UnitedHealth Group (UNH)

Matters relating to or arising out of our historical stock option practices, including regulatory inquiries, litigation matters, and potential additional cash and noncash charges could have a material adverse effect on the Company.

In early 2006, our Board of Directors initiated an independent review of the Company’s historical stock option practices from 1994 to 2005. The independent review was conducted by an independent committee comprised of three independent directors of the Company (Independent Committee) with the assistance of independent counsel and independent accounting advisors. On October 15, 2006, we announced that the Independent Committee had

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completed their review of the Company’s historical stock option practices and reported the findings to the non-management directors of the Company. As a result of our historical stock option practices, we restated our previously filed financial statements, we incurred certain cash and non-cash charges, we are subject to various regulatory inquiries and litigation matters, and we may be subject to further regulatory inquiries, litigation matters, and cash and noncash charges, the outcome of any or all of which could have a material adverse effect on us. See Note 15 of Notes to the Consolidated Financial Statements for a more detailed description of these regulatory inquiries and litigation matters.

Matters relating to or arising out of our historical stock option practices, including regulatory inquiries, litigation matters, and potential additional cash and noncash charges could have a material adverse effect on the Company.

In early 2006, our Board of Directors initiated an independent review of the Company’s historical stock option practices from 1994 to 2005. The independent review was conducted by an independent committee comprised of three independent directors of the Company (Independent Committee) with the assistance of independent counsel and independent accounting advisors. On October 15, 2006, we announced that the Independent Committee had completed their review of the Company’s historical stock option practices and reported the findings to the non-management directors of the Company. As a result of our historical stock option practices, we restated our previously filed financial statements, we are subject to various regulatory inquiries and litigation matters, and we may be subject to further cash and noncash charges, the outcome of any or all of which could have a material adverse effect on us.

Regulatory Inquiries

As previously disclosed, the SEC and the U.S. Attorney for the Southern District of New York are conducting investigations into the Company’s historical stock option practices and the Company has received requests for documents from the Minnesota Attorney General and various Congressional committees in connection with these issues and the Company’s executive compensation practices. We have not resolved these matters. We cannot provide assurance that the Company will not be subject to adverse publicity, regulatory or criminal fines, penalties, or other sanctions or contingent liabilities or adverse customer reactions in connection with these matters. In addition, we may be subject to additional regulatory inquiries arising out of the review of the Independent Committee, the review of a special litigation committee, consisting of two former Minnesota Supreme Court Justices, appointed by our Board of Directors to review claims asserted in federal and state shareholder derivative claims relating to our historical stock option practices (Special Litigation Committee), and the related restatement of our historical financial statements. Regulatory inquiries may be time consuming, expensive and distracting from the conduct of our business. The adverse resolution of any regulatory inquiry could have a material adverse effect on our business, financial condition and results of operations.

Litigation Matters

We and certain of our current and former directors and officers are defendants in a consolidated federal securities class action, an Employment Retirement Income Security Act of 1974, as amended (ERISA) class action, and state and federal shareholder derivative actions relating to our historical stock option practices. We also have received shareholder demands relating to those practices.

In addition, following our announcement that we would delay filing our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, we received a purported notice of default from persons claiming to hold our 5.8% Senior Unsecured Notes due March 15, 2036 alleging a violation of the indenture governing those debt securities.

We cannot provide assurance that the ultimate outcome of these actions will not have a material adverse effect on our business, financial condition or results of operations. See Note 13 of Notes to the Consolidated Financial Statements for a more detailed description of these proceedings and shareholder demands.

In addition, we may be subject to additional litigation, proceedings or actions arising out of the Independent Committee’s review, the Special Litigation Committee’s review and the related restatement of our historical financial statements. Litigation regulatory proceedings or actions may be time consuming, expensive and distracting from the conduct of our business. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, financial condition and results of operations.

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Potential Additional Cash and Noncash Charges

While we believe we have made appropriate judgments in our restated financial statements in determining the financial impacts of our historical stock option practices, we cannot provide assurance that the SEC will agree with the manner in which we have accounted for and reported, or not reported, the financial impacts, including the adjustments that we made based on our determination of the measurement dates for our historical stock option grants. If the SEC disagrees with our financial adjustments and such disagreement results in material changes to our historical financial statements, we may have to further restate our prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated.

In addition, other adjustments for non-operating cash charges may be required in connection with the resolution of stock option-related matters arising under litigation and the above-referenced regulatory reviews, the amount and timing of which are uncertain but which could be material.

Matters relating to or arising out of our historical stock option practices, including regulatory inquiries and document requests, litigation matters, downgrades in our credit ratings, and potential credit facility compliance issues could have a material adverse effect on the Company.

Regulatory Inquiries

The SEC is conducting a formal investigation into the Company’s historical stock option practices. In May 2006, the Company received a request from the Internal Revenue Service seeking documents relating to stock option grants and other compensation for the persons who from 2003 to the present were named executive officers in the Company’s annual proxy statements. We also received in May 2006 a subpoena from the U.S. Attorney for the Southern District of New York requesting documents from 1999 to the present relating to the Company’s historical stock option practices. In June 2006, the Company received a Civil Investigative Demand from the Minnesota Attorney General requesting documents from January 1, 1997 to the present concerning the Company’s executive compensation and historical stock option practices. In connection with the departure of our former Chairman and Chief Executive Officer, William W. McGuire, M.D., we received a request from the U.S. Senate Committee on Finance in October 2006 to produce certain documents relating to Dr. McGuire’s compensation. We cannot provide assurance that the Company will not be subject to adverse publicity, regulatory fines or penalties, other contingent liabilities or adverse customer reactions in connection with these matters.

Litigation Matters

We and certain of our current and former directors and officers are defendants in a consolidated federal securities class action, an Employee Retirement Income Security Act (ERISA) class action, and state and federal shareholder derivative actions relating to our historical stock option practices. We also have received several shareholder demands relating to our historical stock option practices. Our Board of Directors has designated an unaffiliated special litigation committee (the “Special Litigation Committee”) to investigate the claims raised in the derivative actions and shareholder demands, and determine whether the claims should be pursued.

In addition, following our not filing our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, we received a purported notice of default from persons claiming to hold certain of our debt securities alleging a violation of our indenture governing our debt securities. Subsequently, we filed an action in the U.S. District Court for the District of Minnesota, seeking a declaratory judgment that the Company is not in default under the terms of the indenture. The Company subsequently received a purported notice of acceleration from the holders who previously sent the notice of default that purports to declare an acceleration of the Company’s 5.80% Subordinated Notes due March 15, 2036, of which an aggregate of $850 million principal amount is outstanding.

In connection with the departure of Dr. McGuire, we received an order from the U.S. District Court for the District of Minnesota in November 2006 granting a joint motion for temporary injunctive relief made by plaintiffs and Dr. McGuire. According to the order, Dr. McGuire is preliminarily enjoined from exercising any Company stock options without Court approval and the Company and Dr. McGuire are preliminarily enjoined from taking any further action pursuant to or having any effect on Dr. McGuire’s employment agreement, as amended, and other related agreements, and while the preliminary injunction is in effect, no payments will be made to Dr. McGuire under these agreements, including any payments under Dr. McGuire’s Supplemental Employee Retirement Plan.

These actions are in preliminary stages and we cannot provide assurance that their ultimate outcome will not have a material adverse effect on our business, financial condition or results of operations. In addition, we may be subject to additional litigation or other proceedings or actions arising out of the Independent Committee’s review, the Special Litigation Committee’s review and the related restatement of our historical financial statements. Litigation and any potential regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of our business. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, financial condition and results of operations.

Credit Ratings

As a result of their concerns related to our historical stock option practices, Moody’s downgraded our A2 senior debt rating to A3 in October 2006 and AMBest downgraded our financial strength ratings from A+ to A in November 2006. Standard and Poors and FitchRatings confirmed their existing ratings and their negative outlook (Standard and Poors) and watch (FitchRatings) on the Company’s ratings. If our business results deteriorate significantly, or if there is an event, outcome or action as a result of the regulatory inquiries and document requests or the pending civil litigation, which is materially adverse to the Company, our credit ratings may be further downgraded. A significant downgrade in ratings may increase the cost of borrowing for the Company or limit the Company’s access to capital.

Credit Facility Covenants

Although we have no amounts outstanding under our existing $1.3 billion credit facility, it supports our commercial paper program. If that credit facility and our other backup financial arrangements were not available for use to support the commercial paper program, the credit rating of the program would likely be downgraded, which would likely impair the Company’s ability to continue issuing commercial paper. As of December 31, 2006, we had $498 million of commercial paper outstanding. We entered into amendments to this credit facility to extend the deadline to February 22, 2007 to deliver our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006 to our lenders. We cannot assure that we will be able to file these Form 10-Qs by February 22, 2007, or if we are not able to make these filings by February 22, 2007, that we will be able to obtain additional amendments or waivers. Additionally, we believe our proposed restatement will result in a violation of one or more of the covenants under the $1.3 billion credit facility. We are in discussion with our lenders regarding an additional amendment/waiver to waive the potential default. We cannot provide assurance, however, that such amendment/waiver will be obtained. If we are not able to obtain an amendment/waiver under the $1.3 billion credit facility when needed and if our other backup financial arrangements are not available to support the commercial paper program, our credit rating of the program and our ability to continue issuing commercial paper would likely be impaired.

In October 2006, we entered into a new $7.5 billion credit facility. The facility is intended to insure the Company’s immediate and continued access to additional liquidity. The facility also is available for working capital purposes as well as to pay or repay any outstanding borrowings of the Company. Under this facility, we also have until February 22, 2007 to file our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006. We cannot assure you that we will be able to file these Form 10-Qs by February 22, 2007, and if we are not able to make this filing within that time period, that we will be able to obtain an amendment or waiver. If we are not able to obtain an amendment/waiver under the $7.5 billion credit facility when needed, the Company’s ability to obtain immediate and continued access to additional liquidity would likely be impaired.

Matters relating to or arising out of our historical stock option practices, including regulatory inquiries and document requests, litigation matters, downgrades in our credit ratings, and potential credit facility compliance issues could have a material adverse effect on the Company.

Regulatory Inquiries

The SEC is conducting an informal inquiry into the Company’s historical stock option practices. In May 2006, the Company received a request from the Internal Revenue Service seeking documents relating to stock option grants and other compensation for the persons

who from 2003 to the present were named executive officers in the Company’s annual proxy statements. We also received in May 2006 a subpoena from the U.S. Attorney for the Southern District of New York requesting documents from 1999 to the present relating to the Company’s historical stock option practices. In June 2006, the Company received a Civil Investigative Demand from the Minnesota Attorney General requesting documents from January 1, 1997 to the present concerning the Company’s executive compensation and historical stock option practices. In connection with the departure of our former Chairman and Chief Executive Officer, William W. McGuire, M.D., we received a request from the U.S. Senate Committee on Finance in October 2006 to produce certain documents relating to Dr. McGuire’s compensation. We cannot provide assurance that the Company will not be subject to adverse publicity, regulatory fines or penalties, other contingent liabilities or adverse customer reactions in connection with these matters.

Litigation Matters

We and certain of our current and former directors and officers are defendants in a consolidated federal securities class action and state and federal shareholder derivative actions relating to our historical stock option practices. We also have received several shareholder demands relating to our historical stock option practices. Our Board of Directors has designated an unaffiliated special litigation committee (the “Special Litigation Committee”) to investigate the claims raised in the derivative actions and shareholder demands, and determine whether the claims should be pursued.

In addition, following our not filing our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, we received a purported notice of default from persons claiming to hold certain of our debt securities alleging a violation of our indenture governing our debt securities. Subsequently, we filed an action in the U.S. District Court for the District of Minnesota, seeking a declaratory judgment that the Company is not in default under the terms of the indenture. The Company subsequently received a purported notice of acceleration from the holders who previously sent the notice of default that purports to declare an acceleration of the Company’s 5.80% Subordinated Notes due March 15, 2036, of which an aggregate of $850 million principal amount is outstanding.

In connection with the departure of Dr. McGuire, we received an order from the U.S. District Court for the District of Minnesota in November 2006 granting a joint motion for temporary injunctive relief made by plaintiffs and Dr. McGuire. According to the order, Dr. McGuire is preliminarily enjoined from exercising any Company stock options without Court approval and the Company and Dr. McGuire are preliminarily enjoined from taking any further action pursuant to or having any effect on Dr. McGuire’s employment agreement, as amended, and other related agreements, and while the preliminary injunction is in effect, no payments will be made to Dr. McGuire under these agreements, including any payments under Dr. McGuire’s Supplemental Employee Retirement Plan.

These actions are in preliminary stages and we cannot provide assurance that their ultimate outcome will not have a material adverse effect on our business, financial condition or results of operations. In addition, we may be subject to additional litigation or other proceedings or

actions arising out of the Independent Committee’s review, the Special Litigation Committee’s review and the related restatement of our historical financial statements. Litigation and any potential regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of our business. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, financial condition and results of operations.

Credit Ratings

As a result of their concerns related to our historical stock option practices, Moody’s downgraded our A2 senior debt rating to A3 in October 2006 and AMBest downgraded our financial strength ratings from A+ to A in November 2006. Standard and Poors and FitchRatings confirmed their existing ratings and their negative outlook (Standard and Poors) and watch (FitchRatings) on the Company’s ratings. If our business results deteriorate significantly, or if there is an event, outcome or action as a result of the regulatory inquiries and document requests or the pending civil litigation, which is materially adverse to the Company, our credit ratings may be further downgraded. A significant downgrade in ratings may increase the cost of borrowing for the Company or limit the Company’s access to capital.

Credit Facility Covenants

Although we have no amounts outstanding under our existing $1.3 billion credit facility, it supports our commercial paper program. If that credit facility and our other backup financial arrangements were not available for use to support the commercial paper program, the credit rating of the program would likely be downgraded, which would likely impair the Company’s ability to continue issuing commercial paper. As of November 30, 2006, we had $495 million of commercial paper outstanding. We entered into amendments to this credit facility to extend the deadline to February 22, 2007 to deliver our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006 to our lenders. We cannot assure that we will be able to file these Form 10-Qs by February 22, 2007, or if we are not able to make these filings by February 22, 2007, that we will be able to obtain additional amendments or waivers. Additionally, we believe our proposed restatement will result in a violation of one or more of the covenants under the $1.3 billion credit facility. We are in discussion with our lenders regarding an additional amendment/waiver to waive the potential default. We cannot provide assurance, however, that such amendment/waiver will be obtained. If we are not able to obtain an amendment/waiver under the $1.3 billion credit facility when needed and if our other backup financial arrangements are not available to support the commercial paper program, our credit rating of the program and our ability to continue issuing commercial paper would likely be impaired.

In October 2006, we entered into a new $7.5 billion credit facility. The facility is intended to insure the Company’s immediate and continued access to additional liquidity. The facility also is available for working capital purposes as well as to pay or repay any outstanding borrowings of the Company. Under this facility, we also have until February 22, 2007 to file our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006. We cannot assure you that we will be able to file these Form 10-Qs by February 22, 2007, and if we are not able to make this filing within that time period, that we will be able to obtain an amendment or waiver. If we are not able to obtain an amendment/waiver under the $7.5 billion credit facility when needed, the Company’s ability to obtain immediate and continued access to additional liquidity would likely be impaired.