UNITED HEALTHCARE CORP, 10-Q, 1998-08-14

UNITED HEALTHCARE CORP
10-Q, 1998-08-14
HOSPITAL & MEDICAL SERVICE PLANS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q

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(MARK ONE)

/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______ TO ________.

COMMISSION FILE NUMBER: 1-10864

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UNITED HEALTHCARE CORPORATION

State of Incorporation: MINNESOTA
I.R.S. Employer Identification No: 41-1321939

Principal Executive Offices:
300 OPUS CENTER
9900 BREN ROAD EAST
MINNETONKA MN, 55343

Telephone Number: (612) 936-1300

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Indicate by check mark (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

The number of shares of Common Stock, par value $.01 per share, outstanding on
August 12, 1998, was 195,331,294

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<PAGE>

UNITED HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
PART I. FINANCIAL INFORMATION.

ITEM I. FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997............................................... 3

Condensed Consolidated Statements of Operations for the three
and six month periods ended June 30, 1998 and
1997............................................................ 4

Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1998 and 1997...................... 5

Notes to Condensed Consolidated Financial Statements............ 6

Report of Independent Public Accountants........................ 9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................10

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK....................................................15

PART II. OTHER INFORMATION.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...............16

ITEM 5. OTHER INFORMATION.......................................16

ITEM 6. EXHIBITS................................................16

Signatures...........................................................17
</TABLE>

<PAGE>

UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents......................... $ 663 $ 750
Short-Term Investments............................ 126 506
Accounts Receivable, net (Note 7)................. 1,219 768
Assets Under Management (Note 7).................. 1,069 28
Other Current Assets.............................. 178 141
-------- --------
Total Current Assets........................... 3,255 2,193
Long-Term Investments.................................. 3,280 2,785
Property and Equipment, net............................ 333 364
Goodwill and Other Intangible Assets, net
(Note 2)............................................ 2,020 2,281
-------- --------
TOTAL ASSETS........................................... $ 8,888 $ 7,623
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical Costs Payable (Notes 2 and 7)............. $ 2,817 $ 1,565
Other Policy Liabilities (Note 7)................. 460 235
Accounts Payable and Accrued Liabilities
(Notes 2 and 6) ................................ 792 495
Unearned Premiums................................. 167 275
-------- --------

Total Current Liabilities...................... 4,236 2,570
Long-Term Obligations.................................. 21 19
Convertible Preferred Stock............................ 500 500
-------- --------

Shareholders' Equity
Common Stock, $.01 par value - 500,000,000 shares
authorized; 193,440,000 and 191,111,000 issued and
outstanding....................................... 2 2
Additional Paid-in Capital........................ 1,449 1,398
Retained Earnings................................. 2,649 3,105
Net Unrealized Holding Gains on Investments
Available for Sale, net of income tax
effects......................................... 31 29
-------- --------
Total Shareholders' Equity.................... 4,131 4,534
-------- --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 8,888 $ 7,623
-------- --------
-------- --------
</TABLE>

See notes to condensed consolidated financial statements

<PAGE>

UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums.............................................. $ 3,773 $ 2,501 $ 7,455 $ 4,945
Management Services and Fees.......................... 402 366 773 722
Investment and Other Income........................... 60 64 122 115
-------- -------- -------- --------
Total Revenues..................................... 4,235 2,931 8,350 5,782
-------- -------- -------- --------
OPERATING EXPENSES
Medical Costs (Note 2)................................ 3,435 2,119 6,587 4,183
Selling, General and Administrative Expenses.......... 706 592 1,418 1,167
Depreciation and Amortization......................... 48 35 90 69
Operational Realignment Charges (Note 2).............. 725 - 725 -
-------- -------- -------- --------
Total Operating Expenses............................ 4,914 2,746 8,820 5,419
-------- -------- -------- --------

EARNINGS (LOSS) BEFORE INCOME TAXES........................ (679) 185 (470) 363
(Provision) Benefit for Income Taxes (Note 3)......... 114 (69) 37 (138)
-------- -------- -------- --------

NET EARNINGS (LOSS)........................................ (565) 116 (433) 225

CONVERTIBLE PREFERRED STOCK DIVIDENDS...................... (7) (7) (15) (15)
-------- -------- -------- --------

NET EARNINGS (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS........................................ $ (572) $ 109 $ (448) $ 210
-------- -------- -------- --------
-------- -------- -------- --------

BASIC NET EARNINGS (LOSS) PER COMMON
SHARE...................................................... $ (2.96) $ 0.58 $ (2.33) $ 1.13
-------- -------- -------- --------
-------- -------- -------- --------

NET EARNINGS (LOSS) PER COMMON SHARE, ASSUMING
DILUTION................................................... $ (2.96) $ 0.57 $ (2.33) $ 1.11
-------- -------- -------- --------
-------- -------- -------- --------

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING................................................ 193 187 192 186
DILUTIVE EFFECT OF OUTSTANDING STOCK
OPTIONS.................................................... - 4 - 4
-------- -------- -------- --------

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, ASSUMING DILUTION............................. 193 191 192 190
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements

<PAGE>

UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss)................................... $ (433) $ 225
Noncash Items:
Depreciation and Amortization...................... 90 69
Deferred Income Taxes.............................. (214) 45
Operational Realignment Charges.................... 725 -
Net Change in Other Operating Items:
Accounts Receivable and Other Current Assets....... (118) (57)
Medical Costs Payable.............................. 200 80
Accounts Payable and Other Current
Liabilities...................................... 109 (103)
Unearned Premiums.................................. (142) (126)
------- -------
Cash Flows From Operating Activities............ 217 133
------- -------

INVESTING ACTIVITIES
Cash Paid for Acquisition, net of cash assumed and
other effects...................................... (86) -
Purchases of Property and Equipment and Capitalized
Software, net....................................... (90) (90)
Purchases of Investments.............................. (1,976) (3,210)
Maturities / Sales of Investments..................... 1,867 2,708
------- -------
Cash Flows Used for Investing
Activities......................................... (285) (592)
------- -------

FINANCING ACTIVITIES
Proceeds from Stock Option Exercises.................. 73 52
Common Stock Repurchases.............................. (72) -
Dividends Paid........................................ (20) (20)
------- -------
Cash Flows (Used for) From Financing Activities.... (19) 32
------- -------

DECREASE IN CASH AND CASH EQUIVALENTS...................... (87) (427)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD.................. 750 1,037
------- -------
CASH AND EQUIVALENTS, END OF PERIOD........................ $ 663 $ 610
------- -------
------- -------
</TABLE>

See notes to condensed consolidated financial statements

<PAGE>

UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

Unless the context otherwise requires, the use of the terms the "Company,"
"we," "us," and "our" in the following refers to United HealthCare Corporation
and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements reflect
all adjustments, consisting solely of normal recurring adjustments, needed to
present the financial results for these interim periods fairly. These
financial statements include some amounts that are based on our best estimates
and judgments. The most significant estimates relate to medical costs payable
and other policy liabilities, intangible asset valuations, integration reserves
relating to acquisitions, and reserves relating to our operational realignment
activities. These estimates may be adjusted as more current information
becomes available, and any adjustment could be significant.

Following the rules and regulations of the Securities and Exchange Commission,
we have omitted footnote disclosures that would substantially duplicate the
disclosures contained in the Company's annual audited financial statements.
Read together with the disclosures below, we believe the interim financial
statements are presented fairly. However, these unaudited condensed
consolidated financial statements should be read together with the consolidated
financial statements and the notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.

2. SPECIAL OPERATING CHARGES

OPERATIONAL REALIGNMENT CHARGES

In January 1998, we introduced a significant realignment of our operations into
six independent but strategically linked business segments, each focused on
performance, growth and shareholder value. In the months that followed, we
began to realign our resources and activities; introduce new management
processes and policies; evaluate our business units and operations, market
positions and customer segments; and assess their strategic fit, operational
performance and contribution. We have moved forward to establish more
independent identities, brands and market positions for each of these segments.
We also have realigned significant personnel and activities from corporate
functions to more directly support the operations of our business segments, and
we have defined intersegment service arrangements and system platform and
process requirements to support each segment's markets and products.

In conjunction with these efforts, we developed and approved a comprehensive
plan (the Plan) to implement our operational realignment in the second
quarter of 1998, and we recognized corresponding charges to operations of
$725 million. The charges reflect the estimated costs we will incur
principally over the next twelve months under the Plan, including charges
associated with disposing or discontinuing business units, product lines, and
contracts; transitioning from and eliminating non-core system platforms; and
consolidating and eliminating certain processing operations and associated
real estate obligations. These activities are anticipated to result in a
reduction of more than 4,000 positions, potentially affecting approximately
7,000 people in various locations. The charges do not cover certain aspects
of the Plan, including new information systems and employee relocation and
training. These costs will be recognized in future periods as incurred.

The following table summarizes the components of the operational realignment
charges (in millions):

<TABLE>
<S> <C>
Asset write-downs $ 399
Severance and outplacement costs 142
Noncancellable lease obligations 82
Disposition of businesses and other costs 102
------
$ 725
------
------
</TABLE>

6
<PAGE>

The asset write-downs consist principally of intangibles and other long-lived
assets from businesses we intend to dispose of or discontinue, or markets
where we plan to curtail operations or change the nature of our operating
presence. The majority of these write-downs relate to businesses acquired
after 1994. We prepared a forecast of expected undiscounted cash flows, where
appropriate, to determine whether asset impairment existed, and we used fair
values to measure the required write-downs. In other instances, we determined
the extent of the write-downs based on a determination of the business unit's
fair value.

Our accompanying financial statements include the operating results of
businesses to be disposed of or discontinued in connection with the
operational realignment, as follows (in millions):

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 240 $ 208 $ 475 $ 401
Operating losses before income taxes $ (8) $ (16) $ (23) $ (23)
</TABLE>

MEDICAL COSTS

Medical costs reported in the second quarter of 1998 included $120 million
relating to losses in certain underperforming Medicare markets and $55
million related to strengthening our reserves across certain health plan
markets, including those where the company may reposition and withdraw its
presence, in light of increasing pressure on medical cost trends at the end
of the second quarter. We incurred $38 million of these Medicare losses in
the second quarter, and accrued $82 million for the losses we expect to incur
over the remainder of 1998.

3. INCOME TAXES

The income tax benefit associated with the second quarter special operating
charges was $196 million. This benefit resulted in an overall effective
income tax benefit rate of 17% and 8% for the three and six months ended June
30, 1998.

4. TERMINATED ACQUISITION

In May 1998, we entered into an agreement to acquire Humana Inc. (Humana)
through the exchange of one share of Company common stock for every two
shares of Humana common stock. On August 10, 1998, the Company and Humana
mutually terminated the transaction. The costs we incurred associated with
the proposed transaction were charged against operations in the second
quarter of 1998.

5. STOCK REPURCHASE PROGRAM

Under our stock repurchase program, we may purchase up to 10% of our
outstanding common stock. Purchases may be made from time to time at prevailing
market prices, subject to certain restrictions on volume, pricing, and timing.
Repurchased shares will be available for reissuance for employee stock option
and purchase plans and for other corporate purposes. During the six-month
period ended June 30, 1998, we repurchased 1.2 million shares at an average
price of $59 per share. Shares issued under our stock plans over the same
period exceeded the number of shares repurchased.

6. CASH AND INVESTMENTS

As of June 30, 1998, the amortized cost, gross unrealized holding gains and
losses and fair value of cash and investments were as follows (in millions):

<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents...................... $ 663 $ - $ - $ 663
Investments Available for Sale................. 3,282 50 (2) 3,330
Investments Held to Maturity................... 76 - - 76
-------- ----- ------ -------
Total Cash and Investments.................. $ 4,021 $ 50 $ (2) $ 4,069
-------- ----- ------ -------
-------- ----- ------ -------
</TABLE>

<PAGE>

7. AMERICAN ASSOCIATION OF RETIRED PERSONS CONTRACT

We began providing insurance products and services to the American Association
of Retired Persons (AARP) on January 1, 1998. Our portion of the AARP's
insurance program represents approximately $3.5 billion in annual net premium
revenue from more than 4 million AARP members. We also are developing an array
of new products and services designed to complement the insurance offerings
under the AARP program.

Under the terms of our 10-year agreement with the AARP, we receive monthly
fees for claim administrative services and as compensation for assuming the
underwriting risk associated with the program. In addition, the AARP has
separately contracted with certain vendors to provide marketing and member
services. We recognize premium revenues associated with the AARP program net of
the administrative fees paid to these vendors.

The following assets and liabilities were transferred from the program's
previous carrier and are included in our consolidated balance sheet (in
millions):

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Amounts
Description Transferred as of Balance as of
January 1, 1998 June 30, 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Assets Under Management $ 959 $ 1,041
Accounts Receivable $ 300 $ 375
Medical Costs Payable $ 1,024 $ 1,074
Other Policy Liabilities $ 192 $ 229
Other Current Liabilities $ 43 $ 79
</TABLE>

8. COMPREHENSIVE INCOME

The table below presents comprehensive income, defined as changes in the equity
of our business excluding charges resulting from investments by and
distributions to our shareholders, for the six-month periods ended June 30,
1998 and 1997 (in millions):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Net Earnings (Loss) $(433) $225

Change in Net Unrealized Holding Gains
on Investments Available for Sale, net of
income tax effects 2 9
- -------------------------------------------------------------------------
Comprehensive Income (Loss) $(431) $234
- -------------------------------------------------------------------------
</TABLE>

9. RECENTLY ISSUED ACCOUNTING STANDARDS

In the fourth quarter of 1998, we will adopt a new accounting standard (SFAS
No. 131) that will require us to report financial and descriptive information
about our reportable operating segments. Generally, financial information will
be required to be reported on the basis that is used internally to evaluate
segment performance and allocate resources to segments. This new standard will
not affect how we determine net earnings or shareholders' equity.

In June 1998, a new standard on accounting for derivative instruments and
hedging activities (SFAS No. 133) was issued. This new standard will not
materially affect our financial results or disclosures given our current
investment portfolio and investment policies.

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To United HealthCare Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of
United HealthCare Corporation (a Minnesota corporation) and Subsidiaries as of
June 30, 1998 and the related condensed consolidated statements of operations
and cash flows for the three and six month periods ended June 30, 1998 and
1997. These financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of United HealthCare
Corporation and Subsidiaries as of and for the year-ended December 31, 1997
(not presented herein), and, in our report dated February 12, 1998, we
expressed an unqualified opinion on those statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

Arthur Andersen LLP

Minneapolis, Minnesota,
August 6, 1998

<PAGE>

UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context otherwise requires, the use of the terms the "Company,"
"we," "us," and "our" in the following refers to United HealthCare Corporation
and its subsidiaries.

On January 1, 1998, we began delivering Medicare supplement insurance and
other medical insurance coverage for the American Association of Retired
Persons (AARP) to more than 4 million AARP members. In the second quarter of
1998, we recorded special operating charges related to our operational
realignment activities ($725 million) and certain medical cost items. The
significance of the AARP business and the special charges affects the
year-to-year comparability of our consolidated financial position and results
of operations. The Summary Operating Information below should be read
together with the narrative portions of Management's Discussion and Analysis
that more fully describe the specific effects of the AARP business and the
special charges.

The following discussion should be read together with the accompanying
condensed consolidated financial statements and notes. In addition, the
following discussion should be considered in light of a number of factors that
affect the Company, the industry in which we operate, and business generally.
These factors are described in Exhibit 99 to this Quarterly Report.

SUMMARY OPERATING INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------------
Operating Results (IN MILLIONS, EXCEPT PER PERCENT PERCENT
SHARE DATA) 1998 1997 CHANGE 1998 1997 CHANGE
- ------------------------------------------ ------- -------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues..................................... $ 4,235 $ 2,931 44% $8,350 $ 5,782 44%
Earnings (Loss) from Operations................... $ (679) $ 185 (467)% $ (470) $ 363 (229)%
Net Earnings (Loss)................................ $ (565) $ 116 (587)% $ (433) $ 225 (292)%
Net Earnings (Loss) Per Common Share,
Assuming Dilution.................................. $ (2.96) $ 0.57 (619)% $(2.33) $ 1.11 (310)%
Medical Costs to Premium Revenues.................. 91.0% (a) 84.7% 88.4% (a) 84.6%
SG&A Expenses to Total Revenues.................... 16.7% 20.2% 17.0% 20.2%
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, JUNE 30, PERCENT
Enrollment by Product (IN THOUSANDS) 1998 1997 CHANGE
- ------------------------------------ -------- -------- -------
<S> <C> <C> <C>
Health Plan Products
Commercial......................................... 5,719 (b) 5,139 (b) 11%
Medicare........................................... 427 286 49%
Medicaid........................................... 511 483 6%
------ ------ ---
Total Health Plan Products...................... 6,657 5,908 13%
Other Network-Based Products............................ 4,906 (b) 4,594 (b) 7%
Indemnity Products...................................... 1,639 2,492 (34)%
------ ------ ---
Total Enrollment................................ 13,202 12,994 2%
------ ------ ---
------ ------ ---

<CAPTION>
JUNE 30, JUNE 30, PERCENT
Enrollment by Funding Arrangement (IN THOUSANDS) 1998 1997 CHANGE
- ------------------------------------------------ -------- -------- -------
<S> <C> <C> <C>
Fully Insured
Health Plan Products............................... 5,693 5,042 13%
Other Network-Based Products....................... 503 496 1%
Indemnity Products................................. 319 492 (35)%
------ ------ ---
Total Fully Insured............................. 6,515 6,030 8%
------ ------ ---
Self-Funded
Health Plan Products............................... 964 866 11%
Other Network-Based Products....................... 4,403 4,098 7%
Indemnity Products................................. 1,320 2,000 (34)%
------ ------ ---
Total Self Funded............................... 6,687 6,964 (4)%
------ ------ ---

Total Enrollment.............................. 13,202 12,994 2%
------ ------ ---
------ ------ ---
</TABLE>

(a) Includes $120 million related to certain Medicare markets and $55
million related to reserve strengthening associated with increasing pressure
on medical cost trends.

(b) In conjunction with the realignment of our operations, small group and
middle market point-of-service membership, previously classified as other
network based products, are now being presented with our commercial health plan
products (867,000 members at June 30, 1998 and 756,000 members at June 30,
1997).

<PAGE>

RESULTS OF OPERATIONS

SPECIAL OPERATING CHARGES

OPERATIONAL REALIGNMENT CHARGES

In November 1997, we embarked on a course to realign our business
operationally. Many factors, both strategic and operational, drove this
decision. Among them was a recognition that we have grown significantly over
the last several years and, as a result, have redundant systems, offices and
enterprises that are no longer core to our future strategy. We concluded that
an operational realignment would be required to improve our customer support
and reduce our cost structure.

In January 1998, we introduced a significant realignment of our operations
into six independent but strategically linked business segments, each focused
on performance, growth and shareholder value. In the months that followed, we
began to realign our resources and activities; introduce new management
processes and policies; evaluate our business units and operations, market
positions and customer segments; and assess their strategic fit, operational
performance and contribution. We have moved forward in establishing more
independent identities, brands and market positions for each of these segments.
We also have realigned significant personnel and activities from corporate
functions to more directly support the operations of our business segments, and
have defined intersegment service arrangements and system platform and process
requirements to support each segment's markets and products.

In conjunction with these efforts, we developed and introduced a
comprehensive plan (the Plan) to implement our operational realignment in the
second quarter of 1998, and we recognized corresponding charges to operations
of $725 million. The charges reflect the estimated costs we will incur
principally over the next twelve months under the Plan, including charges
associated with disposing or discontinuing business units, product lines, and
contracts; transitioning from and eliminating non-core system platforms; and
consolidating and eliminating certain processing operations and associated
real estate obligations. These activities are anticipated to result in a
reduction of more than 4,000 positions potentially affecting approximately
7,000 people in various locations. We believe the aggregate reduction in our
overall cost structure from our realignment will reach an annual run rate of
approximately $300 million. We expect to realize $125 to $150 million of
these reductions by the end of 1999 and $225 million to $250 million by the
end of year 2000. The charges do not cover certain aspects of the Plan,
including new information systems and employee relocation and training.
These costs will be recognized in future periods as incurred.

MEDICAL COSTS

During the second quarter, we considered many factors influencing medical
cost trends. On balance, we believe that we can respond to factors that
increase medical cost trends and price our products and services sufficient
to realize satisfactory margins. While half of our Medicare business remains
solidly profitable, certain of our markets are not profitable. This
unprofitable Medicare business generally resides in newer markets where we
have been unable to achieve the scale necessary to achieve profitability. As
a result of these factors, medical costs reported in the second quarter of
1998 included $120 million relating to losses in certain underperforming
Medicare markets and $55 million related to strengthening our reserves across
certain health plan markets, including those where the company may reposition
and withdraw its presence, in light of increasing pressure on medical cost
trends at the end of the second quarter. We incurred $38 million of these
Medicare losses in the second quarter, and accrued $82 million for the losses
we expect to incur over the remainder of 1998.

PREMIUM REVENUES

Premium revenues in the second quarter of 1998 totaled $3.8 billion, an
increase of $1.3 billion, or 51%, over the second quarter of 1997. For the six
months ended June 30, 1998, premium revenues of $7.5 billion increased $2.5
billion, or 51% over the same period in 1997. On January 1, 1998, we began
delivering Medicare supplement insurance and other medical insurance coverage
for the American Association of Retired Persons (AARP) to more than 4 million
AARP members. Premium revenues from our portion of the AARP insurance
offerings during the first six months of 1998 were $1.8 billion.

Excluding the AARP business, second quarter 1998 premium revenues totaled
$2.9 billion, an increase of 16% over second quarter 1997. For the six months
ended June 30, 1998, premium revenues excluding the AARP business were $5.7
billion, an increase of 15% over the same period in 1997. This increase is
primarily the result of growth in year-over-year same-store health plan premium
revenues of $898 million, or 22%, through the second quarter of 1998.
Increases in the health plan premium revenue reflect same-store enrollment
growth of 13% and an average year-over-year premium rate increase on renewing
commercial groups exceeding 6%. Growth in our Medicare programs also
contributed to the increase in premium revenues. The total health plan same-
store enrollment growth of 13% includes a year-over-year same-store increase of
49% in Medicare enrollment. Significant growth in Medicare enrollment affects

<PAGE>

year-over-year comparability of premium revenues. The Medicare product
generally has per member premium rates three to four times higher than average
commercial premium rates because Medicare members typically use proportionately
more medical care services.

The six-month year-over-year increase in premium revenues from health plan
operations was partially offset by an expected decrease in premium revenues
from fully insured non-network-based indemnity products of $82 million. Nearly
$60 million of this decrease is because we discontinued our relationship with a
broker who sold and administered small group indemnity business on our behalf,
which led to the loss of 30,000 indemnity members effective July 1, 1997. The
remaining decrease is from declining enrollment in these products, due to rate
increases averaging 10% to 20% in 1997 and into 1998, as well as other business
factors. We expect enrollment in the non-network-based indemnity products will
continue to decline through 1998. To the extent possible, we will try to
convert these members to our network-based managed care products.

MEDICAL COSTS

Medical costs reported in the second quarter of 1998 include $175 million of
charges. Of this amount $120 million relates to losses we expect to incur
related to 13 of our 22 Medicare health plans which contribute half of our
annualized Medicare premiums of $2.3 billion. We incurred $38 million of
these losses in the second quarter, and accrued $82 million for the losses we
expect to incur over the remainder of 1998. These plans are generally located
in newer markets where we have been unable to achieve the scale of operations
necessary to achieve profitability. An additional $55 million related to
strengthening our reserves across certain health plan markets, including
those where the company may reposition or withdraw its presence, in light of
increasing pressure on medical cost trends at the end of the second quarter.

Our medical care ratio (the percent of premiums expensed as medical costs)
increased from 84.7% in the second quarter of 1997, and 85.6% in the first
quarter of 1998, to 91.0% in the second quarter of 1998. The year-over-year
increase includes the effects of the AARP business on our medical care ratio.
We report a medical care ratio of nearly 92% related to our portion of the
AARP insurance offerings, which we began delivering on January 1, 1998. The
increase in the medical care ratio over the first quarter reflects the
medical cost adjustments discussed above. Lower margins in our nine other
Medicare health plans also adversely affected the medical core ratio. While
these plans are profitable, average Medicare premium rate increases of 2.5%
in these plans were more than offset by increased medical utilization,
reflected mostly in inpatient hospital costs. Performance in a few of our
commercial health plans lagged behind the performance of our remaining
commercial health plans and modestly contributed to the increased medical
care ratio.

We are addressing the medical cost trend by altering benefit designs,
recontracting with providers and further enhancing disease specific and local
medical management programs. We are also accelerating and intensifying the
contemporaneous and retrospective claim management activities that we have in
place. We are continuing to evaluate the markets we serve and products we
offer and will curtail activities or exit markets where we believe near term
prospects are unacceptable. We believe these efforts will help us to maintain
an aggregate medical cost trend in the 3.5% to 4.5% range in the face of a
rising national cost trend that could exceed 5.0% in 1999. We have considered
known and anticipated medical inflation in our product pricing for 1998 and
1999.

MANAGEMENT SERVICES AND FEE REVENUES

Management services and fee revenues during the three months and six months
ended June 30, 1998, totaled $402 million and $773 million, which represented
increases of $36 million and $51 million, respectively, over management
services and fee revenues for the same periods in 1997. These revenues are
primarily generated from self-funded products where we receive a fee for
administrative services and generally assume no financial responsibility for
health care costs. In

<PAGE>

addition, we generate fee revenues from administrative services we perform on
behalf of managed health plans and for services provided by our specialty
businesses.

The overall increase in management services and fee revenues is due to
enrollment growth within our managed health plans and an increase in
individuals served by our specialty services operations, most notably in
United Behavioral Health and Optum-Registered Trademark-, our telephone- and
Internet-based health information and personal care management business.
These increases are partially offset by the effects of our June 30, 1997 sale
of our subsidiary, United HealthCare Administrators, Inc., which resulted in
a $24 million decrease in these revenues for the first six months of 1998,
compared to 1997.

OPERATING EXPENSES

Selling, general and administrative expenses as a percent of total revenues
(the SG&A ratio) decreased from 20.2 % during the second quarter of 1997 to
17.3% during the first quarter of 1998, and decreased again to 16.7% during the
second quarter of 1998. The improvement in the SG&A ratio reflects the
operating leverage we gained with the addition of the AARP business, as well as
our diligence in managing these expenses. On an absolute dollar basis,
selling, general and administrative costs through the first half of 1998
increased $251 million, or 22%, over the comparable period in 1997. This
increase reflects the additional costs to support the corresponding $2.6
billion increase in revenues, as well as our additional investment in future
growth platforms.

GOVERNMENT REGULATION

Our primary business, offering health care coverage and health care
management services, is heavily regulated at the federal and state levels. We
strive to comply in all respects with applicable regulations and may need to
make changes from time to time in our services, products, marketing methods or
organizational or capital structure.

Regulatory agencies generally have broad discretion to issue regulations and
interpret and enforce laws and rules. Changes in applicable laws and
regulations are continually being considered, and the interpretation of
existing laws and rules also may change from time to time. These changes could
affect our operations and financial results.

Certain proposed changes in Medicare and Medicaid programs may improve
opportunities to enroll people under products developed for these populations.
Other proposed changes could limit available reimbursement and increase
competition in those programs, with adverse affects on our financial results.
Also, it could be more difficult for us to control medical costs if federal and
state bodies continue to consider and enact significant and onerous managed
care laws and regulations.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) may
represent the most significant federal reform of employee benefit law since the
enactment of the Employee Retirement Income Security Act (ERISA) in 1974. Some
of HIPAA's significant provisions include guaranteeing the availability of
health insurance for certain employees and individuals, limits on the use of
preexisting condition exclusions, prohibitions against discriminating on a
basis of health status, and requirements that make it easier to continue
coverage in cases where a person is terminated or changes employers. Under
HIPAA and other similar state laws, medical cost control through amended
provider contracts and improved preventive and chronic care management may
become more important. We believe our experience in these areas will allow us
to compete effectively.

Health care fraud and abuse has become a top priority for the nation's law
enforcement entities, which have focused on participants in federal government
health care programs such as Medicare, Medicaid and the Federal Employees
Health Benefits Program (FEHBP). We participate extensively in these programs.

We also are subject to governmental investigations and enforcement actions.
Included are actions relating to ERISA, which regulates insured and self-
insured health coverage plans offered by employers;

<PAGE>

the FEHBP; federal and state fraud and abuse laws; and laws relating to care
management and health care delivery. Government actions could result in
assessment of damages, civil or criminal fines or penalties, or other
sanctions, including exclusion from participation in government programs. We
currently are involved in various government investigations and audits, but
we do not believe the results will have a material adverse effect on our
financial position or results of operations.

INFLATION

Although the general rate of inflation has remained relatively stable and
health care cost inflation has stabilized in recent years, the national health
care cost inflation rate still exceeds the general inflation rate. We use
various strategies to mitigate the negative effects of health care cost
inflation, including setting commercial premiums based on anticipated health
care costs, risk-sharing arrangements with various health care providers, and
other health care cost containment measures. Specifically, health plans try to
control medical and hospital costs through contracts with independent providers
of health care services. Through these contracted care providers, our health
plans emphasize preventive health care and appropriate use of specialty and
hospital services.

While we currently believe our strategies to mitigate health care cost
inflation will continue to be successful, competitive pressures, new health
care product introductions, demands from health care providers and customers,
applicable regulations or other factors may affect our ability to control the
impact of health care cost increases. In addition, certain non-network-based
products do not have health care cost containment measures similar to those in
place for network-based products. As a result, there is added health care cost
inflation risk with these products.

FINANCIAL CONDITION AND LIQUIDITY

Cash and investments at June 30, 1998, were $4.1 billion, a $28 million
increase from December 31, 1997 and a $71 million increase from March 31, 1998.
Through the second quarter of 1998, we generated cash from operations of $217
million and realized proceeds from stock option exercises and the sale of
property and equipment of $103 million. In the same period, we used nearly $300
million in cash for capital expenditures, acquisitions, common stock
repurchases, and dividends.

Under applicable government regulations, several subsidiaries are required to
maintain specific capital levels to support their operations. After taking
these regulations and certain business considerations into account, we had $856
million in cash and investments available for general corporate use at June 30,
1998.

The National Association of Insurance Commissioners is expected to adopt
rules which, if implemented by the states, would require new minimum
capitalization limits for health care coverage provided by insurance companies,
HMOs and other risk-bearing health care entities. The requirements would take
the form of risk-based capital rules. Depending on the nature and extent of
the new minimum capitalization requirements ultimately adopted, there could be
an increase in the capital required for certain of our subsidiaries. We do not
expect a significant increase in the overall capital required by our regulated
entities. Any increase would be funded from our corporate usable cash
reserves. The new requirements are expected to be effective December 31, 1998.

We are in the process of modifying our computer systems to accommodate the
Year 2000. We currently expect these modifications to be completed well in
advance of the Year 2000 with no adverse effect on our operations. We expect
to incur associated expenses of approximately $20 million in 1998 and $15
million in 1999 to complete this effort. Our inability to complete Year 2000
modifications on a timely basis or the inability of other companies with which
we do business to complete their Year 2000 modifications on a timely basis
could adversely affect our operations.

<PAGE>

through employee stock option and purchase plans and for other corporate
purposes. During the first six months of 1998, we repurchased 1.2 million
shares at an average price of $59 per share. Shares issued under our stock
plans over the same period have exceeded the number of shares repurchased.

In January 1998, we filed a shelf registration statement with the
Securities and Exchange Commission to sell as much as $200 million of debt
securities, and preferred shares or common shares. The shelf filing
registers the securities and allows us to sell them from time to time in the
event we need financing. Proceeds from sales of these securities may be used
for a variety of general corporate purposes, including working capital,
securities repurchases and acquisitions.

Effective October 1, 1998, we have the right to redeem in whole or in part
the 500,000 outstanding shares of our 5.75% Series A Convertible Preferred
Stock (the Preferred Stock) at certain defined redemption rates. The initial
aggregate redemption price of the Preferred Stock would be $520 million, or
$1,040 per share.

In June 1998, we agreed to acquire HealthPartners of Arizona, Inc. for $235
million in cash, subject to regulatory approvals. We expect the transaction
will close in the third quarter of 1998.

In the second quarter of 1998, we recognized special charges to operations
of $725 million associated with the implementation of our operational
realignment and certain medical cost adjustments of $175 million. We believe
our after tax cash outlay associated with these charges will be in the range
of $225 million to $275 million over the next twelve months.

We expect our available cash resources will be sufficient to meet our current
operating requirements and internal development and realignment initiatives.
In addition, based on our current financial condition and results of
operations, we should be able to finance additional cash requirements in the
public or private markets, if necessary.

Currently, we do not have any other material definitive commitments that
require cash resources; however, we continually evaluate opportunities to
expand our operations. This includes internal development of new products and
programs and may include acquisitions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since the date of the Company's Quarterly Report filed on Form 10-Q for the
quarter ended March 31, 1998, no material changes have occurred in the
Company's exposure to market risk associated with the Company's investments
in market risk sensitive financial instruments. The Company does not believe
that its risk of a loss in future earnings, fair values or cash flow
attributable to such investments is material.

<PAGE>

UNITED HEALTHCARE CORPORATION

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company exchanged 210,675 shares of its common stock for all of the
outstanding capital stock of Insite Clinical Trials, LLC in a transaction that
closed on May 1, 1998. The Company issued these shares in reliance on Section
4(2) of the Securities Act of 1933. The Company made inquiries of the
recipients of securities in this transaction and obtained representations from
such persons to establish that such issuance qualified for an exemption from
the registration requirements.

ITEM 5. OTHER INFORMATION

The Company and Humana Inc. ("Humana") announced on August 10, 1998 the
mutual agreement to terminate the previously announced merger of the two
companies. The termination of the merger was approved by the boards of
directors of the Company and Humana. The Termination Agreement, dated August
9, 1998, by and among the Company, UH-1 Inc., a wholly owned subsidiary of
the Company, and Humana, is included as Exhibit 10e to this Form 10-Q.

ITEM 6. EXHIBITS

(a) The following exhibits are filed in response to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------
<S> <C>
Exhibit 10(a) - First Amendment to the AARP Health Insurance Agreement by and
among American Association of Retired Persons, Trustees of the
AARP Insurance Plan and United HealthCare Insurance Company
effective January 1, 1998.*

Exhibit 10(b) - Second Amendment to the AARP Health Insurance Agreement by and
among American Association of Retired Persons, Trustees of the
AARP Insurance Plan and United HealthCare Insurance Company
effective January 1, 1998.*

Exhibit 10(c) - Employment Agreement, dated as of May 20, 1998, between United
HealthCare Services, Inc. and R. Channing Wheeler.

Exhibit 10(d) - Employment Agreement, dated as of May 19, 1998, between United
HealthCare Services, Inc. and Arnold H. Kaplan.

Exhibit 10(e) - Termination Agreement, dated August 9, 1998, by and among
the Company, UH-1 Inc., a wholly owned subsidiary of the
Company, and Humana.

Exhibit 15 - Letter Re Unaudited Interim Financial Information

Exhibit 99 - Cautionary Statements.
</TABLE>

* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
portions of these amendments have been omitted and filed separately with the
Securities and Exchange Commission in connection with a confidential
treatment request.

(b) The Company filed the following reports on Form 8-K during the three month
period ended June 30, 1998.

1. Form 8-K Dated May 29, 1998. The items reported were items 5 and 7
concerning the announcement of the Agreement and Plan of Merger entered
into by and among the Company, Humana Inc. and UH-1 Inc., a wholly owned
subsidiary of the Company.

2. Form 8-K Dated June 11, 1998. The items reported were items 5 and 7
concerning the announcement of the agreement entered into between the
Company and HealthPartners of Arizona, Inc., pursuant to which the
Company will acquire HealthPartners.

16
<PAGE>

UNITED HEALTHCARE CORPORATION
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

UNITED HEALTHCARE CORPORATION

/s/ STEPHEN J. HEMSLEY Chief Operating Dated: August 14, 1998
- ------------------------------- Officer
Stephen J. Hemsley

/s/ GREGORY J. SPRINGER Chief Accounting Dated: August 14, 1998
- ------------------------------- Officer
Gregory J. Springer

<PAGE>

UNITED HEALTHCARE CORPORATION
EXHIBITS

Exhibit 10(c) - Employment Agreement, dated as of May 20, 1998, between United
HealthCare Services, Inc. and R. Channing Wheeler.

Exhibit 10(d) - Employment Agreement, dated as of May 19, 1998, between United
HealthCare Services, Inc. and Arnold H. Kaplan.

Exhibit 10(e) - Termination Agreement, dated August 9, 1998, by and among
the Company, UH-1 Inc., a wholly owned subsidiary of the
Company, and Humana.

Exhibit 15 - Letter Re Unaudited Interim Financial Information

Exhibit 99 - Cautionary Statements.
</TABLE>

<PAGE>

First Amendment
to the
AARP Health Insurance Agreement
by and among
American Association of Retired Persons,
Trustees of the AARP Insurance Plan
and
United HealthCare Insurance Company

The American Association of Retired Persons and the Trustees of the AARP
Insurance Plan hereby agree with the United HealthCare Insurance Company to
the Amendment of the AARP Insurance Agreement, entered into by said parties
and dated as of February 26, 1997, as set forth below:

A. Section 2.86 of the Agreement is amended to read as follows:

"SHIP PLAN means any health insurance plan, including any Medicare
Select plan, underwritten by United pursuant to this Agreement,
including without limitation any such plan described by any master group
insurance policy issued to AARP Trust by United (or its affiliates) and
insured or reinsured by United (or its affiliates) at any time during
the term of this Agreement."

B. Article 2 of the Agreement is amended by the addition of the following
Sections 2.117 and 2.118:

"2.117 MEDICARE SELECT means a Medicare Supplement policy or certificate
that contains restricted network provisions, and is offered
consistent with state law applicable thereto."

"2.118 NETWORK PROVIDER means any health care provider that has agreed
to participate in a Medicare Select plan made available under the
SHIP."

C. Section 3.2.2 of the Agreement is amended by the addition of new
subsections (f) and (g) to read as follows:

"(f) United shall make available to AARP members Medicare Select
plans at such sites and in accordance with such timeframe as may be
agreed to by the parties. United shall develop and maintain
arrangements with Network Providers providing for the furnishing of
the Medicare Select plans. such arrangements shall include payment
arrangements which provide cost savings opportunities to SHIP
Insureds participating in the Medicare Select plans. United will
manage the Network Provider relationships to

<PAGE>

promote network stability and quality improvement and to address
service concerns that SHIP Insureds participating in Medicare
Select plans may have with Network Providers."

"(g) United will integrate care coordination services into the
Medicare Select plans made available under the SHIP. At the outset,
the care coordination services will include the NurseLine product,
as made available by Optum, a United affiliate which shall be
enhanced to address the needs of SHIP Insureds covered by a
Medicare Select plan. United will test and evaluate different care
coordination models within its Medicare Select plans with the goal
of maximizing the effectiveness of the services and SHIP Insureds'
satisfaction. United will provide AARP with periodic reports
relating to the effectiveness of new care coordination models
then being tested or in use. United will not implement any care
coordination model materially different from the program then in
place, in a test or any other format, without first obtaining the
approval of AARP."

D. EXHIBIT 3.2.4 is revised to read as set forth in the attached EXHIBIT
3.2.4, which is hereby incorporated by reference as the new EXHIBIT 3.2.4.

E. Article 6 of this Agreement is amended by the addition of the following
new Section 6.10:

"6.10 NEW PRODUCT TRANSFER PRICING. United shall be entitled to
receive amounts as set forth below in respect of the Medicare
Select and care coordination programs provided by United pursuant to
Section 3.2.2(f)-(g):

6.10.1 MEDICARE SELECT. United shall be entitled to receive *** of
the savings obtained as a result of discounts obtained from Network
Providers. Savings obtained means the amount that would have been
payable to a Network Provider for covered services by the SHIP
Plan, if no discount were available, less the amount that is
payable to the Network Provider for covered services by the SHIP
Plan, after the discount is taken. United's compensation under this
Section 6.10.1 will be recovered in the same manner as United
recovers other compensation payable hereunder and no separate
charge will be made to any SHIP Insured with respect to any
discount taken. United shall provide AARP with monthly reports of
all savings obtained in connection with the Medicare Select plans
during the month prior to the month in which the report is
generated. The compensation payable under this Section 6.10.1 shall
remain in effect for the duration of the Agreement, except as
otherwise agreed to by the parties and as set

*** Represents text deleted pursuant to a confidentiality treatment request
filed with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.

<PAGE>

forth below. Any change in the compensation shall
become effective no sooner than January 1, 2002 and
shall require that any party seeking the same
provide the other with at least one hundred and
eighty (180) days notice of the same.

6.10.2 CARE COORDINATION. United shall be entitled
to receive *** per SHIP Insured covered by a
Medicare Select plan per month, for the care
coordination services provided pursuant to Section
3.2.2(g) of this Agreement. In addition to other
provisions of this Agreement, the parties agree to
modify the pricing for these services in the event
that there is a material change in the care
coordination model incorporated as part of the SHIP
Plan. The parties agree that any change in the fees
payable hereunder will be commensurate with the
impact of the change on the costs of providing the
service by United.

Except as otherwise may be agreed to by the
parties, the other compensation provisions of this
Article 6 remain applicable to the products
identified in this Section 6.10."

F. The provisions of this Amendment shall become effective January 1, 1998.

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

AMERICAN ASSOCIATION OF RETIRED PERSONS

By: /s/ Horace B. Deets
----------------------------------

Print Name: Horace B. Deets
--------------------------

Print Title: Executive Director
------------------------

TRUSTEES OF THE AARP INSURANCE PLAN

By: /s/ Horace B. Deets
----------------------------------

Print Name: Horace B. Deets
--------------------------

Print Title: Executive Director
------------------------

UNITED HEALTHCARE INSURANCE COMPANY

By: /s/ Lois Quam
----------------------------------

Print Name: Lois Quam
--------------------------

Print Title: Chief Executive Officer,
AARP Division
------------------------

<PAGE>

Exhibit 3.2.4

FUTURE PRODUCTS

From and after the Commencement Date, United, in consultation with AARP and
consistent with the social welfare purposes of the AARP, shall undertake
product development activities as described in the Agreement with respect to
additional health care insurance products, including without limitation the
following:

- - 50 to 64 Group Health Insurance
Comprehensive insurance coverage for AARP members and their dependent
children to provide a seamless transition after the loss of job or a career
change.

- - Grandchildren's Health Insurance
Comprehensive health insurance coverage specially designed for dependent
grandchildren of AARP members, including indemnity, Preferred Provider
Organization (PPO), and Health Maintenance Organization (HMO) options.

- - EverCare
Medical care to frail, elderly residents of nursing homes.

- - Medical Equipment Service Vendor Arrangements
Access to vendors, selected by United, who will deliver discounted, high
quality services and durable medical equipment.

- - AARP CareLine
A telephonic service tailored to the health care information needs of two
groups of older Americans:

- Persons newly diagnosed with one of 10 serious or chronic medical
conditions; and
- Caregivers including spouses, children, and other loved ones who are
responsible for the care of a seriously ill or disabled person.

- - Foreign Travelers Services
Instant access to help and advice for policyholders who experience a serious
health problem while traveling abroad.

- - "Ask the Expert" Health Care Information Services
The latest clinical guidelines for serious and chronic medical conditions,
to be presented in clear and understandable language. This service
potentially will be available to all AARP policyholders and members. This
service will be available in both print and Internet form.

- - Transplant Centers of Excellence
Information and services will be offered to policyholders who need an organ
or tissue transplant.

<PAGE>

United's product development activities with respect to those additional
products noted above shall be consistent with the commitment made by it in
its Supplemental Health Products Proposal to AARP dated May 15, 1996."

<PAGE>

Second Amendment
to the
AARP Health Insurance Agreement
by and among
American Association of Retired Persons,
Trustees of the AARP Insurance Plan
and
United HealthCare Insurance Company

A. Section 2.86 of the Agreement is amended to read as follows:

"NETWORK PROVIDER means any health care provider that
has agreed to participate in the Medicare Select plan
made available under the SHIP, other than a Network
Pharmacy, Network Pharmaceutical Manufacturer, or
Network Pharmacy Benefit Manager."

B. Article 2 of the Agreement is amended by the addition of the following
Sections 2.119, 2.120, 2.121, 2.122, 2.123, 2.124 and 2.125:

"2.119 NETWORK PHARMACY means a retail pharmacy or mail order
pharmacy, which has agreed with United to participate
in the Health Care Options Pharmacy Service.

2.120 NETWORK PHARMACEUTICAL MANUFACTURERS means a pharmaceutical
manufacturer that has agreed to provide rebates or like
sums in connection with the Health Care Options Pharmacy
Service.

2.121 NETWORK PHARMACY BENEFIT MANAGER means a pharmacy benefit
manager that has agreed to provide on-line point of service
prescription processing and other administrative services
in connection with the Health Care Options Pharmacy Service.

2.122 SHIP PHARMACY INSURED means a SHIP Insured that is covered
by a SHIP Pharmacy Plan.

2.123 SHIP PHARMACY PLAN means a Medicare Supplement, pre-
standardized Medicare Supplement or Medicare Select policy
or certificate offered under the SHIP Plan which provides
an outpatient prescription drug benefit.

<PAGE>

2.124 HEALTH CARE OPTIONS PHARMACY SERVICE means a service
offered by United in connection with any SHIP Pharmacy Plan
which (i) offers SHIP Pharmacy Insureds access to Network
Pharmacies at which or through which the SHIP Pharmacy
Insured may receive discounted pharmaceuticals; (ii) offers
SHIP Pharmacy Insureds accessing Network Pharmacies with
on-line point of service prescription processing; (iii)
includes quality of care mechanisms, including drug
utilization review programs; and (iv) includes such other
features as may be mutually agreed to by the parties hereto.
The service shall only apply to a SHIP Pharmacy Insured
during such period in which the outpatient prescription drug
benefits of the SHIP Pharmacy Plan have not been exhausted.

2.125 USUAL AND CUSTOMARY PRICE means the reasonable and customary,
non-discounted fee, i.e., the retail price, for a prescription,
which is charged by a pharmacy which does not exceed the fee
the pharmacy would charge any full-paying customer."

C. Section 3.2.2 of the Agreement is amended by the addition of new
subsection (h) to read as follows:

"(h) United shall make available to all SHIP Pharmacy Insureds
access to the Health Care Options Pharmacy Service. United
shall develop and manage relationships with pharmaceutical
vendors, including mail service vendors, and pharmaceutical
manufacturers and/or wholesalers in support of the Health
Care Options Pharmacy Service. United will manage these
vendor relationships to promote savings, network stability
and quality improvement and to address service concerns that
SHIP Pharmacy Insureds may have with any such vendor."

D. Article 6 of this Agreement is amended by the addition of the following
new Sections 6.10.3 and 6.10.3.1.

"6.10.3 HEALTH CARE OPTIONS PHARMACY SERVICE. United shall be
entitled to receive *** of the savings obtained by the
Health Care Options Pharmacy Service. For such purposes,
savings obtained by the service means: (i) the difference
between the Usual and Customary Price for the prescription
and the amount that is payable to the Network Pharmacy for
the prescription by both the SHIP Pharmacy Insured and the
SHIP Pharmacy plan; plus (ii) the drug formulary rebates
obtained from Network Pharmacy Manufacturers for prescriptions
purchased through the Health Care Options Pharmacy Service.
In no event shall United be entitled, during any one (1)
calendar year, to receive an amount in excess of

*** Represents text deleted pursuant to a confidentiality treatment
request filed with the Securities and Exchange Commission pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

<PAGE>

the amount United received or is expected to receive
for such calendar year, from Network Pharmaceutical
Manufacturers in the form of drug formulary rebates
or like sums. No separate charge will be made to
any SHIP Pharmacy Insured with respect to any
discount taken. In the event that the drug
formulary rebates obtained from Network
Pharmaceutical Manufacturers for prescriptions
purchased through the Health Care Options Pharmacy
Service exceed *** of the savings obtained by
the Health Care Options Pharmacy Service, then
United shall credit any such excess amount to the
RSF. United shall provided AARP (i) with written
quarterly reports of all savings obtained from
Network Pharmacies in connection with the Health
Care Options Pharmacy Service during the quarter
prior to the quarter in which the report is
generated and (ii) with reports regarding sums
received from Network Pharmaceutical Manufacturers
at the end of the calendar quarter following the
quarter in which such sums were received. The
compensation payable under this Section 6.10.3
shall remain in effect for the duration of this
Agreement, except as otherwise agreed to by the
parties and as set forth below. Any change in the
compensation shall become effective no sooner than
(i) July 1, 2002 and shall require that any party
seeking the same provide the other with at least
one hundred and eighty (180) days notice of the
same; or (ii) in the event of a material change in
the availability or the amount of drug formulary,
rebates or like sums provided by Network
Pharmaceutical Manufacturers or volume discounts or
like sums provided by Network Pharmacies and shall
require that any party seeking the same provide the
other with at least one hundred and eighty (180)
days notice of the same or in the event of
circumstances dictating a shorter notice period,
such shorter period as is reasonable given such
circumstances.

6.10.3.1 ELECTRONIC PRESCRIPTION PROCESSING. In addition to
the sum set forth in Section 6.10.3 above, United
shall be authorized to receive *** per
prescription that is electronically processed for
the Health Care Options Pharmacy Service. The price
of these services may increase from year to year as
mutually agreed to by the parties hereto. In
addition to other provisions of this Agreement, the
parties agree to modify the Administrative Service
Fee in the event that there is a material change in
the number of claims which United processes. The
parties agree that any change in the fees payable
hereunder will be commensurate with the impact of
the change on the costs of providing the service by
United or its representative."

*** Represents text deleted pursuant to a confidentiality treatment request
filed with the Securities and Exchange Commission pursuant to Rule 24b-2
of the Securities Exchange Act of 1934, as amended.

<PAGE>

E. Section 7.1.1 of the Agreement is amended by the addition of a new final
sentence to read as follows:

"In establishing and maintaining relationships with
Network Pharmacies, Network Pharmaceutical
Manufacturers, and/or Network Pharmacy Benefit
Managers in connection with the HealthCare Options
Pharmacy Service, United shall be authorized to
disclose to such providers information contained in
the Database relating to such Service and to
authorize such providers to use such information in
connection therewith provided however that no such
use shall be in any manner which directly or
indirectly is identifiable to AARP, AARP Trust or
any AARP members."

F. The provisions of this Amendment shall become effective January 1, 1998.

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

AMERICAN ASSOCIATION OF RETIRED PERSONS

By: /s/ HORACE B. DEETS
------------------------------------

Print Name: HORACE B. DEETS
----------------------------

Print Title: EXECUTIVE DIRECTOR
---------------------------

TRUSTEES OF THE AARP INSURANCE PLAN

By: /s/ HORACE B. DEETS
------------------------------------

Print Name: HORACE B. DEETS
----------------------------

Print Title: SECRETARY
---------------------------

UNITED HEALTHCARE INSURANCE COMPANY

By: /s/ LOIS QUAM
------------------------------------

Print Name: LOIS QUAM
----------------------------

Print Title: CHIEF EXECUTIVE OFFICER,
AARP DIVISION
---------------------------

<PAGE>

EMPLOYMENT AGREEMENT

This Agreement is made effective this 20th day of May 1998 (the
"Effective Date") by and between R. Channing Wheeler ("Executive") and United
HealthCare Services, Inc. ("UHS"). When used in this Agreement, UHS includes
any affiliated entity of UHS. This agreement is for the purpose of setting
forth certain terms and conditions of Executive's employment by UHS and to
protect UHS's knowledge, expertise, customer relationships and the
confidential information UHS has developed about its customers, products,
operations and services. As of the Effective Date, this Agreement supersedes
any prior employment-related agreement or agreements between Executive and
UHS or any subsidiary or affiliate of UHS.

1. EMPLOYMENT AND DUTIES.

A. EMPLOYMENT. UHS hereby directly or through its subsidiaries employs
Executive. Executive accepts such employment on the terms and conditions set
forth in this Agreement and, except as specifically superseded by this
Agreement, subject to all of UHS's policies and procedures in regard to its
employees.

B. DUTIES. Executive shall perform such duties as are commonly
associated with the position of the chief executive officer of the Strategic
Business Services Division of United HealthCare Corporation ("UHC") reporting
to Stephen Hemsley or another member of the Office of the Chairman or other
comparable senior executive level position plus such other executive level
responsibilities as are reasonably assigned to Executive in connection with
his UHC duties. Executive agrees to devote substantially all of his business
time and energy to the performance of his duties in a diligent and proper
manner.

2. COMPENSATION.

A. BASE SALARY. Executive shall initially be paid a base annual salary
in the amount of $400,000 payable bi-weekly, less all applicable withholdings
and deductions. Executive shall receive a periodic performance review from
his supervisor and consideration for an increase of such base salary,
provided however that during each year of this Agreement, and subject to
Executive's performance, the Executive will be treated for increases in base
salary in the same manner as other executives at Executive's level are
considered and granted increases in their base salary.

B. BONUS AND STOCK PLANS. Executive shall be eligible to participate in
UHS's incentive compensation plans and its stock option and grant plans, in
accordance with the terms and conditions of those plans and applicable laws
and regulations. Without limiting the generality of the foregoing, Executive
will be entitled to participate in the UHC Management Incentive Program with
a target participation of 85% of Executive's base earnings, and Executive
will also be entitled to participate in the UHC Long Term Incentive Plan,
subject, in each instance, to the terms and conditions of those plans as

<PAGE>

they may be changed in the future. Any stock options granted to Executive will
provide that upon a UHC or UHS Change of Control (as defined in Section 3D3
all options granted to Executive shall be deemed fully vested.

C. EMPLOYMENT BENEFITS. The Executive shall be eligible to participate
in UHS's other employee benefit plans, including without limitation, any
life, health, dental, short-term and long-term disability insurance coverages
and any retirement plans, in accordance with the terms and conditions of
those plans and applicable laws and regulations. UHS will provide, at its
expense, a car and driver to transport Executive from his residence to the
UHS offices and back to the Executive's residence on a daily basis, including
all expenses associated with such transportation, provided however, that the
expense of this car service to UHS will not exceed $4,500/month. Executive
shall be entitled to choose the car service to provide these transportation
services. This car service shall not be treated as a taxable benefit to
Executive. In the event that Executive is required to pay a tax related to
this car service, UHS will reimburse the Executive for the amount of the tax.
Additionally, UHS will provide the Executive with full reimbursement for
reasonable transportation expenses reasonably related to the discharge of
Executive's duties connected with his employment by UHS. All of Executive's
air travel related to his duties hereunder shall be provided by UHS at
Business Class or First Class Level.

D. VACATION; ILLNESS. Executive shall be entitled to paid vacation and
sick leave each year in accordance with UHS's then-current policies.

3. TERM AND TERMINATION.

A. TERM. Unless terminated as set forth in Section 3B, the term of this
Agreement shall begin on the date of its execution (the "Effective Date") and
shall continue for an initial term of three years. This contract shall be
automatically renewed from year to year thereafter for successive one-year
terms until such time as an election not to renew is made pursuant to Section
3B.

B. TERMINATION OF AGREEMENT AND/OR EMPLOYMENT.

1. This Agreement may be terminated at any time by the mutual
written agreement of the parties.

2. UHS may terminate Executive's employment, terminate this
Agreement, or elect not to renew this Agreement for a succeeding one-year
term, by giving written notice of termination or nonrenewal which is
received by Executive at least 60 days before the effective date of
termination or nonrenewal of employment or of this Agreement, as the case
may be. A Change in Employment as defined in 3D2 may, upon election by
Executive, be deemed to be a Termination of Executive's Employment under
this section 3B2.

3. Executive may terminate his employment, or elect not to renew this
Agreement for a succeeding one-year term, by giving written notice of

<PAGE>

termination or nonrenewal which is received by UHS at least 60 days
before the effective date of termination or nonrenewal of employment or
of this Agreement, as the case may be.

4. This Agreement shall automatically terminate on the effective
date of the termination of Executive's employment or on the date of
Executive's death, retirement or permanent and total disability which
renders Executive incapable of performing Executive's duties. The
Executive's permanent and total disability shall be determined in
accordance with the definitions of permanent and total disability as
contained in any disability insurance policy applicable to Executive and
provided by UHS for the benefit of Executive pursuant to Executive's
employment by UHS.

No other provisions of this Agreement withstanding, the termination of this
Agreement shall not terminate any of UHS's obligations to Executive which by
their terms would normally be performed after termination, including but not
limited to UHS's duties under Sections 2B and 3C.

C. SEVERANCE EVENTS AND COMPENSATION. In the event (i) Executive's
employment with UHS is terminated or this Agreement is not renewed by UHS
pursuant to Section 3B2 and without Cause, or (ii) Executive's employment
with UHS is terminated or this Agreement is not renewed by UHS as result of
Executive's disability pursuant to Section 3B4, or (iii) a Change in
Employment occurs which Executive elects to treat as a Termination of
Executive's Employment under Section 3B2 ((i), (ii), and (iii) are
collectively referred to as the "Severance Events"), then:

1. For 12 months following the effective date of the termination of
Executive's employment ("Severance Period"). Executive shall receive
twenty six biweekly payments each equal to 1/26TH of (a) the highest
base salary that Executive earned at any time during the 90 day period
immediately prior to the effective date of termination, but in no event
less than a base salary of $400,000, less all applicable withholdings
or deductions required by law or Executive's elections under any
employee benefit plans which Executive continues to participate in under
Section 3C2, plus (b) all bonuses that would be payable to Executive
under the UHC Management Incentive Program at Executive's current target
level, but in no event less than a target level of 85% of base salary
((a) and (b) are collectively referred to as the "Severance
Compensation"). Further, UHS management will in good faith and without
reservations with regard to establishing precedent, request approval
from the Compensation Committee for the payment of the Executive's
portion of the payments/benefits under the UHC Long Term Incentive Plan
(LTIP) prorated through the effective date of termination. The Executive
will not disclose to any other UHS employee this provision for potential
participation in the LTIP and if such participation is granted,
Executive will keep such LTIP participation confidential.

For the purposes of calculating Executive's bonus pursuant to Section
3C1(b) Executive's severance level annual base salary will be multiplied
by the

3
<PAGE>

Executive's then bonus target level, provided however that such bonus
target level shall not be less than 85%.

By way of example, if the Executive's base salary for the purposes of
calculation of Severance Benefits was $400,000 per year then at the
minimum target level of 85% of base salary, the bonus to the Executive
would be $400,000 X 85% = $340,000. Executive would receive a gross
bonus payment as part of each biweekly Severance Compensation payment of
$340,000/26 = $13,076.92.

Executive's biweekly payments shall be reduced on a net dollar for net
dollar basis based on the net amount of compensation which Executive
receives in that biweekly period as a result of employment or work as an
independent contractor providing consulting or executive services in the
Health Care industry. In the event that the Executive's employment with
UHS is terminated as a result of disability, injury, or illness and also
if during the Severance Period Executive receives disability insurance
compensation from a disability plan or policy provided through
Executive's employment with UHS, then Executive's biweekly payments
shall be similarly reduced on a net dollar for dollar basis based on the
net after tax amount of disability insurance payments which the
Executive receives for that biweekly period. Executive shall promptly
disclose to UHS any such compensation.

2. As of the effective date of termination of employment,
Executive shall cease to be eligible for all benefit plans maintained by
UHS, except as required by federal or state continuation of coverage
laws. If Executive elects continuation of coverage under one or more
benefit plans subject to such continuation requirements, UHS shall, for
the Severance Period, pay on behalf of Executive the same percentage of
premium or converge charges that UHS would have paid on behalf of
Executive for such benefit plan had Executive remained employed by UHS
with participation at the same benefit level.

3. During the Severance Period UHS shall pay to an outplacement
firm selected by UHS an amount deemed reasonable by UHS for outplacement
and job search services for Executive.

4. Any unvested stock options or grants awarded Executive under
any of UHS's stock option or grant plans shall continue to vest during
the Severance Period in accordance with those options' or grants'
pre-established or usual vesting schedule.

The payments and benefits to Executive under this Section 3C shall be the
sole liability of UHS to Executive in the event of a Severance Event and
shall replace and be in lieu of any payments or benefits which otherwise
might be owed by UHS under any other severance plan or program and such
payments and benefits may be conditioned by UHS upon receipt of a release of
claims from Executive. Solely for purposes of stock options and grants, the
date of termination of employment shall be the last day of the Severance
Period.

<PAGE>

D. DEFINITIONS AND PROCEDURE.

1. For purposes of this Agreement "Cause" shall mean

(a) the failure or refusal of Executive to follow the reasonable
directions of UHS's Board of Directors or Executive's supervisor or to
perform any duties reasonably required by UHS, or

(b) a failure to adequately meet reasonable performance
expectations, or

(d) the commission of any criminal act or act of fraud or dishonesty
by Executive in connection with Executive's employment by UHS.

In the event that UHS elects to terminate Executive's employment under
subsections (a) or (b) of this Clause definition, UHS shall give the
Executive a written notice of intended termination and shall specify in
such notice the basis for Cause. Executive shall have 60 (sixty) days
after the receipt of such notice to cure such Cause to UHS's reasonable
satisfaction. If the Cause described in the notice is reasonably cured
prior to the end of the 60 day period, the notice of intention to
terminate employment shall be deemed withdrawn and Executive shall not
be terminated for Cause. If the grounds for the Cause is Executive's
failure under Section 3D1(a) or (b) and further if that failure is
primarily the result of Executive's illness or injury, then if Executive
returns to full time service within the sixty day cure period, such
return to full time duties will be deemed to have cured the Cause.

2. For purposes of this Agreement "Change in Employment" shall be
deemed to have occurred if

(a) (i) there is material adverse or detrimental change in the
Executive's job description, scope of responsibilities, duties, or
reporting level, without Executive's prior consent, or

(ii) Executive's salary or benefits are reduced other than as
a general reduction of salaries and benefits by UHS, or

(iii) without terminating Executive's employment this
Agreement is terminated by UHS pursuant to Section 3B2, or

(iv) during the first four years immediately following the
Effective Date UHS seeks to move Executive's principal place of

5
<PAGE>

performance of his duties to a place which requires a longer travel
time or is farther away from Executive's home in Westport,
Connecticut. It is understood that UHS reserves the right to relocate
portions of the business and that such relocation in and of itself
will not constitute a Change in Employment provided that Executive's
principal office is not relocated as a result, or

(v) in the event of a Change in Control as defined in
Section 3D3, or

(vi) in the event that UHS materially breaches any of its
obligations to Executive under this Agreement and such breach is
not reasonably cured by UHS within 30 days after receipt of written
notice from Executive,

and

(b) if in each case under subsections (a) (i), (ii), (iii), (iv),
(v), and (vi) in the period beginning 60 days before the time the Change
in Employment occurs, Cause does not exist, or if Cause does exist UHS
has not given Executive written notice that Cause exists, or if UHS has
given Executive written notice that Cause exists, the Executive has
reasonably cured such Cause during the 60 (sixty) day notice period,

then the Executive may elect to treat a Change in Employment as a
Termination of Executive's Employment by UHS and as a Severance Event.

To do so Executive shall send written notice of such election to UHS
within 60 days after the date Executive receives notice from UHS or
otherwise is definitively informed of the events constituting the Change
in Employment. No Change in Employment shall be deemed to have occurred
if Executive fails to send the notice of election within the 60 day
period. Executive's failure to treat a particular Change in Employment
as a termination of employment shall not preclude Executive from
treating a subsequent Change in Employment as a termination of
employment. The effective date of a Change in Employment termination
shall be the date 30 days after UHS receives the written notice of
election.

3. For purposes of this Agreement "Change of Control" shall mean any of
the following which occurs subsequent to the Effective Date:

(a) any person (as such term is defined under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
corporation, or other entity (other than UHS, UHC, or any employee
benefit plan sponsored by UHS, UHC, or any of their subsidiaries), is or
becomes the beneficial owner (as such term is defined in Rule 13d-3

<PAGE>

under the Exchange Act) of securities of UHS or UHC representing
over 50% percent (50%) of the combined voting power of the
outstanding securities of UHS or UHC which ordinarily (and apart
from rights accruing under special circumstances) have the right to
vote in the election of directors (calculated as provided in
paragraph (d) of such Rule 13d-3 in the case of rights to acquire
UHS's or UHC's securities) (the "Securities"); or

(b) as a result of a tender offer, merger, sale of assets
or other major transaction, the persons who are directors of UHS or
UHC immediately prior to such transaction cease to constitute a
majority of the Board of Directors of UHS or UHC (or any successor
corporations) immediately after such transaction; or

(c) UHS or UHC are merged or consolidated with any other
person, firm, corporation or other entity and, as a result, the
shareholders of UHS or UHC, as determined immediately before such
transaction, own less than eighty percent (80%) of the outstanding
Securities of the surviving or resulting entity immediately after
such transaction; or

(d) a tender offer or exchange offer is made and
consummated for the ownership of fifty percent (50%) or more of the
outstanding Securities of UHS or UHC; or

(e) UHS or UHC transfer substantially all their assets to
another person, firm, corporation or other entity that is not a
wholly-owned subsidiary of UHC or UHC; or

(f) UHS or UHC enter into a management agreement with
another person, firm, corporation or other entity that is not a
wholly-owned subsidiary of UHS or UHC and such management agreement
extends hiring and firing authority over Executive to an individual
or organization other than UHS or UHC.

4. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE

A. UHS'S PROPERTY.

1. Executive shall promptly disclose to UHS in writing all
inventions, discoveries and works of authorship, whether or not
patentable or copyrightable, which are conceived, made, discovered,
written or created by Executive alone or jointly with another person,
group or entity, whether during the normal hours of employment at UHS
or on Executive's own time, during the term of this Agreement.
Executive assigns all rights to all such inventions and works of
authorship to UHS. Executive shall give UHS any assistance it
reasonably requires in order for UHS to perfect, protect, and use its
rights to inventions and works of authorship.

7
<PAGE>

This provision shall not apply to an invention for which no
equipment, supplies, facility or trade secret information of UHS was
used and which was developed entirely on the Executive's own time and
which (1) does not relate to the business of UHS or to UHS's
anticipated research or development, or (2) does not result from any
work performed by the Executive for UHS.

2. Executive shall not remove any records, documents, or any
other tangible items (excluding Executive's personal property) from
the premises of UHS in either original or duplicate form, except as
is needed in the ordinary course of conducting business for UHS.

3. Executive shall immediately deliver to UHS, upon termination
of employment with UHS, or at any other time upon UHS's request, any
property, records, documents, and other tangible items (excluding
Executive's personal property) in Executive's possession or control,
including data incorporated in word processing, computer and other
data storage media, and all copies of such records, documents and
information, including all Confidential Information, as defined below.

B. CONFIDENTIAL INFORMATION. During the course of his employment
Executive will develop, become aware of and accumulate expertise,
knowledge and information regarding UHS's organization, strategies,
business and operations and UHS's past, current or potential customers
and suppliers. UHS considers such expertise, knowledge and information to
be valuable, confidential and proprietary and it shall be considered
Confidential Information for purposes of this Agreement. During this
Agreement and at all times thereafter Executive shall not use such
Confidential Information or disclose it to other persons or entities
except as is necessary for the performance of Executive's duties for UHS
or as has been expressly permitted in writing by UHS.

C. NON-SOLICITATION. During (i) the term of this Agreement, (ii)
any period for which Executive is receiving payments under Section 3C of
this Agreement, and (iii) any period following the termination or
expiration of this Agreement during which Executive remains employed by
UHS, Executive shall not (y) directly or indirectly attempt to hire away
any then-current employee of UHS or a subsidiary of UHS or to persuade
any such employee to leave employment with UHS, or (z) directly or
indirectly solicit, divert, or take away, or attempt to solicit, divert,
or take away, the business of any person, partnership, company or
corporation with whom UHS (including any subsidiary or affiliated company
in which UHS has a more than 20% equity interest) has established or is
actively seeking to establish a business or customer relationship.

<PAGE>

(including any subsidiary of affiliated company in which UHS has a more than
20% equity interest) is engaged.

In the event that Executive elects to terminate Executive's employment
pursuant to Section 3B3. UHS may elect to have the provisions of this Section
4D be in effect for up to twelve months following the effective date of such
resignation if, during the period up to twelve months specified by UHS, UHS
provides to the Executive all of the Severance Benefits described in Sections
3C1 through 3C4.

UHS must send written notice of such election within 10 days after it
receives written notice of the termination of employment. Executive's biweekly
payments shall be reduced by a net dollar for net dollar basis based on the
net amount of compensation which Executive receives in that biweekly period
as a result of employment or work as an independent contractor providing
consulting or executive services in the Health Care industry. Executive shall
promptly disclose to UHS any such compensation.

5. MISCELLANEOUS.

A. ASSIGNMENT. This Agreement shall be binding upon and shall insure to
the benefit of the parties and their successors and assigns, but may not be
assigned by either party without the prior written consent of the other
party, except that UHS in its sole discretion may assign this Agreement to an
entity controlled by UHS at the time of the assignment. If UHS subsequently
loses or gives up control of the entity to which this Agreement is assigned,
such entity shall become UHS for all purposes under this Agreement, beginning
on the date on which UHS loses or gives up control of the entity. Any
successor to UHS shall be deemed to be UHS for all purposes of this Agreement.

B. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or mailed by
registered or certified mail, return receipt requested, postage prepaid, to
the party to receive the same at the address set forth below or at such other
address as may have been furnished by proper notice.

UHS: 300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: General Counsel

Executive: R. Channing Wheeler
43 Bermuda Road
Westport, CT 06880

9
<PAGE>

understandings, including any letters or memos which may have been construed
as agreements, between the Executive and UHS or any of its subsidiaries and
affiliated companies.

D. CHOICE OF LAW. This agreement shall be construed and interpreted
under the applicable laws and decisions of the State of Minnesota.

E. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy under this Agreement shall operate
as waiver, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise of any right or remedy.

F. ADEQUACY OF CONSIDERATION. Executive acknowledges and agrees that
he/she has received adequate consideration from UHS to enter into this
Agreement.

G. MEDIATION. In the event of any dispute between the parties concerning
this Agreement, both parties agree to participate in good faith in nonbinding
mediation of that dispute with each party to pay its own attorney's fees and
costs and the parties to equally divide the costs of the mediator.

H. DISPUTE RESOLUTION AND REMEDIES. Any dispute arising between the
parties relating to this Agreement or to Executive's employment by UHS shall
be resolved by binding arbitration pursuant to the Rules of the American
Arbitration Association. In no event may the arbitration be initiated more
than two years after the date one party first gave written notice of the
dispute to the other party. The arbitrators shall not ignore or vary the
terms of this Agreement and shall be bound by and apply controlling law, but
may not in any case award any punitive or exemplary damages.

The parties acknowledge that Executive's failure to comply with the
Confidentiality, Non-Solicit and Non-Compete provisions of this Agreement
will cause immediate and irreparable injury to UHS and that therefore the
arbitrators, or a court of competent jurisdiction if an arbitration panel
cannot be immediately convened, will be empowered to provide injunctive
relief, including temporary or preliminary relief, to restrain any such
failure to comply.

I. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer or be
deemed or construed to confer any rights or benefits upon any person other
than the parties.

J. ATTORNEY'S FEES. In the event that Executive prevails in any
controversy, claim or dispute with UHS or UHC or any successor or assignee
arising out of or relating to this agreement or breach thereof, Executive
shall also recover reasonable attorney's fees and costs, including attorney's
fees incurred on or after appeal to attorney's fees incurred after judgment
in the collection process. Because of the differing financial positions of
the parties, UHS and UHC shall not be entitled to recover attorney's fees
from Executive in the event that UHS or UHC is the prevailing party in any
dispute or action with Executive relating to this agreement.

10
<PAGE>

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED
BY THE PARTIES.

UNITED HEALTHCARE SERVICES, INC.

By: /s/ David J. Lubben
----------------------------
Date: May 29, 1998
----------------------------

R. Channing Wheeler
--------------------------------
R. Channing Wheeler
Date: June 9, 1998
----------------------------

<PAGE>

EMPLOYMENT AGREEMENT

This Agreement is made effective this 19th day of May, 1998 (the
"Effective Date") by and between Arnold H. Kaplan ("Executive") and United
HealthCare Services, Inc. ("UHS") (when used in this Agreement, UHS includes
any affiliated entity of UHS) for the purpose of setting forth certain terms
and conditions of Executive's employment by UHS and to protect UHS's
knowledge, expertise, customer relationships and the confidential information
UHS has developed about its customers, products, operations and services. As
of the Effective Date, this Agreement supersedes any prior employment-related
agreement or agreements between Executive and UHS or any subsidiary or
affiliate of UHS.

1. EMPLOYMENT AND DUTIES.

A. EMPLOYMENT. UHS hereby directly or through its subsidiaries employs
Executive. Executive accepts such employment on the terms and conditions
set forth in this Agreement and, except as specifically superseded by
this Agreement, subject to all of UHS's policies and procedures in
regard to its employees.

B. DUTIES. Executive shall perform such duties as are commonly
associated with his positions as the Chief Financial Officer of United
HealthCare Corporation ("UHC") or such other senior executive level
responsibilities as are reasonably assigned to Executive by his
supervisor from time-to-time. As Chief Financial Officer, Executive will
report directly to UHC's Senior Executive Vice President, such
executive's successor, or another member of UHC's Office of the
Chairman, excluding, however, any Chief Administrative Officer that may
from time to time be appointed by UHC and serve as a member of the
Office of the Chairman. Executive agrees to devote substantially all of
his business time and energy to the performance of his duties in a
diligent and proper manner. UHS acknowledges that Executive shall
maintain his permanent residence in Emmaus, Pennsylvania.

2. COMPENSATION.

A. BASE SALARY. Executive shall initially be paid a base annual salary
in the amount of $375,000 payable bi-weekly, less all applicable
withholdings and deductions. Executive shall receive a periodic
performance review from his supervisor and consideration for an increase
of such base salary.

1. Executive will be entitled to participate in the UHC Management
Incentive Program. Executive's minimum initial participation will be 75%
of Executive's base annual salary. For 1998, Executive's payment, before
applicable withholding and deductions, shall not be less than $141,000.
For 1999, Executive's payment, before applicable withholding and
deductions, shall not be less than the sum of $141,000 and half of the
product of the "factor" applied to Executive's functional unit and
Executive's then participation factor.

2. Executive will be entitled to participate in the UHC Long Term
Incentive Plan. Executive's participation shall include UHS' start up
cycle and first cycle on a time-calculated pro rata basis beginning
on the Effective Date.

3. Executive will be entitled to participate in the UHC Stock Option
Plan from and after the Effective Date without any proration or other
limitation based on length of tenure. While not contractually binding,
UHC has advised Executive that currently executive comparable to
Executive annually receive options to purchase

<PAGE>

approximately 25,000 shares of UHC Common Stock. Pursuant to the UHC
Stock Option Plan, Executive will receive an initial option grant to
purchase 75,000 shares of UHC Common Stock at an exercise price of
$52.25, which option grant will vest equally over a four-year period on
the anniversary of Executive's employment. Options granted to Executive,
including the initial option grant described above, will fully vest upon
Executive's retirement or any other termination of this Agreement, other
than a termination for Cause as herein defined. Options granted to
Executive, once vested, shall remain exercisable for the remaining term
of the option, subject to any forfeiture or "clawback" provisions in any
option. Any stock options granted to Executive will provide that upon a
UHC change of control all options granted to Executive shall be deemed
fully vested.

C. INITIAL BONUS. As an additional incentive payment, UHS agrees to pay
Executive a one-time payment of $50,000, less all applicable withholding
and deductions provided that Executive commences employment no later
than July 1, 1998. This payment will be made approximately one month
following the date on which Executive commences active employment
hereunder.

D. MOVING ALLOWANCE. UHS will provide Executive with relocation benefits
equal to $75,000 in accordance with UHS policies previously provided to
Executive. In addition, for a period of six months following July 1,
1998, UHS will reimburse Executive for reasonable transition expenses
that Executive incurs. UHS will reimburse Executive the cost of any
federal and state income taxes payable with respect to the payments made
under this paragraph.

E. EMPLOYEE BENEFITS. The Executive shall be eligible to participate in
UHS's other employee benefit plan, including without limitation, any
life, health, dental, short-term and long-term disability insurance
coverages and any retirement plans, in accordance with the terms and
conditions of those plans and applicable laws and regulations. Without
limiting the generality of the foregoing. Executive will be entitled to
receive a monthly benefit payment of $1,200, a one-time payment of $750
for business related expenses, and annual financial planning benefits up
to $6,000, all in accordance with the terms and conditions of such plans
and programs.

F. VACATION; ILLNESS. Executive shall be entitled to paid vacation and
sick leave each year in accordance with UHS's then-current policies.

3. TERM AND TERMINATION.

A. TERM. The term of this Agreement shall begin on the Effective Date
and shall continue unless and until terminated as set forth in Section 3B.

B. TERMINATION OF AGREEMENT AND/OR EMPLOYMENT.

1. This Agreement may be terminated at any time by the mutual written
agreement of the parties.

2. UHS may terminate Executive's employment or terminate this Agreement
by giving written notice of termination which is received by Executive
at least 30 days before the effective date of termination of employment
or of this Agreement, as the case may be.

3. Executive may terminate his employment by giving written notice of
termination of employment which is received by UHS at least 30 days
before the effective date of termination of employment.

4. This Agreement shall automatically terminate on the effective date
of the termination of Executive's employment or on the date of
Executive's death, retirement or permanent and total

<PAGE>

disability which renders Executive incapable of performing Executive's
duties. UHS has the sole discretion to determine whether Executive is
permanently or totally disabled with the meaning of this Section 3B4.

C. SEVERANCE EVENTS AND COMPENSATION. In the event (i) Executive's
employment with UHS is terminated by UHS pursuant to Section 3B2 and without
Cause or (ii) a Change in Employment occurs which Executive elects to treat
as a termination of Executive's employment under Section 3B2 ((i) and (ii)
are collectively referred to as the "Severance Events"), then:

1. For the "Severance Period," as hereinafter defined, Executive shall
receive biweekly payments equal to the greater of (a)(i) the quotient of
$1,000,000 and 36 if the Severance Event occurs within 24 months of the
Effective Date or (ii) the quotient of $700,000 and 24 if the Severance
Event occurs more than 24 months after the Effective Date but within 36
months of the Effective Date and (b) and amount equal to 1/26 of (i)
Executive's annualized base salary at the effective date of termination,
plus (ii) one-half of the total of any bonus or incentive compensation
(but not including any special or one-time bonus or incentive
compensation payments) paid or payable to Executive for the two most
recent calendar years or other periods generally used by UHS to determine
such bonus or incentive compensation, or if Executive has been eligible
for such bonus or incentive compensation payments for less than two such
periods, the last such payment paid or payable to Executive (the amounts
paid pursuant to (a) or (b) are referred to as the "Severance
Compensation"). The Severance Compensation shall be reduced by any
compensation which Executive receives or reasonably could have received in
each biweekly period as a result of employment or work as an independent
contractor elsewhere. Executive shall promptly disclose to UHS any such
compensation. For purposes of this Agreement, the "Severance Period"
shall equal: 13 months if a Severance Event occurs within 24 months of
the Effective Date; 12 months if a Severance Event occurs more than 24
but within 36 months of the Effective Date; and such period of time as
is consistent with UHS' then prevailing severance policies for executive
officers comparable to the Executive if a Severance Event occurs more
than 36 months after the Effective Date. Any payments hereunder will be
reduced by all applicable withholdings or deductions required by law or
Executive's elections under any employee benefit plans which Executive
continues to participate in under Section 3C2. If a Severance Event occurs
more than 36 months after the Effective Date in connection with a change
of control of UHC Executive shall receive Severance Compensation equal to
the greater of $700,000 or such amount as is payable in accordance with
UHC's prevailing policies.

2. As of the effective date of termination of employment, Executive
shall cease to be eligible for all benefit plans maintained by UHS,
except as required by federal or state continuation of coverage laws. If
Executive elects continuation of coverage under one or more benefit plans
subject to such continuation requirements, UHS shall, for the Severance
Period, pay on behalf of Executive an amount equal to UHS's employer
contribution for similarly situated active employees' coverages under
such benefit plans. During the Severance Period Executive's share of
coverage costs for such benefit plans shall be deducted automatically
through after-tax payroll deduction from the Severance Compensation.

3. During the Severance Period UHS shall pay to an outplacement firm
selected by UHS an amount deemed reasonable by UHS for outplacement and
job search services for Executive.

4. Executive shall be paid a portion of the Management Incentive Program
payments for the year in which termination of this Agreement occurs and
shall also be entitled to a position of the payments under the Long-Term
Incentive Plan. Payments shall be prorated based on the time at which
this Agreement terminates and shall be paid promptly following their
determination in accordance with the plan.

<PAGE>

The payments and benefits to Executive under this Section 3C shall be the
sole liability of UHS to Executive in the event of a Severance Event and
shall replace and be in lieu of any payments or benefits which otherwise
might be owned by UHS under any other severance plan or program and such
payments and benefits may be conditioned by UHS upon receipt of a release of
claims from Executive.

D. DEFINITION AND PROCEDURE.

1. For purposes of this Agreement, "Cause" shall mean (a) the refusal
of Executive to follow the reasonable directions of UHS's Board of
Directors or Executive's supervisor or to perform any duties reasonably
required on material matters by UHS, (b) material violations of UHS's
Code of Conduct or (c) the commission of any criminal act or act of
fraud or dishonesty by Executive in connection with Executive's
employment by UHS. Prior to the termination of Executive's employment
under subsection (a) of this Cause definition. UHS shall provide
Executive with a 30 day notice specifying the basis for Cause. If the
Cause described in the notice is cured to UHS's reasonable satisfaction
prior to the end of the 30 day notice period, Executive's employment
shall not be terminated on that basis.

2. For purposes of this Agreement a "Change in Employment" shall be
deemed to have occurred (a) if (i) Executive's duties are materially
adversely changed without Executive's prior consent or (ii) Executive's
salary or benefits are reduced other than as a general reduction of
salaries and benefits by UHS or (iii) without terminating Executive's
employment this Agreement is terminated by UHS pursuant to Section 3B2,
and (b) if in each case under subsections (a) (i), (ii), and (iii), in
the period beginning 60 days before the time the Change in Employment
occurs, Cause does not exist or if Cause does exist UHS has not given
Executive written notice that Cause exists. Executive may elect to treat
a Change in Employment as a termination of employment by UHS. To do so
Executive shall send written notice of such election to UHS within 60
days after the date Executive receives notice from UHS or otherwise is
definitely informed of the events constituting the Change in
Employment. No change in Employment shall be deemed to have occurred if
Executive fails to send the notice of election within the 60 day period.
Executive's failure to treat a particular Change in Employment as a
termination of employment shall not preclude Executive from treating a
subsequent Change in Employment as a termination of employment. The
effective date of a Change in Employment termination shall be the date
30 days after UHS receives the written notice of election.

4. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE PROVISIONS.

A. UHS's PROPERTY.

1. Executive shall promptly disclose to UHS in writing all inventions,
discoveries and works of authorship, whether or not patentable or
copyrightable, which are conceived, made, discovered, written or created
by Executive alone or jointly with another person, group or entity,
whether during the normal hours of employment at UHS or on Executive's
own time, during the term of this Agreement. Executive assigns all
rights to all such inventions and works of authorship to UHS. Executive
shall give UHS any assistance it reasonably requires in order for UHS to
perfect, protect, and use its rights to inventions and works of
authorship.

This provision shall not apply to an invention for which no equipment,
supplies, facility or trade secret information of UHS was used and which
was developed entirely on the Executive's own time and which (1) does
not relate to the business of UHS or to UHS's anticipated research or
development, or (2) does not result from any work performed by the
Executive for UHS.

<PAGE>

2. Executive shall not remove any records, documents, or any other
tangible items (excluding Executive's personal property) from the
premises of UHS in either original or duplicate form, except as is
needed in the ordinary course of conducting business for UHS.

3. Executive shall immediately deliver to UHS, upon termination of
employment with UHS, or at any other time upon UHS's request, any
property, records, documents, and other tangible items (excluding
Executive's personal property) in Executive's possession or control,
including data incorporated in word processing, computer and other
data storage media, and all copies of such records, documents and
information, including all Confidential Information, as defined below.

B. CONFIDENTIAL INFORMATION. During the course of his employment
Executive will develop, become aware of an accumulate expertise,
knowledge and information regarding UHS's organization, strategies,
business and operations and UHS's past, current or potential customers
and suppliers. UHS considers such expertise, knowledge and information to
be valuable, confidential and proprietary and it shall be considered
Confidential information for purposes of this Agreement. During this
Agreement and at all times thereafter Executive shall not use such
Confidential Information or disclose it to other persons or entities
except as is necessary for the performance of Executive's duties for UHS
or as has been expressly permitted in writing by UHS.

C. NON-SOLICITATION. During (i) the term of this Agreement, (ii) any
period for which Executive is receiving payments under Section 3C of
this Agreement, (iii) any period following the termination or expiration
of this Agreement during which Executive remains employed by UHS and
(iv) for a period of one year after the last day of the latest of any
period described in (i), (ii) or (iii), Executive shall not (y) directly
or indirectly attempt to hire away any then-current employee of UHS or a
subsidiary of UHS or to persuade any such employee to leave employment
with UHS, or (z) directly or indirectly solicit, divert, or take away,
or attempt to solicit, divert, or take away, the business of any person,
partnership, company or corporation with whom UHS (including any
subsidiary or affiliated company in which UHS has a more than 20% equity
interest) has established or is actively seeking to establish a business
or customer relationship.

D. NON-COMPETITION. During (i) the term of this Agreement, (ii) any
period for which Executive is receiving payments under Section 3C of
this Agreement, and (iii) any period following the termination or
expiration of this Agreement during which Executive remains employed by
UHS, Executive shall not, without UHS's prior written consent, engage or
participate, either individually or as an employee, consultant or
principal, partner, agent, trustee, officer or director of a
corporation, partnership or other business entity, in any business in
which UHS (including any subsidiary or affiliated company in which UHS
has a more than 20% equity interest) is engaged. In the event that
Executive elects to terminate Executive's employment pursuant to Section
3B3, UHS may elect to have the provisions of this Section 4D be in
effect for up to 18 months following the effective date of such
resignation if, during the period up to 18 months specified by UHS, UHS
pays Executive biweekly payments equal to 1/26 of the Severance
Compensation. UHS must send written notice of such election within 10
days after it receives written notice of the termination of employment.
Executive shall use reasonable efforts to find appropriate employment or
work as an independent contractor not inconsistent with this Section 4D
and a biweekly payment shall be reduced by any compensation which
Executive receives or reasonably could have received in that biweekly
period as a result of employment or work as an independent contractor
elsewhere. Executive shall promptly disclose to UHS any such
compensation.

5. MISCELLANEOUS.

A. ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their successors and assigns, but may not
be assigned by either party without the prior written consent of the
other party, except that UHS in its sole discretion may assign this
Agreement to an entity controlled by UHS at the time of the assignment.
If UHS subsequently loses or gives up control of the entity to which this

5
<PAGE>

Agreement is assigned, such entity shall become UHS for all purposes
under this Agreement, beginning on the date on which UHS loses or gives
up control of the entity. Any successor to UHS shall be deemed to be UHS
for all purposes of this Agreement.

B. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or mailed
by registered or certified mail, return receipt requested, postage
prepaid, to the party to receive the same at the address set forth below
or at such other address as may have been furnished by proper notice.

UHS: 300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: General Counsel

Executive: Arnold H. Kaplan
500 Orchid Circle
Emmaus, PA 18049-1634

C. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to its subject matter and may be amended or
modified only by a subsequent written amendment executed by the parties.
This Agreement replaces and supersedes any and all prior employment or
employment related agreements and understandings, including any letters
or memos which may have been construed as agreements, between the
Executive and UHS or any of its subsidiaries and affiliated companies.

D. CHOICE OF LAW. This Agreement shall be construed and interpreted
under the applicable laws and decisions of the State of Minnesota.

E. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise of any right or
remedy.

F. ADEQUACY OF CONSIDERATION. Executive acknowledges and agrees that
he/she has received adequate consideration from UHS to enter into this
Agreement.

G. DISPUTE RESOLUTION AND REMEDIES. Any dispute arising between the
parties relating to this Agreement and future agreements or to
Executive's employment by UHS shall be resolved by binding arbitration
pursuant to the Rules of the American Arbitration Association. In no
event may the arbitration be initiated more than one year after the date
one party first gave written notice of the dispute to the other party.
The arbitrators shall not ignore or vary the terms of this Agreement and
shall be bound by and apply controlling law, but may not in any case
award any punitive or exemplary damages. The parties acknowledge that
Executive's failure to comply with the Confidential Information,
Non-Solicitation and Non-Competition provisions of this Agreement will
cause immediate and irreparable injury to UHS and that therefore the
arbitrators, or a court of competent jurisdiction if an arbitration
panel cannot be immediately convened, with be empowered to provide
injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply.

H. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer or be
deemed or construed to confer any rights or benefits upon any person
other than the parties.

<PAGE>

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY
THE PARTIES.

UNITED HEALTHCARE SERVICES, INC.

By /s/ Stephen J. Hemsley /s/ Arnold H. Kaplan
------------------------------ ---------------------------
Stephen J. Hemsley Arnold H. Kaplan

<PAGE>

TERMINATION AGREEMENT

TERMINATION AGREEMENT, dated August 9, 1998, by and among United
HealthCare Inc., a Minnesota corporation ("Parent"), UH-1 Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), Humana Inc., a
Delaware corporation ("Company"), and David A. Jones ("Jones") (each a
"Party" and collectively the "Parties").

WHEREAS, Parent, Sub and Company are parties to an Agreement and Plan of
Merger, dated as of May 27, 1998 (the "Merger Agreement"); and

WHEREAS, Parent and Company are parties to a Stock Option Agreement,
dated as of May 27, 1998 (the "Stock Option Agreement"); and

WHEREAS, Parent and Jones are parties to a Stockholder Voting Agreement,
dated as of May 27, 1998 (the "Voting Agreement," and together with the
Merger Agreement and the Stock Option Agreement, the "Transaction
Agreements"); and

WHEREAS, the Merger Agreement provides that it may be terminated and the
merger contemplated by the Merger Agreement (the "Merger") abandoned at any
time prior to the Effective Time (as defined in the Merger Agreement) by
mutual written consent of Company and Parent by action of their respective
Boards of Directors; and

WHEREAS, the Boards of Directors of Company and Parent respectively have
determined that the Merger and the other transactions contemplated by the
Transaction Agreements are no longer in the best interests of their
respective companies and shareholders; and

WHEREAS, the Voting Agreement provides that it terminates on the date
the Merger Agreement is terminated; and

WHEREAS, the Parent and Company desire to terminate the Stock Option
Agreement;

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

1. The Merger Agreement is hereby terminated as of the date hereof
pursuant to Section 8.1 of the Merger Agreement with the effects set forth in
Section 8.5(a) of the Merger Agreement, as modified by this Termination
Agreement.

<PAGE>

The Voting Agreement is hereby terminated pursuant to Section 14 of the
Voting Agreement. The Stock Option Agreement is hereby terminated by
agreement of Company and Parent.

2. Notwithstanding any provision of the Transaction Agreements to
the contrary, the Parties agree that all expenses incurred to date in
connection with the Transaction Agreements (including, without limitation,
all costs and fees associated with state regulatory filings, costs of
responding to requests for additional information under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the fees and expenses of its outside
counsel, financial advisors, accountants and experts), shall remain the
obligation of the party incurring such expense, except that expenses incurred
in connection with the filing fee for the S-4 Registration Statement and
printing and mailing the Prospectus/Proxy Statement and the S-4 Registration
Statement shall be shared equally by Parent and Company.

3. Each of the Company, Parent and Sub hereby agrees to take all
necessary steps to further the terminations effected by this Agreement,
including without limitation, (i) withdrawing from any proceedings before any
regulatory authorities; (ii) withdrawing all Form A applications, (iii)
notifying on a timely basis in accordance with all applicable laws and
regulations their respective shareholders of the termination of the
Transaction Agreements, and (iv) seeking termination of the effectiveness of
the S-4 Registration Statement.

4. Each of the Company, Parent and Sub represents to each of the
other Parties to this Agreement that the execution and delivery of this
Termination Agreement has been duly authorized by their respective Boards of
Directors and that this Termination Agreement constitutes a valid and binding
obligation of it, enforceable against it in accordance with its terms. Jones
represents to the other Parties to this Agreement that he has the legal
capacity to enter into this Termination Agreement, which constitutes a valid
and binding obligation of Jones, enforceable against him in accordance with
its terms.

5. This Termination Agreement (a) constitutes the entire agreement
of the Parties and supersedes all prior agreements and understandings,
written or oral, between the Parties with respect to the subject matter
hereof; (b) is not intended to confer upon any other person any right or
remedies hereunder; (c) shall be binding upon and inure to the benefit of the
Parties and their successors and assigns (whether by operation of law or
otherwise), PROVIDED that no assignment shall relieve a party of any of its
obligations hereunder; and (d) shall not be amended except by means of a
writing executed by each of the Parties.

6. This Termination Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall be effective when one or more counterparts have been signed by each of
the Parties and

-2-

<PAGE>

delivered to the other Parties, IT BEING UNDERSTOOD that all parties need not
sign the same counterpart.

7. The terms of the Confidentiality Agreement, dated May 4, 1998, by and
between Company and Parent remain in full force and effect.

8. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM; WAIVER
OF JURY TRIAL. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION
OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS
TERMINATION AGREEMENT OR THE TRANSACTION AGREEMENTS, OR IN RESPECT OF THE
TRANSACTIONS CONTEMPLATED THEREBY, WHETHER IN TORT OR CONTRACT OR AT LAW OR
IN EQUITY, EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE OR NEW YORK OR
IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF
DELAWARE OR THE SOUTHERN DISTRICT OF NEW YORK (THE "CHOSEN COURTS"). SOLELY
IN CONNECTION WITH SUCH ACTIONS, PROCEEDINGS AND CLAIMS, THE PARTIES
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE CHOSEN COURTS, AND AGREE NOT TO
ASSERT AS A DEFENSE IN ANY SUCH ACTION, SUIT OR PROCEEDING THAT SUCH PARTY IS
NOT SUBJECT TO THE JURISDICTION OF THE CHOSEN COURTS, THAT SUCH ACTION,
PROCEEDING OR CLAIM MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THE CHOSEN
COURTS, THAT VENUE IS NOT APPROPRIATE IN THE CHOSEN COURTS OR THAT THIS
AGREEMENT MAY NOT BE ENFORCED IN THE CHOSEN COURTS. EACH OF THE PARTIES
AGREES THAT SERVICE OF PROCESS OR OTHER PAPERS UPON SUCH PARTY IN ANY SUCH
ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH
THE PROVISIONS ON NOTICE CONTAINED IN THE TRANSACTION AGREEMENTS.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY
ARISE UNDER THIS TERMINATION AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS TERMINATION AGREEMENT OR THE TRANSACTION AGREEMENTS, OR THE
TRANSACTIONS CONTEMPLATED BY THOSE AGREEMENTS. EACH PARTY CERTIFIES AND

-3-

<PAGE>

ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS TERMINATION AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.

9. The provisions of this Termination Agreement shall be deemed
severable, and if any part of any provision is held by a court of competent
jurisdiction to be illegal, void or invalid under applicable law, such
provision may be changed to the extent necessary to make that provision, as
so changed, legal and binding. If any provision of this Termination Agreement
is held by a court of competent jurisdiction to be illegal, void or invalid
in its entirety, the remaining provisions hereof shall not in any way be
affected or impaired but shall remain binding in accordance with their terms.

10. It is expressly understood and agreed that nothing in this
Termination Agreement shall constitute or be construed as, or be deemed to
be, evidence or an admission or concession on the part of any Party of any
liability or wrongdoing whatsoever or any representation by any Party of any
merit as or lack of merit to any claim asserted by any Party.

IN WITNESS WHEREOF, the undersigned have caused this Termination
Agreement to be signed as of the date first written above.

UNITED HEALTHCARE CORPORATION

By: /s/ David Lubben
--------------------------------

UH-1 INC.

By: /s/ David Lubben
--------------------------------

DAVID A. JONES HUMANA INC.

/s/ David A. Jones By: /s/ Gregory H. Wolf
- ------------------------- --------------------------------

-4-

<PAGE>

EXHIBIT 15

LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION

August 6, 1998

To United HealthCare Corporation:

We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements No. 33-3558,
2-95342, 33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300,
33-75846, 33-79632, 33-79634, 33-79636, 33-59083, 33-59623, 33-63885,
333-05717, 333-02525, 333-04875, 333-04401, 333-06533, 333-01517, 333-01915,
333-25923, 333-05291, 333-44569, 333-44613, 333-45319, 333-41661, 333-45289,
333-50461 and 333-55777, its form 10-Q for the quarter ended June 30, 1998,
which includes our report dated August 6, 1998, covering the unaudited
interim condensed consolidated financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statement prepared of certified by our
firm or a report prepared or certified by our firm within the meaning of
Section 7 and 11 of the Act.

Very truly yours,

/s/ Arthur Andersen LLP
-------------------------------

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 663 610
<SECURITIES> 3,406 2,924
<RECEIVABLES> 1,282 748
<ALLOWANCES> (66) (45)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,255 1,988
<PP&E> 727 629
<DEPRECIATION> (394) (296)
<TOTAL-ASSETS> 8,888 7,126
<CURRENT-LIABILITIES> 4,236 2,479
<BONDS> 0 0
500 500
0 0
<COMMON> 2 2
<OTHER-SE> 4,129 4,122
<TOTAL-LIABILITY-AND-EQUITY> 8,888 7,126
<SALES> 4,175 2,867
<TOTAL-REVENUES> 4,235 2,931
<CGS> 4,141 2,710
<TOTAL-COSTS> 4,189 2,746
<OTHER-EXPENSES> 773 35
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (679) 185
<INCOME-TAX> 114 (69)
<INCOME-CONTINUING> (565) 116
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (572) 109
<EPS-PRIMARY> (2.96) 0.58
<EPS-DILUTED> (2.96) 0.57

</TABLE>

<PAGE>

CAUTIONARY STATEMENTS

The statements contained in this Form 10-Q include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"). When used in this Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases,
presentations to securities analysts or investors, and in oral statements made
by or with the approval of an executive officer of the Company, the words or
phrases "believes," "anticipates," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements. Any of these forward-looking statements involve
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements.

The following discussion contains certain cautionary statements regarding our
business that investors and others should consider. This discussion is
intended to take advantage of the "safe harbor" provisions of the PSLRA. In
making these cautionary statements, we are not undertaking to address or update
each factor in future filings or communications regarding our business or
results, and are not undertaking to address how any of these factors may have
caused results to differ from discussions or information contained in previous
filings or communications. In addition, any of the matters discussed below may
have affected the Company's past, as well as current, forward-looking
statements about future results. The Company's actual results in the future
may differ materially from those expressed in prior communications.

HEALTH CARE COSTS. We use a large portion of our revenue to pay the costs of
health care services or supplies delivered to our members. Total health care
costs we incur are affected by the number of individual services rendered and
the cost of each service. Much of our premium revenue is priced before
services are delivered and the related costs are incurred, usually on a
prospective annual basis. Although we try to base the premiums we charge in
part on our estimate of future health care costs over the fixed premium period,
competition, and regulations and other circumstances may limit our ability to
fully base premiums on estimated costs. In addition, many factors may and
often do cause actual health care costs to exceed what was estimated and
reflected in premiums. These factors may include increased use of services,
increased cost of individual services, catastrophes, epidemics, the
introduction of new or costly treatments, general inflation, new mandated
benefits or other regulatory changes, and insured population characteristics.
In addition, the earnings we report for any particular quarter include
estimates of covered services incurred by our enrollees during that period for
claims that have not been received or processed. Because these are estimates,
our earnings may be adjusted later to reflect the actual costs. Relatively
insignificant changes in the medical care ratio, because of the narrow margins
of our health plan business, can create significant changes in our earnings.

Our medical care ratio has generally increased over the past several fiscal
periods. Many factors contribute, to this increase. They include new markets
we serve, new products we offer, new businesses we have entered, as well as
increased utilization driven by new therapies and technologies. We are
addressing the medical cost trend underlying our increase in the medical care
ratio by altering benefit designs, recontracting with providers, and further
enhancing disease specific and local medical management programs. We also are
accelerating and intensifying the contemporaneous and retrospective claim
management activities that we have in place. Our inability to implement these
changes successfully could lead to further increases in our medical care
ratio.

In addition, our operating results may be affected by the seasonal changes in
the level of health care use during the calendar year. Although there are no
assurances, per member medical costs generally have been higher in the first
half than in the second half of each year.

INDUSTRY FACTORS. The managed care industry receives significant negative
publicity. This publicity has been accompanied by increased legislative
activity, regulation and review of industry practices. These factors may
adversely affect our ability to market our products or services, may require us
to change our products and services, and may increase the regulatory burdens
under which we operate, further increasing the costs of doing business and
adversely affecting profitability.

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COMPETITION. In many of our geographic or product markets, we compete with a
number of other entities, some of which may have certain characteristics or
capabilities that give them a competitive advantage. We believe the barriers
to entry in these markets are not substantial, so the addition of new
competitors can occur relatively easily, and consumers enjoy significant
flexibility in moving to new managed care providers. Certain Company customers
may decide to perform functions or services we provide for themselves, which
would decrease our revenues. Certain Company providers may decide to market
products and services to our customers in competition with us. In addition,
significant merger and acquisition activity has occurred in the industry in
which we operate as well as in industries that act as suppliers to us, such as
the hospital, physician, pharmaceutical and medical device industries. To the
extent that there is strong competition or that competition intensifies in any
market, our ability to retain or increase customers or providers, or maintain
or increase our revenue growth, pricing flexibility, control over medical cost
trends and our marketing expenses may be adversely affected.

AARP CONTRACT. Under our long-term contract with the American Association of
Retired Persons ("AARP"), we provide Medicare supplemental, hospital indemnity
health insurance and other products to AARP members. As a result of the
agreement, the number of members we serve, products we offer, and services we
provide has grown significantly. Our portion of the AARP's insurance program
represents approximately $3.5 billion in annual net premium revenue from more
than 4 million AARP members. The success of the AARP arrangement will depend,
in part, on our ability to service these new members, develop additional
products and services, price the products and services competitively, and
respond effectively to federal and state regulatory changes. Additionally,
events that adversely affect the AARP could have an adverse effect on the
success of our arrangement with the AARP.

MEDICARE OPERATIONS. In the second quarter of 1998, we experienced a
significant rise in the medical care ratio for our Medicare operations. The
increase in medical costs was primarily due to the business growth in new
markets with higher and more volatile medical cost trends, coupled with lower
reimbursement rates. We intend to reduce our exposure to future Medicare
losses by eliminating, reducing, or not beginning our efforts in certain
markets. Our ability to improve the financial results of our Medicare
operations will depend on a number of factors, including future premium
increases, growth in markets where we have achieved sufficient size to
operate efficiently, benefit design, provider contracting, and other factors.
There can be no assurance that we will be able to successfully prevent
future losses on our Medicare operations.

REALIGNMENT OF OPERATIONS. As previously indicated would be necessary, we
recognized a charge in the second quarter of 1998 to earnings for our
realignment. In January 1998, we initiated a significant realignment of our
operations into six businesses. As part of the realignment, we are shifting
resources and activities to more directly support the operations of our
businesses. Although we do not expect our realignment efforts to negatively
affect our product offerings, provider relations, billing and collection
disciplines, claims processing and payment activities, or other business
functions, there can be no assurance that such negative effects may not occur.
Our second quarter charge to earnings for costs associated with the realignment
was $725 million. Although we believe such charges are adequate, there can be
no assurance that the costs associated with our realignment efforts will not
exceed the charges we have taken for such costs.

GOVERNMENT PROGRAMS AND REGULATION. Our business is heavily regulated on a
federal, state and local level. The laws and rules governing our business and
interpretations of those laws and rules are subject to frequent change. Broad
latitude is given to the agencies administering those regulations. Existing or
future laws and rules could force us to change how we do business, restrict
revenue and enrollment growth, increase its health care and administrative
costs and capital requirements, and increase our liability for medical
malpractice or other actions. We must obtain and maintain regulatory approvals
to market many of our products. Delays in obtaining or failure to obtain or
maintain these approvals could adversely affect our revenue or the number of
our members, or could increase our costs. A significant portion of our
revenues relate to federal, state and local government health care coverage
programs. These types of programs, such as the federal Medicare program and
the federal and state Medicaid

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programs, generally are subject to frequent change, including changes that
may reduce the number of persons enrolled or eligible, reduce the amount of
reimbursement or payment levels, or may reduce or increase our administrative
or health care costs under such programs. Such changes have adversely
affected our results and willingness to participate in such programs in the
past and may also do so in the future.

The Company also is subject to various governmental reviews, audits and
investigations. Such oversight could result in the loss of licensure or the
right to participate in certain programs, or the imposition of fines, penalties
and other sanctions. In addition, disclosure of any adverse investigation or
audit results or sanctions could damage our reputation in various markets and
make it more difficult for us to sell our products and services. The National
Association of Insurance Commissioners (the "NAIC") is expected to adopt rules
which, if implemented by the states, will require certain capitalization levels
for health care coverage provided by insurance companies, HMOs and other risk
bearing health care entities. The requirements would take the form of risk-
based capital rules. Currently, similar risk-based capital rules apply
generally to insurance companies. Depending on the nature and extent of the
new minimum capitalization requirements ultimately implemented, there could be
an increase in the capital required for certain of our subsidiaries and there
may be some potential for disparate treatment of competing products. Federal
solvency regulation of companies providing Medicare-related benefit programs
may also be applied.

PROVIDER RELATIONS. One of the significant techniques we use to manage health
care costs and utilization and monitor the quality of care being delivered is
contracting with physicians, hospitals and other providers. Because our health
plans are geographically diverse and most of those health plans contract with a
large number of providers, we currently believe our exposure to provider
relations issues is limited. In any particular market, however, providers
could refuse to contract, demand higher payments, or take other actions that
could result in higher health care costs, less desirable products for customer
and members, or difficulty meeting regulatory or accreditation requirements.
In some markets, certain providers, particularly hospitals, physician/hospital
organizations or multi-specialty physician groups, may have significant market
positions or near monopolies. In addition, physician or practice management
companies, which aggregate physician practices for administrative efficiency
and marketing leverage, continue to expand. These providers may compete
directly with us. If these providers refuse to contract with us, use their
market position to negotiate favorable contracts, or place us at a competitive
disadvantage those activities could adversely affect our ability to market
products or to be profitable in those areas.

LITIGATION AND INSURANCE. We may be a party to a variety of legal actions
that affect any business, such as employment and employment discrimination-
related suits, employee benefit claims, breach of contract actions, tort
claims, shareholder suits, including securities fraud, and intellectual
property related litigation. In addition, because of the nature of our
business, we are subject to a variety of legal actions relating to our business
operations. These could include: claims relating to the denial of health care
benefits; medical malpractice actions; provider disputes over compensation and
termination of provider contracts; disputes related to self-funded business,
including actions alleging claim administration errors and the failure to
disclose network rate discounts and other fee and rebate arrangements; disputes
over copayment calculations; and claims relating to customer audits and
contract performance. Recent court decisions and legislative activity may
increase our exposure for any of these types of claims. In some cases,
substantial non-economic or punitive damages may be sought. We currently have
insurance coverage for some of these potential liabilities. Other potential
liabilities may not be covered by insurance, insurers may dispute coverage, or
the amount of insurance may not be enough to cover the damages awarded. In
addition, certain types of damages, such as punitive damages, may not be
covered by insurance and insurance coverage for all or certain forms of
liability may become unavailable or prohibitively expensive in the future.

INFORMATION SYSTEMS. Our business depends significantly on effective
information systems, and we have many different information systems for its
various businesses. Our information systems require an ongoing commitment of
resources to maintain and enhance existing systems and develop new systems in

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order to keep pace with continuing changes in information processing
technology, evolving industry standards, and changing customer preferences. In
addition, we may from time to time obtain significant portions of our systems-
related or other services or facilities from independent third parties, which
may make our operations vulnerable to such third parties' failure to perform
adequately. As a result of our acquisition activities, we have acquired
additional systems and have been taking steps to reduce the number of systems
and have upgraded and expanded its information systems capabilities. Failure
to maintain effective and efficient information systems could cause loss of
existing customers, difficulty in attracting new customers, customer and
provider disputes, regulatory problems, increases in administrative expenses or
other adverse consequences.

THE YEAR 2000. We are in the process of modifying our computer systems to
accommodate the Year 2000. We currently expect to complete this modification
enough in advance of the Year 2000 to avoid adverse impacts on our operations.
We are expensing the costs incurred to make these modifications. Our
operations could be adversely affected if we were unable to complete our Year
2000 modifications in a timely manner or if other companies with which we do
business fail to complete their Year 2000 modifications in a timely manner.

ADMINISTRATIVE AND MANAGEMENT. Efficient and cost-effective administration of
our operations is essential to our profitability and competitive positioning.
While we attempt to effectively manage such expenses, staff-related and other
administrative expenses may rise from time-to-time due to business or product
start-ups or expansions, growth or changes in business, acquisitions,
regulatory requirements or other reasons. These expense increases are not
clearly predictable and may adversely affect results. We believe we currently
have an experienced, capable management and technical staff. The market for
management and technical personnel, including information systems
professionals, in the health care industry is very competitive. Loss of
certain managers or a number of such managers or technical staff could
adversely affect our ability to administer and manage its business.

MARKETING. We market our products and services through both employed sales
people and independent sales agents. Although we have many sales employees and
agents, the departure of certain key sales employees or agents or a large
subset of such individuals could impair our ability to retain existing
customers and members. In addition, certain of our customers or potential
customers consider rating, accreditation or certification of the Company by
various private or governmental bodies or rating agencies necessary or
important. Certain of our health plans or other business units may not have
obtained or maintained, or may not desire or be able to obtain or maintain,
such rating accreditation or certification, which could adversely affect our
ability to obtain or retain business with these customers.

ACQUISITIONS AND DISPOSITIONS. The Company has made several large acquisitions
in recent years and has an active ongoing acquisition and disposition program
under which it may engage in transactions involving the acquisition or
disposition of assets, products or businesses, some or all of which may be
material. These acquisitions may entail certain risks and uncertainties and may
affect ongoing business operations because of unknown liabilities, unforeseen
administrative needs or increased efforts to integrate the acquired operations.
Failure to identify liabilities, anticipate additional administrative needs or
effectively integrate acquired operations could result in reduced revenues,
increased administrative and other costs, or customer confusion or
dissatisfaction.

DATA AND PROPRIETARY INFORMATION. Many of the products that are part of our
knowledge and information-related business depend significantly on the
integrity of the data on which they are based. If the information contained in
our databases were found or perceived to be inaccurate, or if such information
were generally perceived to be unreliable, commercial acceptance of our
database-related products would be adversely and materially affected.
Furthermore, the use by our knowledge and information-related business of
patient data is regulated at federal, state, and local levels. These laws and
rules are changed frequently by legislation or administrative interpretation.
These restrictions could adversely affect revenues from these products and,
more generally, affect our business, financial condition and results of
operations.

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The success of our knowledge and information-related business also depends
significantly on our ability to maintain proprietary rights to our products.
We rely on our agreements with customers, confidentiality agreements with
employees, and our trade secrets, copyrights and patents to protect our
proprietary rights. We cannot assure that these legal protections and
precautions will prevent misappropriation of our proprietary information. In
addition, substantial litigation regarding intellectual property rights exists
in the software industry, and we expect software products to be increasingly
subject to third-party infringement claims as the number of products and
competitors in this industry segment grows. Such litigation could have an
adverse affect on the ability of our knowledge and information-related business
to market and sell its products and on our business, financial condition and
results of operations.

STOCK MARKET. The market prices of the securities of the Company and certain
of the publicly-held companies in the industry in which we operate have shown
volatility and sensitivity in response to many factors, including general
market trends, public communications regarding managed care, legislative or
regulatory actions health care cost trends, pricing trends, competition,
earnings or membership reports of particular industry participants, and
acquisition activity. We cannot assure the level or stability of our share
price at any time, or the impact of the foregoing or any other factors may have
on our share price.