-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Go2brOIHISNZL6z/CSaj9kqwdTgUIVIWgw+1w3swy17PLO97qvSu/rIyojAhSkui kxesnYLVb+IHxn/+QZPhkA== 0000904454-07-000754.txt : 20071001 0000904454-07-000754.hdr.sgml : 20071001 20070928185804 ACCESSION NUMBER: 0000904454-07-000754 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20071001 DATE AS OF CHANGE: 20070928 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL AMERICAN FINANCIAL CORP CENTRAL INDEX KEY: 0000709878 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 112580136 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-34486 FILM NUMBER: 071143866 BUSINESS ADDRESS: STREET 1: SIX INTERNATIONAL DRIVE STREET 2: SUITE 190 CITY: RYE BROOK STATE: NY ZIP: 10573-1068 BUSINESS PHONE: 9149345200X253 MAIL ADDRESS: STREET 1: SIX INTERNATIONAL DRIVE STREET 2: SUITE 190 CITY: RYE BROOK STATE: NY ZIP: 10573-1068 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL HOLDING CORP DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WELSH CARSON ANDERSON & STOWE IX LP CENTRAL INDEX KEY: 0001123639 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 320 PARK AVENUE STREET 2: SUITE 2500 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128415755 MAIL ADDRESS: STREET 1: 320 PARK AVENUE STREET 2: SUITE 2500 CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 s13d_091907-uniamfin.htm SCHED 13 FOR UNIVERSAL AMERICAN FINANCIAL

CUSIP No. 913377107

Page 1 of 16 Pages

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

UNIVERSAL AMERICAN FINANCIAL CORP.

(Name of Issuer)

Common Stock, $.01 par value

(Title of Class of Securities)

913377107

(CUSIP Number)

Welsh, Carson, Anderson & Stowe IX, L.P.	Ropes & Gray LLP
Welsh, Carson, Anderson & Stowe X, L.P.	1211 Avenue of the Americas
WCAS IX Associates LLC	New York, NY 10036
WCAS X Associates LLC	Attn: Christopher W. Rile, Esq.
320 Park Avenue, Suite 2500	Tel: (212) 596-9500
New York, NY 10022
Attn: Jonathan M. Rather
Tel: (212) 893-9500

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

September 18, 2007

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box /___/

Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.

The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

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1.	NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only)
1.	Welsh, Carson, Anderson & Stowe IX, L.P.
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)			(a) [ X ] (b) [ ]
3.	SEC USE ONLY
4.	SOURCE OF FUNDS			SC
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)			o
6.	CITIZENSHIP OR PLACE OF ORGANIZATION			Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER	0
		8.	SHARED VOTING POWER	8,244,625
		9.	SOLE DISPOSITIVE POWER	0
		10.	SHARED DISPOSITIVE POWER	8,244,625
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON			8,244,625
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES			o
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)			10.46%
14.	TYPE OF REPORTING PERSON			PN

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1.	NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only)
1.	WCAS IX Associates LLC
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)			(a) [ X ] (b) [ ]
3.	SEC USE ONLY
4.	SOURCE OF FUNDS			SC
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)			o
6.	CITIZENSHIP OR PLACE OF ORGANIZATION			Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER	0
		8.	SHARED VOTING POWER	8,244,625
		9.	SOLE DISPOSITIVE POWER	0
		10.	SHARED DISPOSITIVE POWER	8,244,625
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON			8,244,625
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES			o
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)			10.46%
14.	TYPE OF REPORTING PERSON			PN

* This page reflects beneficial ownership by WCAS IX Associates LLC in its capacity as the general partner of Welsh, Carson, Anderson & Stowe IX, L.P.

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1.	NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only)
1.	Welsh, Carson, Anderson & Stowe X, L.P.
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)			(a) [ X ] (b) [ ]
3.	SEC USE ONLY
4.	SOURCE OF FUNDS			WC
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)			o
6.	CITIZENSHIP OR PLACE OF ORGANIZATION			Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER	0
		8.	SHARED VOTING POWER	6,999,200
		9.	SOLE DISPOSITIVE POWER	0
		10.	SHARED DISPOSITIVE POWER	6,999,200
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON			6,999,200
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES			o
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)			8.88%
14.	TYPE OF REPORTING PERSON			PN

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1.	NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (entities only)
1.	WCAS X Associates LLC
2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)			(a) [ X ] (b) [ ]
3.	SEC USE ONLY
4.	SOURCE OF FUNDS			WC
5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)			o
6.	CITIZENSHIP OR PLACE OF ORGANIZATION			Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7.	SOLE VOTING POWER	0
		8.	SHARED VOTING POWER	6,999,200
		9.	SOLE DISPOSITIVE POWER	0
		10.	SHARED DISPOSITIVE POWER	6,999,200
11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON			6,999,200
12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES			o
13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)			8.88%
14.	TYPE OF REPORTING PERSON			PN

* This page reflects beneficial ownership by WCAS X Associates LLC in its capacity as the general partner of Welsh, Carson, Anderson & Stowe X, L.P.

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ITEM 1. SECURITY AND ISSUER

The title of the class of equity security to which this statement on Schedule 13D relates is the common stock, par value $.01 per share (the “Common Stock”), of Universal American Financial Corp., a New York corporation (the “Company”). The address of the Company’s principal executive offices is Six International Drive, Suite 190, Rye Brook, NY 10573.

ITEM 2.

IDENTITY AND BACKGROUND

(a)

Name

This Schedule 13D is being filed on behalf of each of the following persons pursuant to Rule 13d-1(k) promulgated by the Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"): Welsh, Carson, Anderson & Stowe IX, L.P., a Delaware limited partnership ("WCAS IX"), WCAS IX Associates LLC, a Delaware limited liability company ("WCAS IX Associates"), Welsh, Carson, Anderson & Stowe X, L.P., a Delaware limited partnership (“WCAS X”) and WCAS X Associates LLC, a Delaware limited liability company ("WCAS X Associates"). The reporting persons are making this single, joint filing because they may be deemed to constitute a “group” within the meaning of Section 13(d)(3) of the Exchange Act. Each of the aforementioned reporting persons has entered into a Joint Filing Agreement, a copy of which is filed with this Schedule 13D as Exhibit A, pursuant to which such persons have agreed to file this Schedule 13D jointly in accordance with the provisions of Rule 13d-1(k)(1) under the Exchange Act.

WCAS IX Associates is the sole general partner of WCAS IX. WCAS X Associates is the sole general partner of WCAS X.

The managing members of WCAS IX Associates are Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson, Thomas E. McInerney, Robert A. Minicucci, Anthony J. de Nicola, Paul B. Queally, D. Scott Mackesy, Sanjay Swani, John D. Clark, Sean D. Traynor, John Almeida, Jonathan M. Rather and Eric Lee (collectively, the "WCAS IX Persons").

The managing members of WCAS X Associates are Patrick J. Welsh, Russell L. Carson, Bruce K. Anderson, Thomas E. McInerney, Robert A. Minicucci, Anthony J. de Nicola, Paul B. Queally, D. Scott Mackesy, Sanjay Swani, John D. Clark, Sean D. Traynor, John Almeida, Jonathan M. Rather, Thomas Scully and Eric Lee (collectively, the "WCAS X Persons").

WCAS Management Corporation ("WCAS Management") is the management company for WCAS IX and WCAS X.

(b)	Principal Address

The principal address of each of WCAS IX, WCAS IX Associates, WCAS X, WCAS X Associates, WCAS Management, the WCAS IX Persons and the WCAS X Persons is 320 Park Avenue, Suite 2500, New York, New York 10022.

(c)	Principal Business

The principal business of WCAS IX is that of an investment limited partnership. The principal business of WCAS IX Associates is that of general partner of WCAS IX. The principal

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business of WCAS X is that of an investment limited partnership. The principal business of WCAS X Associates is that of general partner of WCAS X and other investment limited partnerships. The principal business of each of the WCAS IX Persons is that of a managing member of WCAS IX Associates and other investment limited partnerships. The principal business of each of the WCAS X Persons is that of a managing member of WCAS X Associates. The principal business of WCAS Management is that of the management company for WCAS IX, WCAS X and other investment limited partnerships.

(d and e) No Convictions or Proceedings.

During the last five years, none of the reporting persons, nor any of their executive officers, directors, partners or members, as applicable: (i) has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction resulting in his being subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

(f)	Citizenship

WCAS IX is a Delaware limited partnership. WCAS IX Associates is a Delaware limited liability company. WCAS X is a Delaware limited partnership. WCAS X Associates is a Delaware limited liability company. WCAS Management is a Delaware corporation. Each of the WCAS IX Persons and the WCAS X Persons is a citizen of the United States.

ITEM 3.

SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

WCAS IX acquired its shares in the Merger (as defined and described below).

The shares of Common Stock reported in Item 4 below as acquired by WCAS X under the Secondary SPA (as defined below) were acquired with the working capital of WCAS X for an aggregate purchase price of $41,670,000.

The shares of Series A Participating Convertible Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), and the shares of Series B Participating Convertible Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock" and, together with the Series A Preferred Stock, the "Preferred Stock") reported in Item 4 below as acquired by WCAS X from the Company under the First Stage SPA (as defined below) were acquired with the working capital of WCAS X for an aggregate purchase price of $24,648,000.

The shares of Series B Preferred Stock reported in Item 4 below as acquired by WCAS X from the Company under the Second Stage SPA (as defined below) (through the release of such shares to WCAS X from escrow, as described in Item 4) were acquired with the working capital of WCAS X for an aggregate purchase price of $73,666,000.

ITEM 4.

PURPOSE OF TRANSACTION.

On May 7, 2007, the following transactions were entered into:

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(1) WCAS X entered into a Share Purchase Agreement with Capital Z Financial Services Fund II, L.P., Capital Z Financial Services Private Fund II, L.P., Lee-Universal Holdings, LLC and Union Square Universal Partners, L.P. (the "Secondary SPA"), pursuant to which WCAS X agreed to purchase 2,083,500 shares of Common Stock for an aggregate purchase price of $41,670,000. A copy of Secondary SPA is set forth as Exhibit B hereto.

(2) The Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with MemberHealth, Inc. ("MemberHealth"), MHRx LLC, which was the record holder of MemberHealth’s common stock through which MemberHealth’s investors made their investment in MemberHealth (“MHRx”), MH Acquisition I Corp., MH Acquisition II LLC and WCAS IX, as shareholder representative. Pursuant to the Merger Agreement, MH Acquisition I Corp. merged with and into MemberHealth, and the surviving entity of that merger merged with and into MH Acquisition II LLC, with MH Acquisition II LLC being the surviving entity in such second merger (collectively, the "Merger"). A copy of the Merger Agreement is set forth as Exhibit C hereto.

(3) The Company entered into a Registration Rights Agreement with WCAS IX, WCAS X and certain other persons. A copy of this Registration Rights Agreement is set forth as Exhibit D hereto.

(4) The Company entered into a Securities Purchase Agreement (the “First Stage SPA”) with Union Square Universal Partners, L.P. (“Union Square”), Lee-Universal Holdings, LLC (“Lee”), WCAS X and two or more private investment funds for which Perry Corp. acts as a general partner and/or investment adviser (the “Perry Funds”), pursuant to which the Company agreed to issue and sell to such investors, and such investors (severally and not jointly) agreed to purchase from the Company, on and subject to the terms and conditions set forth therein, shares of Series A Preferred Stock of the Company and shares of Series B Preferred Stock of the Company, at a purchase price of $2,000.00 per share of Preferred Stock. Under the First Stage SPA, WCAS X subscribed to purchase from the Company 5,000 shares of Series A Preferred Stock and 7,324 shares of Series B Preferred Stock. A copy of the First Stage SPA is set forth as Exhibit E hereto.

The Series A Preferred Stock is a non-voting security and is not convertible into shares of Common Stock while owned by Union Square, Lee, WCAS X or Perry Funds (the “Initial Holders”) or any affiliate of an Initial Holder. However, (A) upon transfer of a share of Series A Preferred Stock to a holder other than an Initial Holder or an affiliate of an Initial Holder, such share of Series A Preferred Stock will automatically convert into 100 shares of Common Stock (subject to customary anti-dilution adjustments), and (B) following receipt of certain approvals, a holder of shares of Series A Preferred Stock will be entitled to exchange such shares of Series A Preferred Stock for a corresponding number of shares of Series B Preferred Stock (which exchange is subject to various conditions). WCAS X has received such approvals.

Each share of the Series B Preferred Stock is convertible (at the option of the holder thereof or, subject to certain conditions, by the Company) into 100 shares of Common Stock (subject to customary anti-dilution adjustments) and entitles the holder thereof to a number of votes (on all matters on which holders of Common Stock may vote) equal to the number of shares of Common Stock into which such share of Series B Preferred Stock is convertible.

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A copy of the form of Certificate of Amendment to the Certificate of Incorporation of the Company to establish the rights, preferences and powers of the Series A Preferred Stock is set forth as Exhibit F hereto. A copy of the form of Certificate of Amendment to the Certificate of Incorporation of the Company to establish the rights, preferences and powers of the Series B Preferred Stock is set forth as Exhibit G hereto.

(5) The Company entered into a Securities Purchase Agreement (the “Second Stage SPA”) with Union Square, Lee, WCAS X and the Perry Funds, pursuant to which the Company agreed to issue and sell to such investors, and such investors (severally and not jointly) agreed to purchase from the Company, on and subject to the terms and conditions set forth therein, shares of Series B Preferred Stock (which shares could, at the request of any such investor, be instead issued to such investor in the form of Series A Preferred Stock) for a purchase price of $2,000.00 per share of Preferred Stock. The obligations of the investors to consummate the purchase under the Second Stage SPA was subject to the concurrent closing of the Merger pursuant to the Merger Agreement, receipt of certain Company shareholder approvals, receipt of regulatory approvals, and other customary conditions. Under the Second Stage SPA, WCAS X subscribed to purchase from the Company 36,841 shares of Series B Preferred Stock. Prior to the closing under the Second Stage SPA, WCAS X assigned the right to purchase eight shares of Series B Preferred Stock to WCAS Management. A copy of the Second Stage SPA is set forth as Exhibit H hereto.

On May 15, 2007, the closing under the First Stage SPA occurred. At that closing, WCAS X purchased from the Company 5,000 shares of Series A Preferred Stock and 7,324 shares of Series B Preferred Stock of the Company at a purchase price of $2,000 per share of Preferred Stock.

On September 18, 2007, the Company, the Initial Holders and the parties to the Merger Agreement entered into (i) an Agreement (the “Side Agreement”) and (ii) an Escrow Agreement with The Bank of New York (the “Escrow Agreement) pursuant to which, among other things, (a) each Initial Holder placed into escrow the aggregate purchase price for the shares of Series B Preferred Stock of the Company (or, at the option of such Initial Holder, Series A Preferred Stock of the Company) to be purchased by such Initial Holder under the Second Stage SPA, (b) the Company placed into escrow certificates representing the shares of Preferred Stock to be purchased by each of the Initial Holders under the Second Stage SPA and (c) the Company placed into escrow 14,175,000 shares of Common Stock to be issued as merger consideration pursuant to Merger Agreement and $96,500,000 to be paid as cash consideration pursuant to the Merger Agreement, which proceeds were borrowed by the Company pursuant to a Credit Agreement with Bank of America, N.A., as Administrative Agent. In accordance with the Side Agreement and the Escrow Agreement, WCAS X and WCAS Management placed into escrow an amount equal to $73,682,000, and the Company placed into escrow certificates representing 36,841 shares of Series B Preferred Stock of the Company for the account of WCAS X and WCAS Management Corp. under the Second Stage SPA at a purchase price of $2,000 per share of Preferred Stock. The Escrow Agreement was amended on September 21, 2007 to change the Escrow Release Date to September 21, 2007. Pursuant to the Escrow Agreement, as amended, such shares of Series B Preferred Stock of the Company were released from escrow to WCAS X on September 21, 2007 (the “Escrow Release Date”), which date was specified by the Company and MHRx LLC as the date on which the Company would consummate the Merger under the Merger Agreement. A copy of the Side Agreement is set forth as Exhibit I hereto. A copy of the

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Escrow Agreement is set forth as Exhibit J hereto. A copy of the Amendment to the Escrow Agreement is set forth as Exhibit K hereto.

On September 21, 2007, the closing under the Merger Agreement occurred. At that closing, WCAS IX received 7,832,394 shares of Common Stock. WCAS IX also received 412,231 shares of Common Stock, which were placed in escrow for one year pursuant to the terms and conditions of the Merger Agreement. WCAS IX has voting power over such escrow shares and, thus, beneficial ownership.

Pursuant to the Second Stage SPA, the Company, WCAS X and WCAS IX, Union Square and certain affiliated entities of Cap Z Partners, Ltd., Lee, Perry Funds, Mr. Richard Barasch and certain other stockholders of the Company entered into, and placed into escrow under the Escrow Agreement, a Stockholders’ Agreement (the “Stockholders’ Agreement”), which Stockholders’ Agreement became effective on the Escrow Release Date. Pursuant to the Stockholders’ Agreement, from and after the Escrow Release Date, (i) the board of directors of the Company is to consist of thirteen directors, composed as follows: (A) two directors designated collectively by Union Square and certain affiliates of Cap Z Ltd., (B) two directors designated by WCAS IX and WCAS X collectively (who are currently Sean M. Traynor and Charles E. Hallberg), (C) one director designated by Lee, (D) one director designated by the Perry Funds, (E) the Chief Executive Officer of the Company, and (F) six additional directors who shall each satisfy the criteria for “independent director” under applicable NASDAQ rules, provided that the right of a party to the Stockholders’ Agreement to designate directors may be reduced or lost if such party no longer holds a certain number of shares of Common Stock (which includes shares of Common Stock underlying Preferred Stock) and (ii) the stockholders party to the Stockholders’ Agreement agree to (A) vote all their shares in favor of election to the Company’s Board of Directors of such individuals as the parties to the Stockholders’ Agreement are entitled to designate from time to time, (B) certain restrictions on their ability to acquire additional shares of Common Stock without the approval of the independent directors of the Company and (C) grant certain rights of first offer and other rights applicable to certain transfers of their shares in the Company.

WCAS IX agreed with the Company that WCAS IX would not transfer any shares acquired under the Merger Agreement for a period of 180 days following the Merger, subject to limited exceptions.

WCAS X agreed with the Company that WCAS X would not transfer any shares acquired under the First Stage SPA or the Second Stage SPA, in each case, for a period of one year from the date of the applicable acquisition, subject to limited exceptions.

A copy of the Stockholders’ Agreement is set forth as Exhibit L hereto.

The descriptions herein of the various agreements and other documents referred to above are qualified in their entirety by reference to the full text of such agreements and documents, which are incorporated herein by reference.

Except as otherwise contemplated herein, the Reporting Persons currently have no plans or proposals which relate to or would result in any of the actions enumerated in paragraphs (a) through (j) of Item 4 of the form of Schedule 13D promulgated under the Act. However, each of the Reporting Persons reserves the right to change its plans at any time, as it deems appropriate, in light of its ongoing evaluation of (a) its business and liquidity objectives, (b) the Company’s

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financial condition, business, operations, competitive position, prospects and/or share price, (c) industry, economic and/or securities markets conditions, (d) alternative investment opportunities, and (e) other relevant factors. Without limiting the generality of the preceding sentence, each of the Reporting Persons reserves the right (in each case, subject to any applicable restrictions under law or contract) to at any time or from time to time (i) purchase or otherwise acquire additional shares of Common Stock or other securities of the Company, or instruments convertible into or exercisable for any such securities (collectively, “Company Securities”), in the open market, in privately negotiated transactions or otherwise, (ii) sell, transfer or otherwise dispose of Company Securities in public or private transactions, (iii) cause Company Securities to be distributed in kind to its investors, (iv) acquire or write options contracts, or enter into derivatives or hedging transactions, relating to Company Securities, and/or (v) encourage (including, without limitation, through their designees on the Company’s board of directors and/or communications with directors, management, and existing or prospective security holders, investors or lenders, of the Company, existing or potential strategic partners, industry analysts and other investment and financing professionals) the Company to consider or explore (A) sales or acquisitions of assets or businesses, or extraordinary corporate transactions, such as a merger (including transactions in which affiliates of the Reporting Persons may be proposed as acquirers or as a source of financing), (B) changes to the Company’s capitalization or dividend policy, or (C) other changes to the Company’s business or structure.

ITEM 5.

INTEREST IN SECURITIES OF THE ISSUER.

(a)-(b) WCAS IX is the beneficial owner of 8,244,625 shares of Common Stock, which constitutes approximately 10.46% of the Company’s outstanding shares of Common Stock. WCAS IX and WCAS IX Associates may be deemed to have shared power to vote and shared power to dispose of such 8,244,625 shares of Common Stock.

WCAS X is the beneficial owner of 6,999,200 shares of Common Stock, which constitutes approximately 8.88% of the Company’s outstanding shares of Common Stock. WCAS X and WCAS X Associates may be deemed to have shared power to vote and shared power to dispose of such 6,999,200 shares of Common Stock.

Patrick J. Welsh directly beneficially owns 23,540 shares of Common Stock (1,177 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Russell L. Carson directly beneficially owns 23,540 shares of Common Stock (1,177 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Bruce K. Anderson directly beneficially owns 23,540 shares of Common Stock (1,177 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Thomas E. McInerney directly beneficially owns 23,365 shares of Common Stock (1,168 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

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Robert A. Minicucci directly beneficially owns 23,540 shares of Common Stock (1,177 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Anthony J. de Nicola directly beneficially owns 20,053 shares of Common Stock (1,003 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Paul B. Queally directly beneficially owns 20,053 shares of Common Stock (1,003 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

D. Scott Mackesy directly beneficially owns 5,755 shares of Common Stock (288 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Sanjay Swani directly beneficially owns 5,755 shares of Common Stock (288 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

John D. Clark directly beneficially owns 5,755 shares of Common Stock (288 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Sean D. Traynor directly beneficially owns 2,789 shares of Common Stock (139 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

John Almeida directly beneficially owns 2,789 shares of Common Stock (139 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Jonathan M. Rather directly beneficially owns 6,103 shares of Common Stock (305 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

Thomas Scully directly beneficially owns 158,554 shares of Common Stock (7,928 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or approximately 0.2% of the Common Stock outstanding.

Eric J. Lee directly beneficially owns 872 shares of Common Stock (44 of which are in escrow pursuant to the terms and conditions of the Merger Agreement) or less than 0.1% of the Common Stock outstanding.

WCAS Management directly beneficially owns 17,437 shares of Common Stock (872 of which are held in escrow pursuant to the terms and conditions of the Merger Agreement), or less than

CUSIP No. 913377107

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0.1% of the Common Stock outstanding, and eight shares of Series B Preferred Stock acquired pursuant to the Second Stage SPA.

The percentages in the foregoing paragraphs in this Item 5 are calculated based on a total of 78,832,958 shares of Common Stock outstanding, which (A) includes the number of shares of Common Stock (59,742,258) outstanding as of July 31, 2007 (as stated by the Company in its quarterly report on Form 10-Q for the period ended June 30, 2007), (B) includes 14,175,000 shares of Common Stock issued by the Company as merger consideration under the Merger Agreement and (C) assumes the conversion into Common Stock of all shares of Series A Preferred Stock and Series B Preferred Stock of the Company issued to WCAS X under the First Stage SPA and the Series B Preferred Stock under the Second Stage SPA, which would result in an additional 4,915,700 shares of Common Stock. The calculation of such percentage does not consider any shares of Preferred Stock issued to any investor other than WCAS X (or any shares of Common Stock issuable upon conversion thereof).

As a result of the matters referred to in Item 4 hereof, the Reporting Persons may be deemed to constitute a “group” (within the meaning of Rule 13d-5(b) under the Act) with the other stockholders of the Company that are party to the Stockholders’ Agreement and certain of their respective affiliates. As a result, and on that basis, the Reporting Persons may be deemed to beneficially own shares of Common Stock that may be beneficially owned by such persons, including: (i) an aggregate 20,241,069 shares of Common Stock that Union Square has advised the Reporting Persons that Union Square and/or its affiliates (including certain affiliates of Cap Z Ltd.) beneficially own, (ii) an aggregate 6,920,500 shares of Common Stock that Perry Funds has advised the Reporting Persons that Perry Funds beneficially owns, (iii) an aggregate 5,250,000 shares of Common Stock that Lee has advised the Reporting Persons that Lee and/or its affiliates beneficially own, (iv) an aggregate 2,794,738 shares of Common Stock that Mr. Richard Barasch and/or his affiliates beneficially own as set forth in the Amendment to the Schedule 13D as filed by Mr. Richard Barasch on May 7, 2007 and (v) an aggregate 2,869,882 shares of Common Stock issued by the Company pursuant to the Merger Agreement to former equity holders of MemberHealth (other than WCAS IX) that are party to the Stockholders’ Agreement.

Including all such shares on the foregoing basis, the Reporting Persons may be deemed to be beneficial owners of, in the aggregate, approximately 61% of the outstanding Common Stock. Each of the Reporting Persons disclaims beneficial ownership of shares that may be beneficially owned by any of the persons referred to in clauses (i) through (v) above and any of their respective affiliates, and neither the filing of this Statement nor its contents shall be deemed to constitute an admission to the contrary.

The percentage in the immediately foregoing paragraph is calculated based on a total of 87,266,458 shares of Common Stock outstanding, which includes (A) the number of shares of Common Stock (59,742,258) outstanding as of July 31, 2007 (as stated by the Company in its quarterly report on Form 10-Q for the period ended June 30, 2007), (B) 14,175,000 shares of Common Stock issuable by the Company as merger consideration under the Merger Agreement, (C) 1,952,700 shares of Common Stock underlying the shares of Series B Preferred Stock issued to the Initial Holders under the First Stage SPA, (D) 10,836,000 shares of Common Stock underlying the shares of Series B Preferred Stock issued to the Initial Holders under the Second Stage SPA, and (E) 560,500 shares of Common Stock underlying the shares of Series B Preferred Stock that may be issued by the Company in exchange for shares of Series A Preferred Stock issued to the Initial Holders, other than the Perry Funds, under the First Stage SPA, but

CUSIP No. 913377107

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does not include any shares of Common Stock underlying the shares of Series B Preferred Stock that may be issued by the Company in exchange for shares of Series A Preferred Stock issued to the Perry Funds under the First Stage SPA or the Second Stage SPA, which exchange is subject to various conditions.

(c) Except as described in Item 4 (which is incorporated herein by reference), there have been no transactions with respect to the shares of Common Stock during the sixty days prior to the date of this statement on Schedule 13D by any Reporting Person.

(d) Except as described in this statement, no person has the power to direct the receipt of dividends on or the proceeds of sales of, the shares of Common Stock owned by the Reporting Persons.

(e)	Not applicable.

ITEM 6.

CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

The responses to Items 4 and 5 hereof are incorporated herein by reference.

Except for the arrangements described in the responses to Items 4 and 5 hereof, to the best knowledge of the Reporting Persons, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 of this statement and between such persons and any other person with respect to any securities of the Company, including but not limited to transfer or voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies.

As contemplated by the Stockholders’ Agreement, following the closing under the Second Stage SPA, two designees of WCAS IX and WCAS X, Sean M. Traynor and Charles E.Hallberg, became members of the board of directors of the Company. The Reporting Persons disclaim beneficial ownership of shares of Common Stock that may be beneficially owned by such individuals.

ITEM 7.

MATERIALS TO BE FILED AS EXHIBITS

Exhibit A*

Agreement between WCAS IX, WCAS IX Associates, WCAS X and WCAS X Associates to file this 13D and any future amendments to Schedule 13D jointly on behalf of each of them

Exhibit B

Share Purchase Agreement, dated May 7, 2007, by and among WCAS X, Capital Z Financial Services Fund II, L.P., Capital Z Financial Services Private Fund II, L.P., Lee and Union Square Universal Partners, L.P.

Exhibit C

Agreement and Plan of Merger and Reorganization, dated May 7, 2007, by and among MemberHealth, MHRx, MH Acquisition I Corp., MH Acquisition II LLC and WCAS IX, as shareholder representative

CUSIP No. 913377107

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Exhibit D*	Registration Rights Agreement, dated May 7, 2007, by and among the Company, WCAS IX, WCAS X and the other parties named on the signature pages thereto
Exhibit E*	Securities Purchase Agreement, dated May 7, 2007, by and among the Company, Lee, WCAS X, Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Commitment Fund, L.P. and Perry Commitment Master Fund, L.P.
Exhibit F†	Restated Certificate of Incorporation of the Company establishing rights of Series A Preferred Shares
Exhibit G†	Restated Certificate of Incorporation of the Company establishing rights of Series B Preferred Shares
Exhibit H*	Securities Purchase Agreement, dated May 7, 2007, by and among the Company, Lee, WCAS X, Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Commitment Fund, L.P. and Perry Commitment Master Fund, L.P.
Exhibit I	Agreement, dated September 18, 2007, by and among the Company, MH Acquisition I Corp., MH Acquisition II LLC, MHRx, Member Health, WCAS IX, Lee, WCAS X, Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Private Opportunities Fund, L.P., Perry Private Opportunities Offshore Fund, L.P. and Bank of America, N.A. as administrative agent
Exhibit J	Escrow Agreement, dated September 18, 2007, by and among the Company, MH Acquisition I Corp., MH Acquisition II LLC, MHRx, Member Health, WCAS IX, Lee, WCAS X, Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Private Opportunities Fund, L.P., Perry Private Opportunities Offshore Fund, L.P., Bank of America, N.A. as administrative agent and The Bank of New York, as escrow agent
Exhibit K	Amendment to Escrow Agreement, dated September 21, 2007, by and among the Company, MH Acquisition I Corp., MH Acquisition II LLC, MHRx, Member Health, WCAS IX, Lee, WCAS X, Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Private Opportunities Fund, L.P., Perry Private Opportunities Offshore Fund, L.P., Bank of America, N.A. as administrative agent and The Bank of New York, as escrow agent
Exhibit L	Stockholders’ Agreement of the Company, dated September 21, 2007

† Incorporated by reference to Annex C to the Company’s Registration Statement on Form S-4, Registration No. 333-143822.

CUSIP No. 913377107

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SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this Statement is true, complete and correct.

Dated: September 28, 2007

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

By: WCAS IX Associates LLC, General Partner

By:	/s/ Jonathan M. Rather
Managing Member

WCAS IX Associates LLC

By:/s/ Jonathan M. Rather
Managing Member

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

By: WCAS X Associates LLC, General Partner

By:	/s/ Jonathan M. Rather
Managing Member

WCAS X Associates LLC

By:/s/ Jonathan M. Rather
Managing Member

EX-99 2 ex99a_091907-agtrejf.htm EXHIBIT A

Exhibit A

AGREEMENT REGARDING THE JOINT FILING OF

SCHEDULE 13D

____________________________

The undersigned acknowledge and agree that the foregoing Schedule 13D is filed on behalf of each of the undersigned and that all

subsequent amendments to this Statement on Schedule 13D may be filed on behalf

of each of the undersigned without the necessity of filing additional joint

filing agreements.

Dated: September 28, 2007

WELSH, CARSON, ANDERSON & STOWE IX, L.P.
By: WCAS IX Associates LLC, General Partner
By:	/s/ Jonathan M. Rather
Managing Member
WCAS IX Associates LLC
By:	/s/ Jonathan M. Rather
Managing Member
WELSH, CARSON, ANDERSON & STOWE X, L.P.
By: WCAS X Associates LLC, General Partner
By:	/s/ Jonathan M. Rather
Managing Member
WCAS X Associates LLC
By:	/s/ Jonathan M. Rather
Managing Member

EX-99 3 ex99b_091907-capzssspa.htm EXHIBIT B

Exhibit B

Share Purchase Agreement

This Share Purchase Agreement, dated as of May 7, 2007 (this “Agreement”), by and among Capital Z Financial Services Fund II, L.P. (“CapZ1”), Capital Z Financial Services Private Fund II, L.P. (“CapZ2” and, collectively with CapZ1, the “Sellers”), and the purchasers listed on Exhibit A hereto (each as a “Purchaser” and collectively as the “Purchasers”).

Recitals:

Whereas, the Sellers currently own certain shares of the common stock (“Common Stock”) of Universal American Financial Corp., a New York corporation (“UAFC”), and the Sellers desire to sell to the Purchasers, and the Purchasers desires to purchase from the Sellers, a portion of such shares on the terms hereinafter set forth.

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:

Agreement:

1. At the Closing (as hereafter defined), the Sellers agree to sell to each Purchaser, and each Purchaser shall purchase from the Sellers, the aggregate number of shares of Common Stock designated in Exhibit A as being purchased by each Purchaser, in exchange for the payment by each Purchaser to the Sellers of the aggregate purchase price designated in Exhibit A as being paid by each Purchaser. Such aggregate 6,250,000 shares of Common Stock to be sold and purchased pursuant to this Agreement to all Purchasers are sometimes hereafter referred to collectively as the “Shares”.

2. The closing of the sale and purchase of the Shares contemplated by this Agreement (the “Closing”) shall be conditioned upon, and shall take place at such time and at such place as, the closing under that certain securities purchase agreement among, UAFC, Lee-Universal Holdings, LLC, Welsh, Carson, Anderson & Stowe X, L.P., Union Square Universal Partners, L.P., Perry Partners, L.P., Perry Partners International, Inc., Perry Commitment Fund, L.P. and Perry Commitment Master Fund, L.P., relating to an aggregate 50,000 shares of preferred stock of UAFC. At the Closing, each Purchaser shall pay to the Sellers the aggregate purchase price set forth in Exhibit A hereof as it relates to each such Purchaser, against delivery to such Purchaser of certificates or other instruments (which may include customary evidence of share ownership by book-entry ledger) representing the aggregate number of shares of Common Stock referred to Exhibit A hereof as it relates to such Purchaser, registered in the name of such Purchaser or otherwise duly endorsed for transfer. All payments pursuant to this Section 2 shall be made by wire transfer of immediately available funds to an account or accounts designated by the Sellers pursuant to wire instructions to be provided by the Sellers prior to the Closing.

3. (a) The Sellers represent and warrant to the Purchasers that the Sellers are the record and beneficial owners of the Shares, free and clear of all liens, pledges, security interests, right of first refusal or similar encumbrances (“Liens”), other than (i) as contemplated pursuant to the Shareholders Agreement dated as of July 30, 1999 and (ii) transfer restrictions pursuant to

applicable securities or “blue sky” laws. The Sellers have the power and authority to sell the Shares as provided in this Agreement, and such delivery at the Closing will convey to the applicable Purchaser good title to the shares of Common Stock purchased by such Purchaser from the Sellers pursuant to this Agreement, free and clear of all Liens, except (A) transfer restrictions pursuant to applicable securities or “blue sky” laws or (B) Liens imposed by or through such Purchaser.

(b) Each Purchaser (severally as to itself only, but not jointly with any other Purchaser) hereby represents and warrants to the Sellers that (i) such Purchaser is an “accredited investor” within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), (ii) such Purchaser understands that none of the Shares has been registered under the Securities Act or any other securities laws and such securities cannot be sold or otherwise transferred unless subsequently registered thereunder or an exemption from such registration is available (and certificates or other instruments representing Shares may be imprinted with an appropriate legend to such effect) and (iii) such Purchaser is acquiring the shares of Common Stock it is agreeing to purchase from the Sellers hereunder for its own account, for investment purposes only and not with a view to the distribution thereof in contravention of any applicable law.

(c) Each of the parties hereto, severally as to itself only, but not jointly with any other party, represents and warrants to the other parties hereto as follows in this Section 3(c):

(i) Such party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Such party has all requisite entity power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all required entity action on the part of such party. This Agreement has been duly and validly executed and delivered by such party, and (assuming the due authorization, execution and delivery by the other parties hereto) this Agreement constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(ii) Neither the execution and delivery of this Agreement by such party nor the fulfillment of and the performance by such party of its obligations hereunder will (x) contravene, in any material respect, any provision contained in the governing documents of such party or any legal requirement to which such party is bound or subject, or (y) result in a material breach of any contract or agreement to which such party is a party.

(iii) No person or entity has acted, directly or indirectly, as a broker, finder or financial advisor for such party in connection with the transactions contemplated by this Agreement and no person or entity is entitled to any fee or commission or like payment in respect thereof.

(d) Notwithstanding anything to the contrary, each Purchaser hereby acknowledges and agrees that (A) none of the Sellers is making any representations or warranties whatsoever, express or implied, beyond those expressly given by the Sellers in this Section 3, (B) except for the representations and warranties of the Sellers expressly set forth in this Section 3, all transfers of Shares contemplated by this Agreement will be made on a “where is” and, as to condition, “as is” basis, (C) without limiting the generality of the foregoing, none of the Sellers has made any representation or warranty, express or implied, as to the business, operations, capitalization, assets, liabilities (contingent or otherwise), contractual or other obligations, condition (financial or otherwise), projections or prospects of UAFC or any other information regarding UAFC, and such Purchaser has conducted, to its satisfaction, its own independent investigation of all such matters with respect to UAFC and, in making its determination to proceed with the transactions contemplated by this Agreement, such Purchaser has relied on the results of its own independent investigation, and (D) the Sellers may have or obtain material, non-public information concerning UAFC which may not be known to, or disclosed to, the Purchasers, and vis-à-vis the Sellers, the Purchasers are assuming all risks associated with any such non-disclosure.

4. The representations and warranties contained in Section 3 hereof shall survive the Closing. All of the covenants or other agreements of the parties contained in this Agreement shall survive the Closing until fully performed or fulfilled, unless and to the extent only that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance.

5. None of the parties shall issue any press release or public announcement concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other parties hereto (which approval shall not be unreasonably withheld or delayed), unless, in the reasonable judgment of such party, disclosure is otherwise required by applicable law, in which case the party intending to make such release shall use its commercially reasonable efforts, consistent with applicable law, to consult with the other parties with respect to the timing and content thereof.

6. Each of the parties hereto shall bear its own expenses incurred in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby. Any sales, transfer, recordation, documentary stamp or similar taxes or charges applicable to, or resulting from, the sale and transfer by Sellers of shares of Common Stock as contemplated by this Agreement shall be borne by the Sellers of such shares.

7. The obligations of each party under this Agreement are several and not joint with the obligations of any other party, and no party shall be responsible in any way for the performance of the obligations of any other party under this Agreement. Nothing contained herein, and no action taken by any party pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement.

8. All notices and other communications under this Agreement shall be in writing and shall be deemed given (a) when delivered personally by hand (with written confirmation of receipt), (b) when sent by facsimile (with written confirmation of transmission) or (c) one New

York business day following the day sent by overnight courier (with written confirmation of receipt), in each case at the addresses and facsimile numbers set forth for such party in Exhibit A hereto (or to such other address or facsimile number as a party may have specified by notice given to the other party pursuant to this provision), in each case with a copy (which shall not constitute notice) to: Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153, Attention: Malcolm Landau, Facsimile No.: (212) 310-8007.

9. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement is intended to create, shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement. No assignment of this Agreement or of any rights or obligations hereunder may be made by any party, directly or indirectly (by operation of law or otherwise), without the prior written consent of each of the other parties hereto and any attempted assignment without the required consents shall be void. Upon any such permitted assignment, the references in this Agreement to the assignor shall, subject to the following sentence, also apply to any such permitted assignee unless the context otherwise requires. No permitted assignment of any rights or obligations hereunder shall relieve the assignor of any of its obligations under this Agreement.

10. This Agreement represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

11. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed in such State without giving effect to the choice of law principles of such State that would require or permit the application of the laws of another jurisdiction.

12. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of the federal and state courts located within the borough of Manhattan of the City, County and State of New York over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such courts or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by the delivery of a copy thereof in accordance with the provisions of Section 8

hereof. 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.

13. 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, this being in addition to any other remedy to which they are entitled at law or in equity.

14. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto 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 in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

15. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

16. All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified. Words such as “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The word “including” or any variation thereof means (unless the context of its usage otherwise requires) “including, without limitation,” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. 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.

[Remainder of page intentionally left blank]

[Signature Page Follows]

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

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:
Name: Title:
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:
Name: Title:
UNION SQUARE UNIVERSAL PARTNERS, L.P.
By: UNION SQUARE UNIVERSAL GP, LLC, its General Partner
By:
Name: Title:
LEE-UNIVERSAL HOLDINGS, LLC
By:
Name: Title:
WELSH, CARSON, ANDERSON & STOWE, X, L.P.,
By: WCAS X ASSOCIATES, LLC, its General Partner
By:
Name: Title:

The undersigned hereby irrevocably waives any Participation Right (as defined below) that might be applicable in connection with the transactions contemplated by the above Agreement, and hereby agrees that no such Participation Right will be claimed or asserted with respect to such transactions. “Participation Right” means any and all “tag-along” rights, rights of first offer, or any similar rights, pursuant to any shareholders agreement.

Richard Barasch

EXHIBIT A

PURCHASERS

Purchaser	Number of Shares of Common Stock Such Purchaser is Purchasing from the Sellers	Aggregate Purchase Price for each Purchaser
Welsh, Carson, Anderson & Stowe X, L.P. Notices to: 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	2,083,500	$41,670,000
Lee-Universal Holdings, LLC Notices to: 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	2,083,500	$41,670,000
Union Square Universal Partners, L.P. Notices to: Union Square Universal Partners, L.P. 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	2,083,000	$41,660,000

For Notices to the Sellers, to them at:

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

EX-99 4 ex99c_091907-mergagt.htm EXHIBIT C

Exhibit C

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

among

UNIVERSAL AMERICAN FINANCIAL CORP.,

MH ACQUISITION I CORP.,

MH ACQUISITION II LLC,

MHRX LLC,

MEMBERHEALTH, INC.

and

THE SHAREHOLDER REPRESENTATIVE NAMED HEREIN

Dated as of May 7, 2007

3348603_20

TABLE OF CONTENTS

Page

ARTICLE 1

CERTAIN DEFINITIONS

Section 1.1

Certain Definitions

Section 1.2

Interpretive Provision

ARTICLE 2

THE TRANSACTIONS

Section 2.1

The Mergers

Section 2.2

Closing

Section 2.3

Effective Times

Section 2.4

Effects of the Mergers

Section 2.5

Governing Documents; Officers and Directors.

Section 2.6

Effect of the Mergers on the Capital Stock of the Constituent Entities of the Mergers.

Section 2.7

Fractional Shares

Section 2.8

Cancellation and Retirement of Company Common Stock

Section 2.9

Exchange of Certificates; Payment of Initial Merger Consideration

Section 2.10

Escrow Fund

Section 2.11

Withholding

Section 2.12

Post Closing Adjustment Relating to CMS Reconciliation.

Section 2.13

Contingent Payments.

Section 2.14

Certain Adjustments

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 3.1

Organization, Good Standing, Qualification and Power

Section 3.2

Authority; Execution and Delivery; Enforceability

Section 3.3

Non-contravention

Section 3.4

Consents

Section 3.5

Capitalization of MHRx, the Company; Company Subsidiaries.

Section 3.6

Financial Statements.

Section 3.7

No Undisclosed Liabilities

Section 3.8

Title to Tangible Personal Property

Section 3.9

Absence of Certain Developments

-i-

TABLE OF CONTENTS

(continued)

Page

Section 3.10

Governmental Authorizations; Licenses; Etc

Section 3.11

Litigation

Section 3.12

Taxes.

Section 3.13

Environmental Matters

Section 3.14

Employee Matters.

Section 3.15

Employee Benefit Plans.

Section 3.16

Intellectual Property Rights.

Section 3.17

Contracts

Section 3.18

Insurance

Section 3.19

Real Property.

Section 3.20

Medicare Part D Status.

Section 3.21

Transactions With Affiliates

Section 3.22

Bank Accounts

Section 3.23

Books and Records

Section 3.24

Information Supplied

Section 3.25

Brokers

Section 3.26

Anti-Takeover Statutes

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBS

Section 4.1

Organization, Good Standing, Qualification and Power

Section 4.2

Authority; Execution and Delivery; Enforceability

Section 4.3

Non-contravention

Section 4.4

Consents

Section 4.5

Capitalization of Parent; Parent Subsidiaries.

Section 4.6

Parent SEC Documents.

Section 4.7

No Undisclosed Liabilities

Section 4.8

Title to Tangible Personal Property

Section 4.9

Absence of Certain Developments

Section 4.10

Governmental Authorizations; Licenses; Etc

Section 4.11

Litigation

-ii-

TABLE OF CONTENTS

(continued)

Page

Section 4.12

Taxes.

Section 4.13

Employee Matters

Section 4.14

Employee Benefit Plans

Section 4.15

Intellectual Property Rights.

Section 4.16

Contracts

Section 4.17

Insurance

Section 4.18

Real Property.

Section 4.19

Transactions With Affiliates

Section 4.20

Financing

Section 4.21

Information Supplied

Section 4.22

Required Parent Shareholder Approval

Section 4.23

Valid Issuance of Parent Shares

Section 4.24

Anti-Takeover Statutes

Section 4.25

Interim Operations of the Merger Subs

Section 4.26

Brokers

ARTICLE 5

COVENANTS AND AGREEMENTS

Section 5.1

Access; Documents and Information.

Section 5.2

Conduct of Business by the Company.

Section 5.3

Conduct of Business by Parent.

Section 5.4

Charter Amendment

Section 5.5

Closing Documents

Section 5.6

Commercially Reasonable Efforts; Further Assurances.

Section 5.7

Public Announcements

Section 5.8

Exclusive Dealing

Section 5.9

Employee Benefit Plans.

Section 5.10

Indemnification of Directors and Officers.

Section 5.11

Certain Tax Matters; Plan of Reorganization.

Section 5.12

Preparation of the Registration Statement and the Proxy Statement/Prospectus; Shareholder Meeting.

Section 5.13

Anti-Takeover Statutes

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TABLE OF CONTENTS

(continued)

Page

Section 5.14

Nasdaq National Market Listing

Section 5.15

Affiliate Agreements

Section 5.16

Shareholder Representative.

Section 5.17

Payoff Letters; Release of Liens

Section 5.18

Joinder Agreements

Section 5.19

FIRPTA Certificate

Section 5.20

Financing

ARTICLE 6

CONDITIONS TO CLOSING

Section 6.1

Mutual Conditions

Section 6.2

Conditions to the Obligations of Parent and the Merger Subs

Section 6.3

Conditions to the Obligations of the Company and MHRx

Section 6.4

Frustration of Closing Conditions

ARTICLE 7

TERMINATION

Section 7.1

Termination

Section 7.2

Effect of Termination

ARTICLE 8

MISCELLANEOUS

Section 8.1

Survival

Section 8.2

Indemnification.

Section 8.3

Notices

Section 8.4

Exhibits and Schedules

Section 8.5

Time of the Essence; Computation of Time

Section 8.6

Expenses

Section 8.7

Governing Law

Section 8.8

Jurisdiction and Venue; Waiver of Jury Trial

Section 8.9

Assignment; Successors and Assigns; No Third Party Rights

Section 8.10

Counterparts

Section 8.11

Titles and Headings

Section 8.12

Entire Agreement

Section 8.13

Severability

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TABLE OF CONTENTS

(continued)

Page

Section 8.14

No Strict Construction

Section 8.15

Specific Performance

Section 8.16

Failure or Indulgence not Waiver

Section 8.17

Amendments

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement"), dated as of May 7, 2007, is entered into by and among UNIVERSAL AMERICAN FINANCIAL CORP., a New York corporation ("Parent"), MH ACQUISITION I CORP., a Delaware corporation and wholly owned subsidiary of Parent (the "Delaware Corp. Merger Sub"), MH ACQUISITION II LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (the "Delaware LLC Merger Sub" and, together with the Delaware Corp. Merger Sub, collectively, the "Merger Subs"), MHRx LLC, a Delaware limited liability company ("MHRx"), MemberHealth, Inc., an Ohio corporation and wholly owned subsidiary of MHRx (the "Company"), and Welsh, Carson, Anderson & Stowe IX, L.P., a Delaware limited partnership ("WCAS IX"), as the Shareholder Representative hereunder.

RECITALS

WHEREAS, the parties hereto desire to effect a business combination of Parent and the Company by means of (i) the merger (the "First Merger") of the Delaware Corp. Merger Sub with and into the Company, with the Company continuing as the surviving corporation of the First Merger (the "First Merger Surviving Corporation"), and (ii) immediately following the effectiveness of the First Merger, and as part of the same plan of merger and reorganization, the merger (the "Second Merger" and, together with the First Merger, collectively, the "Mergers") of the First Merger Surviving Corporation with and into the Delaware LLC Merger Sub, with the Delaware LLC Merger Sub continuing as the surviving entity of the Second Merger (the "Second Merger Surviving Entity");

WHEREAS, pursuant to the First Merger (i) all of the issued and outstanding shares of common stock, par value $.01 per share, of the Company ("Company Common Stock") shall be converted into the right to receive a combination of cash and shares of Common Stock, par value $0.01, of Parent (the "Parent Common Stock") as herein provided and (ii) all of the issued and outstanding common stock of the Delaware Corp. Merger Sub shall be converted into shares of common stock, par value $.01 per share, of the First Merger Surviving Corporation ("First Merger Surviving Corporation Common Stock");

WHEREAS, pursuant to the Second Merger (i) all of the issued and outstanding First Merger Surviving Corporation Common Stock shall be cancelled and (ii) all of the issued and outstanding membership interests of the Delaware LLC Merger Sub shall be converted into 100% of the issued and outstanding membership interests of the Second Merger Surviving Entity;

WHEREAS, the respective Boards of Directors of each of the parties hereto (or, in the case of the Delaware LLC Merger Sub, Parent, as its sole managing member) have unanimously determined that this Agreement and the Mergers and other transactions contemplated hereby, including the issuance of the Parent Shares (as defined below) pursuant to the First Merger (such other transactions, together with the Mergers and the other "Transactions" (as defined in Securities Purchase Agreement referred to below) contemplated by the Financing Documents (as defined below) and the Other Securities Purchase Agreement, being referred to herein collectively as the "Transactions"), are fair to and in the best interests of their respective

shareholders or members, as applicable, and have declared advisable and approved this Agreement and the transactions contemplated hereby;

WHEREAS, the Board of Directors of the Delaware Corp. Merger Sub has resolved to recommend that Parent, as the sole shareholder of the Delaware Corp. Merger Sub, adopt this Agreement and approve the Mergers;

WHEREAS, immediately following the execution and delivery of this Agreement, Parent, as the sole shareholder of the Delaware Corp. Merger Sub, is executing and delivering a written consent adopting this Agreement and approving the Mergers;

WHEREAS, the Board of Directors of Parent has unanimously resolved to recommend that the shareholders of Parent approve the issuance of the Parent Shares pursuant to the First Merger and the shares of capital stock of Parent (the "Equity Financing Shares") to be issued in connection with the equity financing contemplated by the Securities Purchase Agreement (as defined below) (the "Equity Financing"), and the related changes to the authorized capital stock of Parent required to complete the Equity Financing;

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 on proposals regarding the issuance of the Parent Shares in the First Merger and the Equity Financing Shares in connection with the Equity Financing (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 new classes of Parent capital stock and increase the number of authorized shares of Parent capital stock in the manner required by the Securities Purchase Agreement (as in effect on the date hereof) (the "Parent Charter Vote");

WHEREAS, as a condition and inducement to MHRx's and the Company's willingness to enter into this Agreement, each of the persons listed on Annex A-1 hereto (each a "Parent Voting Agreement Party") has entered into a voting agreement in the form attached hereto as Exhibit A-1 (the "Parent Voting Agreement"), pursuant to which each Parent Voting Agreement Party has, among other things, irrevocably agreed to vote all of the voting securities of Parent now or hereafter held by it or over which it has voting control in favor of the Required Parent Shareholder Approval;

WHEREAS, the sole shareholder and Board of Directors of the Company have unanimously resolved to adopt this Agreement and approve the First Merger;

WHEREAS, the Management Committee of MHRx has unanimously resolved to adopt this Agreement and approve the First Merger; and

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WHEREAS, for United States federal income tax purposes, the parties hereto intend that the Mergers qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder, and that this Agreement shall be, and is hereby, adopted as a plan of reorganization within the meaning of Treasury Regulation Section 1.368-2(g).

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.

"2006 CMS Reconciliation" has the meaning set forth in Section 2.12(c).

"Actual Net CMS Reconciliation Amount" means (a) the actual amount of all payments made or to be made to the Company and its Subsidiaries (or their successors) in respect of the 2006 coverage year less (b) the actual amount of all payments made or to be made by the Company and its Subsidiaries (or their successors) in respect of the 2006 coverage year, in each case, as a result of the 2006 CMS Reconciliation, the State Claims Post Reconciliation and Plan to Plan Post Reconciliation. For the avoidance of doubt, if the amount referred to in (a) exceeds the amount referred to in (b), the Actual Net CMS Reconciliation Amount would be a positive number and if the amount referred to in (a) is less than the amount referred to in (b), the Actual Net CMS Reconciliation Amount would be a negative number.

"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.

"Agreement" has the meaning set forth in the preamble.

"Alternative Transaction" has the meaning set forth in Section 5.8.

"Annual Cap" shall mean, with respect to each Annual Earnout Period, $50,000,000.

"Annual EBITDA" shall mean, with respect to each Annual Earnout Period, the total EBITDA of the MH Business for such period.

"Annual Earnout Amount" shall mean (A) with respect to the Annual Earnout Periods ending December 31, 2008 and December 31, 2009, an amount equal to the lesser of (i) the amount by which Annual EBITDA for such period exceeds the EBITDA Threshold for such

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period and (ii) the Annual Cap and (B) with respect to the Annual Earnout Period ending December 31, 2010, an amount equal to the lesser of (i) the amount by which the sum of the Annual EBITDA for such period and the TRICARE Amount exceeds the EBITDA Threshold for such period and (ii) the Annual Cap. For the avoidance of doubt, to the extent that any portion of the CMS Reconciliation Payment Amount is paid to or by the Company, with respect to the 2006 plan year, during the Annual Earnout Periods, any such portion of the CMS Reconciliation Payment Amount or other CMS settlement amounts shall be excluded from the calculation of Annual EBITDA for such Annual Earnout Period.

"Annual Earnout Financials" has the meaning set forth in Section 2.13(b)(i).

"Annual Earnout Period" means each of the following three periods: (i) January 1, 2008 through and including December 31, 2008, (ii) January 1, 2009 through and including December 31, 2009 and (iii) January 1, 2010 through and including December 31, 2010.

"Annual Earnout Statement" has the meaning set forth in Section 2.13(b)(i).

"Antitrust Division" has the meaning set forth in Section 5.6(a).

"Arbitrator" has the meaning set forth in Section 2.13(b)(iii).

"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).

"Cash Merger Consideration" means the Initial Cash Merger Consideration as from time to time adjusted pursuant to Section 2.12, Section 2.13 and/or Section 8.2 (it being understood that if any cash is paid to Parent pursuant to Section 2.12 or Section 8.2, the payment of such cash to Parent shall be deemed to reduce the Cash Merger Consideration).

"Certificates of Merger" has the meaning set forth in Section 2.3.

"Charter Amendment" means an amendment to the Certificate of Incorporation of Parent to increase the number of authorized shares of Parent capital stock in the form of Exhibit B hereto.

"Closing" has the meaning set forth in Section 2.2.

"Closing Date" has the meaning set forth in Section 2.2.

"CMS" means the Centers for Medicare & Medicaid Services.

"CMS Dispute Arbitrator" has the meaning set forth in Section 2.12(d)(iii).

"CMS Reconciliation Disagreement Notice" has the meaning set forth in Section 2.12(c)(ii).

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"CMS Reconciliation Payment Amount" means the Reserve-Adjusted Net CMS Reconciliation Amount multiplied by a percentage equal to (a) 100% less (b) the marginal income tax rate of the Company taking into account federal, state and local income taxes, including any taxes, such as franchise taxes, measured by net income (and the deductibility for federal income tax purposes of state and local income taxes) as determined by reference to the federal, state and local income tax returns of the Company for 2006 as filed and as amended from time to time (or in the event such returns have not been filed as reasonably estimated in good faith by Parent).

"CMS Reconciliation Payment Date" has the meaning set forth in Section 2.12(e).

"CMS Reconciliation Reserve Amount" means $21,393,922 (which represents an amount equal to the reserve for "claims" reflected on the Latest Company Balance Sheet.

"CMS Reconciliation Statement" has the meaning set forth in Section 2.12(d)(i).

"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.

"Company" has the meaning set forth in the preamble.

"Company CMS Agreement" has the meaning set forth in Section 3.20(a).

"Company Common Stock" has the meaning set forth in the recitals.

"Company Confidentiality Agreement" means the confidentiality agreement dated January 2, 2007 by and between MHRx and Parent.

"Company Contracts" has the meaning set forth in Section 3.17.

"Company Disclosure Schedules" means the disclosure schedules to this Agreement delivered by the Company to Parent and the Merger Subs on or prior to the date hereof in connection with this Agreement.

"Company Employee Benefit Plan" means any Employee Benefit Plan of the Company or any of its Subsidiaries.

"Company ERISA Affiliate" means any entity that is considered a single employer with the Company under Section 414 of the Code.

"Company Financial Advisor" means Banc of America Securities LLC.

"Company Financial Statements" has the meaning set forth in Section 3.6(a).

"Company Intellectual Property Rights" has the meaning set forth in Section 3.16(a).

"Company Lease" and "Company Leases" have the meanings set forth in Section 3.19(a).

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"Company Leased Property" has the meaning set forth in Section 3.19(a).

"Company 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 the Company and its Subsidiaries, taken as a whole, or (B) the ability of the Company to consummate the transactions contemplated hereby; provided, that any change, event or effect, arising from or related to, or in the case of matters covered by clause (ix) below, directly and solely resulting from: (i) conditions generally affecting the industries in which the Company 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 interpretation and guidance related to Medicare Part D; (vi) any action taken or omission by the Company in accordance with this Agreement or at the written request or with prior written consent of Parent; (vii) any change in or effect on the business of the Company or its Subsidiaries that is cured prior to the Closing; (viii) the announcement of the Transactions; or (ix) any failure, in and of itself, by the Company 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, shall not be taken into account in determining whether a "Company Material Adverse Effect" has occurred, or would reasonably be expected to occur, except, in the case of clauses (i) and (iii), 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 the Company and its Subsidiaries, taken as a whole, relative to other industry participants and except in the case of clause (ix), any fact, event, circumstance, change, occurrence, effect or condition underlying any failure to meet any such projections, forecasts or revenue or earnings predictions shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur, and except that clause (viii) shall not apply with respect to Sections 3.3 and 3.4 hereof.

"Company Novation Agreement" has the meaning set forth in Section 3.20(a).

"Company Representatives" has the meaning set forth in Section 5.1(a)(ii).

"Consents" has the meaning set forth in Section 5.6(a).

"Contracts" means the Company Contracts and 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 Equity Financing Shares and the Other SPA Shares and (ii) any shares issued in exchange for any Equity Financing Shares or Other SPA Shares.

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

"Debt Financing" has the meaning set forth in Section 4.20.

"Delaware LLC Act" means the Limited Liability Company Act of the State of Delaware, as amended and in effect from time to time.

"Delaware LLC Merger Sub" has the meaning set forth in the preamble.

"Delaware LLC Merger Sub Interests" has the meaning set forth in Section 2.6(b).

"Delaware Corp. Merger Sub" has the meaning set forth in the preamble.

"Delaware Corp. Merger Sub Common Stock" has the meaning set forth in Section 2.6(a).

"DGCL" means the Delaware General Corporation Law, as amended and in effect from time to time.

"Dispute Panel" has the meaning set forth in Section 2.13(b)(iii).

"Disclosure Schedules" means the Company Disclosure Schedules and Parent Disclosure Schedules.

"Earnout Disagreement Notice" has the meaning set forth in Section 2.13(b)(ii).

"EBITDA" shall mean, with respect to each Annual Earnout Period, the revenue of the MH Business for such period plus interest income directly allocable to the MH Business (excluding interest income on capital) for such period less the Operating Expenses of the MH Business for such period, calculated in accordance with the principles set forth in this Section 2.13 and, to the extent consistent with such principles, GAAP.

"EBITDA Threshold" shall mean, with respect to each Annual Earnout Period, the amount set forth below:

Annual Earnout Period	EBITDA Threshold
January 1, 2008 through December 31, 2008	$151,000,000
January 1, 2009 through December 31, 2009	$145,000,000
January 1, 2010 through December 31, 2010	$186,000,000

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"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.

"Environmental Laws" means all federal, state, local and foreign Legal Requirements concerning pollution or protection of the environment as such Legal Requirements are enacted and in effect on or prior to the Closing Date.

"Equity Financing" has the meaning set forth in the recitals.

"Equity Financing Shares" has the meaning set forth in the recitals.

"Equity Financing Sources" has the meaning set forth in Section 4.20.

"Equity Shortfall Amount" has the meaning set forth in Section 2.6(a)(iii)(B).

"Equity Shortfall Notice" has the meaning set forth in Section 2.6(a)(iii)(B).

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

"Escrow Agent" has the meaning set forth in Section 2.10.

"Escrow Agreement" has the meaning set forth in Section 2.10.

"Escrow Cash" has the meaning set forth in Section 2.10.

"Escrow Fund" has the meaning set forth in Section 2.10.

"Escrow Shares" has the meaning set forth in Section 2.10.

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

"Fair Market Value" means, as of any date of determination, (i) if the Parent Common Stock is publicly traded on the NASDAQ Global Select Market, unless (and then only to the extent) otherwise specified herein, the average of the high and low trading price of the Parent Common Stock on such date of determination or (ii) if the Parent Common Stock is not publicly traded on the NASDAQ Global Select Market, the fair market value of the Parent Common Stock on such date of determination as determined by an independent appraiser mutually selected by Parent and the Shareholder Representative each acting reasonably (it being agreed that, in such circumstances, (a) if Parent and the Shareholder Representative cannot agree on an independent appraiser, Parent and the Shareholder Representative shall each choose an independent appraiser, and the two appraisers that are chosen shall appoint a third independent appraiser to determine the Fair Market Value of the Parent Common Stock, (b) Parent and the Shareholder Representative shall use their reasonable best efforts to cause such valuation to be completed within 60 days of the date that the need to determine Fair Market Value first arises, (c) the fees and expenses of the independent appraiser shall be paid 50% by Parent and 50% by

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MHRx and (d) any determination of Fair Market Value by such independent appraiser shall be final, conclusive and binding for all purposes of this Agreement).

"Financing" has the meaning set forth in Section 4.20.

"Financing Documents" has the meaning set forth in Section 4.20.

"First Merger" has the meaning set forth in the recitals.

"First Merger Certificate of Merger" has the meaning provided in Section 2.3.

"First Merger Effective Time" has the meaning provided in Section 2.3.

"First Merger Surviving Corporation" has the meaning set forth in the recitals.

"First Merger Surviving Corporation Common Stock" has the meaning set forth in the recitals.

"FTC" has the meaning set forth in Section 5.6(a).

"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 the transactions contemplated hereby) 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.

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"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 the Company or Parent, the establishment, ownership, operation, maintenance, management, regulation, development or expansion thereof (including the Company CMS Agreement).

"Hazardous Substance" means any pollutant, contaminant or toxic or hazardous material, substance or waste, whether solid, liquid or gas.

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

"Indemnifiable Losses" has the meaning set forth in Section 8.2(d)(i).

"Indemnifiable Tax Benefit" has the meaning set forth in Section 8.2(d)(vi).

"Indemnification Percentage" has the meaning set forth in Section 8.2(d)(iii).

"Indemnified Person" has the meaning set forth in Section 8.2(d)(vi).

"Indemnifying Member" has the meaning set forth in Section 8.2(b).

"Indemnifying Party" has the meaning set forth in Section 8.2(d)(vi).

"Initial Cash Merger Consideration" has the meaning set forth in Section 2.6(a)(ii)(A).

"Initial Merger Consideration" has the meaning set forth in Section 2.6(a)(ii)(B).

"Initial Parent Shares" has the meaning set forth in Section 2.6(a)(ii)(B). For the avoidance of doubt, it is acknowledged that the Initial Parent Shares include the Escrow Shares.

"Initial Stock Merger Consideration" has the meaning set forth in Section 2.6(a)(ii)(B).

"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 all: (i) 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 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").

"Joinder Agreement" means an agreement substantially in the form of Exhibit C hereto pursuant to which an Indemnifying Member agrees to be bound by the provisions of this

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Agreement solely as they relate to the indemnification obligations of the Indemnifying Members pursuant to Section 8.2(b) and the appointment of the Shareholder Representative.

"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 the Company, such actual knowledge shall be limited to the Knowledge of Charles E. Hallberg, David S. Azzolina, Jane C. Koehl-Colling, Scott G. Hughes, D. Alan Scantland, Robert J. Donnelly, John G. Kloss and Len Ploskonka, none of whom shall have any personal liability regarding such Knowledge, and in the case of Parent and the Merger Subs, such actual knowledge shall be limited to the Knowledge of Richard Barasch, Robert Waegelein, Gary Bryant, Jason Israel, Gary Jacobs, Theodore Carpenter, Jr., Lisa M. Spivack and Steven B. Najjar, none of whom shall have any personal liability regarding such Knowledge.

"Latest Company Balance Sheet" has the meaning set forth in Section 3.6(a)(ii).

"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.

"Mergers" has the meaning set forth in the recitals.

"Merger Consideration" means the Merger Consideration, as from time to time adjusted pursuant to Section 2.12, Section 2.13 and/or Section 8.2.

"Merger Subs" has the meaning set forth in the preamble.

"MH Business" shall mean, collectively: (a) the Part D Business, (b) the Private Fee-for-Service Business, (c) the TRICARE Business, (d) MH New Business and (e) the PBM Business.

“MH New Business” shall mean the business of establishing, underwriting, selling, administering and/or maintaining any policies or other insurance products (other than Medicare Advantage private fee-for-service and Medicare Part D products and policies) (i) to or for any beneficiaries of the Part D Business; (ii) to or for any beneficiaries acquired (a) through the

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CommunityCareRx brand, (b) through any other brand utilized by the Company or any of its Subsidiaries before, on or after the date hereof or (c) through any arrangements (including, without limitation, any co-branding arrangements) entered into with the National Community Pharmacists Association before, on or after the date hereof (in all cases under this section (ii), whether such business is conducted by the Company or any of its Subsidiaries or Parent or any of its other Subsidiaries); or (iii) to or for any beneficiaries of the Private Fee-for-Service Business.

"MHRx" has the meaning set forth in the preamble.

"MHRx Indemnified Persons" has the meaning set forth in Section 8.2(c).

"MHRx Representative" means Sean M. Traynor or another representative appointed by the Shareholder Representative.

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

"Nasdaq" has the meaning set forth in the recitals.

"Net Present Value" means, for purposes of calculating the TRICARE Amount, the net present value of the future stream of revenues and expenses directly associated with the TRICARE Agreement (including Taxes actually incurred that but for the TRICARE Agreement would not have been incurred), discounting future revenues and expenses using a discount rate of twelve percent (12%), and subtracting the sum total of discounted expenses from the sum total of discounted revenues, and assuming that the future revenues and expenses to be earned and incurred under the TRICARE Agreement will continue to be the same as the revenues and expenses of the TRICARE Business during the final Annual Earnout Period (i.e., January 1, 2010 through December 31, 2010) and assuming that the TRICARE Agreement will expire at the end of its stated term (as in effect on December 31, 2010).

"New Plans" has the meaning set forth in Section 5.9(a).

"New Shares" has the meaning set forth in Section 2.10.

"OGCL" means the General Corporation Law of the State of Ohio, as amended and in effect from time to time.

"Operating Expenses" means all expenses other than (a) interest expense and any other capital-related charges, including expenses relating to third party reinsurance contracts entered into to satisfy capital requirements, (b) depreciation, (c) amortization, (d) federal and state income taxes and (e) unusual and non-recurring non-cash expenses.

"Other Securities Purchase Agreement" means that certain Securities Purchase Agreement dated as of the date hereof pursuant to which Parent has agreed to issue and sell to the investors party thereto, and such investors have agreed to purchase from Parent, an aggregate of 30,473 shares of Series A Participating Convertible Preferred Stock of Parent and an aggregate of 19,527 shares of Series B Participating Convertible Preferred Stock of Parent (the "Other SPA Shares") on the date hereof.

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"Other SPA Shares" has the meaning set forth in the definition of Other Securities Purchase Agreement.

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

"Parent" has the meaning set forth in the preamble.

"Parent Board Recommendation" has the meaning set forth in Section 5.12(d).

"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 agreement dated November 2, 2006 by and between the Company 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 Merger Subs to MHRx and the Company 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 Indemnified Persons" has the meaning set forth in Section 8.2(a).

"Parent Intellectual Property Rights" has the meaning set forth in Section 4.15(a).

"Parent Lease" and "Parent Leases" have the meanings set forth in Section 4.18(a).

"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 or either Merger Sub 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 or either Merger Sub in accordance with this Agreement

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or at the written request or with the prior written consent of the Company; (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), 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 Representative" means Robert Waegelein or another senior executive officer of Parent designated by Parent.

"Parent Representatives" has the meaning set forth in Section 5.1(a)(i).

"Parent SEC Documents" has the meaning set forth in Section 4.6(a).

"Parent Shares" means the Initial Parent Shares, and any Parent Shares from time to time issued pursuant to Section 2.12, Section 2.13 and/or Section 8.2 (it being understood that if any shares of Parent Common Stock are transferred to Parent pursuant to Section 2.12 and/or Section 8.2, the transfer of such shares to Parent shall be deemed to reduce the number of Parent Shares actually and ultimately issued by Parent as Merger Consideration hereunder).

"Parent Shareholder Meeting" has the meaning set forth in the recitals.

"Parent Shareholder Meeting Date" has the meaning set forth in Section 3.24.

"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).

"Parent Voting Agreement" has the meaning set forth in the recitals.

"Parent Voting Agreement Party" has the meaning set forth in the recitals.

"Part D Business" shall mean the business of establishing, underwriting, selling, administering and/or maintaining Medicare Part D prescription drug plans under the Company CMS Agreement (as the same may be from time to time amended, modified, restated or

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superseded by a successor or replacement agreement) or under the CommunityCareRx brand or any other brand utilized by the Company and its Subsidiaries as of the date of this Agreement or under any other brand developed by the Company or its Subsidiaries or the National Community Pharmacists Association or any other co-branding arrangements specifically for the employer group business (for example, the Hartford and Aegon) before, on or after the date hereof (whether such business is conducted by the Company or any of its Subsidiaries or Parent or any of its other Subsidiaries).

"Patents" has the meaning set forth in the definition of Intellectual Property Rights.

"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.

"PBM Business" shall mean the pharmacy benefit management business of Parent, the Company and their respective Subsidiaries other than (i) any business replacing, after the date hereof, any pharmacy benefit management services currently provided to customers of Parent and its Subsidiaries by third parties as of the date hereof or (ii) business existing at the time of Closing, acquired or developed as part of Parent's preexisting pharmacy benefit management business.

"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 Financing; (e) with respect to the Company Common Stock and Parent Common Stock, restrictions on transfer imposed under applicable securities laws; (f) with respect to the Company and its Subsidiaries, Liens described on Schedule 1.1(a) and (g) 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.

"Plan to Plan Post Reconciliation" means any Medicare Part D prescription drug claim that has been paid for by another CMS approved Part D sponsor plan whereby (i) the claim is for a beneficiary who was a member of the Company’s Part D plan in the 2006 plan year and (ii) the claim was not received timely from the sponsor and therefore was not included in the 2006 CMS Reconciliation. This reconciliation is not limited to just Phase 1 exposures.

"Private Fee-for-Service Business" shall mean the business of establishing, underwriting selling, administering and/or maintaining Medicare Advantage private fee-for-service policies

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(or private fee-for-service policies under any successor program) (i) to or for any beneficiaries of the Part D Business or (ii) to or for any beneficiaries acquired (a) through the CommunityCareRx brand, (b) through any other brand utilized by the Company or any of its Subsidiaries before, on or after the date hereof or (c) through any arrangements (including, without limitation, any co-branding arrangements) entered into with the National Community Pharmacists Association before, on or after the date hereof (in all cases under this section (ii), whether such business is conducted by the Company or any of its Subsidiaries or Parent or any of its other Subsidiaries).

"Proxy Statement/Prospectus" has the meaning set forth in Section 4.4.

"Registration Statement" has the meaning set forth in Section 4.4.

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

"Reserve-Adjusted Net CMS Reconciliation Amount" means the Actual Net CMS Reconciliation Amount plus the CMS Reconciliation Reserve Amount.

"Sarbanes-Oxley Act" means the Sarbanes-Oxley Act of 2002.

"SEC" means the United States Securities and Exchange Commission.

"Second Merger" has the meaning provided in the recitals.

"Second Merger Certificate of Merger" has the meaning provided in Section 2.3.

"Second Merger Effective Time" has the meaning provided in Section 2.3.

"Second Merger Surviving Entity" has the meaning provided in the recitals.

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

"Securities Purchase Agreement" has the meaning set forth in Section 4.20.

"Seller Transaction Expenses" has the meaning set forth in Section 8.2(a)(iv).

"Settlement Discussions" has the meaning set forth in Section 5.2(d).

"Shareholder Representative" has the meaning set forth in Section 5.16(a).

"Shareholders Agreement" has the meaning set forth in Section 6.3(i)(v).

"Software" has the meaning set forth in the definition of Intellectual Property Rights.

"State Claims Post Reconciliation" means any Medicare Part D prescription drug claim that has been paid for by a state whereby (i) the claim is for a beneficiary who was a member of the Company’s Part D plan in 2006 and (ii) the claim was not received timely from the state and therefore was not included in the 2006 CMS Reconciliation.

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"Stock Merger Consideration" means the Initial Stock Merger Consideration, as from time to time adjusted pursuant to Section 2.12, Section 2.13 and/or Section 8.2 (it being understood that if any shares of Parent Common Stock are transferred to Parent pursuant to Section 2.12 and/or Section 8.2, the transfer of such shares to Parent shall be deemed to reduce the number of Parent Shares actually and ultimately issued by Parent as Merger Consideration hereunder).

"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 Benefits" has the meaning set forth in Section 8.2(d)(vi).

"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(f)(i).

"Trade Secrets" has the meaning set forth in the definition of Intellectual Property Rights.

"Transactions" has the meaning set forth in the recitals.

"TRICARE Agreement" shall mean any written agreement pursuant to which Parent, the Company or one or more other Subsidiaries of Parent (or any successor thereto) offers pharmacy services directly or indirectly through Computer Sciences Corporation (or any Affiliate thereof acting as prime contractor to the United States Department of Defense / TRICARE), as the same may be from time to time amended, modified, restated or superseded by a successor or replacement agreement.

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"TRICARE Amount" means an amount equal to twenty-five percent (25%) of the Net Present Value of the all profits (i.e., revenues less expenses) to be earned under the TRICARE Agreement from and after January 1, 2011.

"TRICARE Business" shall mean business conducted pursuant to the TRICARE Agreement.

"Waivers" has the meaning set forth in Section 3.20(b).

"WCAS IX" has the meaning set forth in the preamble.

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

THE TRANSACTIONS

Section 2.1 The Mergers. At the First Merger Effective Time, on the terms and subject to the conditions of this Agreement and the applicable provisions of the OGCL and the DGCL, the Delaware Corp. Merger Sub shall be merged with and into the Company, the separate corporate existence of the Delaware Corp. Merger Sub shall cease, and the Company shall continue as the First Merger Surviving Corporation. At the Second Merger Effective Time (as defined below), and as part of the same plan of merger and reorganization, and on the terms and subject to the conditions of this Agreement and the applicable provisions of the DGCL and the Delaware LLC Act, the First Merger Surviving Corporation shall be merged with and into the Delaware LLC Merger Sub, the separate corporate existence of the First Merger Surviving Corporation shall cease, and the Delaware LLC Merger Sub shall continue as the Second Merger Surviving Entity under the name "MemberHealth, LLC".

Section 2.2 Closing. The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, New York, at 10:00 A.M. (New York City time) on the second Business Day following the satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their terms cannot be satisfied until the Closing, but subject to the satisfaction of such conditions at the Closing), or on such other date and time as the Company and Parent shall mutually agree. The date of the Closing is herein called the "Closing Date".

Section 2.3 Effective Times. On the terms and subject to the conditions of this Agreement, the parties hereto shall cause the First Merger to be consummated at the Closing by the filing of a certificate of merger (the "First Merger Certificate of Merger") in a form mutually acceptable to Parent and the Company with the Secretary of State of Ohio and the Secretary of State of Delaware as required by, and executed in accordance with, the relevant provisions of the OGCL and the DGCL (the time of such later filing being the "First Merger Effective Time").

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Immediately following the First Merger Effective Time, Parent shall cause the Board of Directors of the First Merger Surviving Corporation to adopt this Agreement and approve the Second Merger (and shall adopt this Agreement and approve the Second Merger as sole shareholder of the Second Merger Surviving Corporation). Immediately following such approval, the parties hereto shall cause the Second Merger to be effected by the filing of a certificate of merger (the "Second Merger Certificate of Merger" and, together with the First Merger Certificate of Merger, the "Certificates of Merger") in a form that is mutually acceptable to Parent and MHRx with the Secretary of State of Ohio and the Secretary of State of Delaware as required by, and executed in accordance with, the relevant provisions of the OGCL and the Delaware LLC Act (the time of such later filing being the "Second Merger Effective Time").

Section 2.4 Effects of the Mergers. The First Merger shall have the effects set forth in this Agreement, the First Merger Certificate of Merger and the applicable provisions of the OGCL and DGCL. The Second Merger shall have the effects set forth in this Agreement, the Second Merger Certificate of Merger and the applicable provisions of the DGCL and the Delaware LLC Act.

Section 2.5

Governing Documents; Officers and Directors.

(a) The Articles of Incorporation and Regulations of the Company as in effect immediately prior to the First Merger Effective Time shall be the Articles of Incorporation and Regulations of the First Merger Surviving Corporation. The initial certificate of formation and limited liability company operating agreement of the Second Merger Surviving Entity shall be in the forms of Exhibits C-1 and C-2, respectively.

(b) The directors and officers of Delaware Corp. Merger Sub immediately prior to the First Merger Effective Time shall be the directors and officers of the First Merger Surviving Corporation. In connection with the Second Merger, the First Merger Surviving Corporation and the Delaware LLC Merger Sub shall take all actions necessary so that the directors and officers of Delaware LLC Merger Sub immediately prior to the Second Merger Effective Time shall be the initial directors and officers of the Second Merger Surviving Entity; provided however that Parent may, at its option, elect to appoint a manager for (or serve as managing member of the Second Merger Surviving Entity in lieu of such directors and officers).

Section 2.6 Effect of the Mergers on the Capital Stock of the Constituent Entities of the Mergers.

(a) At the First Merger Effective Time, by virtue of the First Merger and without any action on the part of any holder of any shares of common stock, $.01 par value, of the Delaware Corp. Merger Sub (the "Delaware Corp. Merger Sub Common Stock") or any holder of Company Common Stock:

(i) Delaware Corp. Merger Sub Common Stock. Each share of Delaware Corp. Merger Sub Common Stock issued and outstanding immediately prior to the First Merger Effective Time shall be converted into and become one fully paid and nonassessable share of First Merger Surviving Corporation Common Stock.

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(ii) Company Common Stock. Subject to Section 2.6(a)(iii), Section 2.7, Section 8.6 and Section 2.12(b), each share of Company Common Stock issued and outstanding immediately prior to the First Merger Effective Time shall be converted into the right to receive:

(A)

an amount of cash equal to the quotient obtained by dividing (x) $346,500,000 by (y) the number of issued and outstanding shares of Company Common Stock as of immediately prior to the First Merger Effective Time (the "Initial Cash Merger Consideration");

(B)

that number of shares (the "Initial Parent Shares") of Parent Common Stock as is equal to the quotient obtained by dividing (x) 14,175,000 (subject to adjustment in the case of stock split, stock combination, stock dividend or similar event in respect of the Parent Common Stock) by (y) the number of issued and outstanding shares of Company Common Stock as of immediately prior to the First Merger Effective Time (the "Initial Stock Merger Consideration" and together with the Initial Cash Merger Consideration, the "Initial Merger Consideration"), all of which shares shall have been issued pursuant to an effective registration statement on Form S-4 under the Securities Act;

(C)

subject to the terms and conditions thereof, any additional Cash Merger Consideration and Parent Shares from time to time deliverable pursuant to Section 2.12 below; and

(D)

subject to the terms and conditions thereof, any additional Cash Merger Consideration and Parent Shares from time to time deliverable pursuant to Section 2.13 below.

(iii)

Adjustments.

(A) Notwithstanding anything to the contrary contained in Section 2.6(a)(ii) above, in the event that the Fair Market Value of the Initial Parent Shares (determined as of the trading day immediately preceding the Closing Date) would otherwise represent less than forty percent (40%) of the aggregate Initial Merger Consideration, then the number of Initial Parent Shares shall be increased (and such additional shares shall be deemed to be Initial Parent Shares for purposes of this Agreement) and the Initial Cash Merger Consideration shall be decreased in a manner to be determined by MHRx (and reasonably acceptable to Parent) so that the Fair Market Value of the Initial Parent Shares (determined as of the trading day immediately preceding the Closing Date) equals forty percent (40%) of the Initial Merger

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Consideration and the Initial Merger Consideration continues to equal $630,000,000 (assuming a value of $20 per Initial Parent Share).

(B) Parent shall not be entitled to assert the closing condition set forth in Section 6.2(d) below unless Parent shall have first given to MHRx written notice (an "Equity Shortfall Notice") of its intention to do so specifying the reasons why all or a portion of the Equity Financing will not be available for purposes of the Closing and the amount of such Equity Financing that is not anticipated to be available (the "Equity Shortfall Amount"). If an Equity Shortfall Notice is delivered to MHRx, MHRx shall have the option, exercisable in its sole discretion, to elect to reduce the Initial Cash Merger Consideration by the Equity Shortfall Amount and increase the number of Initial Parent Shares by a number of shares of Parent Common Stock equal to the Equity Shortfall Amount divided by $20.

(b) At the Second Merger Effective Time, by virtue of the Second Merger and without any action on the part of any holder of First Merger Surviving Corporation Common Stock or any holder of membership interests of the Delaware LLC Merger Sub (the "Delaware LLC Merger Sub Interests"):

(i) First Merger Surviving Corporation Common Stock. Each share of First Merger Surviving Corporation Common Stock issued and outstanding immediately prior to the Second Merger Effective Time shall be cancelled and cease to exist and no consideration shall be payable in respect thereof.

(ii) Delaware LLC Merger Sub Membership Interests. The issued and outstanding Delaware LLC Merger Sub Interests (all of which will be held by Parent) shall remain as the membership interests of the Second Merger Surviving Entity.

Section 2.7 Fractional Shares. Notwithstanding anything to the contrary contained in Section 2.6(a)(ii)(B), no fraction of a share of Parent Common Stock will be issued as Stock Merger Consideration, and in lieu thereof an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the Fair Market Value of the Parent Common Stock determined as of the trading day immediately prior to the date of issuance shall be added to the Cash Merger Consideration.

Section 2.8 Cancellation and Retirement of Company Common Stock. As of the First Merger Effective Time, all shares of Company Common Stock that are issued and outstanding immediately prior to the First Merger Effective Time shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each certificate representing any such shares of Company Common Stock shall be converted into the right to receive the Merger Consideration to be paid in consideration therefor pursuant to this Article 2. From and after the First Merger Effective Time, there shall be no further registration of transfers on the

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records of the Company of shares of Company Common Stock which were outstanding immediately prior to the First Merger Effective Time.

Section 2.9 Exchange of Certificates; Payment of Initial Merger Consideration. Parent acknowledges that, as of the First Merger Effective Time, MHRx will be distributing and assigning to its members in accordance with its Governing Documents the right to receive directly from Parent the Initial Parent Shares (other than the Escrow Shares) and the Initial Cash Merger Consideration net of expenses as contemplated by Section 8.6 (other than the Escrow Cash), and Parent agrees to facilitate such distribution by delivering such Initial Merger Consideration directly to the MHRx members in accordance with specific written directions to be provided by MHRx to Parent not less than two (2) Business Days prior to the Closing Date for such purposes. On the Closing Date, MHRx shall surrender to Parent all certificates representing all of the shares of Company Common Stock and Parent shall deliver or cause to be delivered to the members of MHRx (i) the Initial Cash Merger Consideration (less the amount of Initial Cash Merger Consideration to be deposited in the Escrow Fund pursuant to Section 2.10 and the Escrow Agreement) (which shall be paid by wire transfer of immediately available funds to accounts specified in writing by MHRx to Parent not less than two (2) Business Days prior to the Closing) and (ii) certificates evidencing the Initial Parent Shares (other than the Initial Parent Shares to be deposited in the Escrow Fund pursuant to Section 2.10 and the Escrow Agreement) registered in the names of the MHRx members as specified in the instructions delivered by MHRx to Parent (or, if MHRx so specifies in such instruction that any of its members wishes to receive all or a portion of the Initial Parent Shares in book-entry or other uncertificated form, book-entry transfers evidencing the issuance of such portion of the Initial Parent Shares in accordance with such instructions). MHRx agrees to use its commercially reasonable efforts to provide Parent with such documents and information as it may reasonably request in connection with the issuance of such Initial Parent Shares, including completed Forms W-9 or, if applicable, appropriate Forms W-8 for each MHRx member who receives the Initial Parent Shares and information with respect to each MHRx member for Parent's stock records.

Section 2.10 Escrow Fund. As soon as practicable after the First Merger Effective Time, without any act of any holder of Company Common Stock, a portion of the Initial Stock Merger Consideration consisting of 708,750 shares of Parent Common Stock (such shares being the "Escrow Shares") and $17,325,000 of the Initial Cash Merger Consideration (the "Escrow Cash") shall be deposited with The Bank of New York (or such other institution mutually selected by Parent and the Company) as escrow agent (the "Escrow Agent"), such deposit to constitute the "Escrow Fund" and to be governed by the terms set forth herein and in an escrow agreement among Parent, the Shareholder Representative and the Escrow Agent (the "Escrow Agreement"), the form of which is attached as Exhibit D hereto. Each Person who is issued Initial Parent Shares shall have a proportionate interest in the Escrow Shares and the Escrow Cash deposited in the Escrow Fund (the amount of such proportionate interests to be provided to Parent by MHRx not later than two (2) Business Days prior to the Closing Date). The Escrow Shares shall be registered in the names of such MHRx members. Any shares of Parent Common Stock or other Parent equity securities (including shares issued upon a stock split) ("New Shares") issued or distributed by Parent in respect of the Escrow Shares that have not been released from the Escrow Fund shall be added to the Escrow Fund, and become a part thereof; provided, however, any other dividends or distributions on the Escrow Shares (including on the New Shares) made in cash or property shall be currently distributed to the owners of such shares.

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The owners of the Escrow Shares shall pay any taxes on such dividends. The parties hereto shall cause each record owner of Escrow Shares to have the ability to direct the voting of that number of Escrow Shares contributed to the Escrow Fund on behalf of such shareholder (and on any New Shares) so long as such shares are held in the Escrow Fund. Parent shall show the Parent Common Stock contributed to the Escrow Fund as issued and outstanding on its balance sheet.

Section 2.11 Withholding. Parent, the Company and MHRx, as applicable, shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder such amounts as may be required to be deducted or withheld therefrom under the Code or any provision of state, local or foreign Tax law or under any other applicable legal requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

Section 2.12

Post Closing Adjustment Relating to CMS Reconciliation.

(a) Post-Closing Adjustment to Merger Consideration. Upon the final determination of the CMS Reconciliation Payment Amount pursuant to this Section 2.12, the Merger Consideration shall be adjusted as follows: (a) if the CMS Reconciliation Payment Amount is a positive number, then the Merger Consideration shall be increased on a dollar for dollar basis by the CMS Reconciliation Payment Amount and (b) if the CMS Reconciliation Payment Amount is a negative number, then the Merger Consideration shall be decreased on a dollar for dollar basis by the CMS Reconciliation Payment Amount. If the CMS Reconciliation Payment Amount is zero, the Merger Consideration shall not be adjusted pursuant to this Section 2.12. If the adjustments pursuant to this Section 2.12 result in an increase in the Merger Consideration, Parent shall pay to each Person who received the Initial Merger Consideration its pro rata share of such increase in accordance with Section 2.12(e) below. If the adjustments pursuant to this Section 2.12 result in a reduction in the Merger Consideration, the Indemnifying Members shall be severally obligated to pay to Parent their respective Indemnification Percentage of such decrease in accordance with Section 2.12(e) below. Payments made pursuant to this Section 2.12 shall not be subject to any right of setoff.

(b) Pre-Closing Finalization of the CMS Reconciliation Process. Notwithstanding the foregoing, the parties hereto acknowledge and agree that it may be possible to calculate and finalize the CMS Reconciliation Payment Amount prior to the Closing depending on when the 2006 CMS Reconciliation becomes final. In the event that the CMS Reconciliation Amount does become final prior to the Closing, the parties shall seek to agree on the Actual Net CMS Reconciliation Amount and the CMS Reconciliation Payment Amount prior to Closing and if possible adjust the Initial Merger Consideration accordingly. For such purposes, the review and dispute resolution provisions of Section 2.12(d) shall apply.

(c) CMS Reconciliation Process. In connection with the Company’s participation in the process by which CMS calculates final payments and determines if any retroactive adjustment or reconciliation is necessary pursuant to 42 C.F.R. 423.343 for the 2006 plan year (the "2006 CMS Reconciliation"), the Company and Parent shall use their commercially reasonable efforts to conduct the 2006 CMS Reconciliation in good faith and in accordance with the prescribed methodology required pursuant to 42 C.F.R. 423.343. The

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Company and Parent shall keep the Shareholder Representative informed on a reasonably current basis with respect to items that pertain to the 2006 CMS Reconciliation, State Claims Post Reconciliation and Plan to Plan Post Reconciliation, and the 2006 CMS reconciliation relating to the existing Part D business of the Parent and its Subsidiaries. The Company and Parent further agree to consult with the Shareholder Representative on all material decisions relating to the 2006 CMS Reconciliation, State Claims Post Reconciliation and Plan to Plan Post Reconciliation, and shall permit the Shareholder Representative to review and comment on all material correspondence and submissions pertaining to the 2006 CMS Reconciliation, State Claims Post Reconciliation and Plan to Plan Post Reconciliation, and to review all material correspondence and submission pertaining to the 2006 CMS reconciliation relating to the existing Part D business of the Parent and its Subsidiaries.

(d)

CMS Reconciliation Statement; Dispute Resolution.

(i) As soon as practicable and in any event not later than thirty (30) days after the 2006 CMS Reconciliation becomes final and is made available, Parent shall, at Parent’s expense, prepare or cause to be prepared and delivered to the Shareholder Representative a statement (the "CMS Reconciliation Statement") setting forth in reasonable detail its determination (together with all supporting calculations) of the Actual Net CMS Reconciliation Amount and the CMS Reconciliation Payment Amount, such amounts and statement to be prepared and calculated in good faith and in accordance with the terms of this Agreement.

(ii) Parent shall provide the Shareholder Representative and its representatives prompt and complete access to all of the work papers of Parent and its representatives relating to the preparation of the CMS Reconciliation Statement and the 2006 CMS reconciliation relating to the existing Part D business of the Parent and its Subsidiaries (as well as access to all other books and records, employees and accountants of Parent and its Subsidiaries as may be reasonably requested by the Shareholder Representative in connection with its review of such CMS Reconciliation Statement and the 2006 CMS reconciliation relating to the existing Part D business of the Parent and its Subsidiaries), provided further that Parent shall only be required to exercise its commercially reasonable efforts to require its accountants to provide the Shareholder Representative with access to such accountants' work papers. If the Shareholder Representative determines that the CMS Reconciliation Statement (or the Actual Net CMS Reconciliation Amount or CMS Reconciliation Payment Amount (including the tax rate used to calculate such amount) has not been prepared or calculated in accordance with this Agreement, the Shareholder Representative shall be entitled to deliver a notice of disagreement (the "CMS Reconciliation Disagreement Notice") to Parent within 60 days of its receipt of the CMS Reconciliation Statement. The CMS Reconciliation Disagreement Notice shall set forth in reasonable detail those items or amounts set forth in the CMS Reconciliation Statement as to which the Shareholder Representative disagrees and the reasons for such disagreement. If no CMS Reconciliation Disagreement Notice is delivered within such 60-day period, the CMS Reconciliation Statement (and the Actual Net CMS Reconciliation Amount and CMS Reconciliation

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Payment Amount) shall become final, conclusive and binding on the parties hereto for all purposes of this Section 2.12 as of 5:00 p.m. (New York City time) on the 60th day, or, if earlier, upon the written acceptance of the CMS Reconciliation Statement by the Shareholder Representative.

(iii) If the Shareholder Representative delivers a CMS Reconciliation Disagreement Notice to Parent within the 60-day period described above, the parties shall use their good faith, commercially reasonable efforts to reach agreement on the disputed items or amounts in order to finalize such CMS Reconciliation Statement during the thirty (30) day period following the delivery of such CMS Reconciliation Statement. If the parties do not resolve all such disputed items or amounts set forth in the CMS Reconciliation Statement within such thirty (30) day period, Parent and the Shareholder Representative shall retain an appraisal or valuation firm of national reputation that is mutually acceptable to Parent and the Shareholder Representative (each acting reasonably) (the "CMS Dispute Arbitrator") pursuant to a customary engagement letter proposed by the CMS Dispute Arbitrator and reasonably acceptable to Parent and the Shareholder Representative and submit all such disputed items and amounts to the CMS Dispute Arbitrator for final resolution of such disputed items and amounts in accordance with the terms of this Agreement and such engagement letter. Parent and the Shareholder Representative will have the opportunity to present their positions with respect to such disputed items and amounts to the CMS Dispute Arbitrator, and such disputed items and amounts shall be finally resolved by the CMS Dispute Arbitrator. The CMS Dispute Arbitrator shall prepare a written report setting forth the resolution of the disputed items and amounts and the final calculation of the Actual Net CMS Reconciliation Amount and the CMS Reconciliation Payment Amount. Such report of the CMS Dispute Arbitrator shall be delivered to Parent and the Shareholder Representative as promptly as possible and the final determination of the CMS Dispute Arbitrator of such disputed items and amounts (and the Actual Net CMS Reconciliation Amount and the CMS Reconciliation Payment Amount derived therefrom) and shall be final, conclusive and binding upon each of the parties to this Agreement and shall not be subject to appeal of any kind. The fees and expenses of the CMS Dispute Arbitrator shall be borne equally by Parent and the Shareholder Representative. Each of Parent and MHRx shall provide all work papers, books and records, employees and accountants that are requested by the CMS Dispute Arbitrator in connection with the resolution of any such dispute.

(e) Payments. Subject to Section 2.14, any payment due pursuant to this Section 2.12 shall be paid within five (5) Business Days after the final determination of such amount pursuant to this Section 2.12 (such date, the "CMS Reconciliation Payment Date") and shall consist of (i) a number of shares of Parent Common Stock (which in the case of shares being issued by Parent shall have been registered under the Securities Act or be eligible to be sold immediately pursuant to an effective registration statement in form and substance reasonably acceptable to Parent and the Shareholder Representative) equal to (A) forty-five percent (45%) of such payment amount divided by (A) the Fair Market Value of a share of Parent Common Stock (provided that if the Parent Common Stock is then traded on the

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NASDAQ Global Select Market, such Fair Market Value shall be determined by reference to the average of the high and low trading price of the Parent Common Stock on a ten trailing day average basis for the last ten trading days immediately preceding the CMS Reconciliation Payment Date) and (ii) the remaining fifty-five percent (55%) of such payment shall be made by wire transfer of immediately available funds to an account or accounts designated by or on behalf of the party or parties receiving such payment; provided, however, that any Indemnifying Member that is obligated to make a payment to Parent pursuant to this Section 2.12 may, at its election, pay its Indemnification Percentage of such payment amount in cash by wire transfer of immediately available funds. If Parent is required to make a payment to MHRx pursuant to this Section 2.12, such payment shall be made to the Indemnifying Members to the extent that MHRx has distributed the right to receive such payment to such Persons.

(f) Tax Treatment. Except to the extent that a portion of any payment made pursuant to this Section 2.12 is required to be treated as imputed interest under Section 483 of the Code, the parties will treat any such payment as an adjustment to the Merger Consideration for Tax and financial reporting purposes.

(g) For the avoidance of doubt, the CMS Reconciliation Payment Amount calculated pursuant to Section 2.12 is not limited to the CMS reconciliation required under 42 C.F.R 423.343, but includes the 2006 CMS Reconciliation, Plan to Plan Post Reconciliation and State Claims Post Reconciliation in connection with the Company's 2006 plan year. In addition, any corollary true-up adjustments that would have been made in connection with any agreements entered into by the Company, including but not limited to NCPA Agreement and the Hannover Reinsurance Agreement, shall be considered in calculating the CMS Reconciliation Payment Amount.

Section 2.13

Contingent Payments.

(a) Additional Merger Consideration. Subject to and upon the terms and conditions of this Agreement, on each Earnout Payment Date, Parent shall pay to MHRx as additional Merger Consideration the Annual Earnout Amount due with respect to the immediately preceding Annual Earnout Period. Notwithstanding the foregoing, Parent may, in its sole discretion, elect to pay to MHRx an Annual Earnout Amount (or a portion thereof) despite the Annual EBITDA (or, for the Annual Earnout Period ending December 31, 2010, the Annual EBITDA plus the TRICARE Amount) being less than the EBITDA Threshold for such Annual Earnout Period. Payments made pursuant to this Section 2.13 shall not be subject to any right of setoff.

(b) Annual Earnout Financials; Annual Earnout Statement; Dispute Resolution.

(i) As soon as practicable and in any event not later than ninety (90) days after the last day of each Annual Earnout Period, Parent shall, at Parent's expense, prepare or cause to be prepared and delivered to the Shareholder Representative an income statement of the MH Business for such immediately preceding Annual Earnout Period ("Annual Earnout Financials") together with a statement (each an "Annual Earnout Statement") setting forth in reasonable detail

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its determination (together with all supporting calculations) of Annual EBITDA for such period and the Annual Earnout Amount, if any, for such period, each such amount and all such statements to be prepared and calculated in good faith and in accordance with the terms of this Agreement. In connection with the delivery of the Annual Earnout Financials and Annual Earnout Statement relating to the final Annual Earnout Period (i.e., January 1, 2010 through December 31, 2010), Parent shall also include as part of such Annual Earnout Statement, a reasonably detailed calculation of the TRICARE Amount calculated in good faith and in accordance with the terms of this Agreement.

(ii) Parent shall provide the Shareholder Representative and its representatives prompt and complete access to all of the work papers of Parent and its representatives relating to the preparation of the Annual Earnout Financials and each Annual Earnout Statement and access to all other books and records, employees and accountants of Parent and its Subsidiaries as may be reasonably requested by the Shareholder Representative in connection with its review of such Annual Earnout Financials and Annual Earnout Statements; provided that Parent shall only be required to exercise its commercially reasonable efforts to require its accountants to provide the Shareholder Representative with access to such accountants' work papers. If the Shareholder Representative determines that any Annual Earnout Financials or Annual Earnout Statements (or any Annual Earnout Amount or TRICARE Amount, if applicable, reflected thereon) has not been prepared or calculated in accordance with this Agreement, the Shareholder Representative shall be entitled to deliver a notice of disagreement (an "Earnout Disagreement Notice") to Parent within 60 days of its receipt of such Annual Earnout Financials and Annual Earnout Statement. Each Earnout Disagreement Notice shall set forth in reasonable detail those items or amounts set forth in such Annual Earnout Financials and/or Annual Earnout Statement as to which the Shareholder Representative disagrees and the reasons for such disagreement. If no Earnout Disagreement Notice is delivered within such 60-day period, such Annual Earnout Financials and Annual Earnout Statement (and each calculation of the Annual Earnout Amount and/or TRICARE Amount, as applicable, reflected thereon) shall become final, conclusive and binding on the parties hereto for all purposes of this Section 2.13 as of 5:00 p.m. (New York City time) on such 60th day, or, if earlier, upon the Shareholder Representative's written acceptance of the Annual Earnout Financials and Annual Earnout Statement (including each calculation of the Annual Earnout Amount and/or TRICARE Amount, as applicable, reflected thereon).

(iii) If the Shareholder Representative delivers an Earnout Disagreement Notice to Parent within the 60-day period described above, the parties shall use their good faith, commercially reasonable efforts to reach agreement on the disputed items or amounts in order to finalize such Earnout Financial Statements and determine the Annual Earnout Amount for such period (including the TRICARE Amount, if applicable) during the thirty (30) day period following the delivery of such Earnout Disagreement Notice by submitting such dispute to a panel consisting of the MHRx Representative, the Parent

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Representative and Charles E. Hallberg (the "Dispute Panel"). The Dispute Panel shall attempt to resolve such disputed items and amounts in good faith including, if necessary, by conducting not less than two in person meetings to discuss such dispute. If the Dispute Panel does not resolve all such disputed items or amounts set forth in the Earnout Disagreement Notice within such thirty (30) day period, Parent and the Shareholder Representative shall retain an appraisal or valuation firm of national reputation that is mutually acceptable to Parent and the Shareholder Representative (the “Arbitrator”) pursuant to a customary engagement letter proposed by the Arbitrator and reasonably acceptable to Parent and the Shareholder Representative and submit all such disputed items and amounts to the Arbitrator for final resolution of such disputed items and amounts in accordance with the terms of this Agreement and such engagement letter. Parent and the Shareholder Representative will have the opportunity to present their positions with respect to such disputed items and amounts to the Arbitrator, and such disputed items and amounts shall be finally resolved by the Arbitrator. The Arbitrator shall prepare a written report setting forth the resolution of the disputed items and amounts and the final calculation of the disputed Annual Earnout Amount (including the TRICARE Amount, if applicable). Such report of the Arbitrator shall be delivered to Parent and the Shareholder Representative as promptly as possible and the final determination of the Arbitrator of such disputed items and amounts (and such Annual Earnout Amount (including the TRICARE Amount, if applicable) derived therefrom) and shall be final, conclusive and binding upon each of the parties to this Agreement and shall not be subject to appeal of any kind. The fees and expenses of the Arbitrator shall be borne by Parent; provided, that MHRx shall pay all such fees and expenses in the event that the Annual Earnout Amount (including the TRICARE Amount, if applicable) proposed by Parent are, in the aggregate, greater than or not more than $1,000,000 less than the final amounts as determined by the Arbitrator. Each of Parent and the Shareholder Representative shall provide all work papers, books and records, employees and accountants that are requested by the Arbitrator in connection with the resolution of any such dispute.

(iv) Subject to Section 2.14, any payments required to be made pursuant to this Section 2.13 shall be paid by Parent to MHRx (or its members, if the right to receive such payment has been distributed to such Persons by MHRx), within five (5) Business Days after the final determination of such amount pursuant to this Section 2.13 (each an "Earnout Payment Date") and shall consist of (i) a number of shares of Parent Common Stock that have been registered under the Securities Act (or which are eligible to be sold immediately pursuant to an effective registration statement in form and substance reasonably acceptable to Parent and the Shareholder Representative) equal to (A) forty-five percent (45%) of such payment amount divided by (B) the Fair Market Value of a share of Parent Common Stock (provided that if the Parent Common Stock is then traded on the NASDAQ Global Select Market, such Fair Market Value shall be determined by reference to the average of the high and low trading price of the Parent Common Stock on a ten trailing day average basis for the last ten trading days of the immediately preceding Annual Earnout Period to which such payment

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relates) and (ii) the remaining fifty-five percent (55%) of such payment shall be made by wire transfer of immediately available funds to an account or accounts designated by the Shareholder Representative.

(c) Operations of the MH Business; Certain Principles of Allocation. The parties agree that at all times during the period from the date hereof through December 31, 2010 the MH Business shall be conducted in accordance with the following principles and the financial statements required to be prepared and calculations required to be made pursuant to this Section 2.13 shall be prepared and calculated in accordance with the following terms and conditions:

(i) Parent shall, in good faith, operate the MH Business in a commercially reasonable manner.

(ii) Parent shall provide the Shareholder Representative with reasonable access to the books, records and employees of the MH Business and use its commercially reasonable efforts to keep the Shareholder Representative and the MHRx Representative informed on a reasonably current basis of all material developments relating to the MH Business including by making available to the MHRx Representative within a reasonable period of time prior to the implementation thereof, all operating budgets for the MH Business and by making the Parent Representative available to the Shareholder Representative to discuss such operating budgets.

(iii) All expenses relating to the MH Business and any other business conducted by Parent and its Subsidiaries shall be allocated by Parent in good faith among such businesses in a fair and reasonable manner and in a manner consistent past practice and other allocations of expense by Parent to its different business lines for other purposes; provided, that (A) with respect to the Part D Business, if during any relevant period Parent provides any services to the MH Business that are being provided by a third party on the date hereof, the costs of such services shall be allocated on a variable cost basis in order to provide the MH Business the benefits of any synergies associated with in internalization of such expenses; (B) items of income or expense attributable to the operation of any portion of the MH Business that is acquired by Parent after the Closing Date through the purchase of any business enterprise, division or line of business (excluding, for the avoidance of doubt, any CMS contracts acquired by novation) that would otherwise be included within the calculation of Annual EBITDA shall be excluded from the calculations contemplated by this Section 2.13; (C) if Parent, the Company or any of their respective Subsidiaries sells, leases, transfers or otherwise disposes of assets of the MH Business after the Closing Date, Parent and the Shareholder Representative shall negotiate in good faith and arrive at a fair and reasonable adjustment to the Annual EBITDA calculation to reflect the impact of such disposition (and if unable to agree thereon shall submit such matter to the Dispute Panel (and, if necessary, the Arbitrator) for resolution, as soon as possible and, if practicable, prior to the consummation of such transaction, on a basis consistent with the procedures set forth in Section

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2.13(b)(iii); (D) with respect to the Private Fee-for-Service Business, Annual EBITDA shall be calculated on the basis of the premiums received for such business less direct expenses of such business, less medical losses calculated on a basis that is consistent with the company-wide loss ratio of Parent and its Subsidiaries for such period and less a fair and reasonable good faith allocation of all indirect expenses; (E) expenses of integrating the MH Business shall be included as expenses of the MH Business and (F) costs and expenses related to the National Community Pharmacy Association shall be included as expenses of the MH Business.

(d) Tax Treatment. Except to the extent that a portion of any payment made pursuant to this Section 2.13 is required to be treated as imputed interest under Section 483 of the Code, the parties will treat any such payment as an adjustment to Merger Consideration for Tax and financial reporting purposes.

Section 2.14 Certain Adjustments. Notwithstanding anything to the contrary contained in Section 2.12, Section 2.13 or Section 8.2(e), if Parent, MHRx or any Indemnifying Member is required to deliver any cash or shares of Parent Common Stock to any other Person which would be treated as an adjustment to the Merger Consideration pursuant to Section 2.12(f), Section 2.13(d) or Section 8.2(g), the relative mix of such cash and stock to be delivered shall be adjusted (i) if the cash and shares are being delivered to MHRx or any Indemnifying Member, by increasing the shares and decreasing the cash to be delivered or (ii) if the cash and shares are being delivered to Parent, by decreasing the shares and increasing the cash to be delivered, if necessary (and only to the extent necessary) so that, after the delivery of such cash and shares, the Fair Market Value of all Parent Shares included in the Merger Consideration (valued as of the trading day immediately preceding the Closing Date) is in the aggregate not less than 40% of the total Merger Consideration (with all Parent Shares being valued at their Fair Market Value as of the trading day immediately preceding the Closing Date). In each case, the required cash payment will be adjusted up or down to the extent necessary so that the total amount of such purchase price adjustment (based on the valuation methodology for Parent Common Stock set forth in Section 2.12(e), Section 2.13(b)(iv) or Section 8.2(e), as applicable) is not, in the aggregate, altered.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Company Disclosure Schedules, the Company hereby represents and warrants to each of Parent and each of the Merger Subs as follows:

Section 3.1 Organization, Good Standing, Qualification and Power. Each of the Company and its Subsidiaries and MHRx is a corporation or limited liability company 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 3.1 and has the requisite corporate or limited liability company power and authority to own or lease its properties and assets and to carry on its business as presently conducted. Each of the Company and its Subsidiaries and MHRx is duly qualified to transact business and is in good standing in

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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 Company Material Adverse Effect. The Company has delivered to Parent true and complete copies of the Governing Documents of MHRx and the Company and its Subsidiaries, as currently in effect. Neither the Company nor any Subsidiary of the Company nor MHRx is in material violation of or material default under the provisions of any such Governing Documents.

Section 3.2 Authority; Execution and Delivery; Enforceability. Each of the Company and MHRx has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby, all of which have been duly authorized by all requisite corporate or limited liability company, as applicable, action on its part. Each of MHRx and the Company has duly executed and delivered this Agreement and (assuming this Agreement has been duly and validly authorized, executed and delivered by Parent and each of the Merger Subs), this Agreement is a valid and binding agreement of the Company and MHRx, enforceable against the Company and MHRx 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).

Section 3.3 Non-contravention. Neither the execution and delivery of this Agreement by the Company and MHRx nor the fulfillment of and the performance by the Company and MHRx of their respective obligations hereunder will (i) contravene any provision contained in the Governing Documents of MHRx or the Company or any of the Subsidiaries of the Company, (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, Governmental Authorization, Waiver or other instrument or obligation to which MHRx, the Company or any Subsidiary of the Company 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 3.4 and on Schedule 3.4, any Legal Requirement to which MHRx, the Company or any Subsidiary of the Company is bound or subject or to which any of their respective assets or properties are subject, (iii) result in the creation or imposition of any Lien on any of the assets or properties of the Company or any Subsidiary, or (iv) except as set forth on Schedule 3.3, 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 MHRx, the Company or any Subsidiary of the Company, which in the case of any of clauses (ii) through (iv) above, would reasonably be expected to have a Company Material Adverse Effect.

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of Merger and any related documents with the Secretaries of State of the States of Ohio and Delaware and appropriate foreign qualification documents, if any, with the relevant authorities of other states in which the Company does business, (iv) 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 the Company's business, each as set forth on Schedule 3.4, and (v) other notices, filings, authorizations, registrations, consents or approvals set forth on Schedule 3.4.

Section 3.5

Capitalization of MHRx, the Company; Company Subsidiaries.

(a) Set forth on Schedule 3.5(a) is the number of authorized, issued and outstanding shares of capital stock of the Company as of the date hereof. On the date hereof, all of the issued outstanding shares of Company Common Stock are owned beneficially and of record by MHRx, have been validly issued, and are fully paid and nonassessable. Except as set forth on Schedule 3.5(a), there are no other issued or outstanding equity securities of the Company and (b) there are no other issued and outstanding securities of the Company convertible into or exchangeable for, at any time, equity securities of the Company. Except as set forth on Schedule 3.5(a), there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of the Company.

(b) Except as set forth on Schedule 3.5(b), there are not any stockholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting or transfer of any shares of Company Common Stock. All registration rights agreements, stockholders' agreements and voting agreements to which the Company or any of its Subsidiaries is a party are identified on Schedule 3.5(b).

(c) Set forth on Schedule 3.5(c) is the number of authorized, issued and outstanding shares of capital stock (or other ownership interests) of each Subsidiary of the Company. All of the issued and outstanding shares of capital stock (or other ownership interests) of each of the Subsidiaries of the Company are owned beneficially and of record by the Company or another Subsidiary of the Company as set forth on Schedule 3.5(c), have been validly issued, and are fully paid and nonassessable and, except as set forth on Schedule 3.5(c), are held free and clear of any preemptive rights (other than such rights as may be held by the Company or a Subsidiary of the Company) or Liens (other than Permitted Liens). Except as set forth on Schedule 3.5(c), there are no other issued or outstanding equity securities of any Subsidiary of the Company and there are no other issued and outstanding securities of any Subsidiary of the Company convertible into or exchangeable for, at any time, equity securities of any Subsidiary of the Company. Except as set forth on Schedule 3.5(c), there are no (i) outstanding obligations of the Company or any Subsidiary of the Company to repurchase, redeem or otherwise acquire any capital stock (or other ownership interests) of any of the Subsidiaries of the Company 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 Subsidiaries of the Company.

(d) Except for the capital stock (or other ownership interests) of the Subsidiaries of the Company, the Company does not own, directly or indirectly, (i) any shares of outstanding capital stock or membership interests of any other corporation or limited liability

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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 the Company nor any of its Subsidiaries is subject to any obligation to make any investment (in the form of a loan, capital contribution or otherwise) in any Person.

Section 3.6

Financial Statements.

(a) Attached hereto as Schedule 3.6(a) are copies of the audited consolidated balance sheets of the Company and its consolidated Subsidiaries as of December 31, 2006 (the "Latest Company Balance Sheet"), December 31, 2005 and 2004 and the related audited consolidated statements of income, cash flow and changes in stockholder's equity of the Company and its consolidated Subsidiaries for the annual periods then ended (the "Company Financial Statements").

(b) Except as set forth on Schedule 3.6(b), the Company Financial Statements (i) have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods covered thereby, except as may be indicated in the notes thereto, and (ii) fairly present, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries as of the dates and for the periods indicated.

Section 3.7 No Undisclosed Liabilities. Except as set forth on Schedule 3.7, neither the Company nor any of its Subsidiaries has any liability other than (i) liabilities reflected in the Company Financial Statements (including the related notes thereto), (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 the Company 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 Company Balance Sheet and (iv) liabilities that have not had and would not reasonably be expected to have a Company Material Adverse Effect.

Section 3.8 Title to Tangible Personal Property. The Company or a Subsidiary of the Company has good title to all of the tangible personal property reflected as being owned by them on the Latest Company 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 Company Balance Sheet or where the failure to have such good title has not had and would not reasonably be expected to have a Company Material Adverse Effect. The Company and its Subsidiaries own or lease all material tangible assets necessary for the conduct of their business as presently conducted.

Section 3.9 Absence of Certain Developments. Except as set forth on Schedule 3.9, during the period beginning on the date of the Latest Company Balance Sheet and ending on the date of this Agreement, (a) there has not been any change, event, fact, circumstance, occurrence or effect that has had or would reasonably be expected to have a Company Material Adverse Effect and (b) each of the Company 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 3.9, none of the Company or any of its

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Subsidiaries has taken any action that would have constituted a violation of Section 5.2(b) of this Agreement if Section 5.2(b) had been in effect at all times since the date of the Latest Company Balance Sheet.

Section 3.10 Governmental Authorizations; Licenses; Etc. Except as set forth on Schedule 3.10, the business of each of the Company and its Subsidiaries is now and has been at all times since January 1, 2005 operated in compliance in all material respects with all applicable Legal Requirements. Except as set forth on Schedule 3.10, each of the Company and its Subsidiaries has all material permits, Waivers, 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. Except as set forth on Schedule 3.10, all such material permits, Waivers, licenses, approvals, certificates and Governmental Authorizations are in full force and effect. Except as set forth on Schedule 3.10, there is no action, audit, case, proceeding or investigation pending or, to Company's Knowledge, threatened in writing by any Governmental Authority with respect to (i) any alleged violation by the Company or any of its Subsidiaries of any Legal Requirement, (ii) any alleged failure by the Company or any of its Subsidiaries to have any permit, license, Waiver, approval, certification or other authorization required in connection with the operation of the business of the Company and its Subsidiaries or (iii) any change or amendment to the permits, licenses, Waiver, approvals, certifications or other authorizations which would impair the ability of the Company 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 Company Material Adverse Effect. The Company has not been determined to be out of material compliance with Payment Program requirements such that there would result in a denial of payment and no statement of charges or deficiencies has been made by any Governmental Authority, except as has not had and would not reasonably be expected to have a Company Material Adverse Effect. This Section 3.10 does not relate to matters with respect to Taxes (which are the subject of Section 3.12), Environmental Matters (which are subject to Section 3.13), Employee Matters (which are the subject of Section 3.14) or Employee Benefit Plans (which are the subject of Section 3.15). The Company has not received notice from CMS that the accounting methodology employed by the Company in booking additional generic dispensing fees paid by the Company to network pharmacies is not in compliance in all material respects with applicable Legal Requirements.

Section 3.11 Litigation. Except as set forth on Schedule 3.11, there are no judgments, decrees, lawsuits, actions, proceedings, claims, complaints, injunctions or orders by or before any Governmental Authority pending or, to Company's Knowledge, threatened in writing or, to Company's Knowledge, any pending investigation by any Governmental Authority, in any such case, against the Company or any of its Subsidiaries.

Section 3.12

Taxes.

(a) Except as set forth on Schedule 3.12(a), each of the Company and its Subsidiaries has duly and timely filed all material 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 3.12,

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all Taxes owed by each of the Company 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 3.12(b):

(i) neither the Company 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 the Company 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; and

(iii) neither the Company 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; and

(iv) neither the Company nor any of its Subsidiaries is presently the beneficiary of any extension of time within which to file any Tax Return.

(c) No claim, or notice of a claim, has ever been made by an authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction.

(d) Neither the Company nor any of its Subsidiaries has any income or gain reportable for a taxable period ending after the Closing Date but attributable to (i) a transaction (e.g., an installment sale) occurring in or (ii) a change in accounting method made for, a taxable period beginning prior to the Closing Date which resulted in a deferred reporting of income or gain from such transactions or a timing difference in the reporting of income or gain between Tax and GAAP accounting methods or from such change in accounting method.

(e) The unpaid Taxes of the Company 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 Company Balance Sheet. The Company and its Subsidiaries have paid all estimated Taxes required to be paid for the Company's, and each of its Subsidiaries', current taxable year.

(f) Neither the Company nor any of its Subsidiaries has ever been a member of a combined, consolidated, affiliated or unitary group for Tax purposes.

(g) Neither the Company nor any of its Subsidiaries is, or ever has been, a party to any Tax sharing indemnity or similar agreement allocating tax liability that will not be terminated on the Closing Date without any future liability to the Company or such Subsidiary (including for past Taxes).

(h) The Company and its Subsidiaries have not agreed to, and are not required to, make any adjustments or changes either on, before or after the Closing Date, to their

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accounting methods pursuant to Section 481 of the Code (or similar provisions of state, local, or foreign law), and neither the Internal Revenue Service nor any Taxing authority has proposed any such adjustments or changes in the accounting methods of the Company or any of its Subsidiaries.

(i) Neither the Company nor any of its Subsidiaries has entered into a "reportable transaction" as such term is defined in Section 6707A(c) of the Code.

(j) Neither the Company nor any of its Subsidiaries is a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

(k) None of the assets or properties of the Company or any of its Subsidiaries are (i) tax-exempt use property under Section 168(h) of the Code; (ii) tax-exempt bond financed property under Section 168(g) of the Code; (iii) limited use property under Revenue Procedure 2001-28; or (iv) treated as owned by any other Person under Section 168 of the Code.

(l) Except as set forth on Schedule 3.12(l), the Company and its Subsidiaries have complied, in all material respects, with all obligations to withhold and remit Taxes (for employees, creditors or otherwise) and (i) there is no compensatory arrangement in existence that would require any withholding of Taxes as a result of the transactions contemplated by this Agreement and (ii) no documentation of any of the arrangements contemplated in Exhibit E has been executed since December 31, 2006 other than the Agreement Among Members dated May, 7, 2007 and Amendment No. 1 to the Limited Liability Company Agreement of MHRx dated May 7, 2007. There shall be no Tax cost to the Company, Parent or any Subsidiary of Parent or the Company as a result of the documentation described in clause (ii) above and the documentation described in Section 5.11(d); it being understood that there will be no such Tax cost to the extent that Parent and the Company are advised of the amount of any Tax withholding obligation of the Company or any Subsidiary of the Company prior to the Closing Date, and Parent and the Company have the opportunity to cooperate to withhold Merger Consideration to satisfy such obligation.

(m) Since January 1, 2006, the Company has not made any distributions or dividends.

Section 3.13

Environmental Matters. Except as set forth on Schedule 3.13 hereto:

(a) the Company and its Subsidiaries are in compliance with all Environmental Laws, except for any failures to comply as have not had and would not reasonably be expected to have a Company Material Adverse Effect;

(b) the Company and its Subsidiaries have obtained and are in compliance with all permits, licenses and other authorizations that are required pursuant to Environmental Laws, except for any such failure to obtain or comply as has not had and would not reasonably be expected to have a Company Material Adverse Effect;

(c) neither the Company nor any of its Subsidiaries has received any written notice, report or other information regarding any actual or alleged violation of Environmental

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Laws, or any liabilities for personal injury, property damage or cleanup obligations arising under Environmental Laws, in either case, which violation or liability had or would reasonably be expected to have a Company Material Adverse Effect;

(d) to Company's Knowledge, there has been no release or threatened release of any Hazardous Substance on, upon, into or from any site leased or otherwise used by the Company or any of its Subsidiaries, other than such releases or threatened releases that have not had and would not reasonably be expected to have a Company Material Adverse Effect;

(e) to Company's Knowledge, there have been no Hazardous Substances generated by the Company or its Subsidiaries that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state, or local "superfund" site list or any other similar list of hazardous or toxic waste sites published by any Governmental Authority in the United States; and

(f) to Company's Knowledge, are no underground storage tanks located on, PCBs (polychlorinated biphenyls) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act stored on, any site leased or operated by the Company and its Subsidiaries, except for the storage of hazardous waste in substantial compliance with Environmental Laws.

(g) Notwithstanding anything herein to the contrary, the representations and warranties in this Section 3.13 are the sole and exclusive representations and warranties of the Company and its Subsidiaries concerning environmental matters, including without limitation matters arising under Environmental Laws.

Section 3.14

Employee Matters.

(a) Except as set forth on Schedule 3.14(a), (i) neither the Company 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 Company's Knowledge, threatened against or affecting the Company or any of its Subsidiaries and since January 1, 2005 there has been no such action, (iii) to Company's Knowledge, no union organization campaign is in progress with respect to any of the employees of the Company or its Subsidiaries, and (iv) there is no unfair labor practice, charge or complaint pending or, to Company's Knowledge, threatened against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has engaged in any plant closing or employee layoff activities since January 1, 2003 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.

(b) Except as set forth on Schedule 3.14(b), to Company's Knowledge, the activities of the employees of the Company and its Subsidiaries with respect to the business of the Company and its Subsidiaries do not conflict with or constitute a breach of the terms of any employment agreement, intellectual property disclosure agreement, restrictive covenant or other agreement under which such employee is obligated or bound, and neither the Company nor any Subsidiary has received (in the past two years) any written allegation to such effect.

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(c) Except as set forth on Schedule 3.14(c), (A) the Company and its Subsidiaries are and have been since January 1, 2005 in compliance in all material respects with all applicable laws relating to labor or labor relations and employment terms and conditions, including any provisions thereof relating to (i) wages, hours, bonuses, commissions, termination pay, vacation pay, sick pay and the payment and/or accrual of the same and all insurance and all other costs and expenses applicable thereto, (ii) unlawful, wrongful, or retaliatory or discriminatory employment or labor practices, (iii) occupational health and safety standards and (iv) immigration, workers' compensation, disability, unemployment compensation, whistleblower laws, and other employment laws and (B) all employees are authorized to work in the United States and a Form I-9 has been completed properly and retained with respect to each employee, except in the case of (B) where failure to comply has not had and would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Subsidiary is liable for any material arrearage, or any material costs or penalties for failure to comply with any of the foregoing.

Section 3.15

Employee Benefit Plans.

(a)

Schedule 3.15(a) lists all Company Employee Benefit Plans.

(b) Except as set forth on Schedule 3.15(b), no Company Employee Benefit Plan is a Multiemployer Plan or a plan that is subject to Title IV of ERISA, and no Company Employee Benefit Plan provides health or other welfare benefits to former employees of the Company or any of its Subsidiaries other than as required by COBRA.

(c) Except as set forth on Schedule 3.15(c): (i) each Company 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, (ii) each Company Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and (iii) to Company's Knowledge, there are no facts or circumstances that would be reasonably likely to adversely affect the qualified status of any such Company Employee Benefit Plan.

(d) Except as set forth on Schedule 3.15(d): (i) no material liability under Title IV of ERISA has been or, to Company's Knowledge, is expected to be incurred by the Company, any of its Subsidiaries or any Company ERISA Affiliate, and (ii) all contributions and premium payments that are due with respect to any Company Employee Benefit Plan prior to the Closing Date have been made and all contributions and premium payments with respect to any Company Employee Benefit Plan that are not yet due prior to the Closing Date have been made or properly accrued. No event has occurred that has resulted in or could subject the Company to a tax under Section 4971 of the Code or its assets to a lien under Section 412(n) of the Code.

(e) The Company and the Company ERISA Affiliates have complied, in all material respects, with the requirements of COBRA.

(f) None of the Company, its Subsidiaries or, to Company's Knowledge, any other Person has engaged in any transaction with respect to any Company Employee Benefit Plan that would be reasonably likely to subject the Company or any of its Subsidiaries to any

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material excise tax or penalty imposed by ERISA, the Code or other applicable Legal Requirement.

(g) With respect to each Company Employee Benefit Plan, there are no existing (or, to Company's Knowledge, threatened) lawsuits, claims, or other controversies, other than claims for information or benefits in the normal course.

(h) With respect to each Company Employee Benefit Plan, the Company has made available to Parent true, complete and correct copies, to the extent applicable, of (i) the plan and trust documents and the most recent summary plan description, (ii) the most recent annual report (Form 5500 series), (iii) the most recent financial statements, and (iv) the most recent Internal Revenue Service determination letter.

(i) No payment which is or may be made by, from or with respect to any Company Employee Benefit Plan, to any employee, former employee, director or agent of the Company or any Company ERISA Affiliate, either alone or in conjunction with any other payment, event or occurrence, will or could properly be characterized as an "excess parachute payment" under Section 280G of the Code (or any corresponding provision of state, local or foreign tax law).

(j) Except as set forth on Schedule 3.15(j), to the extent that any Company Employee Benefit Plan constitutes a "non-qualified deferred compensation plan" within the meaning of Section 409A of the Code, such Company Employee Benefit Plan has been operated in good faith compliance with Section 409A of the Code.

(k) Except as set forth on Schedule 3.15(k), no payment which is or may be made by the Company, to any employee, former employee, director or agent, will become due, triggered or payable as the result of the announcement or consummation of the transactions contemplated by this Agreement.

Section 3.16

Intellectual Property Rights.

(a) Except as set forth on Schedule 3.16(a), and except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries own all right, title and interest in, free and clear of conditions, adverse claims and other restrictions and Liens, or have a valid and enforceable license or other legal right to use, all of the Intellectual Property Rights necessary for or otherwise used in the conduct of the business of the Company and its Subsidiaries as currently conducted (collectively, the "Company Intellectual Property Rights"). Schedule 3.16(a) sets forth a complete and correct list of the following categories of Intellectual Property Rights that are owned by the Company and its Subsidiaries: (i) registered trademarks and material unregistered trademarks; (ii) Patents; (iii) registered copyrights; (iv) domain names, and (v) Software; in each case listing, as and if applicable, (A) the name of the applicant/registrant and current owner, (B) the jurisdiction where the application/registration is located, and (C) the application or registration number. Schedule 3.16(a) separately sets forth a complete and correct list of (i) all agreements under which the Company or any of its Subsidiaries uses or has the right to use any material Intellectual Property Rights owned by third parties and (ii) all agreements under which the Company or any of its

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Subsidiaries has licensed to others the right to use any material Intellectual Property Rights owned by the Company and its Subsidiaries.

(b) To Company's Knowledge, the Intellectual Property Rights set forth in Schedule 3.16(a) are valid and enforceable by the Company and/or its Subsidiaries. Except as set forth on Schedule 3.16(b), there is not pending against the Company or any of its Subsidiaries or, to Company's Knowledge, threatened against the Company or any of its Subsidiaries any claim by any third party contesting the validity, enforceability, ownership, or the Company's and its Subsidiaries' rights with respect to, any Company Intellectual Property Rights, and there has been no such claim pending or, to Company's Knowledge, threatened in the past three (3) years. Except as set forth on Schedule 3.16(b), the operations of the Company and its Subsidiaries, and the provision of goods and services therein, do not infringe or misappropriate any Intellectual Property Rights of any third party, except as would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth on Schedule 3.16(b), there is no pending or, to the Company'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 the Company or any of its Subsidiaries infringe upon or misappropriate in any way with any Intellectual Property Rights of any Person.

(c) The Company and its Subsidiaries have taken all reasonable and appropriate steps to protect and maintain the material Intellectual Property Rights owned by the Company or its Subsidiaries. The Company and its Subsidiaries have taken all reasonable and appropriate steps to protect and preserve the confidentiality of all of the Trade Secrets that comprise any part of the Company Intellectual Property Rights except as would not reasonably be expected to have a Company Material Adverse Effect, and to the Company's Knowledge, there are no unauthorized uses, disclosures or infringements of any such Trade Secrets by any Person. All use and disclosure by the Company and its Subsidiaries of Trade Secrets owned by another Person has been pursuant to the terms of a written agreement with such Person or is otherwise lawful.

(d) The Company and its Subsidiaries have secured and have a policy to secure valid written assignments from all consultants, contractors and employees who contribute or have contributed to the creation or development of any material Intellectual Property Rights, of the rights to such contributions that the Company and its Subsidiaries do not already own by operation of law.

(e) To Company's Knowledge, no material Software included in the Company Intellectual Property Rights contains any computer code or any other procedures, routines or mechanisms which may: (i) disrupt, disable, harm or impair in any material way such Software's operation, (ii) cause such Software to damage or corrupt any material data, storage media, programs, equipment or communications of the Company or any of its Subsidiaries or their respective clients, or otherwise materially interfere with their respective operations or (iii) permit any third party to access any such Software to cause disruption, disablement, harm, impairment, damage or corruption (sometimes referred to as "traps", "access codes" or "trap door" devices).

(f) To Company's Knowledge, the Company and its Subsidiaries have obtained any and all necessary consents from its customers with regard to the their collection and

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dissemination of personal customer information in connection with their respective operations and business, in accordance with any applicable privacy policy published or otherwise communicated by the Company or any of its Subsidiaries, and in accordance with any applicable Legal Requirements. The Company's and its Subsidiaries' practices regarding the collection and use of personal customer information are and have been in all material respects in accordance with such privacy policies and with all applicable Legal Requirements. The Company and its Subsidiaries have obtained all necessary agreements and assurances from their third party service providers used in connection with their respective businesses and operations that such service providers are in compliance in all material respects with any applicable privacy statute or regulation. Without limiting the foregoing, the Company and its Subsidiaries are in compliance in all material respects with the privacy provisions of the U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the relevant rules and regulations of each Governmental Authority thereunder in connection with the their respective businesses or operations.

Section 3.17 Contracts. Schedule 3.17 sets forth a list of all contracts, agreements, leases, permits or licenses (except for purchase orders in the ordinary course of business), to which, as of the date of this Agreement, the Company or any of its Subsidiaries is a party or is otherwise bound, of the type described below (the "Company Contracts"):

(a) all agreements or commitments by the Company or any of its Subsidiaries relating to the Company's conduct of its Medicare Part D prescription drug program, drug discount programs or state pharmaceutical assistance programs or for the purchase, sale or lease of supplies, goods or products or for the furnishing or receipt of services, in each case, the performance of which will extend over a period of more than one year or which provides for annual payments to or by the Company or any of its Subsidiaries that exceed $500,000 annually;

(b)

all employment agreements and all material consulting agreements;

(c) all agreements under which the Company or any Subsidiary is obligated or will become obligated to make any severance payment or bonus compensation payment by reason of this Agreement or the consummation of the transactions contemplated by this Agreement;

(d) all agreements pursuant to which the Company or any Subsidiary grants to any Person or receives from any Person any rights with respect to any Company Intellectual Property Rights;

(e) all agreements prohibiting the Company or any of its Subsidiaries from freely engaging in any material business activities;

(f) all mortgages, indentures, notes, bonds or other agreements pursuant to which the Company or any of its Subsidiaries has incurred or guaranteed any Funded Indebtedness in excess of $500,000;

(g) all agreements pursuant to which the Company or any of its Subsidiaries has granted any Lien (other than a Permitted Lien) on any of its material properties or assets;

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(h) all agreements relating to the acquisition or disposition by the Company or any of its Subsidiaries of any corporation, limited liability company, partnership or other business entity or any line of business (whether by merger, consolidation or other business combination, sale of securities, sale of assets or otherwise);

(i) agreements with any current or former officer, director, stockholder or Affiliate of the Company or any of its Subsidiaries not otherwise listed on Schedule 3.17;

(j) agreements relating to the acquisition by the Company or any of its Subsidiaries of any operating business or the capital stock of any other Person;

(k) agreements under which the Company or any of its Subsidiaries has made advances or loans to any other Person;

(l) agreements for the provision of goods or services involving consideration in excess of $50,000 annually or $200,000 in the aggregate over the term of the agreement;

(m) reinsurance agreements to which the Company or any of its Subsidiaries is a party;

(n) outstanding agreements of guaranty, direct or indirect, by the Company or any of its Subsidiaries related to any Funded Indebtedness; and

(o) all partnership agreements and joint venture agreements relating to the Company and its Subsidiaries.

(p) Each Contractual Obligation of the Company is a valid and binding agreement of the Company or its Subsidiary, as the case may be, and, to Company's Knowledge, of the other parties thereto, enforceable by the Company 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 to general principles of equity). Except as has not had and would not reasonably be expected to have a Company Material Adverse Effect, (A) neither the Company nor any of its Subsidiaries or, to Company's Knowledge, any other party to any Contractual Obligation of the Company, is in breach or violation of, or default under any such Contractual Obligation of the Company (and no event has occurred which with notice or lapse of time would constitute such breach, violation or default) and (B) neither the Company nor any of its Subsidiaries has received written notice of any such breach, violation or default under any such Contractual Obligation of the Company. The Company has made available to Parent true and complete copies of all Company Contracts, including all amendments thereto. To Company's Knowledge, each party to any of the Company's or its Subsidiaries' reinsurance agreements was, at the date each reinsurance agreement was executed and delivered, and is, currently solvent and financially capable of fulfilling its obligations thereunder. The Company has not received any written notice that any such reinsurer will not pay, or has a valid defense to the payment of, any of its payments under any such reinsurance agreement.

Section 3.18 Insurance. Schedule 3.18 contains a list of all policies of fire, liability, workers' compensation, property, casualty and other forms of insurance (other than insurance

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relating to Company Employee Benefit Plans) owned or held by the Company and its Subsidiaries as of the date of this Agreement. All such policies are, as of the date of this Agreement, in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing will have been paid, and no notice of cancellation or termination has been received by the Company or any of its Subsidiaries with respect to any such policy.

Section 3.19

Real Property.

(a) Schedule 3.19(a) sets forth (whether as lessee, sub-lessee, lessor, sub-lessor) a list of all leases and sub-leases of real property (such real property, the "Company Leased Property") to which the Company or any of its Subsidiaries is a party or by which it is bound, in each case, as of the date of this Agreement, (each a "Company Lease", and collectively the "Company Leases").

(b) Each Company Lease is a valid and binding agreement of the Company or its Subsidiary, as the case may be, and, to Company's Knowledge, of the other parties thereto, enforceable by the Company 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 to general principles of equity). Except as set forth on Schedule 3.19(b), (A) neither the Company nor any of its Subsidiaries or, to Company's Knowledge, any other party to any Company Lease is in material breach or material violation of, or material default under any such Company Lease (and no event has occurred which with notice or lapse of time would constitute such material breach, violation or default) and (B) neither the Company nor any of its Subsidiaries has received written notice of any such material breach, violation or default under any such Company Lease. The Company has made available to Parent true and complete copies of all Company 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.

(c) Except as disclosed in Schedule 3.19(c), (A) there are no written subleases, licenses, concessions, occupancy agreements or other contractual obligations granting to any other Person the right of use or occupancy of the Company Leased Property and (B) the Company has not assigned, subleased, mortgaged, deeded in trust or otherwise transferred or encumbered any Company Lease or any interest therein.

(d) As of the date hereof, to Company's Knowledge, no condemnation action is pending or threatened that relates to any of the Company Leased Property.

(e)

Neither the Company nor any of its Subsidiaries owns any real property.

Section 3.20

Medicare Part D Status.

(a) CMS Agreement; Novation Agreement. The Company is a party to (i) a "Contract with Approved Entity Pursuant to Sections 1860D-1 through 1860D-42 of the Social Security Act for the Operation of a Voluntary Medicare Prescription Drug Plan" with CMS executed by CMS on September 28, 2005 (the "Company CMS Agreement") and effective as of January 1, 2006, renewed on September 6, 2006, effective as of January 1, 2007; and (ii) a "Novation Agreement" with CMS executed by CMS on September 28, 2006 (the "Company

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Novation Agreement") and effective as of January 1, 2007. The Company has complied in all material respects with all terms and conditions of the Company CMS Agreement and is in material compliance with all attestations, certifications and representations made in connection with the Company's Medicare Part D prescription drug plan application and related information submitted to CMS and has not received any written notice from CMS that the Company is in breach, default or violation of the Company CMS Agreement.

(b) Medicare Part D Authorizations. The Company has established compliance plans that comply in all material respects with the compliance plan requirements applicable to Medicare Part D prescription drug plans pursuant to 42 C.F.R. 423.504(b)(4)(vi). With respect to state insurance licensure, the Company has received written waivers from the United States federal government that exempt the Company through December 31, 2008 from being required to qualify as a state-licensed risk bearing entity eligible to offer health insurance or health benefit coverage as required under Medicare Part D in every state and territory to which the Company CMS Agreement and the Company Novation Agreement apply (the "Waivers"). Pursuant to the Waivers, the Company is eligible to offer for sale and sell and perform Medicare Part D prescription drug plans on a stand-alone basis for every state and territory to which the Company CMS Agreement and Company Novation Agreement applies, and in which such licensure is required by Legal Requirement. Except as disclosed on Schedule 3.20(b), the Waivers are and continue to be in full force and effect and are not subject to any restriction, limitation or impairment. The Company is and continues to be authorized by CMS to offer Medicare Part D prescription drug plans in every state and territory in which the Company has obtained a Waiver from CMS until December 31, 2008 pursuant to the Waivers.

Section 3.21 Transactions With Affiliates. Except as set forth on Schedule 3.21, none of the Company's shareholders or the members of MHRx, or directors or officers of MHRx, the Company or the Company's other Subsidiaries, nor, to Company's Knowledge, any of their respective Affiliates is involved in any material business arrangement or relationship with the Company or any of its Subsidiaries other than employment arrangements and severance arrangements entered into in the ordinary course of business, and none of the Company's sole shareholder or its members, directors or officers nor, to Company's Knowledge, any of their respective Affiliates owns any material property or right, tangible or intangible, which is used by the Company or any of its Subsidiaries.

Section 3.22 Bank Accounts. Schedule 3.22 sets forth, as of the date hereof, a true and correct a list of each bank, savings and loan or similar financial institution with which the Company or any Subsidiary has an account or safety deposit box or other arrangement, and any numbers or other identifying codes of such accounts, safety deposit boxes or such other arrangements maintained by the Company or such Subsidiary thereat.

Section 3.23 Books and Records. The minute books of the Company and each Subsidiary previously made available to Parent contain true, correct and complete records of all meetings and accurately reflect in all material respects all other corporate action of the stockholders and board of directors (including committees thereof) of the Company and its Subsidiaries. The stock certificate books and stock transfer ledgers of the Company and its Subsidiaries previously made available to Parent are true, correct and complete. All stock

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transfer taxes levied or payable with respect to all transfers of shares of the Company and its Subsidiaries prior to the date hereof have been paid and appropriate transfer tax stamps affixed.

Section 3.24 Information Supplied. The information supplied or to be supplied by the Company in writing and designated specifically for inclusion in the Registration Statement 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 supplied by the Company in writing specifically for inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is mailed to the shareholders of Parent or on the date of the Parent Shareholder Meeting (the "Parent Shareholder Meeting Date") 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. Notwithstanding the foregoing, the Company makes no representation, warranty or covenant with respect to any information contained in any of the foregoing documents other than information supplied by the Company in writing and designated specifically for inclusion therein.

Section 3.25 Brokers. Except for the fee payable to the Company Financial Advisor, no Person is or will be entitled to a broker's, finder's, investment banker's, financial advisor's or similar fee from the Company or any of its Subsidiaries in connection with this Agreement or the transactions contemplated by this Agreement.

Section 3.26 Anti-Takeover Statutes. No "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute or regulation or any anti-takeover provision in Company's Certificate of Incorporation or Regulations is, or at the First Merger Effective Time will be, applicable to the Company, the shares of Company Common Stock or the transactions contemplated by this Agreement.

WITHOUT LIMITING PARENT'S RECOURSE AS ELSEWHERE SET FORTH IN THIS AGREEMENT (OR ANY ANCILLARY AGREEMENT CONTEMPLATED HEREBY), EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY IN THIS AGREEMENT, NONE OF MHRX, THE COMPANY OR ANY SUBSIDIARY OF THE COMPANY HAS MADE OR AUTHORIZED THE MAKING OF ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, CONCERNING THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NEITHER PARENT OR EITHER MERGER SUB HAS RELIED ON ANY REPRESENTATIONS AND WARRANTIES EXCEPT FOR THOSE MADE IN THIS AGREEMENT (OR ANY ANCILLARY AGREEMENT CONTEMPLATED HEREBY).

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ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF

PARENT AND THE MERGER SUBS

Except as set forth in the Parent Disclosure Schedules, Parent and each of the Merger Subs hereby jointly and severally represent and warrant to the Company and MHRx as follows:

Section 4.1 Organization, Good Standing, Qualification and Power. Each of Parent and each Merger Sub 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 4.1.1 and has the requisite corporate or limited liability company 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 4.1.2 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, each Merger Sub, and each of Parent's other 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 Effect. Parent has delivered to the Company true and complete copies of the Governing Documents of Parent and each Merger Sub. Neither of Parent nor any Merger Sub is 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 Material Adverse Effect.

Section 4.2 Authority; Execution and Delivery; Enforceability. Each of Parent and each Merger Sub has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and subject to obtaining the Required Parent Shareholder Approval, to consummate the Transactions, all of which have been duly authorized (subject, with respect to consummation of the Transactions, to obtaining the Required Parent Shareholder Approval) by all requisite corporate or limited liability company, as applicable, action on its part. Each of Parent and each Merger Sub has duly executed and delivered this Agreement and (assuming this Agreement has been duly and validly authorized, executed and delivered by MHRx and the Company), this Agreement is a valid and binding agreement of each of Parent and each Merger Sub, enforceable against Parent and each Merger Sub 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).

Section 4.3 Non-contravention. Neither the execution and delivery of this Agreement nor the fulfillment of and the performance by Parent or either Merger Sub of its obligations

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hereunder will (i) contravene any provision contained in the Governing Documents of Parent or either Merger Sub, (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 either Merger Sub or any of Parent's other 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, either Merger Sub or any of Parent's other 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, either Merger Sub or any of Parent's other 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, either Merger Sub or any of Parent's other Subsidiaries, which in the case of any of clauses (ii) through (iv) above, would reasonably be expected to have a Parent Material Adverse Effect.

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 or the consummation of the Transactions by Parent or either Merger Sub, except for (i) compliance with and filings under the HSR Act, (ii) compliance with the notice and approval requirements of CMS applicable to the Transactions, (iii) the filing of the Certificates of Merger and any related documents with the Secretaries of State of the States of Ohio and Delaware and appropriate documents, if any, with the relevant authorities of other states in which the Company does business, (iv) filings and approvals required by state insurance departments and/or departments of health, each as set forth on Schedule 4.4, (v) the filing with the SEC of (A) a proxy statement/prospectus for distribution to 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/Prospectus"), (B) a registration statement on Form S-4 relating to the offer and sale of the Parent Shares in connection with the Merger (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 Parent Shares, and (vii) other notices, filings, authorizations, registrations, consents or approvals set forth on Schedule 4.4.

Section 4.5

Capitalization of Parent; Parent Subsidiaries.

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hereto) and 300,000 shares of Parent Preferred Stock will be designated as Series B Participating Convertible Preferred Stock (having the rights, preferences and privileges set forth in the Certificate of Amendment attached as Exhibit 4.5(a)-2 hereto). 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) 2,000,000 shares of Parent Preferred Stock, of which 300,000 shares of Parent Preferred Stock will have been designated as Series A Participating Convertible Preferred Stock and 300,000 shares of Parent Preferred Stock will have been designated as Series B Participating Convertible Preferred Stock and (iii) 30,000,000 shares of non-voting Common Stock, $0.01 par value per share (having the rights, preferences and privileges set forth in the Certificate of Amendment attached as Exhibit 4.5(a) hereto). 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 the Company 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).

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(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 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 Company 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 Company 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.

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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).

(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 Company.

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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 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 this Agreement if 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

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of Section 4.12), Environmental Matters (which are subject to Section 4.13), Employee Matters (which are the subject of Section 4.14) or Employee Benefit Plans (which are the subject of Section 4.15).

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 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;

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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 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 Material 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 Material 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 Material 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

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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 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 Company 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 Company 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.

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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 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”). In addition, Parent has entered into a Securities Purchase Agreement, dated as of May 7, 2007 (the "Securities Purchase Agreement" and, together with the Debt Commitment Letter, the "Financing Documents"), with the investors party thereto (the "Equity Financing Sources"), pursuant to which the Equity Financing Sources have agreed, subject to the terms and conditions set forth therein, to provide to Parent up to an aggregate of $250,000,000 in equity financing. True, accurate and complete copies of the Financing Documents and the Other Securities Purchase Agreement, each as in effect on the date of this Agreement, have been furnished to the Company. All of the representations and warranties of Parent contained in the Securities Purchase Agreement and Other Securities Purchase Agreement are true and correct. The financing contemplated by the Financing Documents (the "Financing") is sufficient for Parent and Merger Subs to consummate the Transactions on the Closing Date and pay the Initial Cash Merger Consideration and all related fees and expenses. For the avoidance of doubt, Parent acknowledges and agrees that its obligations to effect the transactions contemplated by this Agreement and pay the Merger Consideration are not subject to its having received the proceeds of the Debt Financing. As of the date hereof, (A) none of the Financing Documents has been amended or modified, and (B) the respective financing commitments contained in the Financing Documents have not been withdrawn or rescinded in any respect. Each of the Financing Documents, in the form so delivered, is in full force and effect and is a legal, valid and binding obligation of Parent and, to Parent's Knowledge, the other parties thereto. As of the date hereof and assuming the accuracy of all representations and warranties of the Company in this 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 Financing Documents. As of the date hereof and assuming the accuracy of all representations and warranties of the Company in this Agreement and compliance by the Company with its agreements hereunder, 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 Financing Documents. Parent has fully paid, or caused to be fully paid, any and all commitment and other fees required by the terms of the Financing Documents to be paid on or before the date hereof.

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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/Prospectus (other than information supplied by the Company in writing and designated specifically for inclusion therein) shall not, on the date the Proxy Statement/Prospectus is mailed to the shareholders of Parent (or the Company), or on the Parent Shareholder Meeting Date, 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.

Section 4.23 Valid Issuance of Parent Shares. The Parent Shares, when issued in accordance with this Agreement, will be duly authorized, validly issued, fully paid and non-assessable shares of Parent Common Stock.

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 issuance of the Equity Financing Shares). 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 First Merger Effective Time will be, applicable to Parent, the Transactions, the shares of Parent Common Stock to be issued hereunder, the Equity Financing Shares to be issued to the Equity Financing Sources, the Other SPA Shares or the Conversion Shares.

Section 4.25 Interim Operations of the Merger Subs. Each Merger Sub was formed by Parent solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement. Neither Merger Sub has any liabilities and, except for a subscription agreement pursuant to which all of its authorized capital stock was issued to Parent, neither of the Merger Subs is a party to any agreement other than this Agreement and agreements with respect to the appointment of registered agents and similar matters.

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 or the Transactions.

WITHOUT LIMITING THE COMPANY'S RECOURSE AS ELSEWHERE SET FORTH IN THIS AGREEMENT (OR ANY ANCILLARY AGREEMENT CONTEMPLATED HEREBY) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES MADE BY PARENT AND

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THE MERGER SUBS IN THIS AGREEMENT, NONE OF PARENT, EITHER MERGER SUB NOR ANY OTHER SUBSIDIARY OF PARENT HAS MADE OR AUTHORIZED THE MAKING OF ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, CONCERNING THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE COMPANY HAS NOT RELIED ON ANY REPRESENTATIONS AND WARRANTIES EXCEPT FOR THOSE MADE IN THIS AGREEMENT (AND THE ANCILLARY AGREEMENTS CONTEMPLATED HEREBY).

ARTICLE 5

COVENANTS AND AGREEMENTS

Section 5.1

Access; Documents and Information.

(i) the Company shall, and shall cause its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives and agents of Parent (each of the foregoing, "Parent Representatives"), during normal business hours and upon reasonable request, reasonable access to the Company's and its Subsidiaries' books, records, leases, licenses, contracts, properties, officers, employees, accountants, counsel and other representatives who have material knowledge relating to the Company or any of its Subsidiaries. Notwithstanding anything to the contrary set forth above, Parent hereby agrees that it is not authorized to and shall not, and shall not cause or permit any of the Parent Representatives to, contact any employee, customer, supplier, distributor or other Person having a material business relationship with the Company or any of its Subsidiaries prior to the Closing without the prior consent of the Company, which consent shall not be unreasonably withheld. Parent and the Parent Representatives shall conduct any investigation under this Section 5.1(a)(i) in a manner that does not unreasonably interfere with the conduct of the business of the Company and its Subsidiaries. Parent shall be responsible for any breach of this Section 5.1(a)(i) by any of the Parent Representatives.

(ii) Parent shall, and shall cause its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives and agents of the Company (each of the foregoing, "Company 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. Notwithstanding anything to the contrary set forth above, the Company hereby agrees that it is not

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authorized to and shall not, and shall not cause or permit any of the Company Representatives to, contact any employee, customer, supplier, distributor or other Person having a material business relationship with Parent or any of its Subsidiaries prior to the Closing without the prior consent of Parent which consent shall not be unreasonably withheld. The Company and the Company Representatives shall conduct any investigation under this Section 5.1(a)(ii) in a manner that does not unreasonably interfere with the conduct of the business of Parent and its Subsidiaries. The Company shall be responsible for any breach of this Section 5.1(a)(ii) by any of the Company Representatives.

(b) All information and documents disclosed to Parent, the Merger Subs and the Parent Representatives by the Company or the Company 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 preceding, this Agreement shall be subject to the terms of Parent Confidentiality Agreement.

(c) All information and documents disclosed to MHRx, the Company and the Company Representatives by Parent or the Parent 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 preceding, this Agreement shall be subject to the terms of Company Confidentiality Agreement.

Section 5.2

Conduct of Business by the Company.

(a) From and after the date hereof until the earlier of the Closing or the termination of this Agreement in accordance with its terms, the Company will, and will cause its Subsidiaries to, except as otherwise provided on Schedule 5.2(b) or as otherwise required by this Agreement or by applicable Legal Requirements, or consented to in writing by Parent (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 3.18 (or reasonable replacement policies);

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

(iv) consult with Parent prior to taking any action which would reasonably be expected to result in a Company 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, the Company (and respecting clause (iii) below, MHRx) will not, and will not cause or permit any of its Subsidiaries to, except as otherwise and to the extent provided on Schedule 5.2(b), or as otherwise required by this Agreement or by applicable Legal Requirements, or as

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otherwise consented to in writing by Parent (which consent shall not be unreasonably withheld, conditioned or delayed):

(i)

amend its Governing Documents;

(ii)

authorize or adopt a plan of liquidation or dissolution;

(iii) except for increases in the compensation of employees made in the ordinary course of business, and except as may be required by any Company Employee Benefit Plan or any employment agreement existing on the date of this Agreement: (A) grant to any director, officer or employee any material increase in compensation, severance, termination pay or fringe or other benefits, (B) enter into any new or materially amend (including by accelerating rights or benefits under) any existing employment, indemnification, change of control, severance or termination agreement with any director or officer, (C) establish or adopt any new Company Employee Benefit Plan or materially amend (including by accelerating rights or benefits under) any existing Company Employee Benefit Plan, (D) enter into any collective bargaining agreement or (E) document any of the arrangements described in Exhibit E attached hereto; it being understood that certain of the arrangements described in such memorandum may give rise to compensation income and that the parties will cooperate in good faith to minimize such compensation income; it being further understood that in the event that the parties cannot agree among themselves as to whether any arrangement described in such memorandum should give rise to compensation, the parties will refer the matter for resolution to a mutually acceptable accounting firm or law firm, that the determination of such accounting firm or law firm shall be final and binding on the parties, and that the Parent and the Shareholder Representative will each be responsible for one-half of the fees and expenses of such accounting firm or law firm.

(iv) (A) declare or pay dividends on, or make other distributions in respect of, any capital stock or 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 or (D) purchase, redeem or otherwise acquire any capital stock or other equity interests;

(v) 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 Mergers;

(vi)

enter into any new line of business;

(vii) 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;

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(viii) make any capital expenditure or series of related capital expenditures in excess of $500,000, other than any capital expenditure contemplated by the capital expenditure budget attached as Schedule 5.2(b)(viii);

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

(x) 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 the Company or any of its Subsidiaries of more than $500,000 in the aggregate or (B) involves a consent to material non-monetary relief by the Company or any Subsidiary of the Company;

(xi) make or rescind any material Tax election or make any material change to its method of accounting for Tax purposes or file any material Tax Return without first providing a copy of such Tax return to Parent for its review and comment at least 15 days prior to filing such Tax Return, and all reasonable comments of Parent will be considered in good faith for inclusion by the Company; provided, that any comment of Parent will not be considered reasonable if the incorporation of such comment would be inconsistent with the Company's past Tax reporting practice and such past practice is itself reasonable, it being understood that any reasonable comment shall be incorporated if such incorporation has the effect of reducing the Company's Taxes with respect to such Tax Return and is not reasonably expected to have the effect of increasing the Company's Taxes with respect to any other Tax period.

(xii) incur or guarantee any Funded Indebtedness other than in the ordinary course of business; or

(xiii) enter into a contractual obligation to do any of the things referred to in this Section 5.2(b).

(c) Promptly after receipt by the Company of the notice of commencement thereof, Company shall provide Parent 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 the Company from being a government contractor, holder of any Governmental Authorization or recipient of reimbursement from any Payment Program, or (iii) any suspension, termination, or revocation of any Governmental Authorization.

(d) Company shall provide Parent 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 Company and any Governmental Authority, including without limitation negotiations with respect to any claim, settlement agreement, consent order or corporate integrity

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agreement between the Company and any Governmental Authority. In connection with any such Settlement Discussions, (i) Company shall timely provide Parent with copies of any and all documents that Company intends to submit, or that Company receives, in connection with any such Settlement Discussions, and (ii) Company shall timely advise Parent as to the status of such Settlement Discussions.

(e) Company shall furnish Parent, within ten (10) days of the receipt by Company, any and all written notices or charges issued relating to non-compliance from any Governmental Authority and/or any Payment Program that Company'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 revoke or suspend Company's Governmental Authorization or certification or to fine, penalize or impose material remedies upon Company, 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 Company or related to the operation of the Company.

(f) Company shall furnish Parent, within ten (10) Business Days of receipt but at least five (5) days prior to the earliest date on which the Company 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 Parent a copy of the plan of correction generated from such survey, report, warning letter, or written notice for Company 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, the Company shall furnish to Parent within ten (10) Business Days of the end of each calendar month ending after the date of this Agreement a copy of all monthly financial statements prepared by management of the Company for internal purposes for the calendar month last ended.

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

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 Securities Purchase Agreement (as in effect on the date hereof), by applicable Legal Requirements, or consented to in writing by the Company (which consent shall not be unreasonably withheld, conditioned or delayed):

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(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 Company 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 the Company (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 the Securities Purchase Agreement (as in effect on the date hereof) 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 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 the Equity Financing Shares as contemplated by the Securities Purchase Agreement, (x) the issuance of the Other SPA Shares as contemplated by the Other Securities Purchase Agreement, (y) the issuance of any Conversion Shares upon the direct or indirect exchange or conversion of any of the Equity Financing Shares or Other SPA Shares 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 Mergers;

(v)

enter into any new line of business;

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(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 Mergers;

(x) amend or otherwise modify the Securities Purchase Agreement; provided, that the consent of the Company shall not be required in the event that any such amendment or modification of the Securities Purchase Agreement (A) does not add any additional conditions to the obligations of the investors party to the Securities Purchase Agreement to consummate the transactions contemplated thereby and does not reduce the aggregate amount of cash financing to be obtained by Parent from the consummation of such transactions and (B) would not reasonably be expected to prevent or materially delay consummation of the transactions contemplated hereby or thereby; provided, further, that any amendment or modification that involves only one or more of the following shall be deemed to meet the standards set forth in (A) and (B) above: (1) a change in the participant investors that is approved by all participant investors or contemplated by the agreement dated the date hereof among Parent, MHRx, the Company and the investors party to the Securities Purchase Agreement; (2) the removal or limitation of contingencies or conditions to the obligations of the investors thereunder; and (3) the shifting between or among investors of their respective obligations to Parent that is approved by all participant investors contemplated by the agreement dated the date hereof among Parent, MHRx, the Company and the investors party to the Securities Purchase Agreement; or

(xi) 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 Company 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 Authorization or recipient of

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

(d) Parent shall provide the Company with reasonable notice of any and all 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 Company 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 Company as to the status of such Settlement Discussions.

(e) Parent shall furnish the Company, 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 Company, 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 Company 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 Company if Parent obtains Knowledge that any of the representations and warranties of Parent or either Merger Sub in this Agreement are not true and correct in all material respects.

(h) Prior to the Closing, Parent shall promptly provide the Company with correct and complete copies of all notices, documents and other materials made available by or to Parent under the Securities Purchase Agreement or the Other Securities Purchase Agreement.

Section 5.4 Charter Amendment. Prior to the Closing, Parent shall 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 the State of New York.

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Section 5.5 Closing Documents. The Company 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(d) (and shall use commercially reasonable efforts to cause its shareholders to execute and deliver any agreements referred to therein to the extent such shareholders are party thereto). Each of Parent and each Merger Sub shall, prior to or on the Closing Date, execute and deliver, or cause to be executed and delivered, to the Company, the documents or instruments described in Section 6.3(d) (and shall use commercially reasonable efforts to cause its shareholders to execute and deliver any agreements referred to therein to the extent such shareholders are party thereto).

Section 5.6

Commercially Reasonable Efforts; Further Assurances.

(a) The Company 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 consummate and make effective the Transactions as soon as practicable, 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 the Transactions in order to consummate the Transactions as promptly as practicable. All costs incurred in connection with obtaining such Consents, including CMS consent fees and expert consultant fees shall be borne equally by the Company and Parent. HSR filing fees shall be borne by Parent. Without limiting the foregoing, each of the Company and Parent undertakes and agrees to file (or cause their 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 party hereto shall make appropriate filings with other competition authorities and CMS (or cause their Affiliates to make such filings, as applicable) with respect to the Transactions promptly after the date of this Agreement, including without limitation regarding the novation of the Company CMS Agreement and shall supply as promptly as practicable to CMS and/or any other competition authorities any additional information and documentary material that may be requested in connection therewith. Each of the Company and Parent shall (and shall cause their Affiliates to) respond as promptly as practicable to any inquiries received from the FTC, the Antitrust Division or CMS for additional information or documentation and to all inquiries and requests received from any other Governmental Authority in connection with Consents. Parent shall provide to the Company and MHRx copies of any application or other communication, which references the Company, MHRx or any member of MHRx, to Governmental Authorities in connection with this Agreement in advance of filing or submission thereof, and Parent shall provide the Company and MHRx a reasonable opportunity to comment upon and modify any such reference as to such Persons. Parent's consent to accepting such comment or modification shall not be unreasonably withheld.

(b) 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

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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 the Transactions so as to enable the Closing 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, including those listed on Schedule 6.1(b) hereto) if in the reasonable judgment of Parent doing so would be materially detrimental to the business conducted by Parent or the Company taken as a whole. Subject to the foregoing sentence, Parent shall cooperate in a reasonable manner with the Company in connection with its efforts to seek consents and approvals from Governmental Authorities in connection with the Transactions (including by keeping the Company informed on a reasonably current basis of the status of such efforts, allowing the Company to participate in such efforts and using its commercially reasonable efforts to permit the representatives of the Company to attend any meetings between the Parent's representatives and Governmental Authorities).

(c) 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 or seeks damages in connection therewith, the parties 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 the Transactions.

Section 5.7 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 Company 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 5.8 Exclusive Dealing. During the period from the date of this Agreement through the Closing Date or the termination of this Agreement pursuant to Section 7.1, neither MHRx nor the Company shall take, nor will MHRx or the Company cause or permit any of the Company Representatives to take, any action to (i) solicit, initiate, seek, facilitate or encourage the submission of inquiries, proposals or offers from any Person (other than Parent and the Merger Subs) relating to an investment in, recapitalization of or any merger or other business combination with MHRx or the Company or the sale of all or a material portion of the assets or capital stock (or other equity interests) of MHRx or the Company, or any other similar alternative to the transactions contemplated by this Agreement (each an "Alternative Transaction") or (ii) enter into or participate in any negotiations, nor initiate any discussions or continue any discussions initiated by others (other than Parent and the Merger Subs and the Parent Representatives), regarding any Alternative Transaction, or furnish to any Person (other

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than Parent and the Merger Subs and the Parent Representatives) any information with respect to the assets or businesses of MHRx or the Company for the purpose of pursuing a possible Alternative Transaction. During such period, unless this Agreement is otherwise terminated, the Company and MHRx will notify Parent immediately if any Person or party makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. The Company and MHRx agree to immediately terminate, and to cause its respective advisors and representatives to terminate, all discussions and negotiations with any Person other than Parent or its Affiliates that relate to, or may reasonably be expected to lead to any such offer or proposal.

Section 5.9

Employee Benefit Plans.

(a) During the period beginning on the Closing Date and ending on the twelve-month anniversary of the Closing Date, Parent shall provide employees of the Company and its Subsidiaries with compensation and compensation plans, programs and arrangements that are no less favorable than the compensation and compensation plans, programs and arrangements provided to such employees immediately prior to the Closing Date and with employee benefits that are no less favorable in the aggregate than the Company Employee Benefit Plans (other than equity-based incentive arrangements) maintained by the Company and its Subsidiaries, as applicable, as of the date of this Agreement. Parent further agrees that, from and after the Closing Date, Parent shall, or shall cause the Company and its Subsidiaries to, grant all employees of the Company and its Subsidiaries credit for any service with the Company or any of its Subsidiaries earned prior to the Closing Date (i) for eligibility and vesting and, except for "employee pension benefit plans" within the meaning of Section 3(2) of ERISA, benefit accrual purposes and (ii) for purposes of vacation accrual under any employee benefit plan or program or arrangement that may be established or maintained by or for employees of the Company or any of its Subsidiaries on or after the Closing Date (the "New Plans"). In addition, Parent hereby agrees that it shall, or shall cause the Company and its Subsidiaries to (i) waive all pre-existing condition exclusion and actively-at-work requirements and similar limitations, eligibility waiting periods and evidence of insurability requirements under any New Plans to the extent waived or satisfied by an employee under any Company Employee Benefit Plan as of the Closing Date, and (ii) take into account, for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Closing Date under any applicable New Plan, any covered expenses incurred on or before the Closing Date by any employee (or covered dependent thereof) of the Company or any of its Subsidiaries. Nothing contained herein, expressed or implied, is intended to confer upon any employee of the Company or any of its Subsidiaries any rights to continue employment for any period.

(b) With respect to any Company Employee Benefit Plan listed on Schedule 3.15(a) that is a "group welfare plan" within the meaning of Section 607 of ERISA, Parent shall be solely responsible for any obligations arising under COBRA with respect to all "M&A qualified beneficiaries" as defined in Treasury Regulation § 54.4980B-9.

(c) The provisions of this Section 5.9 are for the sole benefit of the parties to the Agreement and their permitted successors and assigns, and nothing herein, expressed or implied, shall give or be construed to give any Person, other than the parties hereto and such permitted successors and assigns, any legal or equitable rights hereunder.

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Section 5.10

Indemnification of Directors and Officers.

(a) From and after the Closing Date, the Governing Documents of the Second Merger Surviving Entity and its Subsidiaries shall contain provisions no less favorable with respect to the limitation or elimination of liability and indemnification than are set forth in the Governing Documents of the Company and its Subsidiaries as of the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years after the Closing in any manner that would adversely affect the rights thereunder of individuals who at or prior to the Closing were directors, officers, agents or employees of the Company or any of its Subsidiaries or who were otherwise entitled to indemnification pursuant to the Governing Documents of the Company or any of its Subsidiaries.

(b) On the Closing Date, Parent shall, or shall cause the Second Merger Surviving Entity to, purchase, at Parent's expense, a directors' and officers' liability insurance tail policy to be effective for a period of six (6) years beginning on the Closing Date with respect to matters existing or occurring on or prior to the Closing Date (including the transactions contemplated by this Agreement) covering all persons who are currently covered by the Company's existing officers' and directors' liability insurance policies on terms no less advantageous to persons covered thereby than those contained in such existing insurance policies; provided, that Parent and the Second Merger Surviving Entity shall not be required to pay an amount for such tail policy that is in excess of $101,400 (which is equal to 300% of the last annual premium paid by the Company for its directors' and officers' liability insurance); provided, further, that if such amount is insufficient to procure the tail coverage contemplated by this Section 5.10(b), Parent shall, or shall cause the Second Merger Surviving Entity to, after consultation with the Shareholder Representative, purchase as much comparable insurance coverage as can be obtained for such amount.

(c) From and after the Closing Date, Parent shall, or Parent shall cause the Second Merger Surviving Entity to, indemnify, hold harmless and defend each individual who served as a director or officer of the Company or any of its Subsidiaries at any time prior to the Closing Date from and against all actions, suits, proceedings, hearings, investigations, claims, etc., including all court costs and reasonable attorneys' fees and expenses, resulting from or arising out of acts or omissions (or alleged acts or omissions) by them in their capacities as such, which acts or omissions occurred at or prior to the Closing; provided, however, that the indemnification obligations under this Section 5.10(c) shall not be deemed to eliminate or reduce the liability under Article 8 hereof of any Indemnifying Member who also served as a director or officer of the Company or any of its Subsidiaries prior to the Closing Date.

(d) The provisions of this Section 5.10 are (i) intended to be for the benefit of, and shall be enforceable by, each Person entitled to indemnification under this Section 5.10, and each such Person's heirs, legatees, representatives, successors and assigns, it being expressly agreed that such Persons shall be third-party beneficiaries of this Section 5.10 and (ii) in addition to, and not in substitution for, any other rights to indemnification that any such Person may have by contact or otherwise.

(e) In the event Parent or the Second Merger Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other Person and is not

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the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, proper provisions shall be made so that such Person assumes the obligations set forth in this Section 5.10.

Section 5.11

Certain Tax Matters; Plan of Reorganization.

(a) If the transactions contemplated by this Agreement are consummated, 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 contemplated by this Agreement shall be paid by Parent or the Second Merger Surviving Entity (otherwise, such fees and charges shall be payable by the party incurring such expense).

(b) This Agreement is intended to constitute a "plan of reorganization" within the meaning of Section 1.368-2(g) of the income tax regulations promulgated under the Code. From and after the date of this Agreement each party will, and will cause its Affiliates to, (i) act in a manner consistent with the treatment of the transactions contemplated by this Agreement as a reorganization under Section 368(a) of the Code and (ii) consistently report on all Tax Returns that the transactions contemplated by this Agreement qualify as a reorganization under Section 368(a) of the Code.

(c) If any Tax Return for the Company or any of its Subsidiaries for any Tax period ending on or before the Closing is to be filed after the Closing Date, Parent will provide a copy of such Tax Return to the Shareholder Representative for its review and comment at least 15 days prior to filing such Tax Return. All reasonable comments of the Shareholder Representative will be incorporated in such Tax Return if such comments are consistent with past practice as in effect immediately prior to the Closing Date, and if the failure to incorporate such comments could reasonably be expected to have a material adverse effect on any individual who was a shareholder or employee of the Company immediately prior to the Closing Date. All other reasonable comments of the Shareholder Representative will be considered in good faith for inclusion in such Tax Return by the Company. Prior to the Closing, Company shall advise Parent of the amount of any Tax withholding obligation of the Company or any Subsidiary of the Company arising in connection with the transactions contemplated by this Agreement, which information the Parent will rely upon for purposes of withholding from the Merger Consideration and causing the Company to withhold as required.

(d) on or prior to the Closing Date, MHRx shall cause the Limited Liability Company Agreement of MHRx LLC (the "LLC Agreement") to be amended to provide that the proviso to Section 4.4(a)(B)(iii) of the LLC Agreement that was added by Amendment No. 1 to the LLC Agreement will be amended to delete the existing parenthetical: "(it being agreed by the Company and Charles E. Hallberg that any such amounts distributable to Charles E. Hallberg shall be treated as a guaranteed payment under Section 707(c) of the Code when paid)" and to provide that any consideration received by Charles E. Hallberg with respect to his Class D Units in excess of the pro rata consideration received by other holders with respect to their Class D Units will be treated either as a guaranteed payment by MHRx under Section 707(c) of the Code or as a payment of compensation by the Company.

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Section 5.12 Preparation of the Registration Statement and the Proxy Statement/Prospectus; Shareholder Meeting.

(a) As soon as practicable following the date of this Agreement (but in any event no later than twenty (20) Business Days after the date of this Agreement), Parent and the Company shall prepare in accordance with the provisions of the Securities Act and the Exchange Act, as applicable, and Parent shall file with the SEC the Registration Statement and the Proxy Statement/Prospectus. The Proxy Statement/Prospectus will be included in and will constitute a part of the Registration Statement. The parties will cooperate with each other in connection with the preparation of the Registration Statement and the Proxy Statement/Prospectus. Each of the parties shall be provided with reasonable opportunity to review and comment on drafts of the Registration Statement and the Proxy Statement/Prospectus (including each amendment or supplement thereto) and all responses to requests for additional information by and replies to comments of the SEC, prior to filing such with or sending such to the SEC, and Parent will provide the Company with copies of all such filings made and correspondence with the SEC. Parent shall include in any such documents or responses all comments reasonably proposed by the Company and shall not file, mail or otherwise deliver such document or respond to the SEC or the staff of the SEC over the Company's reasonable objection. Parent will as promptly as practicable notify the Company of (i) the receipt of any oral or written comments from the SEC with respect to the Registration Statement or the Proxy Statement/Prospectus, (ii) any request by the SEC for any amendment to the Registration Statement or the Proxy Statement/Prospectus or comments thereon and responses thereto or requests from the SEC for additional information, (iii) the time at which the Registration Statement has become effective or any supplement or amendment has been filed with the SEC, (iv) the issuance of any stop order or (v) the suspension of the qualification of the Parent Shares issuable in connection with the transactions contemplated by this Agreement for offering or sale in any jurisdiction.

(b) Parent will use its commercially reasonable efforts to have the Registration Statement declared effective and the Proxy Statement/Prospectus cleared by the SEC as soon as practicable after the date hereof and to keep the Registration Statement effective as long as is necessary to consummate the transactions contemplated by this Agreement. Prior to the First Merger Effective Time, Parent shall take all or any action reasonably required under Legal Requirements pertaining to applicable state securities laws in connection with the issuance of the Parent Shares. Each of Parent and the Company shall furnish all information concerning itself as the other may reasonably request in connection with such actions and the preparation of the Registration Statement and the Proxy Statement/Prospectus. As promptly as practicable, but in no event later than the third Business Day after the Registration Statement is declared effective under the Securities Act, each of Parent and the Company shall mail or cause to be mailed the Proxy Statement/Prospectus to its shareholders.

(c) If at any time prior to the First Merger Effective Time (in the case of the Registration Statement) or the Parent Shareholder Meeting Date (in the case of the Proxy Statement/Prospectus), any information should be discovered by any party hereto which should be set forth in an amendment or supplement to the Registration Statement or the Proxy Statement/Prospectus so that the Registration Statement or the Proxy Statement/Prospectus, as the case may be, would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light

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of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and, to the extent required by applicable Legal Requirement, the parties will cooperate with each other in connection with the preparation of an appropriate amendment or supplement describing such information, which amendment or supplement will be promptly filed by Parent with the SEC and, in the case of any amendment or supplement to the Proxy Statement/Prospectus, disseminated to the shareholders of Parent and the Company.

(d) Parent shall, acting through its Board of Directors and in accordance with applicable Legal Requirements and the Certificate of Incorporation and the Bylaws of Parent, (i) duly call, give notice of, convene and hold the Parent Shareholder Meeting as promptly as practicable for the purpose of obtaining the Required Parent Shareholder Approval, (ii) use its commercially reasonable efforts to hold the Parent Shareholder Meeting as soon as practicable after the date on which the Registration Statement is declared effective under the Securities Act and (iii) shall in any event hold the Parent Shareholder Meeting within forty-five (45) days after such effective date. Parent shall solicit proxies in favor of the Required Parent Shareholder Approval and shall take all other commercially reasonable action necessary or advisable to secure the Required Parent Shareholder Approval in accordance with all applicable Legal Requirements and its Governing Documents. The Proxy Statement/Prospectus shall include the recommendation of the Board of Directors of Parent to the stockholders of Parent to vote in favor of the Parent Charter Vote and the issuance of the Parent Shares (the "Parent Board Recommendation") and neither the Board of Directors of Parent nor any committee thereof shall withhold or withdraw or amend, modify or change in any manner adverse to the Company, or propose to withhold or withdraw or adversely amend, modify or change, the Parent Board Recommendation.

Section 5.13 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 issuance and delivery of Parent Shares) or to the ownership and voting of such securities and (ii) if any such anti-takeover statute or similar statute or regulation becomes applicable to the Transactions or to the ownership or voting of any such securities, take all action necessary to ensure that the Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Transactions and the ownership and voting of such securities.

Section 5.14 Nasdaq National Market Listing. Parent shall promptly prepare and file with Nasdaq a Notification Form for Listing Additional Shares with respect to the shares of Parent Common Stock to be issued pursuant to this Agreement, and shall use its reasonable efforts to obtain, prior to the First Merger Effective Time, approval for the listing of such shares of Parent Common Stock, subject only to official notice to Nasdaq of issuance, and the Company shall cooperate with Parent with respect to such filing.

Section 5.15 Affiliate Agreements. The Company shall use its reasonable efforts to cause each Person that could reasonably be deemed to be an "affiliate" of the Company prior to Closing, as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, to

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execute and deliver to Parent, as promptly as practicable after the execution of this Agreement, an Affiliate Agreement in the form attached hereto as Exhibit 5.15.

Section 5.16

Shareholder Representative.

(a) Appointment. By execution and delivery of a Joinder Agreement and acceptance of the Initial Merger Consideration payable pursuant to Section 2.6, MHRx and the members of MHRx receiving Initial Merger Consideration pursuant to Article 2 hereby appoint WCAS IX as the Shareholder Representative (the "Shareholder Representative") to act as the exclusive agent, proxy and attorney-in-fact for the holders of Company Common Stock (including each Indemnifying Member) for all purposes under this Agreement. Without limiting the generality of the foregoing, the Shareholder Representative is authorized and empowered to:

(i) to execute and deliver the Escrow Agreement, to give and receive notices and communications, to authorize delivery to Parent of assets from the Escrow Fund in satisfaction of claims by Parent;

(ii) take all actions on behalf of each holder of Company Common Stock (including each Indemnifying Member) in connection with any claims made hereunder to defend or settle such claims, including under Section 8.2 and to make or receive and disburse payments in respect of such claims;

(iii) establish such reserves as the Shareholder Representative may from time to time determine, in its sole discretion, to be necessary and desirable in connection with the expenses and other costs to be borne by the Shareholder Representative, MHRx or its members hereunder (including each Indemnifying Member), and to pay such reserves or direct Parent to make payment of such amounts to be applied to such reserves in lieu of the payment to MHRx or its members hereunder; and

(iv) take all other actions to be taken by or on behalf of any holder of Company Common Stock (including each Indemnifying Member) and exercise any and all rights that any holder of Company Common Stock (including each Indemnifying Member) is permitted or required to do or exercise under this Agreement.

(b) Actions Binding. All decisions and actions by the Shareholder Representative will be binding upon each holder of Company Common Stock (including each Indemnifying Member) and no holder of Company Common Stock will have the right to object, dissent, protest or otherwise contest the same. Parent will be able to rely conclusively on the written instructions of the Shareholder Representative as to such decisions and actions taken by the Shareholder Representative hereunder.

(c) Liability. The Shareholder Representative will not be liable for any action taken by the Shareholder Representative in good faith pursuant to this Agreement, and shall only be liable for acts or omissions which constitute gross negligence or intentional misconduct of the Shareholder Representative. The Shareholder Representative will be entitled to be compensated by the holders of Company Common Stock (including the Indemnifying Members) for any and

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all actions, liabilities, losses, damages, fines, penalties, fees, costs, expenses or amounts paid in settlement (in each case, including reasonable attorneys' fees and expenses), whether or not involving a third party, arising as a result of its serving as the Shareholder Representative, including those incurred by the Shareholder Representative or the Affiliates of the Shareholder Representative or any agents or representatives of the Shareholder Representative or such Affiliates in connection with the protection, defense, enforcement or other expense of any rights under this Agreement. Any and all payments made by or on behalf of an holders of Company Common Stock (including the Indemnifying Members) under this Section 5.16(c) will be made free and clear of any present or future taxes, deductions, charges or withholdings and all liabilities with respect thereto. The Shareholder Representative is serving in that capacity solely for purposes of administrative convenience, and is not personally liable in such capacity for any of the obligations of MHRx, the Company or the holders of Company Common Stock (including the Indemnifying Members) hereunder and Parent agrees that it will not look to the Shareholder Representative, acting in such capacity, for the satisfaction of any obligations to be performed by MHRx, the Company or the holders of Company Common Stock (including the Indemnifying Members) hereunder.

Section 5.17 Payoff Letters; Release of Liens. The Company shall use its commercially reasonable efforts to obtain payoff letters and related lien releases in customary form as may be reasonably requested by any Lender.

Section 5.18 Joinder Agreements. The Company shall use its commercially reasonable efforts to obtain executed Joinder Agreements from those members of MHRx who did not execute such an agreement as of the date hereof.

Section 5.19 FIRPTA Certificate. If Parent does not receive a properly executed statement in a form reasonably acceptable to Parent for purposes of permitting Parent not to withhold tax as provided for under the Treasury regulations promulgated under Section 1445 of the Code, then Parent shall be permitted to withhold from the payments to be made pursuant to this Agreement any required withholding tax under Section 1445 of the Code.

Section 5.20 Financing. Parent shall use its reasonable best efforts to consummate the Financing no later than the second Business Day following the satisfaction or waiver of all of the conditions set forth in Article 6 (other than the condition set forth in Section 6.2(d)), including using its reasonable best efforts to (i) timely negotiate any remaining definitive agreements contemplated by the Financing Documents, (ii) satisfy on a timely basis all conditions applicable to Parent and its Subsidiaries in the Financing Documents and any such other definitive agreements and (iii) cause the Lenders and Equity Financing Sources providing such Financing to fund the Financing on the Closing Date, including by exercising all rights and remedies available to it under the Financing Documents or otherwise available to it. In the event any portion of the Equity Financing Sources become unavailable on the terms and conditions contemplated in the Financing Documents for any reason, Parent shall use its reasonable best efforts to arrange to obtain alternative financing from alternative sources on terms not materially less favorable in the aggregate to Parent as promptly as practicable following the occurrence of such event. For purposes of this Section 5.20 and Section 6.2(d), the term "Financing" shall be deemed to include any such alternative financing so obtained or arranged by Parent and the term "Financing Documents" shall be deemed to include any commitment letters or other agreements

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with respect to such alternative financing. Parent shall keep the Company reasonably apprised of material developments relating to the Financing.

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 and the Company 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 the transactions contemplated by this Agreement may not be consummated as herein provided.

(b) Filings and Consents. All material consents, authorizations, orders or approvals of, and filings or registrations with, any state insurance regulators or other Governmental Authority which are required in connection with the consummation of the transactions contemplated by this Agreement, as disclosed in Schedule 6.1(b), shall have been obtained or made and shall be in full force and effect.

(c) HSR Waiting Period. Any waiting period (and any extension thereof) under the HSR Act applicable to the transactions contemplated by this Agreement shall have expired or shall have been terminated.

(d) Required Stockholder Approval. The Required Parent Shareholder Approval shall have been obtained at the Parent Shareholder Meeting in accordance with the New York Business Corporation Law, the Nasdaq Marketplace Rules and the Certificate of Incorporation and Bylaws of Parent.

(e) Approval of CMS. Any approvals of CMS that are necessary in connection with the Mergers shall have been obtained including, if necessary, any related novation of the Company CMS Agreement.

Section 6.2 Conditions to the Obligations of Parent and the Merger Subs. The obligations of Parent and the Merger Subs 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 or the Merger Subs, as applicable, to the extent permitted by applicable law:

(a) Representations and Warranties of the Company. (i) Other than with respect to Sections 3.1, 3.2, 3.5, 3.9(a) (first sentence only), 3.24, 3.25 and 3.26, the representations and warranties made by the Company in Article 3 shall be true and correct (disregarding all qualifications relating to materiality or a Company Material Adverse Effect) as of the date of this Agreement and as of the Closing Date as though such representations and

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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 Company Material Adverse Effect, (ii) the representations and warranties made by the Company in Sections 3.1, 3.2, 3.5, 3.24, 3.25 and 3.26 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 3.9 shall be true and correct in all respects.

(b) Performance of Obligations. The Company shall have duly performed or complied with, in all material respects, all of the covenants, to be performed or complied with by it under the terms of this Agreement prior to or at 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 Company Material Adverse Effect.

(d) Financing. Subject to Section 2.6(a)(iii)(B), Parent shall have obtained the proceeds of the Equity Financing (it being understood and agreed that receipt of the proceeds of the Debt Financing is not a condition to the obligations of the Parent under this Agreement).

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

(i) a certificate of an officer of the Company, 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 6.2(a), (b) and (c) have been satisfied;

(ii) a certified copy of the resolutions of the Company's Board of Directors and shareholders authorizing the execution and delivery of the Agreement and the consummation of the transactions contemplated by this Agreement;

(iii) an opinion of Squire, Sanders & Dempsey L.L.P., dated as of the Closing Date, in the form of Exhibit 6.2(e)(iii).

(iv) letters of resignation from each of the directors of the Company and its Subsidiaries, and of those officers of the Company and its Subsidiaries listed on Schedule 6.2(e)(iv), that Parent has requested their resignation;

(v) a lock-up agreement in the form of Exhibit 6.2(e)(v) from members of MHRx (who, together with those members of MHRx executing and delivering the Shareholders Agreement, shall collectively constitute recipients of

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not less than 95% of the Initial Parent Shares distributed to the members of MHRx at the Closing);

(vi) mutual releases in the form of Exhibit 6.2(e)(vi) from MHRx and members of MHRx (who shall collectively constitute recipients of not less than 95% of the Initial Parent Shares distributed to the members of MHRx at the Closing); and

(vii) the Escrow Agreement, duly executed and delivered by the Shareholder Representative.

Section 6.3 Conditions to the Obligations of the Company and MHRx. The obligations of the Company and MHRx 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 the Company 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, and 4.26, the representations and warranties made by Parent and the Merger Subs 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 and the Merger Subs in Sections 4.1, 4.2, 4.5, 4.21, 4.22, 4.23, 4.24, 4.25, and 4.26 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 and the Merger Subs 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 them under the terms of this Agreement prior to or at the Closing.

(d) Registration of Parent Shares. The Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no

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proceedings for that purpose and no similar proceedings in respect of the Proxy Statement/Prospectus shall have been initiated or threatened by the SEC.

(e) Nasdaq Listing. The Parent Shares shall have been approved for quotation on the Nasdaq Global Select Market, subject to official notice of issuance.

(f) Satisfaction of Securities Purchase Agreement Conditions. Each of the closing conditions set forth in Article 6 of the Securities Purchase Agreement (other than Section 6.1(e) thereof) shall have been satisfied or irrevocably waived.

(g) Charter Amendment. The Charter Amendment shall have been duly filed with, and accepted for filing by, the Secretary of State of the State of New York pursuant to all applicable provisions of the Business Corporation Law of the State of New York, and shall be in full force and effect, and the Company shall have received a copy of such due filing.

(h) Board of Directors. The Board of Directors of Parent shall have been reconstituted as contemplated by the Shareholders Agreement.

(i) Closing Deliveries. Prior to or at the Closing, Parent and/or the applicable Merger Sub shall have delivered to the Company the following closing documents in the form referred to below or otherwise in form and substance reasonably acceptable to the Company:

(i) certificates of officers of each of Parent and each Merger Sub, 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), (c), (d), (e), (f), (g) and (h) have been satisfied;

(ii) certified copies of the resolutions of the board of directors and stockholders of Parent and each Merger Sub authorizing the execution and delivery of the Agreement 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(i)(iii);

(iv) the registration rights agreement in the form of Exhibit 6.3(i)(iv) executed and delivered by Parent (it being understood that, unless MHRx otherwise directs, each Person receiving Stock Merger Consideration hereunder must have been offered an opportunity to become a party to such agreement pursuant to the delivery of an instrument of joinder in form and substance reasonably acceptable to Parent and MHRx);

(v) the shareholders agreement in the form of Exhibit 6.3(i)(v) executed and delivered by Parent and the shareholders of Parent party thereto (the "Shareholders Agreement") (it being understood that, unless MHRx otherwise directs, each Person receiving Stock Merger Consideration hereunder must have been offered an opportunity to become a party to such agreement pursuant to the delivery of an instrument of joinder in form and substance reasonably acceptable to Parent and MHRx); and

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(vi)

the Escrow Agreement, duly executed and delivered by Parent.

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 the Company and Parent;

(b) by either the Company or Parent, if the Closing shall not have been consummated on or before October 7, 2007 (the "Termination Date"), unless extended by written agreement of the Company 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 a proximate cause of the failure of the Closing to occur on or prior to such date; and provided further that the Company or Parent, may extend the Termination Date by not more than sixty (60) days if the Closing does not occur by October 7, 2007 as a result of the failure to satisfy the conditions set forth in Sections 6.1(b), (c) or (e);

(c) by the Company, if there has been a breach of any representation, warranty or covenant made by Parent or either Merger Sub in this Agreement, such that the conditions in Section 6.3 are not capable of being satisfied and which have not been cured by Parent or such Merger Sub, as applicable, within fifteen (15) Business Days after receipt of written notice from the Company requesting such breach to be cured; provided that the right to terminate this Agreement pursuant to this Section 7.1(c) shall not be available to the Company if the failure of the Company to fulfill any of its obligations under this Agreement has been a proximate cause of such breach;

(d) by Parent, if there has been a breach of any representation, warranty or covenant made by the Company in this Agreement, such that the conditions in Section 6.2 are not capable of being satisfied and which have not been cured by the Company within fifteen (15) Business Days after receipt of written notice from Parent requesting such breach to be cured; provided that the right to terminate this Agreement pursuant to this Section 7.1(d) shall not be available to Parent if the failure of Parent to fulfill any of its obligations under this Agreement has been a proximate cause of such breach;

(e) by either the Company 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 by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable;

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(f) by Parent or the Company, if the Parent Shareholder Meeting is held (and not adjourned) and Parent fails to obtain the Required Parent Shareholder Approval at the Parent Shareholder Meeting (or any reconvened meeting after any adjournment thereof); or

(g) by MHRx, if Parent delivers an Equity Shortfall Notice to MHRx pursuant to Section 2.6(a)(iii)(B) hereof.

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), 5.7, 7.2, 8.2, 8.3, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.14, 8.15 and 8.16 (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. All 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 3.1 (first sentence only), 3.2, 3.5, 3.12, 3.15(i), 3.24, 3.25, 3.26, 4.1 (first sentence only), 4.2, 4.5, 4.12, 4.22, 4.24, 4.25 and 4.26, and corresponding representations and warranties in any certificate, shall survive the execution and delivery of this Agreement and the Closing for a period beginning on the Closing Date and ending on the third anniversary of the Closing Date. 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. No claim may be brought hereunder in respect of any covenant or agreement that contemplates performance entirely before or at the Closing unless such claim is brought prior to the twelve month anniversary of the Closing Date.

Section 8.2

Indemnification.

(a) Indemnification by the Company Shareholders. Subject to the limitations set forth in this Article 8, from and after the Closing Date, the shareholders of the Company at the First Merger Effective Time shall indemnify and hold harmless Parent and each of its direct and indirect Affiliates, officers, directors, members, managers, partners, employees, agents and other representatives (collectively, the "Parent Indemnified Persons") solely through the payment to Parent of Escrow Cash and the transfer to Parent of Escrow Shares held in the escrow account

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maintained pursuant to the Escrow Agreement (but only if and to the extent that Escrow Funds are available to satisfy such Losses), 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) (collectively, "Losses"), incurred or suffered by such Parent Indemnified Persons as a result of:

(i) any breach of, or inaccuracy in, any representation or warranty made by MHRx or the Company in this Agreement or in any certificate delivered pursuant to this Agreement, in each case at or before Closing;

(ii) any material breach or violation of any covenant or agreement of MHRx or the Company pursuant to this Agreement at or before Closing; or

(iii) the exercise of dissenters or appraisal rights by any holder of Company Common Stock.

(iv) any fees and expenses (including those of investment bankers, lawyers, accountants and other advisers) incurred by MHRx, the Company or any Subsidiaries of the Company in connection with the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement (the "Seller Transaction Expenses") to the extent such Seller Transactions Expenses are not paid out of the Initial Cash Merger Consideration as contemplated by Section 8.6.

For the purposes of clause (i) of this Section 8.2(a), the representations and warranties of the Company contained in Article 3 of this Agreement (other than the first sentence of Section 3.9) 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 "Company Material Adverse Effect", were deleted therefrom in determining whether there has been a breach of any such representation or warranty.

(b) Subject to the limitations set forth in this Article 8, from and after the Closing Date, the members of MHRx (or beneficiaries of trusts who are members of MHRx) who are party to Joinder Agreements (each, an "Indemnifying Member" and collectively, the "Indemnifying Members") shall indemnify and hold harmless each of the Parent Indemnified Persons from, against and in respect of such Indemnifying Member's Indemnification Percentage of any and all Losses (x) incurred or suffered by such Parent Indemnified Persons as a result of any breach of, or inaccuracy in, any representation or warranty made by the Company in Section 3.1 (first sentence only), 3.2, 3.5, 3.12, 3.15(i), 3.24, 3.25 or 3.26 or (y) subject to indemnification under Section 8.2(a)(iv), in either case, only to the extent the Parent Indemnified Persons cannot recover such Losses from the Escrow Fund under Section 8.2(a) as a result of the Escrow Fund being insufficient to satisfy such Losses.

(c) Indemnification by Parent. Subject to the limitations set forth in this Article 8, from and after the Closing Date, Parent shall indemnify and hold harmless each of the shareholders of the Company at the First Merger Effective Time and each of the Indemnifying Members and each of their respective direct and indirect Affiliates, officers, directors, members,

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managers, partners, employees, agents and other representatives (collectively, the "MHRx Indemnified Persons"), from, against and in respect of any and all Losses, incurred or suffered by such MHRx Indemnified Persons as a result of:

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

(ii) any material breach or violation of any covenant or agreement of Parent or the Merger Subs pursuant to this Agreement; or

(iii) any material breach or violation of any covenant or agreement of the Second Merger Surviving Entity after the Closing.

For the purposes of clause (i) of this Section 8.2(c), the representations and warranties of Parent contained in Article 4 of this Agreement (other than the first sentence of Section 4.9) 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.

(d)

Limitations on Liability.

(i) Other than with respect to Losses subject to indemnification under Section 8.2(a)(iv), neither the Parent Indemnified Persons nor the MHRx Indemnified Persons shall be entitled to assert any claim for indemnification under this Article 8 with respect to a single course of conduct or related set of circumstances, occurrences or events unless the Losses arising therefrom exceed $150,000 (any Losses in excess of such amounts being referred to herein as "Indemnifiable Losses").

(ii) Other than with respect to Losses subject to indemnification under Section 8.2(a)(iii) or Section 8.2(a)(iv), neither the Parent Indemnified Persons (in respect of Sections 8.2(a) and 8.2(b)) nor the MHRx Indemnified Persons (in respect of Section 8.2(c)) shall be entitled to assert any claim for indemnification hereunder until such time as the aggregate of all Indemnifiable Losses that such Parent Indemnified Persons or such MHRx Indemnified Persons may have under Section 8.2(a), Section 8.2(b) or Section 8.2(c), as the case may be, exceed $10,000,000, and then only for the amount by which such claims exceed such deductible amount.

(iii) The maximum liability of each Indemnifying Member for any Indemnified Loss under Section 8.2(b) shall not exceed the amount of such Indemnified Loss multiplied by the Indemnification Percentage of such Indemnifying Member. For purposes of this Agreement, "Indemnification Percentage" means a fraction, the numerator of which is such Indemnifying Member's pro rata share of the Initial Merger Consideration, and the denominator

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of which is the aggregate Initial Merger Consideration payable to all Indemnifying Members.

(iv) The maximum aggregate liability of all Indemnifying Members for indemnification claims under Sections 8.2(a) and 8.2(b) shall be limited to the Purchase Price.

(v) The maximum aggregate liability of Parent for indemnification claims under this Article 8 shall be limited to $31,500,000, except with respect to indemnification under Section 8.2(c)(i) in respect of breaches of the representations and warranties contained in Sections 4.1 (first sentence only), 4.2, 4.5, 4.12, 4.22, 4.23, 4.24, 4.25 and 4.26 (for which liability will be limited to an amount equal to the Purchase Price).

(vi) The amount of Losses for which indemnification is available under this Article 8 shall be calculated to appropriately take into account the amount of Tax Benefits (as defined below) actually realized by the Person entitled to seek indemnification hereunder (the "Indemnified Person"), through (x) a reduction in cash Tax payments required to be made by the Indemnified Person or any of its Affiliates, (y) an offset against Taxes otherwise actually payable in cash by the Indemnified Person or any of its Affiliates or (z) the receipt of Tax refunds in cash by the Indemnified Person of any of its Affiliates (collectively, "Tax Benefits"), in each case, which Tax Benefits result from, or arise from the same circumstances as, the Losses. If the Indemnified Person is liable for any additional Taxes as a result of the payment of amounts in respect of a Loss, the Indemnifying Party (as defined below) will pay an additional amount such that the Indemnified Person shall have received from the Indemnifying Party, net of the payment of Taxes, an amount equal to the Loss. In addition, the amount of Losses for which indemnification is available under this Article 8 shall be calculated net of any amounts actually recovered by the Indemnified Person under insurance policies with respect to such Losses. The Second Merger Surviving Entity shall use commercially reasonable efforts to seek full recovery, to the fullest extent possible, under all insurance policies covering any Losses to the same extent as it would if such Losses were not subject to indemnification hereunder, and the Second Merger Surviving Entity shall not take steps to terminate or cancel any occurrence-based insurance policies of the Company in effect for periods prior to the Closing. In the event that any party required to provide indemnification under this Article 8 (the "Indemnifying Party") makes any payment hereunder in respect of any Losses, such Indemnifying Party shall be subrogated, to the extent of such payment to the rights of such Indemnified Person against any insurer (to the extent permitted under applicable insurance policies) or other third Persons with respect to such Losses. In addition, the amount of Losses for which indemnification is available under this Article 8 shall be net of all related reserves reflected on the Latest Company Balance Sheet or the Latest Parent Balance Sheet, as applicable, each as adjusted through the Closing Date to give effect to the passage of time and, in respect of Losses subject to indemnification under Section 8.2(a) or 8.2(b) relating to Taxes, net of any

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Indemnifiable Tax Benefits (as defined below) actually realized by Parent or any of its Affiliates with respect to any net operating losses available to the Company or any of its Subsidiaries as of the close of business on December 31, 2006; it being understood that to the extent that Parent or any of its Affiliates actually realize any such Indemnifiable Tax Benefit after receiving an indemnification payment for any Losses relating to Taxes, Parent shall remit to the Shareholder Representative an amount equal to the amount of any such Indemnifiable Tax Benefit to the extent that the amount of such Indemnifiable Tax Benefit does not exceed the cumulative indemnification payments relating to Taxes received by Parent and any of its Affiliates and not previously offset by Indemnifiable Tax Benefits. An "Indemnifiable Tax Benefit" shall mean any Tax Benefit or Tax Benefits relating to net operating losses, that alone exceeds or in the aggregate exceed $150,000, it being understood that the full amount of any Indemnifiable Tax Benefit, including the amount below $150,000, shall be recoverable by the Shareholder Representative as provided in this Section 8.2(d)(vi). After the Closing, upon and after becoming aware of any event or circumstance that could reasonably be expected to give rise to any Losses with respect to which indemnification may be required hereunder, the Parent Indemnified Persons or MHRx Indemnified Persons, as the case may be, will use their commercially reasonable efforts to mitigate all Losses pursuant to which indemnification is available hereunder (including, with respect to any claim based on a breach of the representation set forth in Section 3.12(l), by first pursuing any rights against Persons receiving the compensation for which withholdings were not made prior to making any indemnification claim hereunder).

(vii) No party will in any event be liable under this Article 8, and no claim for indemnification may in any event be asserted under this Article 8, for any loss of profits or earnings, or any punitive, indirect, incidental or consequential damages by reason of a breach of any representation, warranty, covenant or indemnity contained herein; provided that the foregoing is not intended to limit recovery of amounts paid by an Indemnified Person in connection with the defense, settlement or other resolution of any Third Party Claim (including any punitive, indirect, incidental or consequential damages paid by an Indemnified Person to any third party).

(viii) For the avoidance of doubt, in no event will any Indemnifying Member have any indemnification obligation under this Section 8.2 relating to Taxes on the Reserve Adjusted Net CMS Reconciliation Amount received by the Company.

(e)

Payment of Claims.

(i) Subject to Section 2.14, if Section 8.2(a) requires that an Indemnifiable Loss be satisfied from the Escrow Fund, (i) a total number of Escrow Shares equal to the lesser of (x) the total number of Escrow Shares remaining in the Escrow Fund and (y) a number of Escrow Shares determined by dividing 45% of such Indemnifiable Loss by the Fair Market Value of a share of

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Parent Common Stock (provided that if the Parent Common Stock is then traded on the NASDAQ Global Select Market, such Fair Market Value shall be determined by reference to the average of the high and low trading price of the Parent Common Stock on a ten trailing day average basis for the last ten trading days immediately preceding the date such Indemnifiable Loss became payable under Section 8.2(a) and (ii) Escrow Cash, in an amount equal to the lesser of (x) the amount of Escrow Cash remaining in the Escrow Fund and (y) such amount of the Indemnifiable Loss that is not paid in Escrow Shares pursuant to clause (i) above (valued as provided above), shall be paid from the Escrow Fund to Parent. Subject to Section 2.14, to the extent that the amount of Escrow Shares or Escrow Cash remaining in the Escrow Fund is insufficient to pay the portion of an Indemnifiable Loss pursuant to clause (i) or clause (ii), as the case may be, of the previous sentence in its entirety, and Escrow Shares or Escrow Cash remain in the Escrow Fund at such time, the remaining Escrow Shares or Escrow Cash shall be used to satisfy the remainder of such Indemnifiable Loss.

(ii) Subject to Section 2.14, if Section 8.2(b) or Section 8.2(c) requires that an Indemnifiable Loss be satisfied other than from the Escrow Fund, such Indemnifiable Loss shall be satisfied by means of the delivery to the Indemnified Person of (i) a total number of shares of Parent Common Stock determined by dividing 45% of such Indemnifiable Loss by the Fair Market Value of a share of Parent Common Stock (provided that if the Parent Common Stock is then traded on the NASDAQ Global Select Market, such Fair Market Value shall be determined by reference to the average of the high and low trading price of the Parent Common Stock on a ten trailing day average basis for the last ten trading days immediately preceding the date such Indemnifiable Loss became payable under Section 8.2(b) or Section 8.2(c), as applicable), and (ii) cash (by wire transfer of immediately available funds to an account or accounts designated by the Indemnified Person, in an amount equal to such amount of the Indemnifiable Loss that is not paid in shares of Parent Common Stock; provided, however, that any Indemnifying Member that is obligated to make an indemnification payment to Parent pursuant to Section 8.2(b) may, at its election, pay more than 55% of such payment amount by wire transfer of immediately available funds. In the event that Parent or any other Parent Indemnified Person proposes to make any claim for indemnification pursuant to Section 8.2(b), the Indemnified Person making the claim shall give notice to the Shareholder Representative (which notice shall be given, as soon as reasonably practical after the Parent Indemnified Person determines in good faith that it is entitled to bring such claim). Any such notice shall describe the facts giving rise to the claim in reasonable detail (in light of the circumstance known at the time).

(f)

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

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notice thereof to the Indemnifying Party; provided, that no delay on the part of the Indemnified Person in notifying the Indemnifying Party will relieve the Indemnifying Party 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(f)(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, except in the case of Third Party Claims involving Taxes under the special circumstances described in clause (v) below in which such clause (v) shall govern. 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 Party 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. For the avoidance of doubt, any amounts incurred in connection with the defense, settlement or other resolution of any Third Party Claims shall be deemed to be Losses for purposes of the limitations set forth in Section 8.2(d).

(iii) Indemnified Person's Control. If the Indemnifying Party does not deliver the notice contemplated by Section 8.2(f)(ii) within twenty (20) days after the Indemnified Person has given notice of the Third Party Claim pursuant to Section 8.2(f)(i), the Indemnified Person 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; provided, that the Indemnifying Party will not be bound by the entry of any such judgment consented to, or any such compromise or settlement effected, without its prior written consent (which consent will not be unreasonably withheld or delayed).

(iv) Remedies Exclusive. The parties agree that, except as otherwise expressly provided in Section 8.15, from and after the Closing the remedies provided for in this Article 8 shall constitute the sole and exclusive remedy for all Losses that any such party may suffer or incur arising from or relating to this Agreement or the transactions contemplated hereby and the parties hereto hereby waive any other rights or remedies that may arise under any applicable Legal Requirements and any equitable remedies (provided that the foregoing shall not be deemed to in any way limit the rights or remedies of any MHRx Indemnified Person (or Affiliate thereof) who is a participant in the Equity Financing under Securities Purchase Agreement or any other documents or agreements relating thereto).

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(v) Certain Third Party Claims Involving Taxes. If the Third Party Claim involves a Tax dispute that (A) includes a Tax for which the Indemnified Person could be liable but for which no indemnity is available hereunder, (B) the amount of Tax at issue in clause (A) is larger than the Loss at issue (taking into account any reasonably anticipated netting effects pursuant to Section 8.2(d) hereof), and (C) the two Tax issues cannot be segregated or severed and defended separately, then, the Indemnified Person shall control the defense of the Third Party Claim, although the Indemnifying Party shall have the right to participate in such defense, including (with the Indemnified Person's consent, not to be unreasonably withheld) the right to participate on a face-to-face basis in any audit, administrative appeal, court proceeding or settlement discussions, all at its own cost and expense. Subject to such continuing participation, the Indemnified Person may consent to the entry of any judgment or enter into any compromise or settlement with respect to the Third Party Claim; provided, that the Indemnified Person and the Indemnifying Party shall consult in good faith about any such judgment, compromise or settlement. If the parties are not able to agree on the disposition of the Third Party Claim, the parties will again attempt to sever from such Third Party Claim any dispute regarding any Tax described in clause (A) of this clause (v). If such attempted severance occurs, the Indemnifying Party will take over the defense of the Third Party Claim. If such attempted severance does not occur, the Indemnified Person has the ultimate right to decide on the disposition of the Third Party Claim, provided that if the Indemnifying Party objects in writing to the judgment, compromise, or settlement, then the Indemnifying Party may take over the defense of the Third Party Claim, in which case the Indemnifying Party shall be liable to the Indemnified Person for the full amount by which the judgment, compromise or settlement exceeds the amount that would have been obtained in the original judgment, compromise, or settlement (to which the Indemnifying Party objected). If the defense of the Third Party Claim conducted by the Indemnifying Party results in a judgment, compromise or settlement amount that is less than the amount that would have been obtained in the original judgment, compromise or settlement (to which the Indemnifying Party objected), then the Indemnifying Party may offset any Indemnifiable Loss otherwise due to the Indemnified Person by the difference between such amounts. The principles of the foregoing procedures shall also apply to the right to participation, defense and disposition of Third Party Claims in which clauses (A) and (C) hereof apply (but not (B)). Other than with respect to the foregoing provisions of this clause (v), the provisions of clauses (i)-(iii) above shall govern.

(g) Tax Treatment. The parties will treat any payment received pursuant to this Article 8 as an adjustment to the Merger Consideration 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

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delivered personally, or by facsimile, or if mailed, two (2) days after the date of mailing, as follows:

If to Parent or either Merger Sub:

Universal American Financial Corp.

6 International Drive

Rye Brook, NY 10573-1068

Attention: Lisa M. Spivack, Esq.

Telephone: (914) 934-5200

Facsimile: (914) 934-0700

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

Dechert LLP

30 Rockefeller Plaza

New York, NY 10112

Attention: Gerald Adler, Esq.

Telephone: (212) 698-3679

Facsimile: (212) 698-3599

If to the Company or MHRx prior to Closing:

MemberHealth, Inc.

29100 Aurora Road

Solon, Ohio 44139

Telephone number: (440) 248-8448

Facsimile number: (440) 248-9644

Attention: Charles E. Hallberg and Jane Koehl-Colling, Esq.

and

Welsh, Carson, Anderson & Stowe

320 Park Avenue, Suite 2500

New York, New York 10022-6815

Telephone number: (212) 893-9500

Facsimile number: (212) 893-9583

Attention: Sean M. Traynor

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

Squire, Sanders & Dempsey L.L.P.

4900 Key Tower

127 Public Square

Cleveland, Ohio 44114

Telephone number: (216) 479-8500

Facsimile number: (216) 479-8780

Attention: Daniel G. Berick, Esq.

and

Ropes & Gray LLP

1211 Avenue of the Americas

New York, New York 10036

Telephone number: (212) 596-9000

Facsimile number: (212) 596-9090

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

If to the Shareholder Representative, to it:

c/o Welsh, Carson, Anderson & Stowe

320 Park Avenue, Suite 2500

New York, New York 10022-6815

Telephone number: (212) 893-9500

Facsimile number: (212) 893-9583

Attention: Sean M. Traynor

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

Ropes & Gray LLP

1211 Avenue of the Americas

New York, New York 10036

Telephone number: (212) 596-9000

Facsimile number: (212) 596-9090

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

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

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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. Except as otherwise set forth in this Agreement, and subject to Section 8.2(a)(iv), regardless of whether the transactions provided for in this Agreement are consummated, each party hereto shall pay its own expenses incident to this Agreement; provided, that if the transactions contemplated by this Agreement are completed, at the Closing the parties shall pay all Seller Transaction Expenses as directed by MHRx out of the Initial Cash Merger Consideration (and the associated reduction of the Initial Cash Merger Consideration by the amount of such fees and expenses will be treated as an adjustment to the Cash Merger Consideration for Tax and financial reporting purposes).

Section 8.7 Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the schedules and exhibits 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. Except as otherwise provided in Sections 2.12 and 2.13, 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

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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 the Company, Parent and Merger Sub shall be permitted to make a collateral assignment of this Agreement to any financial institution and Merger Sub may assign its rights hereunder to one or more wholly-owned Subsidiaries of Parent or Merger Sub upon written notice of such assignment to the Company, it being understood that no assignment of this Agreement shall relieve the transferor of any of its obligations hereunder. Notwithstanding the foregoing, no assignment shall be permitted that could reasonably be expected to impact the tax treatment of the Mergers. 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. Except as set forth in Section 5.10, and except for the rights of the holders of Certificates hereunder, 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, 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.

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), the Parent Confidentiality Agreement and the Company 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.

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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 by action taken by or on behalf of their respective Boards of Directors (or similar governing body) 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.

* * * * * * *

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

UNIVERSAL AMERICAN FINANCIAL CORP.
By:
	Name: Title:
MH ACQUISITION I CORP.
By:
	Name: Title:
MH ACQUISITION II LLC
By:
	Name: Title:
MEMBERHEALTH, INC.
By:
	Name: Title:

[Signature Page to Merger Agreement]

MHRx LLC
By:
	Name: Title:
WELSH, CARSON, ANDERSON & STOWE IX, L.P., as Shareholder Representative
BY: WCAS ASSOCIATES IX, LLC, its General Partner
By:
	Name: Sean M. Traynor Title: Managing Member

[Signature Page to Merger Agreement]

EX-99 5 ex99d_091907-rgag.htm EXHIBIT D

Exhibit D

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

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

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

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

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

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:

(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

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

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

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

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

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

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

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,

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

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]

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 Barasch
Name: Richard Barasch Title: CEO
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 Rotberg
Name: Joseph Rotberg Title: CFO
PERRY PARTNERS, L.P.,
By: PERRY CORP., its General Partner
By:	/s/ Michael Neus
Name: Michael Neus Title: General Counsel

PERRY PARTNERS INTERNATIONAL, INC.
By: PERRY CORP., its Investment Manager
By:	/s/ Michael Neus
Name: Michael 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 Neus
Name: Michael 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 Neus
Name: Michael Neus Title: General Counsel
WELSH, CARSON, ANDERSON & STOWE, IX, L.P.,
By: WCAS X ASSOCIATES, LLC, its General Partner
By:	/s/ Sean Traynor
Name: Sean Traynor Title: Managing Member
WELSH, CARSON, ANDERSON & STOWE, X, L.P.,
By: WCAS X ASSOCIATES, LLC, its General Partner
By:	/s/ Sean Traynor
Name: Sean Traynor Title: Managing Member
/s/ Richard Barasch
Richard Barasch

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

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]

EX-99 6 ex99e_091907-stg1spa.htm EXHIBIT E

Exhibit E

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

Section 1.1

Certain Definitions

Section 1.2

Interpretive Provision

ARTICLE 2

ISSUANCE AND PURCHASE OF CONVERTIBLE SHARES

Section 2.1

Issuance and Purchase of Convertible Shares

Section 2.2

Deliveries

Section 2.3

Closing

ARTICLE 3

INVESTOR REPRESENTATIONS AND WARRANTIES

Section 3.1

Organization, Good Standing, Qualification and Power

Section 3.2

Authority; Execution and Delivery; Enforceability

Section 3.3

Non-contravention

Section 3.4

Consents

Section 3.5

[Intentionally Omitted]

Section 3.6

Brokers

Section 3.7

Acquisition for Investment

Section 3.8

Disclosure of Information

Section 3.9

Restricted Securities

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PARENT

Section 4.1

Organization, Good Standing, Qualification and Power

Section 4.2

Authority; Execution and Delivery; Enforceability

Section 4.3

Non-contravention

Section 4.4

Consents

Section 4.5

Capitalization of Parent; Parent Subsidiaries

Section 4.6

Parent SEC Documents

Section 4.7

No Undisclosed Liabilities

Section 4.8

Title to Tangible Personal Property

Section 4.9

Absence of Certain Developments

Section 4.10

Governmental Authorizations; Licenses; Etc

Section 4.11

Litigation

TABLE OF CONTENTS

(continued)

Page

Section 4.12

Taxes

Section 4.13

Employee Matters

Section 4.14

Employee Benefit Plans

Section 4.15

Intellectual Property Rights

Section 4.16

Contracts

Section 4.17

Insurance

Section 4.18

Real Property

Section 4.19

Transactions With Affiliates

Section 4.20

Financing

Section 4.21

Information Supplied

Section 4.22

Required Parent Shareholder Approval

Section 4.23

Valid Issuance of Parent Shares

Section 4.24

Anti-Takeover Statutes

Section 4.25

Exemption from Registration

Section 4.26

Brokers

Section 4.27

Fairness Opinion; Acknowledgement

Section 4.28

Merger Agreement

ARTICLE 5

COVENANTS AND AGREEMENTS

Section 5.1

Access; Documents and Information

Section 5.2

Certificates of Designations

Section 5.3

Conduct of Business by Parent.

Section 5.4

Closing Documents

Section 5.5

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

Section 5.6

Public Announcements

Section 5.7

Availability of Shares

Section 5.8

Certificates

Section 5.9

Certain Claims

Section 5.10

Certain Tax Matters

Section 5.11

[Intentionally Omitted]

TABLE OF CONTENTS

(continued)

Page

Section 5.12

Anti-Takeover Statutes

Section 5.13

Nasdaq National Market Listing

Section 5.14

Legends

Section 5.15

Use of Proceeds

ARTICLE 6

CONDITIONS TO CLOSING

Section 6.1

Mutual Conditions

Section 6.2

Conditions to the Obligations of Parent

Section 6.3

Conditions to the Obligations of the Investors

Section 6.4

Frustration of Closing Conditions

ARTICLE 7

TERMINATION

Section 7.1

Termination

Section 7.2

Effect of Termination

ARTICLE 8

MISCELLANEOUS

Section 8.1

Survival

Section 8.2

Indemnification

Section 8.3

Notices

Section 8.4

Exhibits and Schedules

Section 8.5

Time of the Essence; Computation of Time

Section 8.6

Expenses and Fees

Section 8.7

Governing Law

Section 8.8

Jurisdiction and Venue; Waiver of Jury Trial

Section 8.9

Assignment; Successors and Assigns; No Third Party Rights

Section 8.10

Counterparts

Section 8.11

Titles and Headings

Section 8.12

Entire Agreement

Section 8.13

Severability

Section 8.14

No Strict Construction

Section 8.15

Specific Performance

Section 8.16

Failure or Indulgence not Waiver

iii

TABLE OF CONTENTS

(continued)

Page

Section 8.17

Amendments

Section 8.18

Nature of Investors’ Obligations and Rights

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;

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”);

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).

“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

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

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.

“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),

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.

“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.

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;

(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.

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).

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

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

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.

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.

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).

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.

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).

(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

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).

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.

(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;

(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

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 4.15

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.

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 4.18

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

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.

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.

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

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):

(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

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;

(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;

(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

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.

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.

(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

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.

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

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:

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.

(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

(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:

(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”);

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.

If to Parent:

Universal American Financial Corp.

6 International Drive

Rye Brook, NY 10573-1068

Attention: Lisa M. Spivack, Esq.

Facsimile: (914) 934-0700

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

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

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 8.6 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

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 8.12 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 8.15 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 8.18

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

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.

* * * * * * *

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 Barasch
Name: Richard Barasch Title: CEO
LEE-UNIVERSAL HOLDINGS, LLC
By:	/s/ Joseph Rotberg
Name: Joseph Rotberg Title: CFO
WELSH, CARSON, ANDERSON & STOWE, X, L.P.,
By: WCAS X ASSOCIATES, LLC, its General Partner
By:	/s/ Sean Traynor
Name: Sean 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 Neus
Name: Michael Neus Title: General Counsel
PERRY PARTNERS INTERNATIONAL, INC.
By: PERRY CORP., its Investment Manager
By:	/s/ Michael Neus
Name: Michael 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 Neus
Name: Michael 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 Neus
Name: Michael Neus Title: General Counsel

EX-99 7 ex99h_091907-stg2pspa.htm EXHIBIT H

Exhibit H

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

Section 1.1

Certain Definitions

Section 1.2

Interpretive Provision

ARTICLE 2

ISSUANCE AND PURCHASE OF CONVERTIBLE SHARES

Section 2.1

Issuance and Purchase of Convertible Shares

Section 2.2

Deliveries

Section 2.3

Closing

ARTICLE 3

INVESTOR REPRESENTATIONS AND WARRANTIES

Section 3.1

Organization, Good Standing, Qualification and Power

Section 3.2

Authority; Execution and Delivery; Enforceability

Section 3.3

Non-contravention

Section 3.4

Consents

Section 3.5

Information Supplied

Section 3.6

Brokers

Section 3.7

Acquisition for Investment

Section 3.8

Disclosure of Information

Section 3.9

Restricted Securities

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PARENT

Section 4.1

Organization, Good Standing, Qualification and Power

Section 4.2

Authority; Execution and Delivery; Enforceability

Section 4.3

Non-contravention

Section 4.4

Consents

Section 4.5

Capitalization of Parent; Parent Subsidiaries

Section 4.6

Parent SEC Documents

Section 4.7

No Undisclosed Liabilities

Section 4.8

Title to Tangible Personal Property

Section 4.9

Absence of Certain Developments

Section 4.10

Governmental Authorizations; Licenses; Etc

Section 4.11

Litigation

TABLE OF CONTENTS

(continued)

Page

Section 4.12

Taxes

Section 4.13

Employee Matters

Section 4.14

Employee Benefit Plans

Section 4.15

Intellectual Property Rights

Section 4.16

Contracts

Section 4.17

Insurance

Section 4.18

Real Property

Section 4.19

Transactions With Affiliates

Section 4.20

Financing

Section 4.21

Information Supplied

Section 4.22

Required Parent Shareholder Approval

Section 4.23

Valid Issuance of Parent Shares

Section 4.24

Anti-Takeover Statutes

Section 4.25

Exemption from Registration

Section 4.26

Brokers

Section 4.27

Fairness Opinion; Acknowledgement

Section 4.28

Merger Agreement

ARTICLE 5

COVENANTS AND AGREEMENTS

Section 5.1

Access; Documents and Information

Section 5.2

Charter Amendment

Section 5.3

Conduct of Business by Parent.

Section 5.4

Closing Documents

Section 5.5

Commercially Reasonable Efforts; Further Assurances

Section 5.6

Public Announcements

Section 5.7

Availability of Shares

Section 5.8

Certificates

Section 5.9

Certain Claims

Section 5.10

Certain Tax Matters

Section 5.11

Preparation of the Proxy Statement; Parent Shareholder Meeting

TABLE OF CONTENTS

(continued)

Page

Section 5.12

Anti-Takeover Statutes

Section 5.13

Nasdaq National Market Listing

Section 5.14

Legends

Section 5.15

Use of Proceeds

Section 5.16

Exchange of Series A Preferred Stock for Series B Preferred Stock

ARTICLE 6

CONDITIONS TO CLOSING

Section 6.1

Mutual Conditions

Section 6.2

Conditions to the Obligations of Parent

Section 6.3

Conditions to the Obligations of the Investors

Section 6.4

Frustration of Closing Conditions

ARTICLE 7

TERMINATION

Section 7.1

Termination

Section 7.2

Effect of Termination

ARTICLE 8

MISCELLANEOUS

Section 8.1

Survival

Section 8.2

Indemnification

Section 8.3

Notices

Section 8.4

Exhibits and Schedules

Section 8.5

Time of the Essence; Computation of Time

Section 8.6

Expenses and Fees

Section 8.7

Governing Law

Section 8.8

Jurisdiction and Venue; Waiver of Jury Trial

Section 8.9

Assignment; Successors and Assigns; No Third Party Rights

Section 8.10

Counterparts

Section 8.11

Titles and Headings

Section 8.12

Entire Agreement

Section 8.13

Severability

Section 8.14

No Strict Construction

Section 8.15

Specific Performance

iii

TABLE OF CONTENTS

(continued)

Page

Section 8.16

Failure or Indulgence not Waiver

Section 8.17

Amendments

Section 8.18

Nature of Investors’ Obligations and Rights

SECURITIES PURCHASE AGREEMENT

RECITALS

WHEREAS, this Agreement is the Securities Purchase Agreement referred to in Section 4.20 of the Merger Agreement;

WHEREAS, the Board of Directors of Parent has duly authorized and approved, and created and provided for the issuance of, (i) 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 (ii) 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 A Preferred Stock and 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 1 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 this 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 1 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 125,000 shares of Series B Preferred Stock (a portion of which may be issued to and purchased by an Investor instead in the form of Series A Preferred Stock at the request of such Investor) (collectively, the “Convertible Shares”), and all shares of common stock, par value $.01 per share, of Parent (“Parent Common Stock”) issuable upon conversion of the Convertible Shares, (ii) the issuance to the Investors pursuant to the Stage 1 Purchase Agreement of an aggregate of 30,473 shares of Series A Preferred Stock and 19,527 shares of Series B Preferred Stock (collectively, the “Stage 1 Shares”), the shares of Series B Preferred Stock for which shares of Series A Preferred Stock may be exchanged as contemplated by the Stage 1 Purchase Agreement, and all shares of Parent Common Stock issuable upon transfer or conversion, as the case may be, of the Stage 1 Shares and shares of Series B Preferred Stock for which shares of Series A Preferred Stock may be exchanged as contemplated by the Stage 1 Purchase Agreement, and (iii) the issuance of the shares of Common Stock contemplated to be issued as merger consideration pursuant to the Merger Agreement as in effect on the date of this Agreement ((i) 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, 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;

by the name of such Investor in Section 2.1 below at a purchase price of $2,000 per Convertible Share;

WHEREAS, Parent will apply the proceeds from the sale of the Convertible Shares to the Investors pursuant to this Agreement to payment of the cash portion of the merger consideration under the Merger Agreement and payment of fees and expenses incurred by Parent in connection with the consummation of the Transactions, and the balance for general corporate purposes;

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 Consents” has the meaning set forth in Section 5.16(b).

“A/B Preferred Exchange” has the meaning set forth in Section 5.16(a).

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

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

“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).

“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(a).

“Contracts” means the Parent Contracts.

"Conversion Shares" means the shares of Parent Common Stock issuable upon conversion of (i) the Convertible Shares, (ii) the Stage 1 Shares, (iii) the shares of Series B Preferred Stock that may be issued in exchange for the Stage 1 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.

“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(a).

“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 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.

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

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

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.

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

“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.

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

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

“Parent Board Recommendation” has the meaning set forth in Section 5.11(d).