7. EQUITY TRANSACTIONS

Share Purchase Agreement with Capital Z Financial Services Fund II, L.P.

On December 31, 1998, the Company executed a Share Purchase Agreement ("UA Purchase Agreement") with Capital Z Financial Services Fund II, L.P. ("Capital Z"), which was amended on July 2, 1999. Under the amended agreement, Capital Z agreed to purchase up to 28,888,888 shares of Universal American common stock for a purchase price of up to $91.0 million (the "Capital Z Transaction") subject to adjustment as outlined in the UA Purchase Agreement. The UA Purchase Agreement received the approvals of the Florida, New York and Texas Insurance Departments (the states in which Universal American's insurance subsidiaries prior to the 1999 Acquisition were domiciled). The stockholder approvals required for the closing of the UA Purchase Agreement were given on July 27, 1999.

On July 30, 1999, the Capital Z Transaction closed with Capital Z purchasing 25,707,552 shares of common stock for $80,978,790 ($3.15 per share). As contemplated by the UA Purchase Agreement, certain members of management and agents of Universal American and of the companies acquired on July 30, 1999 and holders of Series C Preferred Stock preemptive rights purchased 3,753,189 shares of common stock for $11,822,545 ($3.15 per share). The total number of shares issued amounted to 29,460,741 for total proceeds of $92,801,334. The Company provided loans to certain members of management to purchase the shares of common stock. The total amount of the loans of $967,000 was accounted for as a reduction in paid-in capital in the financial statements. The transaction expenses incurred with the UA Purchase Agreement amounted to $6,963,662 and were charged to paid-in capital. Included in these transaction expenses was a transaction fee and expense reimbursement of $5,120,896 paid to an affiliate of Capital Z, of which $1,375,000 was paid by issuing 436,508 shares of common stock of the Company ($3.15 per share). In addition, the Company recorded an expense of $1.7 million to record the difference between the purchase price of the stock purchased by employees and agents of the Company and the fair value of the stock on the closing date.

Shareholders' Agreement

Universal American, Capital Z, UAFC L.P. ("AAM") (an unaffiliated investment firm), Richard Barasch (the Chairman and Chief Executive Officer of the Company) and several other shareholders of Universal American entered into a shareholders' agreement on July 30, 1999 (the "Shareholders' Agreement"). The Shareholders' Agreement requires that all proposed sales/transfers by the other shareholders who are party to the Shareholders' Agreement must first be offered to Richard Barasch and Capital Z, including its affiliates. However, pledges and some other transfers by any party to the Shareholders' Agreement of less than 1% of Universal American's outstanding common stock at any one time, or 2.5% when aggregated with the other transfers by the shareholder and his, her or its permitted transferees of Universal American's outstanding common stock, are permitted. In addition, Richard Barasch is not permitted to sell more than 3% of his holdings for a three-year period beginning July 30, 1999. The Shareholders' Agreement provides for tag-along and drag-along rights under some circumstances. "Tag-along rights" allow the holder of stock to include his, her or its stock in a sale of common stock initiated by another party to the Shareholders' Agreement. "Drag-along rights" permit a selling party to the Shareholders' Agreement to force the other parties to the Shareholders' Agreement to sell a proportion of the other holder's shares in a sale arranged by the selling shareholder. Under the terms of the Shareholders' Agreement, of the nine members of Universal American's board of directors, certain shareholders are permitted to nominate directors as follows: Capital Z: four, Richard Barasch: two, AAM: one and Universal American: two. Capital Z, Richard Barasch and AAM are each required to vote for the director( s) nominated by the others. The right of Richard Barasch to nominate directors is also conditioned upon his continued employment with Universal American. In addition, the right to nominate directors is not transferable, except that Capital Z may transfer its right to a third-party buyer who acquires 10% or more of the outstanding common stock of Universal American from Capital Z.

Each party to the Shareholders' Agreement has agreed for two years following the closing not to vote his or its shares in favor of a merger where Universal American's shareholders would receive consideration other than in the form of shares of the surviving entity.

Conversion of Preferred Stock

Under the terms of the Series C Preferred Stock, the Company had the right to require conversion if certain conditions were met, which conditions were satisfied on March 5, 1999. All of the 51,680 outstanding shares of Series C Preferred Stock were converted to 2,175,986 shares of common stock on April 1, 1999. As a result of this conversion, the cumulative redemption accrual of $0.8 million was eliminated and credited to retained earnings.

The holders of the Series C Preferred Stock had preemptive rights, which were triggered by the execution of the UA Purchase Agreement on December 31, 1998, subject to the closing of the sale pursuant to that agreement. On July 30, 1999, 1,159,243 shares were purchased pursuant to these preemptive rights at a price of $3.15 per share.

As a result of the closing of the Capital Z transaction on July 30, 1999, all of the Series B, D-1 and D-2 Preferred Stock was converted into 1,777,777, 833,333 and 555,556 shares of common stock, respectively.

Exercise of Common Stock Warrants

At December 31, 1998, the Company had 658,231 common stock warrants issued and outstanding which were registered under the Securities Act of 1933 and 2,015,760 warrants outstanding which were not registered under the Securities Act of 1933. The warrants had an exercise price to purchase common stock on a one to one basis at $1.00 and expired on December 31, 1999. During the year ended December 31, 1999, 650,410 of the registered common stock warrants and all of the unregistered common stock warrants were exercised for $2,666,170 resulting in the issuance of 2,666,170 shares of the Company's common stock.