or with any Governmental Authority.

“Governmental Authority” means any foreign
government, or the government of the United States of America and any state,
commonwealth, territory, possession, county, or municipality thereof, or the
government of any political subdivision of any of the foregoing, or any entity,
authority, agency, ministry, court or other similar body exercising executive,
legislative, judicial, regulatory or administrative authority or functions of
or pertaining to government, including any authority or other
quasi-governmental entity established to perform any of such functions and, in
the case of Parent, Nasdaq.

“Governmental
Authorization” means any or
all licenses, permits, waivers, accreditations, approvals, qualifications,
certifications, and other authorizations granted by any Governmental Authority,
accreditation organization or Payment Program relating to or affecting a
Medicare prescription drug plan, discount drug plan or other drug plan or
product offered or administered by Parent, the establishment, ownership,
operation, maintenance, management, regulation, development or expansion
thereof.

“HSR Act” means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.

“Insurance Laws” means the laws and regulations of any State of the
United States of America governing insurance companies that are applicable to
Parent or its Subsidiaries, including the respective insurance laws and
regulations of the States of Florida, Kansas, New York, Oklahoma, Pennsylvania
and Texas.

“Intellectual Property Rights” means all
intellectual property, whether owned or held for use under license, whether
registered or unregistered, including, without limitation, such rights in and
to: (i) all patents and patent applications (collectively, “Patents”);
(ii) trademarks, trade dress, service marks, certification marks, logos and
trade names; (iii) copyrights, copyright registrations and applications and
works of authorship; (iv) Internet domain names and uniform resource locators;
(v) trade secrets (as defined in the Uniform 

 5
 

Trade Secrets Act and common law) (“Trade Secrets”);
and (vi) software and information technology systems including, without
limitation, data files, source code, object code, application programming
interfaces, databases and other software-related specifications and
documentation (collectively, “Software”).

“Investor Disclosure Schedules” means the
disclosure schedules to this Agreement delivered by the Investors to Parent on
or prior to the date hereof in connection with this Agreement.

“Investor Material Adverse Effect” means, with
respect to a particular Investor, any fact, event, circumstance, change,
occurrence, effect or condition which has had or would reasonably be expected
to have, individually or in the aggregate with all other facts, events,
circumstances, changes, occurrences, effects or conditions, a material adverse
effect on the ability of such Investor to consummate the transactions
contemplated by this Agreement.

“Knowledge” means, with respect to any Person,
the actual knowledge of such Person (and shall in no event encompass
constructive, imputed or similar concepts of knowledge); provided that in the case of Parent,
such actual knowledge shall be limited to the Knowledge of Richard Barasch,
Robert Waegelein, Gary Bryant, Jason Israel, Gary Jacobs, Theodore Carpenter,
Jr., Lisa Spivack and Steve Najjar, none of whom shall have any personal
liability regarding such Knowledge.

“Latest Parent Balance Sheet” has the meaning
set forth in Section 4.7.

“Legal Requirement” means any United States
federal, state or local or foreign law, statute, standard, ordinance, code,
rule, regulation, binding directive, resolution or promulgation, or any
Government Order, or any license, franchise, permit or similar right granted
under any of the foregoing, or any similar provision having the force or effect
of law and, with respect to Parent, the Nasdaq Marketplace Rules.

“Lender” has the meaning set forth in Section
4.20.

“Lien” means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind.  For avoidance of doubt, “Lien” shall
not include any license of Intellectual Property Rights.

“Losses” has the meaning set forth in Section
8.2(a).

“Medicare Part D” means the Outpatient
Prescription Drug Program established by the Medicare Modernization of Act of
2003.

“Merger” has the meaning set forth in the
recitals.

“Multiemployer Plan” has the meaning set forth
in Section 3(37) of ERISA.

“Nasdaq” has the meaning set forth in the
recitals.

 6
 

“Outstanding Parent Stock Awards” has the
meaning set forth in Section 4.5(a).

“Parent” has the meaning set forth in the
preamble.

“Parent Charter Vote” has the meaning set forth
in the recitals.

“Parent Common Stock” has the meaning set forth
in the recitals.

“Parent Confidentiality Agreement” means the
confidentiality agreements by and between the several Investors and Parent.

“Parent Contracts” has the meaning set forth in
Section 4.16.

“Parent Disclosure Schedules” means the
disclosure schedules to this Agreement delivered by Parent and the Investors on
or prior to the date hereof in connection with this Agreement.

“Parent Employee Benefit Plan” means any
Employee Benefit Plan of Parent or any of its Subsidiaries.

“Parent ERISA Affiliate” means any entity that
is considered a single employer with Parent under Section 414 of the Code.

“Parent Intellectual Property Rights” has the
meaning set forth in Section 4.15.

“Parent Material Adverse Effect” means any
fact, event, circumstance, change, occurrence, effect or condition individually
or in the aggregate which has had or would reasonably be expected to have a
material adverse effect on (A) the financial condition, business or results of
operations of Parent and its Subsidiaries, taken as a whole, or (B) the ability
of Parent to consummate the Transactions; provided, that any change, event or effect arising from or
related to, or in the case of matters covered by clauses (ix) and (x) below,
directly and solely resulting from: (i) conditions generally affecting the
industries in which Parent and its Subsidiaries operate or the United States
economy generally; (ii) acts of terrorism, acts of war or the escalation of
hostilities; (iii) any disruption of the financial, banking or securities
markets (including any decline in the price of any security or any market
index); (iv) changes in GAAP; (v) changes in any Legal Requirements, except for
changes in Legal Requirements or CMS written interpretations and guidance
related to Medicare Part D or related to the business of providing health and
life insurance or managed care products and services; (vi) any action taken or
omission by Parent in accordance with this Agreement or at the written request
of, or with the prior written consent of, all of the Investors; (vii) any
change in or effect on the business of Parent or its Subsidiaries that is cured
prior to the Closing; (viii) the announcement of the Transactions; (ix) any
failure, in and of itself, by Parent or any of its Subsidiaries to meet any
projections, forecasts or revenue or earnings predictions for any period ending
on or after the date of this Agreement; or (x) any change, in and of itself, in
the market price or trading volume of shares of Parent Common Stock, shall not
be taken into account in determining whether a “Parent Material Adverse Effect”
has occurred, or would reasonably be expected to occur, except in the case of
clauses (i) and (iii), 

 7
 

to the extent that such change, event or effect
referred to therein has had a materially disproportionate impact on the
financial condition, business or results of operations of Parent and its
Subsidiaries, taken as a whole, relative to other industry participants and,
except in the case of clauses (ix) and (x), any fact, event, circumstance,
change, occurrence, effect or condition underlying any failure to meet any
projections, forecasts or revenue or earnings predictions or affecting such
market price or trading volume shall be taken into account in determining
whether a Parent Material Adverse Effect has occurred or would reasonably be
expected to occur, and except that clause (viii) shall not apply with respect
to Sections 4.3 and 4.4 hereof.

“Parent Preferred Stock” has the meaning set
forth in Section 4.5(a).

“Parent SEC Documents” has the meaning set
forth in Section 4.6.

“Parent Shareholder Meeting” has the meaning
set forth in the recitals.

“Parent Significant Subsidiaries” means, the “significant
subsidiaries” of the Parent as defined by Regulation S-X under the Exchange
Act.

“Parent Stock Plans” has the meaning set forth
in Section 4.5(a).

“Payment Program” means Medicare, Medicaid, commercial
and private insurers, employer group health plans (including, without
limitation a “Welfare Plan” described in Section 3(1) of ERISA), and any
other governmental, commercial, or other organization which maintains a health
care reimbursement program or policy.

“Permitted Liens” means (a) mechanics,
materialmen’s, carrier’s, repairer’s and other Liens arising or incurred in the
ordinary course of business or that are not yet delinquent or are being
contested in good faith; (b) Liens for Taxes, assessments or other governmental
charges not yet delinquent or which are being contested in good faith, provided
an appropriate reserve is established therefor to the extent required by GAAP;
(c) Liens (including encumbrances and restrictions on real property such as
easements, covenants, rights of way and similar matters affecting title) that
do not, individually or in the aggregate, materially interfere with the present
uses or value of the property subject to such Liens; (d) Liens granted to any
lender at the Closing in connection with the Debt Financing of the transactions
contemplated by the Merger Agreement; (e) with respect to the Parent Common
Stock, restrictions on transfer imposed under applicable securities laws; and
(f) with respect to Parent and its Subsidiaries, Liens described on Schedule
1.1(b).

“Person” means an individual, partnership,
corporation, limited liability company, joint stock company, unincorporated
organization or association, trust, joint venture, association or other
organization, whether or not a legal entity, or a Governmental Authority.

“Proxy Statement” has the meaning set forth in Section
4.4.

“Registration Statement” has the meaning set
forth in Section 4.4.

 8
 

“Regulatory Clearance” means, with respect to any Person,
requirements pursuant to Insurance Laws or the HSR Act to make a filing, await
expiration or termination of a regulatory clearance waiting period, or obtain a
clearance, approval or waiver, under Insurance Laws or the HSR Act, before such
Person may lawfully acquire shares of Parent Common Stock or other securities
of Parent that are entitled to vote in the election of directors of Parent
generally.

“Required Parent Shareholder Approval” has the
meaning set forth in the recitals.

“Sarbanes-Oxley Act” means the Sarbanes-Oxley
Act of 2002.

“SEC” means the United States Securities and
Exchange Commission.

“Securities Act” means the Securities Act of
1933, as amended (together with the rules and regulations promulgated
thereunder).

“Subsidiary” of a Person means any and all
corporations, partnerships, limited liability companies and other entities,
whether incorporated or unincorporated, with respect to which such Person,
directly or indirectly, owns securities having the power to elect a majority of
the board of directors or similar body governing the affairs of such entity.

“Tax” means (A) any and all federal, state,
local or foreign income, gross receipts, franchise, estimated, alternative
minimum, add-on minimum, sales, use, transfer, real property gains,
registration, value added, excise, natural resources, severance, stamp,
occupation, windfall profits, environmental (under Section 59A of the Code),
customs, duties, real property, personal property, capital stock, social
security (or similar), unemployment, disability, payroll, license, employee or
other withholding, or other tax assessment, duty, fee, levy, or other
governmental charge, of any kind whatsoever, including any interest, penalties
or additions to tax or similar items in respect of the foregoing (whether
disputed or not) and including any obligations to indemnify or otherwise assume
or succeed to the tax liability of any other Person and (B) any liability for
the payment of any amount of the type described in the immediately preceding
clause (A) as a result of (1) being a “transferee” of another person, (2) being
a member of an affiliated, combined, consolidated or unitary group, or (3) any
contractual liability.

“Tax Return” means any return, report,
declaration, claim for refund, information return or other document (including
any related or supporting schedule, statement or information) filed or required
to be filed in connection with the determination, assessment or collection of
any Tax of any party or the administration of any Legal Requirements relating
to any Tax (including any amendment thereof).

“Termination Date” has the meaning set forth in
Section 7.1(b).

“Third Party Claim” has the meaning set forth
in Section 8.2(d).

“Transactions” has the meaning set forth in the
recitals.

 9
 

Section 1.2             Interpretive Provision.  Unless otherwise indicated to the contrary
herein by the context or use thereof: (i) the words, “herein,” “hereto,” “hereof”
and words of similar import refer to this Agreement as a whole and not to any
particular Section or paragraph hereof; (ii) the word “including” means “including,
but not limited to”; (iii) masculine gender shall also include the feminine and
neutral genders, and vice versa; and (iv) words importing the singular shall
also include the plural, and vice versa.

ARTICLE 2

ISSUANCE AND PURCHASE OF
CONVERTIBLE SHARES

Section 2.1             Issuance and Purchase of
Convertible Shares. 
 Subject to
the satisfaction (or waiver) of the conditions set forth in Article 6,
at the Closing:

(a)           Parent shall issue and sell to Lee,
and Lee shall purchase from Parent, 4,033 shares of Series B Preferred Stock in
exchange for the payment by Lee to Parent of an aggregate purchase price for
such shares equal to $8,066,000 (such dollar amount, the “Lee Aggregate
Purchase Price”);

(b)           Parent shall issue and sell to WCAS,
and WCAS shall purchase from Parent, 5,000 shares of Series A Preferred Stock
and 7,324 shares of Series B Preferred Stock in exchange for the payment by
WCAS to Parent of an aggregate purchase price for such shares equal to
$24,648,000 (such dollar amount, the “WCAS Aggregate Purchase Price”);

(c)           Parent shall issue and sell to Union
Square, and Union Square shall purchase from Parent, 605 shares of Series A
Preferred Stock and 8,170 shares of Series B Preferred Stock in exchange for
the payment by Union Square to Parent of an aggregate purchase price for such
shares equal to $17,550,000 (such dollar amount, the “Union Square Aggregate
Purchase Price”); and

(d)           Parent shall issue and sell to Perry,
and Perry shall purchase from Parent, 24,868 shares of Series A Preferred Stock
in exchange for the payment by Perry to Parent of an aggregate purchase price
for such shares equal to $49,736,000 (such dollar amount, the “Perry
Aggregate Purchase Price”) (the Convertible Shares referred to in this
clause (d) shall be allocated among the entities comprising Perry in the
following percentages: Perry Partners, L.P. 21.43%, Perry Partners
International, Inc. 54.46%, Perry Commitment Fund, L.P. 6.94% and Perry
Commitment Master Fund, L.P. 17.17%).

Parent shall issue and sell all such Convertible
Shares as aforesaid free and clear of any and all Liens (other than transfer
restrictions of general applicability under the Securities Act).

Section 2.2             Deliveries.  At the Closing (in addition to the other
closing deliveries specified in Article 6):

(a)           Lee shall pay to Parent the Lee
Aggregate Purchase Price;

(b)           WCAS shall pay to Parent the WCAS
Aggregate Purchase Price;

 10
 

(c)           Perry shall pay to Parent the Perry
Aggregate Purchase Price;

(d)           Union Square shall pay to Parent the
Union Square Aggregate Purchase Price; and

(e)           Parent shall deliver to each Investor
a certificate or certificates (in definitive form) duly executed on behalf of
Parent and registered in the name of such Investor (or its designee)
representing the number of Convertible Shares purchased by such Investor from
Parent pursuant to this Agreement.

All payments pursuant to clauses (a) through (d) of
this paragraph shall be made by wire transfer of immediately available funds to
an account designated by Parent pursuant to wire instructions to be provided by
Parent no later than at least three Business Days prior to the anticipated
Closing Date.

Section 2.3             Closing.  Subject to the satisfaction (or waiver) of
the conditions set forth in Article 6, the closing of the transactions
contemplated hereby (the “Closing”) shall take place at the offices of
Dechert LLP, 30 Rockefeller Plaza, New York, New York, at 10:00 A.M. (New York
City time) on the tenth Business Day after the date of this Agreement, or at
such other date and time as Parent and the Investors shall mutually agree.  The date of the Closing is herein called the “Closing
Date”.

ARTICLE 3

INVESTOR REPRESENTATIONS AND WARRANTIES

Except as set
forth in the Investor Disclosure Schedules, each Investor, severally as to
itself only, but not jointly with any other Investor, represents and warrants
to Parent as follows:

Section 3.1             Organization, Good Standing,
Qualification and Power.  Such
Investor is a corporation, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, formation or organization, as the case may be,
and has the requisite corporate, limited liability company or partnership power
and authority to own or lease its properties and assets and to carry on its
business as presently conducted.

Section 3.2             Authority; Execution and
Delivery; Enforceability.  Such
Investor has the requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, all of which have been duly
authorized by all requisite corporate, limited liability company or
partnership, as applicable, action on its part. 
Such Investor has duly executed and delivered this Agreement and
(assuming this Agreement has been duly and validly authorized, executed and
delivered by each other party hereto), this Agreement is a valid and binding
agreement of such Investor, enforceable against such Investor in accordance
with its terms, except as the enforceability hereof or thereof may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar Legal Requirements affecting the enforcement of creditors’ rights
generally or (ii) applicable equitable principles (whether considered in a
proceeding at law or in equity).

 11
 

Section 3.3             Non-contravention.  Neither the execution and delivery of this
Agreement by such Investor nor the fulfillment of and the performance by such
Investor of its obligations hereunder will (i) contravene any provision
contained in the Governing Documents of such Investor, or (ii) conflict
with, violate or result in a breach (with or without the lapse of time, the
giving of notice or both) of, permit any Person to terminate, or constitute a
default (with or without the lapse of time, the giving of notice or both) under
(A) except as set forth on Schedule 3.3, any contract, agreement,
commitment, indenture, mortgage, lease, pledge, note, bond, license, permit, or
other instrument or obligation to which such Investor is a party or (B)
assuming the completion of the actions described in Section 3.4 and on Schedule 3.4,
any Legal Requirement to which such Investor is bound or subject, which in the
case of any of clause (ii) above, would reasonably be expected to have an
Investor Material Adverse Effect.

Section 3.4             Consents.  No notice to, filing with, or authorization,
registration, consent or approval of any Governmental Authority or other Person
is necessary for the execution, delivery or performance of this Agreement by
such Investor or the consummation of the transactions contemplated hereby by
such Investor, except for (i) compliance with and filings under the Exchange
Act, (ii) filings and approvals required by state insurance departments,
departments of health, and/or other Governmental Authorities having
jurisdiction over the Governmental Authorizations or any part of Parent’s
business, or such other filings, authorizations, registrations, consents or
approvals that may be required be reason of Parent’s or MemberHealth’s
involvement in the transactions, (iii) other notices, filings, authorizations,
registrations, consents or approvals set forth on Schedule 3.4, and (iv)
any other notices, filings, authorizations, registrations, consents or
approvals the failure of which to obtain or make would not reasonably be
expected to have an Investor Material Adverse Effect.

Section 3.5             [Intentionally Omitted].

Section 3.6             Brokers.  No Person is or will be entitled to a broker’s,
finder’s, investment banker’s, financial advisor’s or similar fee from Parent
in connection with this Agreement or any of the transactions contemplated
hereby based on any commitments made by such Investor.

Section 3.7             Acquisition for Investment.  Such Investor is acquiring the shares
issuable to it under this Agreement for investment purposes and not with a view
towards any distribution thereof in violation of applicable securities laws;
provided, however, that by making such representation and warranty, such
Investor does not agree to hold any securities for any minimum or other
specific term.  Such Investor is an “accredited
investor” (as that term is defined in Rule 501(a) of Regulation D under the
Securities Act).  Such Investor
acknowledges that the shares to be purchased by such Investor under this
Agreement may not be resold absent registration under the Securities Act or the
availability of an applicable exemption from Securities Act registration
requirements.  By executing this
Agreement, such Investor further represents that, except as set forth on Schedule
3.7, such Investor does not presently have any contract, undertaking,
agreement or arrangement with any Person, other than a Permitted Transferee (as
defined in the Shareholders Agreement) of such Investor, or any direct or
indirect shareholders, partners or members of such Investor, to sell, transfer
or 

 12
 

grant participations to such Person or to any third
Person, with respect to any of the Convertible Shares.

Section 3.8             Disclosure of Information.  Such Investor has had an opportunity to
discuss Parent’s business, management, financial affairs and the terms and conditions
of the offering of the Convertible Shares with Parent’s management.  The foregoing, however, does not limit or
modify the representations and warranties of Parent in Article 4 of this
Agreement or the right of the Investors to rely thereon.

Section 3.9             Restricted Securities.  Such Investor understands that the issuance
and sale of the Convertible Shares have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Investor’s
representations as expressed in Section 3.7.  Such Investor understands that the
Convertible Shares are “restricted securities” under applicable U.S. federal
and state securities laws and that, pursuant to these laws, the Investor must
hold the Convertible Shares indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is
available.  Such Investor acknowledges
that Parent has no obligation to register or qualify the Convertible Shares, or
the Parent Common Stock into which it may be converted, for resale except as set
forth in the Registration Rights Agreement. 
Such Investor further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Convertible Shares, and on requirements relating to
Parent which are outside of the Investor’s control.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF
PARENT

Except
as set forth in the Parent Disclosure Schedules, Parent hereby represents and
warrants to each Investor as follows:

Section 4.1             Organization, Good Standing,
Qualification and Power.  Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has the requisite corporate power and
authority to own or lease its properties and assets and to carry on its
business as presently conducted. Except as has not had and would not reasonably
be expected to have a Parent Material Adverse Effect, each of the Subsidiaries of
Parent is a corporation, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, formation or organization, as the
case may be, specified on Schedule 4.1 and has the requisite corporate,
limited liability company or partnership power and authority to own or lease
its properties and assets and to carry on its business as presently
conducted.   Parent and each of Parent’s
Subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction wherein the nature of its business or the ownership of its
assets makes such qualification necessary, except where the failure to be so
qualified and in good standing has not had and would not reasonably be expected
to have a Parent Material Adverse 

 13
 

Effect.  Parent
has delivered to the Investors true and complete copies of the Governing
Documents of Parent.  Parent is not in
material violation of or material default under the provisions of any such
Governing Documents.  None of the Parent’s
Subsidiaries is in material violation or material default under its governing
documents, except as would not cause a Parent Material Adverse Effect.

Section 4.2             Authority; Execution and
Delivery; Enforceability.  Parent has
the requisite power and authority to execute and deliver this Agreement, the
other Transaction Agreements and the Merger Agreement and to perform its
obligations hereunder, and thereunder (subject, with respect to consummation of
the transactions contemplated by the Stage 2 Purchase Agreement and the Merger
Agreement, to obtaining the Required Parent Shareholder Approval), all of which
have been duly authorized (subject, with respect to consummation of the
transactions contemplated by the Stage 2 Purchase Agreement and the Merger
Agreement, to obtaining the Required Parent Shareholder Approval) by all
requisite corporate action on its part. 
Parent has duly executed and delivered this Agreement, the Stage 2
Purchase Agreement, the Registration Rights Agreement and the Merger Agreement,
and each of this Agreement, the Stage 2 Purchase Agreement and the Registration
Rights Agreement, and (assuming that they have been duly and validly
authorized, executed and delivered by the other parties thereto, respectively)
this Agreement, the Stage 2 Purchase Agreement and the Registration Rights
Agreement are, and each other Transaction Agreement will from and after the
closing under the Stage 2 Purchase Agreement be, a valid and binding agreement
of Parent, enforceable against Parent in accordance with their respective
terms, except as the enforceability hereof or thereof may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Legal Requirements affecting the enforcement of creditors’ rights generally or
(ii) applicable equitable principles (whether considered in a proceeding at law
or in equity).

Section 4.3             Non-contravention.  Neither the execution and delivery of this
Agreement, the other Transaction Agreements and the Merger Agreement nor the
fulfillment of and the performance by Parent of its obligations hereunder or
thereunder, nor consummation of the Collective Transactions, will
(i) contravene any provision contained in the Governing Documents of Parent,
(ii) conflict with, violate or result in a breach (with or without the
lapse of time, the giving of notice or both) of, permit any Person to
terminate, or constitute a default (with or without the lapse of time, the
giving of notice or both) under (A) except as set forth on Schedule 4.3,
any contract, agreement, commitment, indenture, mortgage, lease, pledge, note,
bond, license, permit or other instrument or obligation to which Parent or any
of Parent’s Subsidiaries is a party or is bound or to which any of their
respective properties or assets are subject or (B) assuming the completion of
the actions described in Section 4.4 and on Schedule 4.4, any
Legal Requirement to which Parent or any of Parent’s Subsidiaries is bound or
subject or to which any of their respective assets or properties are subject,
(iii) except as set forth on Schedule 4.3, result in the creation
or imposition of any Lien on any of the assets or properties of Parent or any
of Parent’s Subsidiaries, or (iv) except as set forth on Schedule 4.3,
result in the acceleration of, or permit any Person to terminate, modify,
cancel, accelerate or declare due and payable prior to its stated maturity, any
obligation of Parent or any of Parent’s Subsidiaries, which in the case of any
of clauses (ii) through (iv) above, would reasonably be expected to have a
Parent Material Adverse Effect.

 14

Section 4.4             Consents.  No notice to, filing with, or authorization,
registration, consent or approval of any Governmental Authority or other Person
is necessary for the execution, delivery or performance of this Agreement, the
other Transaction Agreements and the Merger Agreement or the consummation of
the transactions contemplated hereby and thereby by Parent or consummation of
the Collective Transactions, except for (i) compliance with and filings under
the HSR Act with respect to consummation of the transactions contemplated by
the Stage 2 Purchase Agreement and the Merger Agreement, (ii) compliance with
the notice and approval requirements of CMS applicable to the Transactions,
(iii) with respect to consummation of the transactions contemplated by the Stage
2 Purchase Agreement and Section 5.5(f), the filing of the Charter Amendment
with the Secretary of State of the State of New York, and with respect to
consummation of the transactions contemplated by the Merger Agreement, the
filing of appropriate Certificates of Merger and any related documents with the
Secretaries of State of the States of Ohio and Delaware pursuant to the Merger
Agreement, (iv) filings and approvals required by state insurance departments
and/or departments of health, each as set forth on Schedule 4.4, (v)
with respect to consummation of the transactions contemplated by the Stage 2
Purchase Agreement and the Merger Agreement, the filing with the SEC of (A) a
joint proxy statement/prospectus for distribution to the shareholders of MemberHealth
in connection with the Merger and the shareholders of Parent in connection with
the Parent Shareholder Meeting in accordance with Regulation 14A promulgated
under the Exchange Act (such proxy statement as amended or supplemented from
time to time being hereinafter referred to as the “Proxy Statement”),
(B) a registration statement on Form S-4 relating to the offer and sale
of shares of Parent Common Stock in connection with the Merger pursuant to the
Merger Agreement (such registration statement as amended or supplemented from
time to time being hereinafter referred to as the “Registration Statement”),
and (C) such reports under and such other compliance with the Exchange Act and
the Securities Act as may be required in connection with this Agreement and the
Merger, (vi) compliance with any applicable Legal Requirements relating to
state blue sky laws, securities laws or Nasdaq filing requirements in
connection with the issuance of the Convertible Shares or the shares of Parent
Common Stock issuable in the Merger, and (vii) other notices, filings,
authorizations, registrations, consents or approvals set forth on Schedule
4.4.

Section 4.5             Capitalization of Parent; Parent
Subsidiaries.

(a)           As of the date hereof, the authorized
capital stock of Parent consists of (i) 100,000,000 shares of Parent Common
Stock and (ii) 2,000,000 shares of Preferred Stock, par value $0.01 per share
(the “Parent Preferred Stock”), of which 300,000 shares of Parent
Preferred Stock will be designated as Series A Preferred Stock and 300,000
shares of Parent Preferred Stock will be designated as Series B Preferred Stock
(each having the rights, preferences and privileges set forth in the
Certificates of Designations attached as Exhibits B-1 and B-2,
respectively).  Upon effectiveness of the
Charter Amendment, the authorized capital stock of Parent will consist of at
least (i) 125,000,000 shares of Parent Common Stock, (ii)  30,000,000 shares of Parent non-voting common
stock and (iii) 2,000,000 shares of Parent Preferred Stock, of which 300,000
shares of Parent Preferred Stock will have been designated as Series A
Preferred Stock and 300,000 shares of Parent Preferred Stock will have been
designated as Series B Preferred Stock (each having the rights, preferences and
privileges set forth in the Certificates of Designations attached as Exhibits
B-1 and B-2, 

 15
 

respectively). 
As of the close of business on May 7, 2007 (the “Capitalization Date”),
59,442,873 shares of Parent Common Stock were issued and outstanding; no shares
of Parent Preferred Stock were issued and outstanding; 626,045 shares of Parent
Common Stock were held in Parent’s treasury; and 5,227,403 shares of Parent
Common Stock were reserved for issuance pursuant to the Outstanding Parent
Stock Awards.  Schedule 4.5(a)
contains a list of each stock option plan, program or arrangement of Parent
(the “Parent Stock Plans”) and information with respect to all of the
outstanding stock options, restricted stock awards and other stock-based awards
issued under the Parent Stock Plans (“Outstanding Parent Stock Awards”),
including the name of Parent Stock Plan under which such options or awards were
issued, the holders thereof, the number of shares subject thereto, the exercise
prices and other material terms thereof and a description of the vesting
provisions thereof.  Except as set forth
above or on Schedule 4.5(a), there are no outstanding shares of capital
stock of Parent or securities, directly or indirectly, convertible into, or
exchangeable or exercisable for, shares of capital stock of Parent or any
outstanding “phantom” stock, stock appreciation right or other stock-based
awards.  Except as set forth on Schedule
4.5(a), there are no puts, calls, rights (including preemptive rights),
commitments or agreements to which Parent is a party or by which it is bound,
in any case obligating Parent to issue, deliver, sell, purchase, redeem or
acquire, any equity securities of Parent or securities convertible into, or
exercisable or exchangeable for equity securities of Parent, or obligating
Parent to grant, extend or enter into any such option, put, warrant, call, right,
commitment or agreement.  All outstanding
shares of Parent Common Stock are validly issued, fully paid and nonassessable
and are not subject to, and have not been issued in violation of, preemptive or
other similar rights.  No bonds,
debentures, notes or other indebtedness of Parent having any right to vote with
the stockholders of Parent on matters submitted to the stockholders of Parent
(or any such indebtedness or other securities that are convertible into or
exercisable or exchangeable for securities having such voting rights) are
issued or outstanding.  No shares of
capital stock of Parent and no other securities directly or indirectly
convertible into, or exchangeable or exercisable for, capital stock of Parent
have been issued since the Capitalization Date and on or prior to the date of
this Agreement, other than shares of Parent Common Stock issued in respect of
Outstanding Parent Stock Awards.

(b)           Agreements Relating to Capital
Stock.  Except as set forth on Schedule
4.5(b), there are not any stockholder agreements, voting trusts or other
agreements or understandings to which Parent is a party or by which it is bound
relating to the voting or transfer of any shares of Parent Common Stock.  All registration rights agreements,
stockholders’ agreements and voting agreements to which Parent or any of its
Subsidiaries is a party are identified on Schedule 4.5(b).

(c)           Set forth on Schedule 4.5(c)
is the number of authorized, issued and outstanding shares of capital stock (or
other ownership interests) of each Parent Significant Subsidiary.  All of the issued and outstanding shares of
capital stock (or other ownership interests) of each Parent Significant
Subsidiary are owned beneficially and of record by Parent or another Subsidiary
of Parent as set forth on Schedule 4.5(c), have been validly issued, and
are fully paid and nonassessable and, except as set forth on Schedule 4.5(c),
are held free and clear of any preemptive rights (other than such rights as may
be held by Parent or a Subsidiary of Parent) or Liens (other than Permitted
Liens).  Except as set forth on Schedule
4.5(c), (a) there are no other issued or outstanding equity securities of
any Parent Significant Subsidiary 

 16
 

and (b) there are no other issued and outstanding
securities of any Parent Significant Subsidiary convertible into or
exchangeable for, at any time, equity securities of any Parent Significant
Subsidiary.  Except as set forth on Schedule 4.5(c),
there are no (i) outstanding obligations of Parent or Parent Significant
Subsidiary to repurchase, redeem or otherwise acquire any capital stock (or
other ownership interests) of any of the Parent Significant Subsidiaries or
(ii) voting trusts, proxies or other agreements with respect to the voting or
transfer of the capital stock (or other ownership interests) of the Parent
Significant Subsidiaries.

(d)           Except as set forth on Schedule
4.5(d), and except for the capital stock (or other ownership interests) of
the Parent Significant Subsidiaries, Parent does not own, directly or
indirectly, (i) any shares of outstanding capital stock or membership interests
of any other corporation or limited liability company or securities convertible
into or exchangeable for capital stock or membership interests of any other
corporation or limited liability company (ii) any equity or other participating
interest in the revenues or profits of any Person, and neither Parent nor any
of the Parent Significant Subsidiaries is subject to any obligation to make any
investment (in the form of a loan, capital contribution or otherwise) in any
Person.

Section
4.6             Parent SEC Documents.

(a)           Parent has made available to the
Investors a true and complete copy of each report, schedule, registration
statement and proxy statement filed by Parent with the SEC since December 31,
2004 (the “Parent SEC Documents”), which are all the documents that
Parent was required to file with the SEC since December 31, 2004.  As of their respective dates, the Parent SEC
Documents complied in all material respects with the requirements of the Securities
Act, the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder, and, to the extent in effect and applicable, the
Sarbanes-Oxley Act, and none of Parent SEC Documents contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  Parent has made available to the Investors
true and complete copies of all comment letters received by Parent from the SEC
since December 31, 2004, together with all written responses of Parent
thereto.  As of the date hereof, to the
Knowledge of Parent, there are no outstanding or unresolved comments in such
comment letters and none of the Parent SEC Documents is the subject of any
ongoing review by the SEC.

(b)           The financial statements of Parent
included in the Parent SEC Documents comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q or
Rule 10-01 of Regulation S-X of the SEC) and present fairly in all material
respects the consolidated financial position of Parent and its consolidated
Subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of Parent and its consolidated
Subsidiaries for the periods presented therein (subject, in the case of the
unaudited statements, to year-end audit adjustments, as permitted by Rule
10-01, and any other adjustments described therein).

 17
 

(c)           Parent and its Subsidiaries have
established and maintain “disclosure controls and procedures” (as defined in
Rule 13a-15(e) promulgated under the Exchange Act) and “internal control
over financial reporting” (as defined in Rule 13a-15(f) promulgated under the
Exchange Act), in each case, as required by Rule 13a-15 under the Exchange
Act.  Such “disclosure controls and procedures”
are designed to ensure that information required to be disclosed by Parent in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC, and that such information is accumulated and
communicated to Parent’s management, including its principal executive officer
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure and to make
the certifications of the principal executive officer and the principal
financial officer of Parent required by Sections 302 and 906 of the
Sarbanes-Oxley Act with respect to such reports.  For purposes of this Agreement, “principal
executive officer” and “principal financial officer” shall have the meanings
given to such terms in the Sarbanes-Oxley Act. 
Each of the principal executive officer and the principal financial
officer of Parent (and each former principal executive officer of Parent and
each former principal financial officer of Parent, as applicable) has made all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act and
the rules and regulations promulgated thereunder with respect to the Parent SEC
Documents.  Such “internal control over
financial reporting” provides reasonable assurances regarding the reliability
of financial reporting and the preparation of financial statements, including
that (A) transactions are executed in accordance with management’s general or
specific authorization; and (B) transactions are recorded as necessary (x) to
permit preparation of consolidated financial statements in conformity with GAAP
and (y) to maintain accountability of the assets of Parent and its Subsidiaries.  The management of Parent has disclosed, based
on its most recent evaluation, to Parent’s auditors and the audit committee of
Parent’s board of directors (i) all significant deficiencies in the design or
operation of internal control over financial reporting  which could adversely affect Parent’s ability
to record, process, summarize and report financial data and have identified for
Parent’s auditors any material weaknesses in internal controls and (ii) any
fraud, whether or not material, that involves management or other employees who
have a significant role in Parent’s internal controls over financial
reporting.  A summary of any such
disclosure made by management to Parent’s auditors and audit committee has been
made available to the Investors.

Section 4.7             No Undisclosed Liabilities.  Neither Parent nor any of its Subsidiaries
has any liability other than (i) liabilities reflected in consolidated balance
sheet of Parent included in the Annual Report on Form 10-K for the fiscal year
of Parent ended December 31, 2006 filed by Parent on March 16, 2007 (including
the related notes thereto) (the “Latest Parent Balance Sheet”), (ii)
liabilities arising under Contractual Obligations that are connected with
future performance under such Contractual Obligations and not required to be
reflected on a consolidated balance sheet of Parent and its Subsidiaries
prepared in accordance with GAAP, (iii) liabilities that were incurred in the
ordinary course of business since the date of the Latest Parent Balance Sheet and
(iv) liabilities that have not had and would not reasonably be expected to have
a Parent Material Adverse Effect.

Section 4.8             Title to Tangible Personal
Property.  Parent or a Subsidiary of
Parent has good title to all of the tangible personal property reflected as
being owned by them on the 

 18
 

Latest Parent Balance Sheet, in each case, free and
clear of Liens (other than Permitted Liens), except for any such assets which
have been sold or otherwise disposed of since the date of the Latest Parent
Balance Sheet or where the failure to have such good title has not had and
would not reasonably be expected to have a Parent Material Adverse Effect.  Parent and its Subsidiaries own or lease all
tangible assets necessary for the conduct of their business as presently
conducted except where such failure to own or lease has not had and would not
reasonably be expected to have a Parent Material Adverse Effect.

Section 4.9             Absence of Certain Developments.  Except as set forth on Schedule 4.9,
during the period beginning on the date of the Latest Balance Sheet and ending
on the date of this Agreement, (a) there has not been any change, event or
effect that has had or would reasonably be expected to have a Parent Material
Adverse Effect and (b) each of Parent and its Subsidiaries has conducted its
business in the ordinary course substantially consistent with past
practices.  Without limiting the
generality of the foregoing, except as set forth on Schedule 4.9, none
of Parent or any of its Subsidiaries has taken any action that would have
constituted a violation of Section 5.3(b) of the Stage 2 Purchase Agreement if
said Section 5.3(b) had been in effect at all times since the date of the
Latest Parent Balance Sheet.

Section 4.10           Governmental Authorizations;
Licenses; Etc.  Except as set forth
on Schedule 4.10, the business of each of Parent and its Subsidiaries is
now and has been at all times since January 1, 2005 operated in compliance with
all applicable Legal Requirements, except where failure to so comply has not
had and would not reasonably be expected to have a Parent Material Adverse
Effect.  Parent is, and has been since
the effective date thereof, in compliance in all material respects with the
provisions of the Sarbanes-Oxley Act applicable to it.   Except as set forth on Schedule 4.10,
each of Parent and its Subsidiaries has all permits, licenses, approvals,
certificates, Governmental Authorizations, and has made all notifications,
registrations, certifications and filings with all Governmental Authorities,
necessary or advisable for the operation of its business as currently
conducted, in each case except as has not had and would not reasonably be
expected to have a Parent Material Adverse Effect.  Except as set forth on Schedule 4.10,
all such permits, licenses, approvals, certificates and Governmental
Authorizations are in full force and effect. 
Except as set forth on Schedule 4.10, there is no action, audit,
case, proceeding or investigation pending or, to Parent’s Knowledge, threatened
in writing by any Governmental Authority with respect to (i) any alleged
violation by Parent or any of its Subsidiaries of any Legal Requirement, (ii)
any alleged failure by Parent or any of its Subsidiaries to have any permit,
license, approval, certification or other authorization required in connection
with the operation of the business of Parent and its Subsidiaries or (iii) any
change or amendment to the permits, licenses, approvals, certifications or
other authorizations which would impair the ability of Parent and/or its Subsidiaries
to operate in the normal course, in each case except as has not had and would
not reasonably be expected to have a Parent Material Adverse Effect.  This Section 4.10 does not relate to
matters with respect to Taxes (which are the subject of Section 4.12),
Employee Matters (which are the subject of Section 4.13) or Employee
Benefit Plans (which are the subject of Section 4.14).

Section 4.11           Litigation.  Except as set forth on Schedule 4.11,
there are no judgments, decrees, lawsuits, actions, proceedings, claims,
complaints, injunctions or orders by or before any Governmental Authority
pending or, to Parent’s Knowledge, threatened in 

 19
 

writing or, to Parent’s Knowledge, any pending
investigation by any Governmental Authority, in any such case, against Parent
or any of its Subsidiaries which have had or would reasonably be expected to
have a Parent Material Adverse Effect.

Section 4.12           Taxes.

(a)           Except as set forth on Schedule
4.12(a), or except as has not had and would not reasonably be expected to have
a Parent Material Adverse Effect, each of Parent and its Subsidiaries has duly
and timely filed all Tax Returns required to be filed by it, all such Tax
Returns have been prepared in material compliance with all applicable Legal
Requirements and are true, correct and complete in all material respects.  Except as set forth on Schedule 4.12,
or except as has not had and would not reasonably be expected to have a Parent
Material Adverse Effect, all Taxes owed by each of Parent and its Subsidiaries,
whether or not shown as due on any such Tax Return, have been timely paid.

(b)           Except as set forth on Schedule
4.12(b), or except as has not had and would not reasonably be expected to
have a Parent Material Adverse Effect:

(i)            neither Parent nor any of its Subsidiaries
is currently the subject of a Tax audit or examination nor is party to any
claim, dispute, action or controversy;

(ii)           neither Parent nor any of its
Subsidiaries has consented to extend the time, or is the beneficiary of any
extension of time, in which any Tax may be assessed or collected by any taxing
authority;

(iii)          neither Parent nor any of its
Subsidiaries has received from any taxing authority any written notice of
proposed adjustment, deficiency, underpayment of Taxes or any other such written
notice which has not been satisfied by payment or been withdrawn;

(iv)          no claim, or notice of a claim, has
ever been made by an authority in a jurisdiction where Parent or any of its
Subsidiaries does not file Tax Returns that Parent or any of its Subsidiaries
is or may be subject to taxation by that jurisdiction;

(v)           the unpaid Taxes of Parent and its
Subsidiaries did not, as of December 31, 2006, exceed the reserve for Taxes
(rather than any reserve for deferred Taxes established to reflect timing differences
between GAAP and Tax income) set forth on the face of the Latest Parent Balance
Sheet.  Parent and its Subsidiaries have
paid all estimated Taxes required to be paid for Parent’s, and each of its
Subsidiaries’, current taxable year; and

(vi)          neither Parent nor any of its
Subsidiaries has ever been a member of a combined, consolidated, affiliated or
unitary group for Tax purposes, other than a group of which Parent is or one of
its Subsidiaries was the parent corporation.

Section 4.13           Employee Matters.  Except as set forth on Schedule 4.13,
(i) neither Parent nor any of its Subsidiaries has entered into any collective
bargaining agreement with respect to its employees, (ii) there is no labor
strike, labor dispute, or work stoppage or lockout pending or, to Parent’s
Knowledge, threatened in writing against or affecting Parent 

 20
 

or any of its Subsidiaries and since January 1, 2005
there has been no such action, (iii) to Parent’s Knowledge, no union
organization campaign is in progress with respect to any of the employees of
Parent or any of its Subsidiaries, and (iv) except as has not had and would not
reasonably be expected to have a Parent Material Adverse Effect, there is no
unfair labor practice, charge or complaint pending or, to Parent’s Knowledge, threatened
against Parent or any of its Subsidiaries. 
Neither Parent nor any of its Subsidiaries has engaged in any plant
closing or employee layoff activities since January 1, 2005 that would violate
or give rise to an obligation to provide any notice required pursuant to the
Worker Adjustment Retraining and Notification Act of 1988, as amended, or any
similar state or local plant closing or mass layoff statute, rule or
regulation.

Section 4.14           Employee Benefit Plans.  Each Parent Employee Benefit Plan has been
maintained and administered in compliance in all material respects with the
applicable requirements of ERISA, the Code and any other applicable Legal
Requirements.

Section 4.15           Intellectual Property Rights.

(a)           Except as set forth on Schedule
4.15(a), Parent and its Subsidiaries own all right, title and interest in,
free and clear of all Liens, or have a license or other right to use, all of
the material Intellectual Property Rights necessary for the conduct of the
business of Parent and its Subsidiaries as currently conducted (collectively,
the “Parent Intellectual Property Rights”).

(b)           To Parent’s Knowledge, the Parent
Intellectual Property Rights are valid and enforceable by Parent and/or its
Subsidiaries.  Except as has not had and
would not reasonably be expected to have a Parent Adverse Effect, there is not
pending against Parent or any of its Subsidiaries or, to Parent’s Knowledge,
threatened against Parent or any of its Subsidiaries any claim by any third
party contesting the validity, enforceability, ownership, or Parent’s and its
Subsidiaries’ rights with respect to, any Parent Intellectual Property Rights,
and there has been no such claim pending or, to Parent’s Knowledge, threatened
in the past three (3) years.  Except as
has not had and would not reasonably be expected to have a Parent Adverse
Effect, to Parent’s Knowledge, the operations of Parent and its Subsidiaries,
and the provision of goods and services therein, do not infringe or
misappropriate any material Intellectual Property Rights of any third
party.  Except as has not had and would
not reasonably be expected to have a Parent Adverse Effect, there is no pending
or, to Parent’s Knowledge, threatened assertion or claim and there has been no
such assertion or claim in the last three (3) years asserting that the
operations of Parent or any of its Subsidiaries infringe upon or misappropriate
in any way the material Intellectual Property Rights of any Person.

Section 4.16           Contracts.  Schedule 4.16 sets forth a list
of all contracts, agreements, leases, permits or licenses that would be
required to be filed by Parent as of the date hereof as a “material contract”
pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act (the “Parent
Contracts”).  Each Contractual
Obligation of Parent is a valid and binding agreement of Parent or its
Subsidiary, as the case may be, and, to Parent’s Knowledge, of the other
parties thereto, enforceable by Parent or its Subsidiary against the other
party thereto in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors’ rights and subject 

 21
 

to general principles of equity).  Except as has not had and would not
reasonably be expected to have a Parent Material Adverse Effect, (A) neither
Parent nor any of its Subsidiaries or, to Parent’s Knowledge, any other party
to any Contractual Obligation of Parent, is in breach or violation of, or
default under any such Contractual Obligation of Parent (and no event has
occurred which with notice or lapse of time would constitute such breach,
violation or default) and (B) neither Parent nor any of its Subsidiaries has
received written notice of any such breach, violation or default under any such
Contractual Obligation of Parent.  Parent
has made available to the Investors true and complete copies of all Parent
Contracts, including all amendments thereto.

Section 4.17           Insurance.  Except as would not, individually or in the
aggregate, have or reasonably be expected to have a Parent Material Adverse
Effect, the insurance policies maintained by Parent and its Subsidiaries
provide insurance in such amounts and against such risks as are customary and
adequate for companies of similar size and operating in the same industry as
Parent and its Subsidiaries, and such insurance policies are in full force and
effect and were in full force and effect during the periods of time such
insurance policies are purported to be in effect and all premiums due with
respect to all such policies have been paid.

Section
4.18           Real Property.

(a)           Each material lease or sublease of
real property to which Parent or any of its Subsidiaries is a party or by which
it is bound (each a “Parent Lease”, and collectively the “Parent
Leases”) is a valid and binding agreement of Parent or its Subsidiary, as
the case may be, and, to Parent’s Knowledge, of the other parties thereto,
enforceable in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors’ rights and subject to general principles of
equity).  Except as set forth on Schedule
4.18(a), (A) neither Parent nor any of its Subsidiaries or, to Parent’s
Knowledge, any other party to any Parent Lease is in material breach or
material violation of, or material default under any such Parent Lease (and no
event has occurred which with notice or lapse of time would constitute such
material breach, violation or default) and (B) neither Parent nor any of its
Subsidiaries has received written notice of any such material breach, violation
or default under any such Parent Lease. 
Parent has made available to the Investors true and complete copies of
all Parent Leases, including all amendments thereto and all material notices
and correspondence, memoranda of lease, estoppel certificates and
subordination, non-disturbance and attornment agreements related thereto.

(b)           Neither Parent nor any of its
Subsidiaries owns any real property.

Section 4.19           Transactions With Affiliates.  Except as set forth on Schedule 4.19
or as described in Parent SEC Documents filed prior to the date hereof, and
except pursuant to the Transactions, no director or executive officer of Parent
or of any of its Subsidiaries (or, to Parent’s knowledge, any family member of
any such Person who is an individual or any entity in which any such Person or
any such family member owns a material beneficial interest) or any Person
owning 5% of more of Parent Common Stock (i) is involved in any material
business arrangement or relationship with Parent or any of its Subsidiaries
other than 

 22
 

employment arrangements and severance arrangements
entered into in the ordinary course of business or (ii) owns any material
property or right, tangible or intangible, which is used by Parent or any of
its Subsidiaries.

Section 4.20           Financing.  Parent has received a commitment letter,
dated as of May 7, 2007 (the “Debt Commitment Letter”), from Bank of
America, N.A. (the “Lender”), pursuant to which the Lender has committed,
subject to the terms and conditions set forth therein, to provide up to
$500,000,000 in senior secured debt financing (the “Debt Financing”).
True, accurate and complete copies of the Debt Commitment Letter, as in effect
on the date of this Agreement, have been furnished to the Investors.  The proceeds to Parent from the issuance and
sale of the Stage 2 Shares to the Investors pursuant to the Stage 2 Purchase
Agreement together with the financing contemplated by the Debt Commitment
Letter (collectively, the “Financing”) is sufficient for Parent to
consummate the transactions contemplated by the Merger Agreement on the Closing
Date (as defined in the Merger Agreement) and pay the initial merger
consideration under the Merger Agreement and all related fees and
expenses.  As of the date hereof, (A) the
Debt Commitment Letter has not been amended or modified, and (B) the financing
commitments contained in the Debt Commitment Letter have not been withdrawn or
rescinded in any respect.  The Debt
Commitment Letter, in the form so delivered, is in full force and effect and is
a legal, valid and binding obligation of Parent and, to the Knowledge of
Parent, the other parties thereto.  As of
the date hereof and assuming the accuracy of all representations and warranties
of MemberHealth in the Merger Agreement, no event has occurred which, with or
without notice, lapse of time or both, would constitute a default or breach on
the part of Parent under any term or condition of the Debt Commitment Letter.  As of the date hereof and assuming the
accuracy of all representations and warranties of MemberHealth in the Merger
Agreement and compliance by MemberHealth with its agreements in the Merger
Agreement, Parent has no reason to believe that it will be unable to satisfy on
a timely basis any term or condition of closing to be satisfied by it contained
in the Debt Commitment Letter.  Parent
has fully paid, or caused to be fully paid, any and all commitment and other
fees required by the terms of the Debt Commitment Letter to be paid on or
before the date hereof.

Section 4.21           Information Supplied.  The information included or incorporated by
reference or to be included or incorporated by reference in the Registration
Statement (other than information supplied by the Investors in writing
specifically for inclusion therein) shall not at the time the Registration
Statement is filed with the SEC or at any time it is supplemented or amended or
at the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The information
included or incorporated by reference or to be included or incorporated by
reference in the Proxy Statement (other than information supplied by the
Investors in writing and designated specifically for inclusion therein) shall
not, on the date the Proxy Statement is mailed to the shareholders of Parent
(or of MemberHealth), or on the Parent Shareholder Meeting Date (as defined in
the Stage 2 Purchase Agreement), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.

 23
 

Section 4.22           Required Parent Shareholder
Approval.  The Required Parent
Shareholder Approval is the only vote of the holders of Parent’s capital stock
or other securities necessary (under applicable Legal Requirement or otherwise)
to consummate the Transactions. No vote of the holders of Parent’s capital
stock or other securities is necessary (under applicable Legal Requirement or
otherwise) to consummate the transactions contemplated by this Agreement.

Section 4.23           Valid Issuance of Parent Shares.  The issuance, sale and delivery by Parent of
the Convertible Shares pursuant to this Agreement (and the issuance and
delivery of shares of Series B Preferred Stock issuable in exchange for any
shares of Series A Preferred Stock) and of the Stage 2 Shares in accordance
with the Stage 2 Purchase Agreement, and the issuance and delivery of the
Conversion Shares issuable upon conversion of all such Series A Preferred Stock
and Series B Preferred Stock, have been duly authorized by all necessary
corporate action on the part of Parent (subject, with respect to the Stage 2
Shares, to obtaining the Required Parent Shareholder Approval).  The Conversion Shares have been duly reserved
for issuance.  The Convertible Shares
(when issued, sold and delivered at the Closing against payment therefor in
accordance with the provisions of this Agreement) (and all shares of Series B
Preferred Stock issuable in exchange for any shares of Series A Preferred
Stock), the Stage 2 Shares, and all of the Conversion Shares (when issued upon
conversion of shares of Series A Preferred Stock and Series B Preferred Stock),
will all be duly and validly issued, fully paid and nonassessable, free and
clear of any Liens (other than transfer restrictions of general applicability
under the Securities Act).  No Person has
any preemptive right which would be triggered by reason of the issuance of the
Convertible Shares, the shares of Series B Preferred Stock in exchange for
shares of Series A Preferred Stock, the Stage 2 Shares or the Conversion
Shares.

Section 4.24           Anti-Takeover Statutes.  The Board of Directors of Parent has taken
all action necessary to ensure that any restrictions on business combinations
contained in the provisions of Section 912 of the New York Business Corporation
Law will not apply to the Transactions (including the Shares Issuances) and the
Collective Transactions.  No other “fair
price,” “moratorium,” “control share acquisition” or other similar
anti-takeover statute or regulation or any anti-takeover provision in Parent’s
Certificate of Incorporation or Bylaws is, or at the Closing will be,
applicable to Parent, the shares of Parent capital stock, the Transactions or such
other transactions contemplated by this Agreement, the other Transaction
Agreements, the Merger Agreement and the Collective Transactions.

Section 4.25           Exemption from Registration.  Assuming the accuracy of the representations
and warranties made by the Investors in Section 3.7 of this Agreement,
the offer and issuance by Parent of the Convertible Shares under this
Agreement, and the issuance and delivery of the Conversion Shares upon
conversion of Convertible Shares, is exempt from registration under the
Securities Act.

Section 4.26           Brokers.  Except as set forth on Schedule 4.26,
no Person is or will be entitled to a broker’s, finder’s, investment banker’s,
financial advisor’s or similar fee from Parent or any of its Subsidiaries in
connection with this Agreement, the Stage 2 Purchase Agreement, the Merger
Agreement or the Transactions.

 24
 

Section 4.27           Fairness Opinion; Acknowledgement.

(a)           The Board of Directors of Parent has
received the opinion of Credit Suisse, dated the date of this Agreement, to the
effect that, as of such date, the merger consideration to be paid by Parent
pursuant to the Merger Agreement is fair to Parent from a financial point of
view.  A correct and complete copy of
such opinion has been delivered to the Investors.

(b)           Parent acknowledges and agrees that
Investors are acting solely in the capacity of arm’s length purchasers with
respect to this Agreement and the transactions contemplated hereby.  Parent further acknowledges that (i)
Investors are not acting as advisors or fiduciaries of Parent (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and (ii) Parent’s decision to enter into this Agreement and
the other Transaction Agreements has been based solely on the independent
evaluation of the transactions contemplated hereby and thereby by Parent and
its independent representatives.

Section 4.28           Merger Agreement.  Attached hereto as Exhibit A is a
correct and complete copy of the definitive Merger Agreement executed by the
parties thereto, together with all schedules and exhibits thereto, and none of
the foregoing have been amended, supplemented or otherwise modified as of the
date hereof.

ARTICLE 5

COVENANTS AND AGREEMENTS

Section
5.1             Access; Documents and
Information.

(a)           Except for information that, if
provided, would adversely affect the ability of a Person or any of its
Subsidiaries to assert attorney-client or attorney work product privilege or a
similar privilege or as limited by applicable Legal Requirements or the
confidentiality provisions of any material agreement, from and after the date
hereof until the earlier of the Closing or the termination of this Agreement in
accordance with its terms, Parent shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives and agents of each Investor (each of the foregoing,
respectively for each Investor, “Investor Representatives”), during
normal business hours and upon reasonable request, reasonable access to Parent’s
and its Subsidiaries’ books, records, leases, licenses, contracts, properties,
officers, employees, accountants, counsel and other representatives who have
material knowledge relating to Parent or any of its Subsidiaries.  Each Investor and its respective Investor
Representatives shall conduct any investigation under this Section 5.1(a)
in a manner that does not unreasonably interfere with the conduct of the
business of Parent and its Subsidiaries. 
An Investor shall be responsible for any breach of this Section
5.1(a) by any of its Investor Representatives.

(b)           All information and documents
disclosed to an Investor or its Investor Representatives, whether before or
after the date hereof, pursuant to this Agreement or in connection with the
transactions contemplated by, or the discussions and negotiations 

 25
 

preceding, this Agreement shall be subject to the
terms of the Parent Confidentiality Agreement.

Section 5.2             Certificates of Designations.  Prior to the Closing, Parent shall (a) duly
file the Series A Preferred Stock Certificate of Designations and Series B
Preferred Stock Certificate of Designations, in the forms attached as Exhibits
B-1 and B-2 hereto, respectively, with the Secretary of State of the State
of New York in accordance with all applicable provisions of the Business
Corporation Law of the State of New York and (b) deliver to the Investors a
correct and complete official copy of such filing dated and stamped as accepted
and filed by such Secretary of State.

Section
5.3             Conduct of Business by
Parent.

(a)           From and after the date hereof until
the earlier of the Closing or the termination of this Agreement in accordance
with its terms, Parent will, and will cause its Subsidiaries to, except as
otherwise provided on Schedule 5.3(b) or as otherwise required by this
Agreement or the Merger Agreement (as in effect on the date hereof), by
applicable Legal Requirements, or consented to in writing by each of the
Investors (which consent shall not be unreasonably withheld, conditioned or
delayed):

(i)            conduct its business in the ordinary
and regular course in substantially the same manner as heretofore conducted
(including any conduct that is reasonably related, complementary or incidental
thereto);

(ii)           use commercially reasonable efforts
to maintain the insurance described on Schedule 4.17 (or reasonable
replacement policies);

(iii)          preserve intact its business
organization and material relationships with third parties with whom Parent and
its Subsidiaries do business; and

(iv)          consult with the Investors prior to
taking any action which would reasonably be expected to result in a Parent
Material Adverse Effect.

(b)           Without limiting the generality of
the foregoing, from and after the date hereof until the earlier of the Closing
or the termination of this Agreement in accordance with its terms, Parent will
not, and will not cause or permit any of its Subsidiaries to, except as
otherwise provided on Schedule 5.3(b), or as otherwise required by this
Agreement or by applicable Legal Requirements, or as otherwise consented to in
writing by each of the Investors (which consent shall not be unreasonably
withheld, conditioned or delayed):

(i)            amend its Governing Documents
(except to change Parent’s authorized shares of capital stock in the manner
contemplated by this Agreement or to amend Parent’s by-laws to increase the
size of its board of directors);

(ii)           authorize or adopt a plan of
liquidation or dissolution;

(iii)          (A) except with respect to Parent’s
wholly owned Subsidiaries, declare or pay dividends on, or make other distributions
in respect of, any capital stock or 

 26
 

other equity interests, (B) adjust, split, combine or
reclassify any capital stock or other equity interests; (C) issue, sell, pledge
or otherwise transfer any capital stock or other equity interests or any
securities exercisable or exchangeable for or convertible into capital stock or
other equity interests, other than (w) the
issuance of Convertible Shares as contemplated by this Agreement, (x)
the issuance of the Stage 2 Shares as contemplated by the Stage 2 Purchase
Agreement (and the issuance of shares of Series B Preferred Stock upon exchange
of shares of Series A Preferred Stock), (y) the issuance of Parent Common Stock
as Merger consideration pursuant to, and on the terms and subject to the
conditions set forth in, the Merger Agreement as in effect on the date of this
Agreement, or the issuance of any Conversion Shares upon conversion of any
shares of Series A Preferred Stock or Series B Preferred Stock and (z) the
issuance of Parent Common Stock issued pursuant to the terms of Outstanding
Parent Stock Awards or (D) purchase, redeem or
otherwise acquire any capital stock or other equity interests;

(iv)          merge or consolidate with, or acquire
any equity interest in, any business entity, or acquire any line of business,
division or other material assets other than in the ordinary course of business
or pursuant to the Merger Agreement;

(v)           enter into any new line of business;

(vi)          sell, lease, license, encumber or
otherwise dispose of, or subject to any Lien (other than a Permitted Lien), any
of its material assets other than in the ordinary course of business;

(vii)         make any change in its customary
methods of accounting or accounting practices, other than changes required by
GAAP, industry organizations or Governmental Authorities;

(viii)        enter into a settlement or compromise of
any pending or threatened claims, litigation, arbitrations or other proceedings
if such settlement or compromise (A) involves payments by or to Parent or any
of its Subsidiaries of more than $500,000 in the aggregate or (B) involves a
consent to material non-monetary relief by Parent or any Subsidiary of Parent;

(ix)           incur or guarantee any Funded
Indebtedness other than (A) in the ordinary course of business or (B) pursuant
to the Debt Commitment Letter for purposes of financing the Merger; or

(x)            enter into a contractual obligation
to do any of the things referred to in this Section 5.3(b).

(c)           Promptly after receipt by Parent of
the notice of commencement thereof, Parent shall provide the Investors with
notice of (i) any audit, investigation, claim (excluding immaterial
adjustments, complaints, and corrective activity in the ordinary course of
business), proceeding, settlement, judgment, consent order, or corporate
integrity agreement by or imposed by any Governmental Authority, (ii) any
suspension, debarment or disqualification of Parent from being a government
contractor, holder of any Governmental 

 27
 

Authorization or recipient of reimbursement from any
Payment Program, or (iii) any suspension, termination, or revocation of
any Governmental Authorization.

(d)           Parent shall provide the Investors
with reasonable notice of any and all 
settlement discussions and/or negotiations (excluding immaterial
adjustments, complaints, and corrective activity in the ordinary course of
business) (“Settlement Discussions”) between representatives of Parent
and any Governmental Authority, including without limitation negotiations with
respect to any claim, settlement agreement, consent order or corporate integrity
agreement between Parent and any Governmental Authority.  In connection with any such Settlement
Discussions, (i) Parent shall timely provide the Investors with copies of any
and all documents that Parent intends to submit, or that Parent receives, in
connection with any such Settlement Discussions, and (ii) Parent shall timely
advise the Investors as to the status of such Settlement Discussions.

(e)           Parent shall furnish the Investors,
within ten (10) days of the receipt by Parent, any and all written notices or
charges issued relating to non-compliance from any Governmental Authority
and/or any Payment Program that Parent’s Governmental Authorizations, Medicare
or Medicaid certification, or accreditation or ranking by any Governmental
Authority or Payment Program are being, or could be, downgraded, revoked, or
suspended, that action is pending, being considered or being, or could be,
taken to downgrade, revoke, or suspend Parent’s Governmental Authorization or
certification or to fine, penalize or impose material remedies upon Parent, or
that action is pending, being considered, or being, or could be, taken, to
discontinue, suspend, deny, decrease or recoup any payments or reimbursements
due, made or coming due to Parent or related to the operation of Parent.

(f)            Parent shall furnish the Investors,
within ten (10) Business Days of receipt but at least five (5) days prior to
the earliest date on which Parent is required to take any action with respect
thereto or would suffer any material adverse consequence, a copy of any Payment
Program or other Governmental Authority licensing or accreditation or ranking
agency or entity survey, report, warning letter, or written notice, and any
statement of deficiencies, and within the time period required by the particular
agency for furnishing a plan of correction also furnish or cause to be
furnished to the Investors a copy of the plan of correction generated from such
survey, report, warning letter, or written notice for Parent and by subsequent
correspondence related thereto, and use commercially reasonable efforts to
correct or cause to be corrected any deficiency, the curing of which is a
condition of continued licensure or of full participation in any Payment
Program by the date required for cure by such agency or entity (plus extensions
granted by such agency or entity).

(g)           Prior to the Closing, Parent shall
promptly notify the Investors if Parent obtains Knowledge that any of the
representations and warranties of Parent in this Agreement are not true and
correct in all material respects.

(h)           Prior to the Closing, Parent shall
promptly provide the Investors and Investor Representatives correct and
complete copies of all notices, documents and other materials made available by
or to Parent under the Merger Agreement.

 28
 

Section 5.4             Closing Documents.  Each Investor, severally but not jointly,
hereby agrees that it shall, prior to or on the Closing Date, execute and
deliver, or cause to be executed and delivered to Parent, the documents or
instruments described in Section 6.2(c). 
Parent shall, prior to or on the Closing Date, execute and deliver, or
cause to be executed and delivered, to the Investors, the documents or
instruments described in Section 6.3(d).

Section 5.5             Exchange
of Series A Preferred Stock for Series B Preferred Stock; Further Assurances;
Charter Amendment.

(a)           Parent hereby covenants that, at
anytime after the date hereof, at an Investor’s request and to the extent so
requested, Parent shall exchange all or any shares of Series A Preferred Stock
held by such Investor at such time for a like number of shares of Series B
Preferred Stock (such exchange, the “A/B Preferred Exchange”); provided
that, prior to the consummation of any such A/B Preferred Exchange, such
Investor shall have either received Regulatory Clearance, or represented to
Parent that no Regulatory Clearance is required, in connection with such A/B
Preferred Exchange.

(b)           Each Investor, severally but not
jointly, and Parent, shall cooperate with each other and use (and shall cause
their respective Affiliates to use) their respective commercially reasonable
efforts to take or cause to be taken all actions, and to do or cause to be done
all things necessary, proper or advisable under all applicable Contracts and
Legal Requirements to obtain all Regulatory Clearance in anticipation of
effecting any A/B Preferred Exchange requested by such Investor so as to enable
such A/B Preferred Exchange to occur as expeditiously as possible, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as promptly as
practicable all waivers, consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from CMS and/or any other
Governmental Authority or other third party (hereinafter referred to as “Consents”)
and to lift any injunction or other legal bar to such A/B Preferred Exchange in
order to consummate such A/B Preferred Exchange as promptly as
practicable.  All costs incurred in
connection with obtaining such Consents, including CMS consent fees and expert
consultant fees, shall be borne by Parent. 
HSR filing fees shall be borne by Parent.  Without limiting the foregoing, each
Investor, severally but not jointly, and Parent, undertakes and agrees to file
(or cause their respective Affiliates to file, as applicable) as soon as
practicable, and in any event prior to fifteen (15) Business Days after the
date hereof, a Notification and Report Form under the HSR Act with the United States
Federal Trade Commission (the “FTC”) and the Antitrust Division of the
United States Department of Justice (the “Antitrust Division”).  Each Investor, severally but not jointly, and
Parent, agrees to make appropriate filings with all appropriate Governmental
Authorities, including insurance regulators, other competition authorities and
CMS (or cause their respective Affiliates to make such filings, as applicable)
promptly after the date of this Agreement in anticipation of any A/B Preferred
Exchange and shall supply as promptly as practicable to such Governmental
Authority any additional information and documentary material that may be
requested in connection therewith.  Each
Investor, severally but not jointly, and Parent, agrees to (and to cause their
respective Affiliates to) respond as promptly as practicable to any inquiries
received from such Governmental Authority for additional information or
documentation and to all inquiries and requests received from any other
Governmental Authority in connection with Consents.

 29

(c)           Parent shall (and shall cause its
Affiliates to) offer to take (and if such offer is accepted, commit to take)
all reasonable steps to avoid or eliminate impediments under any antitrust,
competition, or trade regulation Legal Requirement that may be asserted by the
FTC, the Antitrust Division or any other Governmental Authority with respect to
any A/B Preferred Exchange so as to enable such A/B Preferred Exchange to occur
as expeditiously as possible; provided,  however, that nothing in
this Agreement will require, or be deemed to require, Parent to agree to or
effect any divestiture.  In addition,
nothing in this Agreement will require or be deemed to require Parent to take
any other action (including agreeing to any requirements or conditions to be
imposed in order to obtain CMS or insurance regulatory consents or approvals)
if in the reasonable judgment of Parent doing so would be materially
detrimental to the business conducted by Parent or MemberHealth taken as a
whole.  Subject
to the foregoing sentence, Parent shall cooperate in a reasonable manner with
the Investors in connection with Investors’ efforts to seek consents and
approvals from Governmental Authorities in connection with the Transactions
(including by keeping the Investors informed on a reasonably current basis of
the status of such efforts and using its commercially reasonable efforts to
permit the representatives of the Investors to attend any meetings between
Parent’s representatives and Governmental Authorities).

(d)           In the event any claim, action, suit,
investigation or other proceeding by any Governmental Authority or other Person
is commenced which questions the validity or legality of the transactions
contemplated hereby (including any A/B Preferred Exchange) or seeks damages in
connection therewith, each Investor, severally but not jointly, and Parent,
agree to cooperate and use commercially reasonable efforts to defend against
such claim, action, suit, investigation or other proceeding and, if an
injunction or other order is issued in any such action, suit or other
proceeding, to use commercially reasonable efforts to have such injunction or
other order lifted, and to cooperate reasonably regarding any other impediment
to the consummation of such A/B Preferred Exchange.

(e)           Notwithstanding the foregoing or any
other provision of this Agreement, nothing in this Section 5.5 shall
require any Investor to (i) offer, accept or agree to (A) dispose or hold
separate any businesses, assets or operations, (B) restrict the manner in
which, or whether, such Investor or any of its Affiliates may carry on business
or compete in any geographic area or line of business, and/or (C) any
limitations with respect to its or its Affiliates’ ownership or voting of
Parent capital stock, or (ii) obligate any Investor to litigate or threaten any
litigation.

(f)            Parent shall provide to the
Investors copies of any application or other communication, which references
the Investors, to Governmental Authorities in connection with the Merger
Agreement in advance of filing or submission thereof, and Parent shall provide
the Investors a reasonable opportunity to comment upon or modify any such
reference as to the Investors.  Parent’s
consent to accepting such comment or modification shall not be unreasonably
withheld.

(g)           Parent agrees to use its commercially
reasonable efforts to obtain, at the earliest practicable date, the Parent
Charter Vote.  Upon obtaining the Parent
Charter Vote, Parent shall promptly duly file the Charter Amendment with the Secretary of State of the State of New
York in accordance with all applicable provisions of the Business Corporation
Law of 

 30
 

the State of New York,
and shall, with respect to each then outstanding share of Series A Preferred
Stock, on or after the first anniversary of the original issue date of such
share of Series A Preferred Stock, effect an exchange of such share of Series A
Preferred Stock for shares of a class of non-voting Parent Common Stock
authorized to be issued by Parent under the Charter Amendment, which exchange shall
be effected in accordance with the provisions of the Series A Preferred Stock
Certificate of Designation as if such share of Series A Preferred Stock is
being converted into Parent Common Stock (in the form of such class of
non-voting Parent Common Stock) under Section 8 of the Series A Preferred Stock
Certificate of Designations and at the conversion rate specified therein
(without giving effect to the provisions of Section 8(a) of the Series A
Preferred Stock Certificate of Designation).

Section 5.6             Public Announcements.  The timing and content of all announcements
regarding any aspect of this Agreement to the financial community, governmental
agencies or the general public shall be mutually agreed upon in advance by the
Investors and Parent; provided, that each party hereto may make any
such announcement which it in good faith believes, based on advice of counsel,
is necessary in connection with any Legal Requirement, it being understood and
agreed that each party shall provide the other parties hereto with copies of
any such announcement in advance of such issuance and the reasonable
opportunity to comment on the same.

Section 5.7             Availability of Shares.  Parent will not issue or agree to issue any
shares of Parent Common Stock or options, rights or warrants to purchase shares
of Parent Common Stock or securities convertible into or exchangeable for
shares of Parent Common Stock or take any other action if, after giving effect
thereto, the number of shares of Parent Common Stock remaining unissued and duly
reserved for issuance upon conversion of the shares of Series A Preferred Stock
and Series B Preferred Stock shall be insufficient to permit conversion of all
the then outstanding shares of Series A Preferred Stock and Series B Preferred
Stock after giving effect to any adjustment in the number of shares of Parent
Common Stock into which such shares of Series A Preferred Stock and Series B
Preferred Stock are convertible as a result of such action.  Parent shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, after the
Closing Date, the maximum number of shares of Parent Common Stock issuable from
time to time upon conversion of the shares of Series A Preferred Stock and
Series B Preferred Stock.

Section 5.8             Certificates.  If, from and after the Closing, any
certificate for shares of Series A Preferred Stock or  Series B Preferred Stock or Conversion Shares
shall be mutilated, lost, stolen or destroyed, Parent shall issue, in exchange and
in substitution the mutilated certificate, or in lieu of and substitution for
the certificate lost, stolen or destroyed, a new certificate of like tenor and
representing an equivalent amount and kind of shares.  If reasonably required by Parent in
connection with replacing a share certificate as aforesaid, the applicable
record holder of such shares shall furnish Parent with an indemnity on
customary terms for such situations, reasonably sufficient to protect Parent
from any out-of-pocket loss which it may suffer from replacing such
certificate.

Section 5.9             Certain Claims.  Without limiting Parent’s obligations under
any other provision of this Agreement (or under any other contractual
obligation, or under the Certificate of Incorporation or By-laws of Parent),
Parent shall (a) cooperate with the 

 31
 

Investors in the defense or settlement of any claim,
suit, litigation, arbitration or proceeding (“Claim”) against Parent
and/or its directors that is brought or asserted by any third party (whether
filed in the name of a shareholder of Parent or other third party or
derivatively in the name of Parent) in which any of the Investors or any of
their respective Affiliates is made a party (by subpoena or otherwise),
challenging, or otherwise arising out of or relating to, this Agreement or the
Stage 2 Purchase Agreement, and (b) reimburse the Investors for reasonable
attorney’s fees and expenses incurred by the Investors or any of their
respective Affiliates in connection with any Claim; provided
that (i) each Investor, severally but not jointly, hereby agrees to cooperate
reasonably with Parent in connection with the defense, or any proposed
settlement of, any such Claim; (ii) unless in the reasonable judgment of the
Investors there exists an actual or potential conflict of interest between
Investors, this clause (b) shall apply only to one counsel (plus local counsel
in each applicable jurisdiction) for all the Investors (it being understood
that this clause (ii) shall not limit any rights a Person may otherwise have to
indemnification or advancement of expenses from Parent); and (iii) this clause
(b) shall not apply to any expenses incurred in connection with any Claim
brought or asserted by any Person in such Person’s capacity as a limited
partner or other investor in any investment fund controlled or managed by an
Investor.

Section 5.10           Certain Tax Matters.  All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the Transactions shall be paid by Parent.

Section 5.11           [Intentionally Omitted].

Section 5.12           Anti-Takeover Statutes.  Parent shall (i) take all action necessary to
ensure that no “business combination”, “fair price”, “control share acquisition”
or other similar anti-takeover statute or regulation, including Section 912 of
the New York Business Corporation Law, is or becomes applicable to the
Transactions (including the Share Issuances, any other transactions
contemplated by this Agreement or the other Transaction Agreements) or the
Collective Transactions or to the ownership and voting of such securities
deliverable in the Collective Transactions and (ii) if any such anti-takeover
statute or similar statute or regulation becomes applicable to any of such
transactions or to the ownership or voting of any such securities, take all
action necessary to ensure that each of such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and the
other agreements referred to herein and otherwise to minimize the effect of
such statute or regulation on such transactions and the ownership and voting of
such securities.

Section 5.13           Nasdaq National Market Listing.  Parent shall promptly prepare and file with
Nasdaq a Notification Form for Listing Additional Shares with respect to the
Conversion Shares, and shall use its reasonable efforts to obtain, prior to the
Closing, approval for the listing of such shares of Parent Common Stock,
subject only to official notice to Nasdaq of issuance, and each Investor,
severally but not jointly, agrees to cooperate with Parent with respect to such
filing.

Section 5.14           Legends.  Each Investor, severally but not jointly,
agrees with Parent not to transfer any Convertible Shares or Conversion Shares
unless (a) there is then in effect a 

 32
 

registration statement under the Securities Act
covering such proposed transfer or (b) such transfer is made in accordance with
Rule 144 under the Securities Act or another available exemption from
registration under the Securities Act. 
Certificates representing Convertible Shares issued pursuant to this
Agreement may be imprinted with a legend substantially as follows (in addition
to any legends required pursuant to the Shareholders Agreement):

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

Securities law legends on share certificates shall be
removed by Parent (and a certificate without such legend shall be delivered, at
Parent’s expense) upon request (i) in connection with any transfer pursuant to
clause (b) of this Section if the legend is no longer required to ensure
compliance with the Securities Act, or (ii) in connection with any transfer
pursuant to clause (a) of this Section.

Section 5.15           Use of Proceeds.  Parent shall apply all of the proceeds from
the issuance and sale of Convertible Shares to the Investors pursuant to this
Agreement for general corporate purposes.

ARTICLE 6

CONDITIONS TO CLOSING

Section 6.1             Mutual Conditions.  The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or waiver at or prior to the Closing of each of the following
conditions, any and all of which may be waived, in whole or in part, by Parent,
on the one hand, and unanimous consent of the Investors, on the other hand, to
the extent permitted by applicable law:

(a)           No Injunction.  At the Closing there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or Governmental Authority of competent jurisdiction to the
effect that any of the Collective Transactions contemplated by this Agreement,
the other Transaction Agreements or the Merger Agreement may not be consummated
as herein and therein provided.

Section 6.2             Conditions to the Obligations of
Parent.  The obligations of Parent to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment prior to or at Closing of each of the following conditions, any
and all of which may be waived, in whole or in part, by Parent, to the extent
permitted by applicable law:

(a)           Representations and Warranties of
the Investors.  The representations
and warranties made by the Investors in Article 3 shall be true and
correct (disregarding all qualifications relating to materiality or an Investor
Material Adverse Effect) as of the date of this Agreement and as of the Closing
Date as though such representations and warranties were 

 33
 

made as of the Closing Date (or, in the case of any
representation or warranty which specifically relates to an earlier date, as of
such date), except to the extent the failure of such representations and
warranties to be so true and correct as of such dates, individually or in the
aggregate, would not have an Investor Material Adverse Effect.

(b)           Performance of Obligations.  The Investors shall have duly performed or
complied with, in all material respects, all of the covenants to be performed
or complied with by them under the terms of this Agreement prior to or at
Closing.

(c)           Closing Deliveries.  Prior to or at the Closing, the Investors
shall have delivered (or caused to be delivered) a certificate of an officer of
each Investor, dated the Closing Date, to the effect that (1) the Person
signing such certificate is familiar with this Agreement and (2) the conditions
specified in Sections 6.2(a) and (b), to the extent relating to
the representations, warranties and covenants of such Investor, have been
satisfied.

Section 6.3             Conditions to the Obligations of
the Investors.  The obligations of
the Investors to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing of each of the
following conditions, any and all of which may be waived in whole or in part by
unanimous consent of the Investors, to the extent permitted by applicable law:

(a)           Representations and Warranties.  (i) Other than with respect to Sections 4.1,
4.2, 4.5, 4.9(a) (first sentence only), 4.21, 4.22,
4.23, 4.24, 4.25, 4.26, 4.27 and 4.28,
the representations and warranties made by Parent in Article 4 shall be
true and correct (disregarding all qualifications relating to materiality or a
Parent Material Adverse Effect) as of the date of this Agreement and as of the
Closing Date as though such representations and warranties were made as of the
Closing Date (or, in the case of any representation or warranty which
specifically relates to an earlier date, as of such date), except to the extent
the failure of such representations and warranties to be so true and correct as
of such dates, individually or in the aggregate, would not have a Parent
Material Adverse Effect, (ii) the representations and warranties made by Parent
in Sections 4.1, 4.2, 4.5, 4.21, 4.22, 4.23,
4.24, 4.25, 4.26, 4.27 and 4.28 shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though such representations and warranties were made
as of the Closing Date (or, in the case of any representation or warranty which
specifically relates to an earlier date, as of such date), and (iii) the
representation contained in clause (a) of the first sentence of Section 4.9
shall be true and correct in all respects.

(b)           Performance of Obligations.  Parent shall have duly performed or complied
with, in all material respects, all of the covenants, obligations and
conditions to be performed or complied with by Parent under the terms of this
Agreement prior to or at the Closing.

(c)           No Material Adverse Change.  Since the date of this Agreement there shall
not have occurred any event, development or occurrence of any condition that
has had, or would reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.

 34
 

(d)           Closing Deliveries.  Prior to or at the Closing, Parent shall have
delivered to the Investors the following closing documents in the form referred
to below or otherwise in form and substance reasonably acceptable to the Investors:

(i)            certificates
of officers of Parent, dated the Closing Date, to the effect that (1) the
Person signing such certificate is familiar with the Agreement and (2) the
conditions specified in Sections 6.3(a), (b) and (c) have
been satisfied;

(ii)           certified
copies of the resolutions of the board
of directors and stockholders of Parent authorizing the execution and
delivery of this Agreement and the other Transaction Agreements and the
consummation of the Transactions;

(iii)          an
opinion of Dechert LLP, dated as of the Closing Date, in the form of Exhibit
6.3(d)(iii);

(iv)          the
Registration Rights Agreement, executed and delivered by Parent;

(v)           the
certificates (in definitive form) for the Convertible Shares pursuant to Section
2.2 hereof, duly executed on behalf of Parent and registered in the names
of the applicable Investors (or their respective designees) representing the
number of Convertible Shares purchased pursuant to this Agreement; and

(vi)          copies
of the Certificates of Designations certified by the Secretary of State of the
State of New York.

Section 6.4             Frustration of Closing
Conditions.  No party hereto may rely
on the failure of any condition set forth in this Article 6 if such
party’s failure to comply with any provision of this Agreement was a proximate
cause of such failure of such condition.

ARTICLE 7

TERMINATION

Section 7.1             Termination.  This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing:

(a)           by mutual written consent of Parent
and the Investors;

(b)           by either Parent or the Investors, if
the Closing shall not have been consummated on or before June 7, 2007 (the “Termination Date”),
unless extended by written agreement of the Investors and Parent; provided, that the right to
terminate this Agreement under this paragraph shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
primary cause of the failure of the Closing to occur on or prior to such date;
or

 35
 

(c)           by either the Investors or Parent, if
any Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable.

Section 7.2             Effect of Termination.  If this Agreement is terminated pursuant to Section 7.1,
all rights and obligations of the parties hereunder shall terminate and no
party shall have any liability to the other party, except for obligations of
the parties hereto in Sections 5.1(b), 5.6, 5.9 and 7.2
and Article 8 (including any definitions set forth in Article I
that are used in such sections), which shall survive the termination of this
Agreement.  Notwithstanding anything to
the contrary contained herein, termination of this Agreement pursuant to Section
7.1 shall not release any party from any liability for any material breach
by such party of the terms and provisions of this Agreement prior to such
termination.

ARTICLE 8

MISCELLANEOUS

Section 8.1             Survival.  The representations and warranties contained
in or made pursuant to this Agreement or in any certificate delivered pursuant
to this Agreement shall survive the execution and delivery of this Agreement
and the Closing for a period beginning on the Closing Date and ending on the
twelve month anniversary of the Closing Date; provided, that the
representations and warranties set forth in Sections 4.1 (first sentence only),
4.2, 4.5, 4.12, 4.21, 4.22, 4.23, 4.24, 4.25, 4.26, 4.27 and 4.28, and
corresponding representations and warranties in any certificate (collectively,
the “Specified Representations”) shall survive the execution and
delivery of this Agreement and the Closing indefinitely.  All covenants and agreements that contemplate
performance after the Closing contained herein shall survive the Closing
indefinitely or for any shorter period expressly specified in accordance with
their terms.  Notwithstanding the
preceding sentences, if notice of an indemnification claim shall have been
delivered before the aforementioned time period has elapsed with respect to any
breach of any such representation, warranty, covenant or agreement, such
representation, warranty, covenant or agreement shall survive until such claim
is finally resolved.

Section 8.2             Indemnification.

(a)           Indemnification by Parent.  Subject to the limitations set forth in this Section
8.2, from and after the Closing Date, Parent shall indemnify and hold
harmless each of the Investors and each of their respective direct or indirect
Affiliates, officers, directors, members, managers, partners, employees, agents
and other representatives (collectively, the “Investor Indemnified Persons”),
from, against and in respect of any and all liabilities, losses, damages,
fines, penalties, fees, costs and expenses (in each case, including reasonable
attorneys’ fees and expenses), whether or not involving a third party claim
(collectively, “Losses”), incurred or suffered by such Investor Indemnified
Persons as a result of:

 36
 

(i)            any breach of, or inaccuracy in, any
representation or warranty made by Parent in this Agreement or in any
certificate delivered pursuant to this Agreement; or

(ii)           any breach or violation of any
covenant or agreement of Parent pursuant to this Agreement or the other
Transaction Agreements.

For the purposes of clause (i) of this Section
8.2(a), the representations and warranties of Parent contained in Article 4
of this Agreement (other than the first sentence of Section 4.9), or in
any certificate delivered pursuant to this Agreement, shall be read as if all
qualifications as to materiality, including each reference to the terms and
phrases “material”, “in all material respects” or like phrases, and the defined
term “Parent Material Adverse Effect”, were deleted therefrom in determining
whether there has been a breach of any such representation or warranty.

(b)           Limitations on Liability.

(i)            Investor Indemnified Persons shall
not be entitled to assert any claim for indemnification under Section
8.2(a)(i) until such time as the aggregate of all indemnifiable Losses that
Investor Indemnified Persons may have under Section 8.2(a)(i) exceed
$5,000,000, and then Parent shall be responsible for all Losses except the
first $2,500,000 of such $5,000,000 threshold.

(ii)           The maximum aggregate liability of
Parent for indemnification claims under Section 8.2(a)(i) shall be
limited to $15,000,000.

(iii)          The limitations set forth in Section
8.2(b)(i) and (ii) shall not be applicable to Losses incurred or
suffered by Investor Indemnified Persons as a result of (A) any breach of, or
inaccuracy in, the Specified Representations or (B) fraud, intentional
misrepresentation or intentional omission by Parent.

(iv)          The amount of Losses for which
indemnification is available under this Section 8.2 shall be calculated
net of any amounts actually recovered by the Person entitled to seek
indemnification hereunder (the “Indemnified Person”) under insurance
policies with respect to such Losses.

(c)           Payment of Claims.  If Parent shall be required to make an
indemnification payment to any Investor Indemnified Person pursuant to this Article
8, Parent shall satisfy the claim of such Investor Indemnified Person
through a payment of immediately available funds.

(d)           Third Party Claims.

(i)            Notice of Claim.  If any third party notifies an Indemnified
Person with respect to any matter (a “Third Party Claim”) which may give
rise to a claim for indemnification against an Indemnifying Party, then the
Indemnified Person will promptly (and, in any event, within twenty (20)
Business Days) give written notice thereof to the party required to provide
indemnification under this Section 8.2 (the “Indemnifying Party”);

 37
 

provided,
that no delay on the part of the Indemnified Person in notifying the
Indemnifying Party will relieve the Indemnifying Person from any obligation
under this Article 8, except to the extent such delay actually and
materially prejudices the Indemnifying Party.

(ii)           Assumption of Defense, etc.  The Indemnifying Party will be entitled to
participate in the defense of any Third Party Claim that is the subject of a
notice given by the Indemnified Person pursuant to Section 8.2(d)(i).  In addition, upon written notice to the
Indemnified Person, the Indemnifying Party will have the right to defend the
Indemnified Person against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Person.  In such event, the Indemnified Person may retain
separate co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim. 
Notwithstanding the foregoing, the Indemnifying Person will not consent
to the entry of any judgment or enter into any compromise or settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnified Person unless such judgment, compromise or settlement (A) provides
for the payment by the Indemnifying Party of money as sole relief for the
claimant and (B) results in the full and general release of all Indemnified
Persons from all liabilities arising or relating to, or in connection with, the
Third Party Claim.

(iii)          Indemnified Party’s Control.  If the Indemnifying Party does not deliver
the notice contemplated by Section 8.2(d)(ii) within twenty (20) days
after the Indemnified Party has given notice of the Third Party Claim pursuant
to Section 8.2(d)(i), the Indemnified Party may defend, and may consent
to the entry of any judgment or enter into any compromise or settlement with
respect to, the Third Party Claim.

(e)           Tax Treatment.  The parties will treat any payment received
pursuant to this Section 8.2 as an adjustment to purchase price for Tax
and financial reporting purposes, to the extent permissible under applicable
Legal Requirements.

Section 8.3             Notices.  All notices or other communications required
or permitted under this Agreement shall be in writing and shall be delivered
personally, by facsimile or sent by certified, registered or express air mail,
postage prepaid, and shall be deemed given when so delivered personally, or by
facsimile, or if mailed, two (2) days after the date of mailing, as follows:

If to Parent:

Universal American Financial Corp.

6 International Drive

Rye Brook, NY 10573-1068

Attention:  Lisa
M. Spivack, Esq.

Facsimile:  (914) 934-0700

 38
 

with
a required copy (which shall not constitute notice) to:

Dechert LLP

30 Rockefeller
Plaza

New York, NY  10112

Attention:  Gerald Adler, Esq.

Telephone
number:  (212) 698-3679

Facsimile number:  (212) 698-3599

If to WCAS:

Welsh, Carson, Anderson
& Stowe

320 Park Avenue, Suite 2500

New York, NY  10022-6815

Telephone number:  (212) 893-9500

Facsimile number:  (212) 893-9583

Attention:  Sean M. Traynor

with
required copies (which shall not constitute notice) to:

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY  10036

Telephone number:  (212) 596-9000

Facsimile number:  (212) 596-9090

Attention:  Othon A. Prounis, Esq. and
Christopher W. Rile, Esq.

- and-

Weil, Gotshal
& Manges LLP

767 Fifth Avenue

New York, NY  10153

Telephone number:  (212) 310-8000

Facsimile
number:  (212) 310-8007

Attention:  Malcolm Landau, Esq.

If to Lee:

Lee Equity Partners

767 Fifth Avenue

New York, NY  
10153

Telephone number: 
(212) 888-1500

Facsimile number:  (212) 888-6388

Attention:  Mark Gormley/Benjamin Hochberg

 39
 

with
required copies (which shall not constitute notice) to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 
10153

Telephone number: 
(212) 310-8000

Facsimile number: 
(212) 310-8007

Attention:  Malcolm Landau, Esq.

If
to Perry:

Perry Capital

767 Fifth Avenue

New York, NY   10153

Telephone number:  (212) 583-4000

Facsimile number:  (212) 583-4146

Attention:  Michael C. Neus

with
required copies (which shall not constitute notice) to:

Cravath, Swaine
& Moore LLP

825 Eighth Avenue

New York, NY   10019-7475

Telephone number:  (212) 474-1000

Facsimile number:  (212) 474-3700

Attention:  Mark Greene, Esq.

- and -

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 
10153

Telephone number: 
(212) 310-8000

Facsimile number: 
(212) 310-8007

Attention:  Malcolm Landau, Esq.

If to Union Square:

Union Square Partners

230 Park Avenue South, 11th floor

New York, NY  10003

Telephone number:  (212) 965-2400

Facsimile number: 
(212) 343-5206

Attention:  Bob Spass/Eric Leathers

with
required copies (which shall not constitute notice) to:

Weil, Gotshal &
Manges LLP

 40
 

767 Fifth Avenue

New York, NY  10153

Telephone
number:  (212) 310-8000

Facsimile
number:  (212) 310-8007

Attention:  Malcolm Landau, Esq.

or to such other address as any party hereto shall notify
the other parties hereto (as provided above) from time to time.

Section 8.4             Exhibits and Schedules.  All exhibits and schedules hereto, or
documents expressly incorporated into this Agreement, are hereby incorporated
into this Agreement and are hereby made a part hereof as if set out in full in
this Agreement. The inclusion of any information in the Disclosure Schedules
will not be deemed an admission or acknowledgment, in and of itself and solely
by virtue of the inclusion of such information in the Disclosure Schedules,
that such information is required to be listed in any Disclosure Schedule or
that such items are material to any party hereto or any of their respective
Subsidiaries.  The headings, if any, of
the individual sections of each of the Disclosure Schedules are inserted for
convenience only and will not be deemed to constitute a part thereof or a part
of the Agreement.  The Disclosure
Schedules are arranged in sections and subsections that correspond to the
sections and subsections of this Agreement merely for convenience, and the
disclosure of an item in one section or subsection of the Disclosure Schedules
as an exception to a particular covenant, representation or warranty will be
deemed adequately disclosed as an exception with respect to all other
covenants, representations or warranties herein to the extent that the
relevance of such item to such other covenants, representations or warranties
is reasonably apparent on its face, notwithstanding (x) the presence or absence
in this Agreement of an appropriate reference to the section or subsection of
the Disclosure Schedules, (y) the presence or absence in the Disclosure
Schedules of an appropriate reference to the section or subsection of this
Agreement to which such disclosure relates or (z) an appropriate
cross-reference thereto.

Section 8.5             Time of the Essence; Computation
of Time.  Time is of the essence for
each and every provision of this Agreement. 
Whenever the last day for the exercise of any privilege or the discharge
or any duty hereunder shall fall upon a day that is not a Business Day, the
party having such privilege or duty may exercise such privilege or discharge
such duty on the next succeeding day which is a regular Business Day.

Section 8.6             Expenses and Fees.  Except as otherwise set forth in this
Agreement, if the transactions provided for in this Agreement are not
consummated, each party hereto shall pay its own expenses incident to this
Agreement.  If the transactions provided
for in this Agreement are consummated, Parent shall, in addition to paying all
of its own expenses incident to this Agreement, also (a) pay the expenses of
the Investors incident to this Agreement (including fees and expenses of
financial advisors, outside legal counsel and accountants), and in addition (b)
pay to the Investors the fees separately agreed among the Investors and Parent.

Section 8.7             Governing Law.  All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and
the schedules and exhibits 

 41
 

hereto shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to any
choice of law or conflict of law rules or provisions that would cause the
application of the laws of any jurisdiction other than the State of New York.

Section 8.8             Jurisdiction and Venue; Waiver
of Jury Trial.  Each of the parties
submits to the exclusive jurisdiction of any state or federal court sitting in
New York, New York, in any action or proceeding arising out of or relating to
this Agreement, agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court and agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other
court.  Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety or other security that might be required of
any other party with respect thereto. 
Each party agrees that service of summons and complaint or any other
process that might be served in any action or proceeding may be made on such
party by sending or delivering a copy of the process to the party to be served
at the address of the party and in the manner provided for the giving of
notices in Section 8.3.  Nothing
in this Section 8.8, however, shall affect the right of any party to
serve legal process in any other manner permitted by law.  Each party agrees that a final,
non-appealable judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law. 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.

Section 8.9             Assignment; Successors and
Assigns; No Third Party Rights. 
Except as otherwise provided herein, this Agreement may not, without the
prior written consent of the other parties hereto, be assigned by any party
hereto by operation of law or otherwise, and any attempted assignment shall be
null and void; provided  that, without the consent of any other
parties hereto, each Investor may assign its rights hereunder to one or more
Affiliates of such Investor. 
Notwithstanding the foregoing, no such assignment under the prior
sentence shall relieve the assignor Investor of any of its obligations
hereunder that shall have not been performed timely by the assignee.  Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, permitted assigns and legal representatives.  Notwithstanding the foregoing or anything to
the contrary, WCAS shall not assign any of its rights hereunder to Welsh,
Carson, Anderson & Stowe IX, L.P. 
Except as set forth in Section 8.2, this Agreement shall be for
the sole benefit of the parties to this Agreement and their respective heirs,
successors, permitted assigns and legal representatives and is not intended,
nor shall be construed, to give any Person, other than the parties hereto and
their respective heirs, successors, permitted assigns and legal
representatives, any legal or equitable right, remedy or claim hereunder.  Nothing in this Agreement, expressed or
implied, is intended to or shall constitute the parties hereto partners or
participants in a joint venture.

Section 8.10           Counterparts.  This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, each of which shall be
deemed an original and all of which together will constitute one and the same
instrument.  Delivery of an executed
counterpart of a signature page to this Agreement by facsimile or other
electronic delivery shall be effective as delivery of a mutually executed
counterpart to this Agreement.

 42
 

Section 8.11           Titles and Headings.  The titles, captions and table of contents in
this Agreement are for reference purposes only, and shall not in any way
define, limit, extend or describe the scope of this Agreement or otherwise
affect the meaning or interpretation of this Agreement.

Section 8.12           Entire Agreement.  This Agreement (including the Schedules and
Exhibits attached hereto) and the Confidentiality Agreement, constitute the
entire agreement among the parties with respect to the matters covered hereby
and supersedes all previous written, oral or implied understandings among them
with respect to such matters.

Section 8.13           Severability.  The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof.  If it is ever held that any restriction
hereunder is too broad to permit enforcement of such restriction to its fullest
extent, such restriction shall be enforced to the maximum extent permitted by law.

Section 8.14           No Strict Construction.  Each of the parties hereto acknowledges that
this Agreement has been prepared jointly by the parties hereto, and shall not
be strictly construed against any party.

Section 8.15           Specific Performance.  Each of the parties acknowledges that the
rights of each party to consummate the transactions contemplated hereby are
unique and recognize and affirm that in the event of a breach of this Agreement
by any party, money damages may be inadequate and the non-breaching party may
have no adequate remedy at law.  Accordingly,
the parties agree that such non-breaching party shall have the right, in
addition to any other rights and remedies existing in their favor at law or in
equity, to enforce their rights and the other party’s obligations hereunder by
an action or actions for specific performance, injunctive and/or other
equitable relief (without posting of bond or other security).

Section 8.16           Failure or Indulgence not Waiver.  No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right or be
construed to be waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or any
other right.  No provision of this
Agreement may be waived except by an instrument in writing executed by the
party or parties, as applicable, against whom the waiver is to be effective.

Section 8.17           Amendments.  Subject to applicable law, this Agreement may
be amended by the parties hereto at any time prior to the Closing.  This Agreement (including the provisions of
this Section 8.17) may not be amended or modified except by an
instrument in writing signed on behalf of the parties hereto.

Section 8.18           Nature of Investors’ Obligations
and Rights.

(a)           The obligations of each Investor
under this Agreement or any other Transaction Agreement are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under this Agreement or any other Transaction Agreement.  Nothing contained 

 43
 

herein or in any other Transaction Agreement, and no
action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement or the other Transaction
Agreements.  Each Investor confirms that
it has independently participated in the negotiation of the transactions
contemplated hereby.  All rights, powers
and remedies provided to the Investors under this Agreement or otherwise
available in respect hereof at law or in equity shall be cumulative and not
alternative or exclusive, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other rights, powers or remedies by such party.

(b)           No information made available or
provided to an Investor pursuant to any provision of Article 5 of this
Agreement, or otherwise obtained or known to an Investor other than on account
of being expressly disclosed in the Parent Disclosure Schedule, shall limit or
otherwise affect the remedies available to the Investors, or the
representations or warranties of, or the conditions to the obligations of, the
Investors hereunder.

(c)           Notwithstanding anything to the
contrary, in no event shall any Investor’s aggregate liability under this
Agreement exceed an amount equal to the respective purchase price such Investor
may be obligated to pay pursuant to Section 2.1.  In addition, 
notwithstanding anything to the contrary, in no event shall any Investor
be liable for consequential, incidental, punitive or special damages, including
loss of future revenue, income or profits, diminution of value or loss of
business opportunity (provided that the limitation in this sentence shall not
limit Parent’s rights to recover contract damages from an Investor in
connection with a failure by such Investor to close on the purchase of
Convertible Shares in violation of this Agreement).

(d)           This Agreement may only be enforced
against, and any claims or causes of action that may be based upon, arise out
of or relate to this Agreement, or the negotiation, execution or performance of
this Agreement may only be made against, the entities that are expressly
identified as parties hereto and their respective successors and assigns, and
no past, present or future Affiliate, director, officer, employee,
incorporator, member, manager, partner, stockholder, agent, attorney or
representative of any party hereto shall have any liability for any obligations
or liabilities of the parties to this Agreement or for any claim based on, in
respect of, or by reason of, the negotiation, execution or performance of this
Agreement or the transactions contemplated hereby.

*       *      
*       *       *      
*       *

 44
 

IN WITNESS WHEREOF, the parties hereto have caused
this Securities Purchase Agreement to be duly executed as of the day and year
first above written.

	
  

  	
  UNIVERSAL AMERICAN FINANCIAL CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard A. Barasch

  	
   

  
	
   

  	
  Name: Richard A. Barasch

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  

 

	
  

  	
  LEE-UNIVERSAL HOLDINGS, LLC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph B. Rotberg

  	
   

  
	
   

  	
  Name: Joseph B. Rotberg

  
	
   

  	
  Title: CFO

  
	
   

  	
   

  

 

	
  

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

  
	
   

  	
  By: WCAS X ASSOCIATES,
  LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sean M. Traynor

  	
   

  
	
   

  	
  Name: Sean M. Traynor

  
	
   

  	
  Title: Managing Member

  

 

	
  

  	
  UNION SQUARE UNIVERSAL
  PARTNERS, L.P.

  
	
   

  	
  By: UNION SQUARE UNIVERSAL
  GP, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric Leathers

  	
   

  
	
   

  	
  Name: Eric Leathers

  
	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  

 

	
  

  	
  PERRY PARTNERS, L.P.,

  
	
   

  	
  By:  PERRY CORP., its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  

 

 45
 

 

	
  

  	
  PERRY PARTNERS
  INTERNATIONAL, INC.

  
	
   

  	
  By:  PERRY CORP., its Investment Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  

 

	
  

  	
  PERRY COMMITMENT FUND, L.P.,

  
	
   

  	
  By: PERRY COMMITMENT
  ASSOCIATES, LLC, its General Partner,

  
	
   

  	
  By:  PERRY CORP., its Managing Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  

 

	
  

  	
  PERRY COMMITMENT MASTER
  FUND, L.P.,

  
	
   

  	
  By: PERRY COMMITMENT
  ASSOCIATES, LLC, its General Partner,

  
	
   

  	
  By:  PERRY CORP., its Managing Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael C. Neus

  	
   

  
	
   

  	
  Name: Michael C. Neus

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  

 

 46

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