CERULEAN COMPANIES INC, S-1/A, 1996-05-08

CERULEAN COMPANIES INC
S-1/A, 1996-05-08
HEALTH SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996

REGISTRATION NO. 333-2796

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

CERULEAN COMPANIES, INC.
(Exact name of Registrant as specified in its charter)

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<S> <C> <C>
GEORGIA 6321 58-2217138
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>

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3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
(404) 842-8000
(Address and telephone number of Registrant's principal executive offices)

HUGH J. STEDMAN
SECRETARY
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
(404) 842-8000
(Name, address and telephone number of agent for service)
---------------------
THE COMMISSION IS REQUESTED TO MAIL COPIES OF ALL ORDERS, NOTICES AND
COMMUNICATIONS TO:

EDGAR H. SIMS, JR., ESQ.
LONG, ALDRIDGE & NORMAN, LLP
5300 ONE PEACHTREE CENTER
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
Class A Convertible Common Stock, no par value per
share................................................... 800,000 Shares $0 $0 $100
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Common Stock, no par value per share to be issued upon
conversion of Class A Convertible Common Stock.......... 800,000 Shares N/A N/A $15,745
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</TABLE>

(1) The securities being registered with this Registration Statement are being
offered without charge to Eligible Subscribers (as that term is defined in
the Registration Statement) and the filing fee represents the minimum
required by Section 6(b) of the Securities Act of 1933, and in the case of
the Common Stock issuable upon conversion of the Class A Convertible Common
Stock an amount calculated, for filing fee purposes only, in accordance with
Rule 457 under the Securities Act of 1933.

---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

CERULEAN COMPANIES, INC.

CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
--------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Available
Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... *
5. Determination of Offering Price.................... *
6. Dilution........................................... Risk Factors
7. Selling Security Holders........................... *
8. Plan of Distribution............................... Outside Front Cover Page;
Prospectus Summary -- The Offering
9. Description of Securities to be Registered......... Summary; Description of Capital
Stock
10. Interests of Named Experts and Counsel............. *
11. Information with Respect to the Registrant......... Prospectus Summary; Risk Factors;
Dividends; Capitalization;
Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Description
of Capital Stock; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
</TABLE>

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* Not Applicable.
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800,000 SHARES

CERULEAN COMPANIES, INC.
CLASS A CONVERTIBLE COMMON STOCK
---------------------

Cerulean Companies, Inc. (the "Company") is a newly formed Georgia
corporation organized for the purpose of acting as the holding company for Blue
Cross and Blue Shield of Georgia, Inc. ("Georgia Blue") and its subsidiaries and
to engage in certain other health care related activities. Effective on February
2, 1996, Georgia Blue converted (the "Conversion") from a Georgia non-profit
corporation to a Georgia for-profit corporation and became a wholly-owned
subsidiary of the Company. See "THE CONVERSION."

As part of the Conversion, the Company (i) issued 800,000 shares of Class A
Convertible Common Stock (the "Class A Stock") to SunTrust Bank, Atlanta as
Escrow Agent for distribution to "Eligible Subscribers" as described herein and
(ii) is offering to each Eligible Subscriber five shares (the "Shares") of Class
A Stock at no cost to the Eligible Subscriber. An "Eligible Subscriber" is
defined in the Plan of Conversion approved by the Georgia Commissioner of
Insurance (the "Commissioner") as a person who was a subscriber of Georgia Blue
(within the meaning of the Georgia Insurance Code) on September 1, 1995 and who
remained a subscriber on February 1, 1996, and as to whom distribution of the
Shares (i) is exempt from registration under the state securities laws of the
applicable jurisdictions or (ii) does not violate any applicable law or
regulation.

Each Eligible Subscriber is requested to specify on the attached Stock
Election Form whether or not such Eligible Subscriber chooses to accept the
Company's offer for the Shares by no later than 5:00 p.m. Atlanta time on August
12, 1996 (the "Termination Time"). All Shares which an Eligible Subscriber has
rejected, or has been deemed to have rejected as described herein, at or prior
to the Termination Time, will be transferred by the Escrow Agent to the Company
for cancellation. ANY ELIGIBLE SUBSCRIBER WHO FAILS TO PROPERLY COMPLETE AND
SIGN THE STOCK ELECTION FORM ELECTING TO ACCEPT THE COMPANY'S OFFER OF THE
SHARES, OR WHOSE PROPERLY COMPLETED AND SIGNED STOCK ELECTION FORM IS NOT
RECEIVED BY THE ESCROW AGENT BY THE TERMINATION TIME, WILL BE DEEMED TO HAVE
REJECTED THE COMPANY'S OFFER OF THE SHARES. ANY ELIGIBLE SUBSCRIBER WHO REJECTS
THE COMPANY'S OFFER OF THE SHARES OR WHO IS DEEMED TO HAVE REJECTED THE
COMPANY'S OFFER WILL FORFEIT ALL OF HIS OR HER RIGHTS TO THE SHARES OFFERED
HEREBY, WILL HAVE NO RIGHTS AS A SHAREHOLDER OF THE COMPANY AND WILL HAVE NO
RIGHTS TO ANY SUBSEQUENT OFFERING OF THE COMPANY'S OR GEORGIA BLUE'S SECURITIES.
An Eligible Subscriber's election to accept or decline the Company's offer of
the Shares will not have any impact on such Eligible Subscriber's insurance
under any applicable Georgia Blue policy or plan.

THERE IS A RISK THAT EACH ELIGIBLE SUBSCRIBER WHO ACCEPTS THE OFFER OF THE
SHARES MAY BE REQUIRED TO RECOGNIZE TAXABLE INCOME (TO THE EXTENT OF THE VALUE
OF THE SHARES RECEIVED BY SUCH ELIGIBLE SUBSCRIBER) UPON RECEIPT OF THE SHARES
AND, AS A RESULT, MAY INCUR FEDERAL INCOME TAX LIABILITY IN CONNECTION WITH HIS
OR HER RECEIPT OF THE SHARES. THE COMPANY HAS OBTAINED AN OPINION OF ITS
CERTIFIED PUBLIC ACCOUNTANTS THAT ELIGIBLE SUBSCRIBERS WHO ACCEPT THE OFFER FOR
THE SHARES SHOULD NOT INCUR FEDERAL INCOME TAX LIABILITY IN CONNECTION WITH
THEIR RECEIPT OF THE SHARES; HOWEVER, BECAUSE THIS IS A UNIQUE TRANSACTION IN
WHICH THERE ARE NO PRECEDENTIAL AUTHORITIES OUTSTANDING, NO ASSURANCE CAN BE
GIVEN THAT THE INTERNAL REVENUE SERVICE WILL NOT CHALLENGE THIS POSITION. THE
COMPANY ENCOURAGES EACH ELIGIBLE SUBSCRIBER TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THIS MATTER. SEE "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- ISSUANCE OF CLASS A STOCK TO ELIGIBLE SUBSCRIBERS." (Cover
continued on next page)

SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED, INCLUDING
THE POSSIBLE ADVERSE TAX CONSEQUENCES OF ACCEPTANCE OF SHARES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

ANY ELIGIBLE SUBSCRIBER WHO FAILS TO PROPERLY COMPLETE AND SIGN THE STOCK
ELECTION FORM ELECTING TO ACCEPT THE COMPANY'S OFFER OF THE SHARES OR WHOSE
PROPERLY COMPLETED AND SIGNED STOCK ELECTION FORM IS NOT RECEIVED BY THE ESCROW
AGENT BY THE TERMINATION TIME, WILL BE DEEMED TO HAVE REJECTED THE COMPANY'S
OFFER FOR THE SHARES. ANY ELIGIBLE SUBSCRIBER WHO REJECTS THE COMPANY'S OFFER OF
THE SHARES OR WHO IS DEEMED TO HAVE REJECTED THE COMPANY'S OFFER WILL FORFEIT
ALL OF HIS OR HER RIGHTS TO THE SHARES OFFERED HEREBY, WILL HAVE NO RIGHTS AS A
SHAREHOLDER OF THE COMPANY AND WILL HAVE NO RIGHTS TO ANY SUBSEQUENT OFFERING OF
THE COMPANY'S OR GEORGIA BLUE'S SECURITIES.

The date of this Prospectus is , 1996
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(Cover continued from previous page)

Each share of Class A Stock and the Company's Class B Convertible Preferred
Stock (the "Preferred Stock") will be convertible automatically into Common
Stock, no par value per share, of the Company (the "Common Stock") upon the
earlier of (i) December 1, 2001 or (ii) the closing date of a public offering of
Common Stock registered under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the Company may at any time, with the approval
of the holders of a majority of the then outstanding shares of Preferred Stock,
convert all, but no less than all, of the issued and outstanding shares of Class
A Stock and Preferred Stock into shares of Common Stock, with the Class A Stock
converted on the basis of one share of Common Stock for each share of Class A
Stock. Additionally, each share of Class A Stock will be converted into Common
Stock immediately preceding any liquidation, dissolution or winding up of the
Company if such conversion is approved by the holders of a majority of the then
outstanding shares of Preferred Stock. Upon any such conversion, the Class A
Stock will be converted into Common Stock on the basis of one share of Common
Stock for each share of Class A Stock, and the Preferred Stock will be converted
into Common Stock pursuant to the formula described herein under "DESCRIPTION OF
CAPITAL STOCK -- Class B Stock -- Conversion." See "DESCRIPTION OF CAPITAL
STOCK -- Class A Stock -- Conversion."

Upon the registration of shares in the names of Eligible Subscribers and
for so long as any shares of both Preferred Stock and Class A Stock are issued
and outstanding and no shares of Common Stock are issued and outstanding, the
holders of the outstanding shares of Class A Stock, voting as a separate class
and to the exclusion of all other classes and series of capital stock of the
Company, will be entitled to elect two Directors at each annual meeting of
shareholders as described herein, up to a total maximum of six Directors. The
remaining Directors, including two Directors nominated by the holders of
Preferred Stock and the remaining Directors nominated by the Nominating
Committee of the Board of Directors and approved by two-thirds of the Continuing
Directors (as defined under "PROSPECTUS SUMMARY -- Description of Class A
Stock -- Voting Rights") will be elected by the holders of Preferred Stock so
long as any shares of Preferred Stock are outstanding. On all other matters to
come before the shareholders other than the election of Directors, the holders
of Class A Stock will be entitled to vote as a separate class. If any shares of
Common Stock are issued and outstanding, holders of Class A Stock will have no
voting rights except as required by Georgia law. In the event no shares of
Common Stock or Preferred Stock are outstanding, all rights to vote will be
vested in the holders of the outstanding shares of Class A Stock or the Blank
Preferred Stock of the Company ("Blank Preferred Stock"). On the date of this
Prospectus, there are 49,901 shares of Preferred Stock outstanding and no shares
of Common Stock or Blank Preferred Stock outstanding. See "RISK
FACTORS -- Election of Directors," "DESCRIPTION OF CAPITAL STOCK -- Class A
Stock -- Voting" and "-- Preferred Stock -- Voting."

Shares of Class A Stock cannot be sold, transferred, encumbered, pledged or
otherwise disposed of prior to December 1, 1998, except by descent and
distribution, as required by judicial decree or by operation of law. Subject to
the limitations described below, during the period from December 1, 1998 to
December 1, 2001, if a holder of shares of Class A Stock desires to sell all or
any portion of such Class A Stock, the holder is first required to offer such
shares to the Company. The Company may exercise this right of first refusal to
acquire up to 2% of the issued and outstanding shares of Class A Stock in any
one calendar year, or such greater amount as may be approved by the holders of
at least a majority of the Preferred Stock then issued, outstanding and entitled
to vote. See "DESCRIPTION OF CAPITAL STOCK -- Class A Stock -- Restrictions on
Transfer."
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements and
related notes thereto appearing elsewhere in this Prospectus.

THE COMPANY

The Company is a newly formed Georgia corporation organized for the purpose
of acting as the holding company for Georgia Blue and its subsidiaries and to
engage in certain other health care related activities. Georgia Blue was
established in 1937 and through a series of business combinations and subsidiary
operations had, by 1985, the largest health insurance company market share in
Georgia. As of December 31, 1995, Georgia Blue had over 670,000 insurance and
administrative service contracts covering or administering benefits for over 1.4
million members. This represents more than 19% of the total Georgia population
and includes approximately 15% of the more than 3.2 million residents of the
metropolitan Atlanta area.

In connection with the Conversion, Georgia Blue issued all of its shares of
common stock to, and became a wholly-owned subsidiary of, the Company. Currently
the only business of the Company is the ownership and operation of Georgia Blue
and its subsidiaries. In this Prospectus, the term "Company" is sometimes used
to describe the Company and its subsidiaries as a single operation on a combined
basis.

Historically, Georgia Blue's primary source of revenues has come from
premiums for traditional indemnity health insurance and services. In response to
concerns regarding health care costs and changing trends in the health care
industry, beginning in 1992 Georgia Blue implemented a strategy to emphasize
managed care products and began to develop its model of integrated service
delivery systems called community health partnership networks ("CHPNs"). The
Company offers a comprehensive array of insurance products and services,
including managed care products and services offered through a health
maintenance organization (an "HMO"), a preferred provider organization (a "PPO")
and a point of service network plan (a "POS"). The Company's strategic plan
entails continued emphasis on and expansion of its managed care products. See
"BUSINESS," "BUSINESS -- Strategic Initiatives" and "BUSINESS -- Business Lines
and Products." The Company also offers traditional comprehensive indemnity
health coverage, third party administrator services and group life insurance
products. The Company's insurance and managed care products are offered directly
through Georgia Blue and through Georgia Blue's three wholly-owned subsidiaries,
HMO Georgia, Inc. ("HMO-Ga"), Greater Georgia Life Insurance Company, Inc.
("GGL") and Group Benefits of Georgia, Inc. ("GBG").

The Company has one of the largest PPO memberships in the State of Georgia,
serving over 290,000 members as of December 31, 1995. In addition, the Company
served over 130,000 members through HMO-Ga as of December 31, 1995, which
provides the Company's HMO and POS products. See "BUSINESS."

At present, HMO-Ga is licensed and operational as an HMO in seven markets
in Georgia, including Atlanta, Athens, Augusta, Columbus, Macon, Rome and
Savannah, which markets represent more than 4.7 million residents. While Atlanta
has an HMO market penetration of approximately 28%, Georgia as a whole currently
has one of the lowest HMO penetrations in the country, at 13%. Based on industry
sources, the five states with the highest HMO penetrations in the country each
have HMO penetration in excess of 35%.

The Company's HMO and POS products are serviced through networks of primary
care physicians, specialist physicians and hospitals that provide services under
contracts with HMO-Ga. Beginning on January 1, 1995, HMO-Ga's HMO and POS
products also began to be provided in the Atlanta market through contracts with
Georgia Blue's first CHPN, Atlanta Health Care Partners, Inc. ("CHPN-Atlanta").
As of December 31, 1995, CHPN-Atlanta provides services to approximately 96,000
people. CHPNs are locally based equity ventures between Georgia Blue and a local
physician group or hospital or both. It is anticipated that Georgia Blue, either
alone or with a contiguous state's Blue Cross/Blue Shield plan as a joint
venture partner, will own at least a 51% equity interest in each of its CHPNs
and the physician groups and hospitals will own the remaining equity interest.
Clinical services offered under a CHPN are provided by the physician group or
hospital partners as well as by other providers with which the CHPN maintains
contracts.

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Georgia Blue provides sales, management and administrative services to the CHPN,
including information systems and data management services, through service
contracts with the CHPN. Currently, CHPN-Atlanta is the only CHPN in which an
entity jointly owned by providers and Georgia Blue has been formed and
capitalized. However, in the six other Georgia markets serviced by HMO-Ga, HMO
and POS products are being offered through HMO-Ga in collaboration with local
providers in connection with the formation of CHPNs in those markets, thus
carrying out the CHPN framework. See "BUSINESS -- Strategic Initiatives --
CHPNs." Cerulean Companies, Inc. will derive revenue from dividends from its
subsidiaries (Georgia Blue and its subsidiaries as well as any new subsidiaries
which the Company may form to conduct new businesses), service and/or management
fee arrangements between the Company and its subsidiaries, as well as revenues
the Company may derive from other non-regulated services it may provide
customers directly in the future.

Pursuant to licenses from the Blue Cross and Blue Shield Association
("BCBSA"), a national trade association consisting of 63 Blue Cross and Blue
Shield licensees as of March 1, 1996, the Company has the exclusive right to do
business under the name "Blue Cross and Blue Shield of Georgia" and to use the
Blue Cross and Blue Shield names, trademarks and service marks for all of the
indemnity and managed health care products and services it offers in the State
of Georgia.

The Company's principal executive offices are located at 3350 Peachtree
Road, N.E., Atlanta, Georgia 30326, and its telephone number at that address is
(404) 842-8000.

THE CONVERSION

On February 2, 1996, Georgia Blue converted from a non-profit corporation
to a for-profit corporation and became a wholly-owned subsidiary of the Company
in accordance with a Plan of Conversion (the "Plan of Conversion") approved by
the Commissioner in an order issued December 27, 1995 (the "Commissioner's
Order"). The principal goal of the Conversion is to allow the Company access to
the equity capital markets in order to finance its strategic plan and to enhance
its competitive position. See "BUSINESS," "BUSINESS -- Strategic Initiatives"
and "BUSINESS -- Business Lines and Products" as well as "RISK
FACTORS -- Ability to Successfully Implement Strategic Plan" for a more detailed
discussion of the Company's Strategic Plan.

Simultaneously with the Conversion, the Company issued 49,901 shares of
Preferred Stock. The net proceeds to the Company from the sale of the Preferred
Stock were approximately $46 million, after deducting estimated offering
expenses and certain other expenses of the Conversion payable by the Company,
including reimbursement of certain expenses incurred by certain purchasers of
the Preferred Stock. The Company currently intends to use the net proceeds from
the sale of the Preferred Stock for general corporate purposes, which may
include strategic information systems development, medical access point
development, management services organization (MSO) acquisitions, other
strategic acquisitions and CHPN development and support. At the present time,
the Company has no agreement with, or intentions or plans to acquire, any other
specific company or entity, and is not in discussion with any company or entity
with respect to any such acquisition.

THE OFFERING

General; the Commissioner's Order. As provided in the Plan of Conversion
approved by the Commissioner's Order, the Company is offering to each Eligible
Subscriber five Shares of Class A Stock at no cost to the Eligible Subscriber.
An "Eligible Subscriber" is defined in the Plan of Conversion as a person who
was a subscriber of Georgia Blue (within the meaning of the Georgia Insurance
Code) on September 1, 1995 and who remained a subscriber on February 1, 1996,
and as to whom distribution of the Shares (i) is exempt from registration under
the state securities laws of the applicable jurisdictions or (ii) does not
violate any applicable law or regulation. While the offering of the Class A
Stock is not generally exempt from the registration

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requirements of state securities laws, the Company has either qualified the
Class A Stock for distribution or has confirmed the availability of an exemption
for the distribution of the Class A Stock in all states in which there are
Eligible Subscribers. As a result, subscribers in those states are not Eligible
Subscribers, will have no rights to the Shares offered hereby, will have no
rights as shareholders of the Company and will have no rights to any subsequent
offering of the Company's or Georgia Blue's securities. See "RISK
FACTORS -- Certain Federal Income Tax Consequences" and "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES."

Terms of Offer; Method of Acceptance. As part of the Conversion, on
February 2, 1996, the Company issued a single certificate for 800,000 Shares to
SunTrust Bank, Atlanta as Escrow Agent for distribution to Eligible Subscribers.
Each Eligible Subscriber is requested to specify on the attached Stock Election
Form whether or not such Eligible Subscriber chooses to accept the Company's
offer for the Shares by no later than 5:00 p.m. Atlanta time on August 12, 1996
(as such date may be extended in the sole discretion of the Company, the
"Termination Time"). Pursuant to the terms of the Company's agreement with the
Escrow Agent, on the first day of each calendar month following the related
period during which a Stock Election Form is received, the Escrow Agent is
required to register or cause to be registered on the books and records of the
Company maintained by SunTrust Bank, Atlanta, as Transfer Agent (the "Transfer
Agent"), five shares of Class A Stock in the name of each Eligible Subscriber
who has delivered a proper Stock Election Form during such period. The Escrow
Agent shall not be obligated to register Class A Stock in the name of any
Eligible Subscriber if such Eligible Subscriber's Stock Election Form does not
conform in all respects to the form provided by the Company. On the first
calendar day of each month, the Escrow Agent shall send or cause the Transfer
Agent to send, to each new Class A Stockholder, a notification of such
registration by first-class mail, postage prepaid; no stock certificates will be
issued at any time for Class A Stock. Once registered, each Class A Stockholder
shall be deemed a stockholder from and after February 2, 1996, except with
respect to matters as to which Class A Stockholders had a right to vote during
the period between February 2, 1996 and the date of registration.

Georgia law governing the Conversion requires that a health care
corporation such as Georgia Blue that issues shares of its capital stock in
connection with an initial public offering must first offer the shares to its
subscribers. The Commissioner's Order held that the issuance of the Shares
offered hereby constitutes an initial public offering within the meaning of the
applicable Georgia law and that this offering of the Shares extinguishes all
such rights of subscribers under Georgia law. As a result, if either the Company
or Georgia Blue issues shares of capital stock in any future public offering, it
will not be required to offer any of such shares to its subscribers.

DESCRIPTION OF CLASS A STOCK

Securities Offered......... 800,000 shares of Class A Convertible Common Stock,
no par value per share.

Dividends.................. So long as any shares of the Company's Preferred
Stock are issued, outstanding and entitled to
vote, no dividends may be paid in cash, stock or
other property on the Class A Stock without the
approval of the Board of Directors of the Company
and of the holders of a majority of the shares of
Preferred Stock then issued, outstanding and
entitled to vote. If no shares of Preferred Stock
are issued, outstanding and entitled to vote,
dividends may be declared on the Class A Stock at
the discretion of the Board of Directors out of
funds legally available therefor.

On February 2, 1996, the Company issued, and there
are currently outstanding, 49,901 shares of
Preferred Stock. The Company presently
anticipates that shares of Preferred Stock will
be issued, outstanding and entitled to vote at
all times up to the date the Class A Stock is
converted to Common Stock. The Company does not
anticipate that any dividends will be paid on
Class A Stock.

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Voting Rights.............. Upon the registration of shares in the name of
Eligible Subscribers, and for so long as any
shares of both Preferred Stock and Class A Stock
are issued and outstanding, and no shares of
Common Stock are issued and outstanding, the
holders of outstanding shares of Class A Stock,
voting separately as a single class (with each
share being entitled to one vote) and to the
exclusion of all other classes and series of
capital stock of the Company, shall be entitled
to elect two Directors to each of the Company's
three classes of Directors ("Class A Designated
Directors") (for a total of six of the total of
21 members of the Board of Directors) as follows:

Beginning at or prior to the first annual
meeting of shareholders, a special nominating
committee composed of two Continuing Directors
(as defined below) and two Preferred Designated
Directors (as defined below) will nominate two
Class A Designated Directors to be voted on by
all of the holders of the Class A Stock at such
annual meeting.

At or prior to the annual meeting of
shareholders held in the following year, a
special nominating committee composed of two
Continuing Directors and the two Class A
Designated Directors would nominate two
additional Class A Designated Directors, again
to be voted on by all of the holders of Class A
Stock at such annual meeting.

At or prior to the annual meeting of
shareholders held in the next year, a
nominating committee composed of two Continuing
Directors and the four Class A Designated
Directors would nominate two additional Class A
Designated Directors, again to be voted on by
all of the holders of the Class A Stock at such
annual meeting.

At the annual meeting of shareholders held in
the next year and at each annual meeting until
the occurrence of a Stock Conversion (as
defined below), a special nominating committee
composed of the six Class A Designated
Directors would nominate, and the holders of
the Class A Stock would be entitled to elect,
two Class A Designated Directors each year to
replace the two Class A Designated Directors
whose terms expire during such year.

Notwithstanding any nomination by a special
nominating committee, the holders of the Class A
Stock shall be entitled to nominate and elect any
eligible individual as a Class A Designated
Director each year. "Continuing Directors" are
those individuals who: (i) are named as members
of the initial Board of Directors of the Company
(other than the Preferred Designated Directors),
together with any new Directors whose election or
nomination to the Board of Directors was approved
by a vote of two-thirds of the Directors then
still in office who were such Directors or whose
election or nomination was previously so
approved; (ii) are not beneficial owners of more
than five percent of the total shares of any
class of equity securities outstanding; and (iii)
were not nominated by such a beneficial owner
and, prior to such Director's election, did not
have any agreement, arrangement, or understanding
with any such beneficial owner with respect to
any action to be taken by such person as a
Director.

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Notwithstanding the foregoing, in the event shares
of Class A Stock and Common Stock are outstanding
at the same time, all rights to vote would be
vested in the holders of the Common Stock, except
(i) the rights of the holders of Preferred Stock
to elect Directors (see "DESCRIPTION OF CAPITAL
STOCK -- Preferred Stock -- Voting), and (ii)
such other voting rights as are provided by the
Georgia Business Corporation Code. Accordingly,
in the event the Company issues any shares of
Common Stock, the holders of Class A Stock will
have no voting rights (including the right to
elect Class A Designated Directors) except as
expressly provided by law. See "DESCRIPTION OF
CAPITAL STOCK -- Class A Common Stock -- Voting."

In the event no shares of Preferred Stock or Common
Stock are outstanding, all rights to vote will be
vested in the holders of the outstanding shares
of Class A Stock or the Blank Preferred Stock of
the Company ("Blank Preferred Stock"). The
Company anticipates that the Preferred Stock will
be outstanding during all periods the Class A
Stock is outstanding.

Conversion of Class A
Stock...................... Each share of Class A Stock and Preferred Stock
will be converted automatically into Common Stock
upon the earlier of (i) December 1, 2001 or (ii)
the closing date of a public offering of Common
Stock registered under the Securities Act of
1933, as amended (the "Securities Act"). In
addition, the Company may at any time with the
approval of the holders of a majority of the then
outstanding shares of Preferred Stock convert
all, but not less than all, of the issued and
outstanding shares of Class A Stock and Preferred
Stock into shares of Common Stock. Additionally,
each share of Class A Stock and Preferred Stock
will be converted into Common Stock immediately
preceding any liquidation, dissolution or winding
up of the Company, if such conversion is approved
by the holders of a majority of the then
outstanding shares of Preferred Stock. Upon any
such conversion, the Class A Stock shall be
converted into Common Stock on the basis of one
share of Common Stock for each share of Class A
Stock and the Preferred Stock shall be converted
into Common Stock pursuant to the formula
described herein under "DESCRIPTION OF CAPITAL
STOCK -- Class B Stock -- Conversion." See
"DESCRIPTION OF CAPITAL STOCK -- Class A Common
Stock -- Conversion."

Restrictions on Transfer;
Right of First Refusal... Shares of Class A Stock cannot be sold,
transferred, encumbered, pledged or otherwise
disposed of prior to December 1, 1998, except (i)
upon the death of the holder, to an heir taking
by law or pursuant to testamentary succession,
(ii) by operation of law, or (iii) as required by
a final judicial decree. Subject to the
limitations described below, during the period
from December 1, 1998 to December 1, 2001, if a
holder of shares of Class A Stock desires to sell
all or any portion of such Class A Stock, the
holder must first offer such shares to the
Company on the same terms and conditions as the
proposed sale. The Company may exercise this
right of first refusal to acquire up to 2% of the
issued and outstanding shares of Class A Stock in
any one calendar year, or such greater amount as
may be approved by the holders of more than a
majority of the Preferred Stock then issued,
outstanding

5
<PAGE> 10

and entitled to vote. See "DESCRIPTION OF
CAPITAL STOCK -- Class A Stock -- Restrictions
on Transfer."

Lock-up Agreement for
Conversion Stock......... In addition, Shares of Common Stock issued in
exchange for Class A Stock ( "Conversion Stock")
upon conversion of Class A Stock into Common
Stock, are subject to a "lock-up" arrangement.
Under the lock-up, no shares of any holder's
Conversion Stock may be transferred for a period
of six months following conversion and no more
than 50% of such holder's shares of Conversion
Stock may be transferred during the period
beginning six months following conversion and
ending on the date which is one year following
the conversion. See "DESCRIPTION OF CAPITAL
STOCK -- Class A Stock -- Restrictions on
Transfer; Right of First Refusal."

The shares of Conversion Stock have not been
registered under the Securities Act and until
such registration, if any, their transfer by
Eligible Subscribers would be subject to the
provisions of Rule 144 under the Securities Act.
Pursuant to Rule 144, persons receiving shares of
Conversion Stock upon conversion of their Class A
Stock may be required to hold such Conversion
Stock for a two-year period from the time of
Conversion or until the earlier registration, if
any, of the Conversion Stock.

FEDERAL INCOME TAX CONSEQUENCES

THERE IS A RISK THAT EACH ELIGIBLE SUBSCRIBER WHO ACCEPTS THE OFFER OF THE
SHARES MAY BE REQUIRED TO RECOGNIZE TAXABLE INCOME (TO THE EXTENT OF THE VALUE
OF THE SHARES RECEIVED BY SUCH ELIGIBLE SUBSCRIBER) UPON RECEIPT OF THE SHARES
AND, AS A RESULT, MAY INCUR FEDERAL INCOME TAX LIABILITY IN CONNECTION WITH HIS
OR HER RECEIPT OF THE SHARES. THE COMPANY HAS OBTAINED AN OPINION OF ITS
CERTIFIED PUBLIC ACCOUNTANTS THAT ELIGIBLE SUBSCRIBERS WHO ACCEPT THE OFFER OF
THE SHARES SHOULD NOT INCUR FEDERAL INCOME TAX LIABILITY IN CONNECTION WITH
THEIR RECEIPT OF THE SHARES; HOWEVER, BECAUSE THIS IS A UNIQUE TRANSACTION IN
WHICH THERE ARE NO PRECEDENTIAL AUTHORITIES OUTSTANDING, NO ASSURANCE CAN BE
GIVEN THAT THE INTERNAL REVENUE SERVICE WILL NOT CHALLENGE THIS POSITION. SEE
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- ISSUANCE OF CLASS A STOCK TO
ELIGIBLE SUBSCRIBERS."

THE COMPANY ENCOURAGES EACH ELIGIBLE SUBSCRIBER TO CONSULT HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO SUCH
SUBSCRIBER OF THE ACCEPTANCE OF THE COMPANY'S OFFER OF CLASS A STOCK, AS WELL AS
ANY TAX CONSEQUENCES TO SUCH SUBSCRIBER ARISING UNDER THE LAWS OF ANY STATE,
LOCALITY, FOREIGN COUNTRY OR OTHER JURISDICTION.

MARKET FOR CLASS A STOCK

There is no public trading market for the Class A Stock. Further, because
of the restrictions on transfer of the Class A Stock, it is not anticipated that
such a trading market will develop in the future.

6
<PAGE> 11

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following is summary consolidated financial information of Georgia Blue
prior to the Conversion. The information presented below for the years ended as
of December 31 has been derived from the Consolidated Financial Statements of
Georgia Blue which have been audited by Ernst & Young LLP, independent auditors,
whose report for the three years ended December 31, 1995 appears elsewhere in
this Prospectus. The following data, prepared in accordance with generally
accepted accounting principles, should be read in conjunction with the
accompanying Consolidated Financial Statements, the related notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1991(1) 1992(1) 1993 1994 1995
-------- -------- -------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Premiums............................... $815,863 $914,406 $939,671 $1,038,397 $1,159,476
Investment and other income............ 9,527 8,815 8,524 9,462 11,980
Realized gains......................... 1,379 5,777 4,658 2,512 15,265
-------- -------- -------- ---------- ----------
Total revenues................. 826,769 928,998 952,853 1,050,371 1,186,721
Benefits expense......................... 731,875 831,795 832,908 914,277 1,039,095
Operating expenses....................... 78,135 79,171 89,284 111,012 126,077
-------- -------- -------- ---------- ----------
Operating Income......................... 16,759 18,032 30,661 25,082 21,549
Loss on building repurchase.............. -- -- (7,566) -- --
-------- -------- -------- ---------- ----------
Income before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting
change................................. 16,759 18,032 23,095 25,082 21,549
Income taxes(2).......................... 3,127 3,559 4,796 5,621 3,857
Minority interest in CHPNs............... -- -- -- -- (282)
Extraordinary item -- reduction of income
taxes arising from carryforward of
prior years' net operating losses...... 2,746 3,081 -- -- --
Cumulative effect of change in accounting
for income taxes....................... -- -- 5,449 -- --
-------- -------- -------- ---------- ----------
Net Income............................... $ 16,378 $ 17,554 $ 23,748 $ 19,461 $ 17,410
======== ======== ======== ========= =========
</TABLE>

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

(1) Years prior to 1993 were restated to conform to the current year
presentation.
(2) The effective tax rate has been approximately 20% as a result of paying
taxes under the alternative minimum tax system. This is the result of a
deduction available under Section 833(b) of the Internal Revenue Code (see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Overview"). If the deduction were no longer available,
Georgia Blue would be subject to federal income taxes at the regular
corporate tax rate, which is currently 35%. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- Section 833 of the Code."

7
<PAGE> 12

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1991(1) 1992(1) 1993 1994 1995
-------- -------- -------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA BY PRODUCT GROUP:
Premium Revenues by Product Group:
HMO and POS............................ $ 49,613 $ 58,553 $ 76,196 $ 87,532 $ 144,662
Indemnity and PPO...................... 759,799 849,510 857,167 944,156 1,006,524
Life & Other........................... 6,451 6,343 6,308 6,709 8,290
-------- -------- -------- ---------- ----------
Total premium revenues......... $815,863 $914,406 $939,671 $1,038,397 $1,159,476
======== ======== ======== ========= =========
As a Percentage of Premium Revenues:
HMO and POS............................ 6.1% 6.4% 8.1% 8.4% 12.5%
Indemnity and PPO...................... 93.1 92.9 91.2 90.9 86.8
Life and Other......................... 0.8 0.7 0.7 0.7 0.7
-------- -------- -------- ---------- ----------
Total premium revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========= =========
Percentage of Net Income:
HMO and POS............................ 1.6% (4.5)% (0.9)% 4.9% 40.0%
Indemnity and PPO...................... 89.6 94.2 92.8 88.4 49.5
Life and Other......................... 8.9 10.4 8.1 6.7 10.5
-------- -------- -------- ---------- ----------
Total.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========= =========
Loss Ratio (Benefits Expense as a
Percentage of Premium Revenues):
HMO and POS............................ 92.1% 94.0% 93.2% 89.2% 83.7%
Indemnity and PPO...................... 89.9 91.1 88.5 88.2 90.7
Life and Other......................... 51.8 45.4 46.6 52.0 56.5
-------- -------- -------- ---------- ----------
Total loss ratio............... 89.7% 91.0% 88.6% 88.0% 89.6%
======== ======== ======== ========= =========
Operating Expense Ratio (Operating
Expenses as a Percentage of Premium
Revenues).............................. 9.6% 8.7% 9.5% 10.7% 10.9%
======== ======== ======== ========= =========
Combined Loss Ratio (Benefits Expense and
Operating Expenses as a Percentage of
Premium Revenues):
HMO and POS............................ 99.7% 101.7% 100.4% 98.3% 94.7%
Indemnity and PPO...................... 99.3 99.6 98.0 98.8 101.4
Life and Other......................... 92.3 88.1 92.1 94.8 94.9
-------- -------- -------- ---------- ----------
Total Combined Loss Ratio...... 99.3% 99.7% 98.1% 98.7% 100.5%
======== ======== ======== ========= =========
Effective Income tax rate(2)............. 18.7% 19.7% 20.8% 22.4% 17.9%
======== ======== ======== ========= =========
BALANCE SHEET DATA (AT PERIOD END):
Cash, equivalents and marketable
securities............................. $131,632 $153,711 $177,650 $ 201,976 $ 223,994
Total assets............................. 285,728 318,041 356,241 407,023 417,079
Total estimated benefit liabilities...... 156,454 161,290 153,881 167,895 175,846
Total liabilities........................ 197,291 212,050 226,502 258,353 244,040
Surplus.................................. 88,437 105,991 129,739 148,670 173,039
</TABLE>

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

8
<PAGE> 13

RISK FACTORS

Each Eligible Subscriber's acceptance of shares of Class A Stock offered
hereby is subject to a number of risk factors that should be considered by such
Eligible Subscriber. In addition to the information set forth elsewhere herein,
Eligible Subscribers should consider the following information.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

There is a risk that each Eligible Subscriber who accepts the offer of the
Shares may be required to recognize taxable income (to the extent of the value
of the Shares received by such Eligible Subscriber) upon receipt of the Shares
and, as a result, may incur federal income tax liability in connection with his
or her receipt of the Shares. The Company has obtained an opinion of its
certified public accountants that Eligible Subscribers who accept the offer for
the Shares should not incur federal income tax liability in connection with
their receipt of the Shares; however, because this is a unique transaction in
which there are no precedential authorities outstanding, no assurance can be
given that the Internal Revenue Service will not challenge this position. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Issuance of Class A Stock to the
Eligible Subscribers."

Georgia Blue has paid federal income taxes under the alternative minimum
tax system, generally at a 20% rate, from 1987 through 1995 due to the
application of a special deduction available to certain Blue Cross and Blue
Shield plans under Section 833(b) of the Internal Revenue Code. If the deduction
provided under Section 833(b) were no longer available because of the
transactions described herein or for any other reason, the Company would be
subject to federal income taxes at the regular corporate tax rate, which is
currently 35%. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Section 833 of
the Code."

RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL; LACK OF LIQUIDITY

Shares of Class A Stock cannot be sold, transferred, encumbered, pledged or
otherwise disposed of prior to December 1, 1998, except (i) upon the death of
the holder of such shares, to an heir taking by law or pursuant to testamentary
succession, (ii) by operation of law or (iii) as required by a final judicial
decree. Pursuant to the Articles of Incorporation, subject to the limitations
described below, during the period from December 1, 1998 to December 1, 2001, if
a holder of shares of Class A Stock desires to sell all or any portion of such
Class A Stock, the holder must first offer the shares of Class A Stock to the
Company upon the same terms and conditions as the proposed sale. A holder of
Class A Stock who proposes to dispose of all or any portion of his or her shares
must give written notice (the "Notice") to the Company of his or her intention
to dispose of the shares, setting forth the type of disposition, the proposed
purchaser, the number of offered shares, the price per share and the terms of
payment. The Company may accept such offer with respect to all, but not less
than all, of the offered shares within thirty (30) days following receipt of the
Notice by giving notice of such exercise to the holder proposing to dispose of
the shares. If any of the consideration for the offered shares consists of
anything other than cash, the Company may substitute for such consideration the
cash equivalent as reasonably determined by the Company. The Company may
exercise this right of first refusal to acquire up to 2% of the issued and
outstanding shares of Class A Stock in any one calendar year, or such greater
amount as may be approved by the holders of more than a majority of the
Preferred Stock then issued, outstanding and entitled to vote. If the Company
fails to exercise its right of first refusal within thirty (30) days through no
fault of the offeror, the offeror may transfer the offered shares to the
proposed purchaser, at the price and on the terms and conditions set forth in
the Notice; provided that such transfer must be made within 30 days of the date
the offeror became free to transfer the shares or such right to transfer will
expire.

9
<PAGE> 14

LOCK-UP PROVISIONS AFFECTING CONVERSION STOCK

Transfers of Conversion Stock will be limited for a period of time
following a Stock Conversion (as defined herein) pursuant to certain "lockup"
provisions included in the Company's Articles of Incorporation. The lockup
provisions are intended to assist in the development of an orderly trading
market in the Common Stock, the development of an adequate investment research
following of the Company, and the promotion of institutional demand for the
Common Stock. Under the lock-up, no shares of Conversion Stock may be
transferred by any holder of Conversion Stock for a period of six months
following the Stock Conversion and no more than 50% of such holder's shares of
Conversion Stock may be transferred during the period beginning six months
following the Stock Conversion and ending on the date which is one year
following the Stock Conversion. See "DESCRIPTION OF CAPITAL STOCK -- Class A
Stock -- Restrictions on Transfer; Right of First Refusal."

NO MARKET FOR CLASS A STOCK; LIMITATION ON SHARES ELIGIBLE FOR FUTURE SALE

There has been no prior public market for the Class A Stock and there will
be no public market for the Class A Stock or any of the Company's other
securities; the Company does not intend that there will ever be a public market
for the Class A Stock; and there can be no assurance that a public market for
any of the Company's other securities (including the Common Stock) will develop
in the future. Accordingly, Eligible Subscribers will be unable to liquidate an
investment in the Class A Stock for an indefinite period. See "DESCRIPTION OF
CAPITAL STOCK -- Class A Stock -- Restrictions on Transfer; Right of First
Refusal" and "RISK FACTORS -- Restrictions on Transfer; Right of First Refusal;
Lack of Liquidity." Furthermore, the shares of Conversion Stock have not been
registered under the Securities Act and until such registration, their transfer
by Eligible Subscribers would be subject to the provisions of Rule 144 under the
Securities Act. Pursuant to Rule 144, Eligible Subscribers receiving shares of
Conversion Stock upon conversion of their Class A Stock may be required to hold
such Conversion Stock for a two-year period from the time of Conversion or until
the earlier registration of the Conversion Stock.

POSSIBLE DILUTION OF CLASS A STOCK

The Company's Articles of Incorporation do not contain any provisions
protecting holders of Class A Stock against dilution. While the Preferred Stock
has certain protection against dilution of the number of shares of Common Stock
into which the Preferred Stock may be converted, each share of Class A Stock
will still be convertible only into one share of Common Stock as described
herein. In the event the Company issues additional shares of Class A Stock, or
issues shares of Common Stock or Blank Preferred Stock convertible into Common
Stock or effects a stock split, stock dividend or other recapitalization of or
on its Common Stock, the then existing Class A Shareholders will be diluted.
Therefore, the Class A Stock is subject to substantial dilution. See
"CAPITALIZATION" and "DESCRIPTION OF CAPITAL STOCK -- Class A Stock --
Conversion of Class A Stock."

LIMITATION ON VOTING RIGHTS

As of the date of this Prospectus, 49,901 Shares of Preferred Stock are
issued and outstanding. So long as shares of Preferred Stock and Class A Stock
are issued and outstanding and no shares of Common Stock are issued and
outstanding, the holders of the outstanding shares of Class A Stock will be
entitled to elect two Class A Designated Directors at each annual meeting of
shareholders. The Company's Board of Directors is divided into three classes
with terms of three years each, and one class stands for election at each annual
meeting of shareholders. As a result, after the third annual meeting of
shareholders following the issuance of the Shares, six of the 21 Directors of
the Company will be Class A Designated Directors. So long as any shares of
Preferred Stock are issued, outstanding or entitled to vote, the holders of the
Preferred Stock, voting separately as a single class (with each share being
entitled to one vote) and to the exclusion of all other classes and series of
capital stock of the Company, will be entitled to elect all of the remaining
directors of the Company (other than the Class A Designated Directors). However,
pursuant to the terms of a Shareholders' Agreement among the holders of the
Preferred Stock, Georgia Blue and the Company (the "Shareholders' Agreement"),
so long as no shares of Common Stock are issued and outstanding, the holders of
the Preferred

10
<PAGE> 15

Stock will be obligated to vote their shares so that the Directors (other than
the Preferred Designated Directors and the Class A Designated Directors)
nominated by the Nominating Committee of the Company's Board of Directors and
approved by two-thirds of the Continuing Directors of the Company are elected
Directors of the Company. As a result, the current Board of Directors will have
the ability to designate a majority of the Directors of the Company.

IN THE EVENT ANY SHARES OF COMMON STOCK ARE ISSUED AND OUTSTANDING, THE
HOLDERS OF CLASS A STOCK SHALL HAVE NO VOTING RIGHTS, INCLUDING THE RIGHT TO
NOMINATE AND ELECT DIRECTORS, EXCEPT AS EXPRESSLY PROVIDED BY APPLICABLE LAW. NO
ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL NOT ISSUE SHARES OF COMMON STOCK
IN THE FUTURE. SEE "DESCRIPTION OF CAPITAL STOCK -- CLASS A STOCK -- VOTING" AND
"DESCRIPTION OF CAPITAL STOCK -- PREFERRED STOCK -- VOTING."

DIVIDEND POLICY AND LIMITATIONS ON ABILITY TO PAY DIVIDENDS

So long as any shares of the Company's Preferred Stock are issued and
outstanding and entitled to vote, the Company cannot pay dividends in cash,
stock or other property on Class A Stock or Common Stock without the approval of
the Board of Directors and of the holders of a majority of the Preferred Stock
then issued, outstanding and entitled to vote. The Company presently anticipates
that shares of Preferred Stock will be issued, outstanding and entitled to vote
at all times up to the date the Class A Stock is converted to Common Stock. The
Company anticipates that no dividends will ever be paid on Class A Stock. The
ability of Georgia Blue and its subsidiaries to pay dividends to the Company is
also subject to certain provisions of the Georgia Insurance Code. See
"DIVIDENDS."

LIMITED RIGHTS IN LIQUIDATION

The Class A Stock participates in the liquidation of assets only after
payment in full of the Preferred Liquidation Amount with respect to the
Preferred Stock and then only on an equivalent basis (share for share) with any
Common Stock which may be issued and outstanding at the time of such
liquidation. In addition, the Board of Directors may, with the approval of
holders of a majority of shares of Preferred Stock, issue one or more series or
classes of Blank Preferred Stock which may include liquidation rights prior to
those of the Class A Stock. See "DESCRIPTION OF CAPITAL STOCK -- Class A
Stock -- Liquidation."

ABILITY TO SUCCESSFULLY IMPLEMENT STRATEGIC PLAN

CHPNs

The success of the Company's strategic plan is dependent upon the formation
and successful operation of CHPNs. Currently, only one CHPN, CHPN-Atlanta which
began operation on January 1, 1995, has been formed and capitalized. The Company
also offers HMO and POS products through HMO-Ga pursuant to contracts with
physicians and hospitals in Athens, Augusta, Columbus, Macon, Rome and Savannah,
Georgia, in connection with the formation of new CHPNs in those markets, thus
carrying out the CHPN framework. Due to the very limited operating history of
CHPNs and the fact that the CHPN model is largely untested, there can be no
assurance as to the future viability or profitability of CHPNs. Among the
potential risks of the CHPN strategy are the ability of (i) the Company to
provide adequate administrative support to the CHPNs, (ii) the CHPN owners to
operate favorably in a non-fee-for-services reimbursement environment, (iii) the
CHPNs to arrange for the delivery of cost-effective medical services, and (iv)
the CHPNs to respond to adverse regulation or legislation. Execution of the CHPN
strategy will require initial capital contributions to be made by the Company to
each CHPN upon its establishment and may require additional on-going capital
contributions to existing CHPNs. Accordingly, the Company may in the future find
it necessary to incur additional indebtedness or issue additional equity
securities in order to finance its CHPN strategy. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources" and "BUSINESS -- Strategic Initiatives -- CHPNs."

11
<PAGE> 16

Acquisitions

The Company may seek to expand its business in part through acquisitions.
There can be no assurance that the Company will successfully identify, complete
or integrate acquisitions or that any acquisitions, if completed, will perform
as expected or will contribute significant revenues or profits to the Company.
Furthermore, if competition for the acquisition of managed care companies
increases, the cost of such acquisitions may increase, making such companies
more difficult to acquire, as well as making their contributions to profits of
the Company more difficult to attain.

HEALTH CARE REFORM LAWS

As a result of the continued escalation of health care costs and the
inability of many individuals to obtain health care insurance, numerous
proposals relating to health care reform have been and may be introduced in the
United States Congress, the Georgia Legislature and the legislatures of the
other states in which the Company may seek to operate. The Company cannot
predict what effect, if any, such health care legislation or proposals will have
on the Company if and when enacted. The Company believes that the current
political environment in which it operates will result in continued legislative
scrutiny of health care laws, regulations and practices and may lead to
additional legislation, particularly in the small group or individual health
care insurance marketplace. While the Company does not anticipate that any of
the current legislative proposals of which it is aware may adversely impact its
present business or its strategic plan, no assurances can be given that
enactment of any federal or state health care reform legislation will not have a
material adverse effect on the Company's business.

ESCALATING HEALTH CARE COSTS AND THE HEALTH CARE INDUSTRY

The Company's profitability depends in large part on its ability to predict
and effectively manage health care costs and claims. According to the United
States Health Care Financing Administration statistics, from 1986 through 1993,
health care expenditures in the United States increased at an estimated average
annual rate of 9.6%, while the average annual rate of increase in the United
States Consumer Price Index during this period was 3.2%. The aging of the
population and other demographic characteristics and advances in medical
technology continue to contribute to rising health care costs. Government
imposed limitations on Medicare and Medicaid reimbursement have also caused the
private sector to bear a greater share of increasing health care costs. Changes
in health care practices, inflation, new technologies, major epidemics, natural
disasters and numerous other factors affecting the delivery and cost of health
care are beyond the Company's control and may adversely affect the Company's
ability to predict and control health care costs and claims.

Historically, competitive price pressures in the group health insurance
industry have resulted in pricing and profitability cycles. Although the length
and severity of these cycles have varied, the cycles generally have been six
years long and have been characterized by three years of profitability followed
by three years of losses. Some of the more significant causes of this cyclical
pattern are generally thought to be price competition, the entry and exit of
health care insurance companies from the marketplace, the rate of change in
provider pricing and consumer utilization of health care services, "cost
shifting" by facilities and physicians to private payors in response to certain
government program constraints, legislative changes and threatened legislative
changes. The extent to which structural changes in the managed health care and
health insurance industry have altered the cyclical pattern is uncertain.
Accordingly, there can be no assurance that a continuation of the cyclical
pattern or such structural changes will not adversely impact the Company's
profitability in the future.

CHANGING NATURE OF FINANCING AND SERVICING HEALTH CARE

Historically, traditional indemnity insurance has been the most common form
of health insurance offered in the United States. In recent years, the
developing trend has been away from traditional indemnity products and toward
managed care products such as PPO, HMO and POS products. The Company believes
that in the next three to five years this trend will continue. The result of a
continuation of this trend would be that sales of indemnity products will be
substantially reduced and could be less profitable. Historically, substantially
all of the Company's revenues and net income from insurance premiums have been
derived from its traditional

12
<PAGE> 17

indemnity and PPO products. In recent years however, the Company has increased
its involvement in its HMO and POS products. In 1995, revenues from indemnity
products were relatively flat and the Company derived a significant portion of
its net income from its HMO and POS products. There can be no assurance that the
Company can sustain or increase its revenues or net income from its indemnity
business and the Company has become increasingly dependent on its managed care
business. See "-- Ability to Successfully Implement Strategic Plan" above and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

POTENTIAL NONRENEWAL OF ELIGIBLE SUBSCRIBER AND PROVIDER AGREEMENTS;

CONCENTRATION OF CONTRACTS

The Company's profitability is dependent upon its ability to obtain and
maintain contracts with employer groups and individual consumers. The Company's
agreements with employer groups generally are renewable annually. The Company's
profitability is also dependent, in large part, on its ability to contract on
favorable terms with hospitals, physicians and other health care providers for
the provision of services under the Company's managed care products. The
Company's contracts with physicians and hospitals generally are renewable
annually (other than contracts between the CHPN and its owner-providers, which
generally are longer term), but certain contracts may be terminated with 60 days
to 12 months prior written notice by either party.

The Company has contracts with certain employer groups that account for a
significant portion of the Company's business. For 1995, two employer groups
accounted for approximately 23% and 11%, respectively, of the Company's total
premium revenues. Additionally, the Company processes and pays claims as fiscal
intermediary for the Medicare Part A program and as administrative agent for the
State of Georgia Employee Health Benefit Plan and the BCBSA's Out-of-Area
Program. In 1995, claim payments for these agency programs exceeded $3.2 billion
dollars and are not included in either revenues or benefits expense in the
Company's statement of income. The Company receives fees from these federal and
state government programs for performing these services. Fees received from
these programs are deducted from operating expenses and are not included in
premium revenues. The Company's contract with the State of Georgia was renewed
for a seven-year term in July 1994. The State of Georgia program accounts for
over 33% of the Company's membership and plays an integral part in the
development of the Company's long-term provider network strategies. The
non-renewal or termination of any of the contracts with these employer groups
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "BUSINESS -- Customers." There can be
no assurance that the subscribers or providers will renew their contracts or
enter into new contracts with the Company, or, in the case of provider
contracts, will not seek terms that are less favorable to the Company in
connection with any such renewal.

POTENTIAL ADVERSE AFFECTS OF THE CONVERSION

There can be no assurance that Georgia Blue's conversion to for-profit
status will not adversely affect the marketability of its products, because
Georgia Blue would be perceived less favorably by its customers and potential
customers and would more resemble its competitors. In addition, the Company
would experience increased costs of business were its tax treatment to change,
although the Company does not anticipate such change. See "Certain Federal
Income Tax Consequences."

GOVERNMENT REGULATION

The Company's business is subject to extensive federal, state and local
laws and regulations. Such regulations govern many aspects of the Company's
business, including, among other things, regulation of the amount of dividends
that the Company's insurance subsidiaries can pay to the Company without prior
regulatory approval, licenses to transact business, trade practices,
relationships with providers, premium rates, underwriting standards, policy
forms, claims payment, licensing of agents and brokers, the types of investments
that an insurance company may hold, including the formation of subsidiaries, and
minimum surplus and reserve requirements. See "DIVIDENDS" and
"BUSINESS -- Regulatory Environment."

13
<PAGE> 18

COMPETITION

The health care industry in Georgia is highly competitive on both a
regional and statewide basis and has undergone significant changes in recent
years. The Company has many competitors in its indemnity, PPO and HMO
operations, many of which have substantially greater financial and other
resources than the Company. Price competition among benefit plans in the
Company's markets, particularly the Atlanta metropolitan area, may intensify.
Because the Company's existing business operations are confined to markets
within the State of Georgia, the Company currently is not able to subsidize
losses in these markets with profits from other markets. The Company believes
that certain larger, national competitors are able to subsidize losses in the
Georgia market with profits from other markets in which they operate and may
pursue such a strategy in the Company's markets in an effort to increase their
market share. The national health care industry has recently seen a
consolidation of companies that offer health care insurance, including
traditional indemnity and managed care products. In addition to increased
competition, this consolidation may result in corporations with enhanced
financial resources, better positioned to pursue a strategy of subsidizing
losses to increase their market position in Georgia. Additionally,
provider-sponsored initiatives, through which certain hospital and physician
alliances compete with traditional means of health care financing, are
developing in some product segments.

Future legislation at the federal and state levels also may result in
increased competition in the Company's market. While the Company does not
anticipate that any of the current legislative proposals of which it is aware
would increase the competition it faces, future legislative proposals, if
enacted, might do so. See "RISK FACTORS -- Health Care Reform Laws." In
addition, competition may be increased by independent agents and brokers who
sell the Company's health care benefit plans as well as the benefit plans of
competitors. No assurances can be given that the Company will be able to compete
effectively in the future. See "BUSINESS -- Competition."

DEPENDENCE UPON KEY PERSONNEL

Georgia Blue recruited a new management team beginning in 1992. The new
management team is responsible for implementing the Company's strategic business
plan. The Company's future success depends in large part upon the continued
services of its current senior management and other key personnel, including its
Chief Executive Officer. The Company's success also depends upon its ability to
recruit and retain other management personnel. The loss of a significant group
of key personnel or the inability to attract and retain qualified employees
could have a material adverse effect on the Company. The Company currently has a
$5,000,000 "key-man" life insurance policy on its Chief Executive Officer.
Although the Company has implemented incentive programs to retain key personnel
and expects to implement other such programs in the future, the Georgia law
pursuant to which the Company converted to a for-profit corporation (the
"Conversion Statute") prohibits the payment of any option, warrants or fees to
officers or Directors of the Company in connection with the Conversion or in
regard to the offering of the Shares. See "MANAGEMENT."

DEPENDENCE ON SALES TO INDIVIDUALS

Sales of the Company's health care benefit products to individuals for 1995
comprised 13% of the premium income of the Company. The Company's overall
operating results could be adversely affected by a reduction in the relative
percentage of its business represented by products sold to individuals. There
can be no assurance that such percentage will not decrease or that the
profitability of this business will not decrease in the future, including as a
result of unanticipated increases in claims.

LICENSE TO USE OF BLUE CROSS AND BLUE SHIELD NAME AND RISK OF TERMINATION OF
SUCH LICENSE

Pursuant to its licenses from the BCBSA, the Company and certain of its
subsidiaries have the exclusive right to do business in Georgia under the name
"Blue Cross and Blue Shield" and to use the Blue Cross and Blue Shield names,
trademarks and service marks with respect to the Company's indemnity, PPO, HMO
and POS products. Unless waived by BCBSA, the licenses will automatically
terminate upon the occurrence of

14
<PAGE> 19

certain events, subject to the right of the Company to prevent such termination
within the applicable cure periods. Such a terminating event will be deemed to
have occurred if, among other things: (i) at any time while any shares of
Preferred Stock are outstanding, two-thirds ( 2/3) of the Continuing Directors
fail to approve a candidate for the Company's Board of Directors (other than
Preferred Designated Directors or Class A Designated Directors) in a manner
which obligates the holders of the Preferred Stock to vote for that candidate in
accordance with the terms of the Shareholders' Agreement; (ii) the Preferred
Stock for any reason shall be voted in a manner which fails to elect any
candidate approved by two-thirds of the Continuing Directors or which is
contrary to the terms of the Shareholders' Agreement; (iii) the Company shall
have failed to issue at least 50,000 shares of Class A Stock to Eligible
Subscribers prior to the earlier of (A) the record date for the first election
of Class A Designated Directors or (B) December 31, 1996; (iv) the Articles of
Incorporation of the Company for any reason shall not be applied to prevent
Common Stock beneficially owned by any particular person, including its
associates and affiliates, from being voted in any election or on any issue to
the extent such Common Stock exceeds 5% of the shares of Common Stock
outstanding at that time; (v) any person, including its associates and
affiliates, acquires more than 20% of the Common Stock of the Company and the
shares in excess of 20% of the outstanding shares of Common Stock are not
disposed of in accordance with the Company's Articles of Incorporation; (vi)
without the written consent of the BCBSA, the Board of Directors of the Company
shall act (or fail to act) if the consequence thereof would be to: (A) cause the
provisions of the Articles of Incorporation of the Company relating to the 5%
voting limitation or the 20% ownership limitation never to become applicable or
to cease to apply once such provisions become applicable; (B) establish the
Permissible Ownership Amount (as defined herein) applicable to any person under
the Company's Articles of Incorporation at a level higher than 20% of the
outstanding shares of Common Stock; or (C) establish the Permissible Voting
Amount under the Company's Articles of Incorporation at a level which could
(either absolutely or upon the occurrence of any default, event or contingency)
permit Common Stock beneficially owned by any particular person from being voted
in any election or on any issue to the extent such Common Stock exceeds 5% of
the total number of shares of Common Stock outstanding at that time; (vii) less
than 80% of the positions on the Board of Directors of the Company or Georgia
Blue shall be held by Continuing Directors; (viii) at any time after the earlier
of (A) December 1, 2001 or (B) such earlier date on which all Preferred Stock is
converted to Common Stock or redeemed in accordance with the Company's Articles,
the Company shall have any capital stock outstanding other than Common Stock;
(ix) the Company shall cease to have a majority ownership interest in or the
right to control the operations of Georgia Blue or any other enterprise under
which business or operations are conducted under the Blue Cross/Blue Shield
marks or (x) if the Company does not maintain certain financial standards. See
"DESCRIPTION OF COMMON STOCK -- Restrictions on Acquisition, Ownership and
Voting of Securities" for a description of certain limitations referenced above.

The Company believes that the well-recognized Blue Cross and Blue Shield
names, trademarks and service marks provide a significant marketing advantage in
its licensed service area, the loss of which would have a material adverse
affect on its business and results of operations. However, to the extent that
the Company continues to use these trademarks in marketing its products, there
can be no assurance that negative publicity concerning BCBSA and other BCBSA
licensees will not adversely impact their sales.

Following the Conversion, the Company became the primary licensee of BCBSA
in the State of Georgia. As a condition to the award of that license, the BCBSA
required that the Company guarantee certain obligations of each licensed
subsidiary.

THE CONVERSION

On February 2, 1996, Georgia Blue converted from a non-profit corporation
to a for-profit corporation and became a wholly-owned subsidiary of the Company
in accordance with the Plan of Conversion approved in the Commissioner's Order.
The principal goal of the Conversion is to allow the Company access to the
equity capital markets in order to finance its strategic plan and to enhance its
competitive position. The Company believes the Conversion will allow the Company
access to additional capital resources to continue Georgia Blue's mission to
provide access to quality health care at affordable prices to as many Georgians
as possible and to remain competitive in a changing health care environment.

15
<PAGE> 20

As part of the Conversion, the Company issued 800,000 shares of the Class A
Stock to SunTrust Bank, Atlanta as Escrow Agent, for distribution to Eligible
Subscribers as described herein and pursuant to this Prospectus is offering to
each Eligible Subscriber five Shares of Class A Stock at no cost to the Eligible
Subscriber. As of September 1, 1995, there were approximately 160,000 Eligible
Subscribers. Under the Georgia Insurance Code, Georgia Blue was obligated to
first offer shares in connection with an initial public offering to its
subscribers on similar terms as such shares are offered to the public and
consistent with federal laws and regulations. The Commissioner's Order held that
the offer of the Shares to the Eligible Subscribers extinguishes such rights of
the subscribers.

DIVIDENDS

So long as any shares of Preferred Stock are issued, outstanding and
entitled to vote, no dividends may be paid on Class A Stock, Common Stock or any
other capital stock of the Company without the approval of the holders of a
majority of the Preferred Stock. There are presently 49,901 shares of Preferred
Stock issued and outstanding and the Company presently anticipates that shares
of Preferred Stock will be issued, outstanding and entitled to vote at all times
up to the date the Class A Stock is converted to Common Stock. The Company
anticipates that no dividends will ever be paid on Class A Stock. If no shares
of Preferred Stock are issued and outstanding, the Board of Directors, in its
discretion, may declare dividends on the Class A Stock or Common Stock out of
funds legally available therefor.

The Company's future ability to pay dividends on the Class A Stock,
Preferred Stock or the Common Stock is substantially dependent upon dividends
received by the Company from Georgia Blue and its subsidiaries. The ability of
Georgia Blue and its subsidiaries to pay dividends to the Company is subject to
certain restrictions of the Georgia Insurance Code. Specifically, under Georgia
law, Georgia Blue's surplus with regard to its policyholders following any
dividends or distributions to the Company must be reasonable in relation to
Georgia Blue's outstanding liabilities and adequate to meet its financial needs.
In determining whether Georgia Blue's surplus is reasonable in relation to its
outstanding liabilities and adequate to meet its financial needs, Georgia law
requires that the following factors, among others, be considered: (i) the size
of Georgia Blue as measured by its assets, capital and surplus, reserves,
premium writings, insurance in force, and other appropriate criteria; (ii) the
extent to which Georgia Blue's business is diversified among the several lines
of insurance; (iii) the number and size of risks insured in each line of
business; (iv) the extent of the geographical dispersion of Georgia Blue's
insured risks; (v) the nature and extent of Georgia Blue's reinsurance program;
(vi) the quality, diversification, and liquidity of Georgia Blue's investment
portfolio; (vii) the recent past and projected future trend in the size of
Georgia Blue's surplus as regards policyholders; (viii) the surplus with regard
to policyholders maintained by other comparable insurers, considering the above
described factors; (ix) the adequacy of Georgia Blue's reserves; (x) the quality
and liquidity of investments in affiliates; and (xi) the quality of Georgia
Blue's earnings and the extent to which reported earnings include extraordinary
items.

Georgia law further provides that Georgia Blue may not apply any
extraordinary dividend or make any other extraordinary dividend or make any
other extraordinary distribution to the Company until 30 days after the
Commissioner has received notice of the proposed declaration and has not within
such period disapproved such payment, or the Commissioner has approved such
payment within such 30 day period. An extraordinary

16
<PAGE> 21

dividend or distribution includes any dividend or distribution of cash or other
property, whose fair market value together with that of other dividends or
distributions made within the preceding 12 months exceeds the greater of 10% of
Georgia Blue's surplus with regard to policyholders as of the preceding December
31, or the net gain from operations of Georgia Blue, not including realized
capital gains, for the 12 month period ending the preceding December 31, but not
including pro rata distributions of any class of Georgia Blue's own securities.
Georgia insurance law provides that notwithstanding any other provision of law,
Georgia Blue may declare an extraordinary dividend or distribution which is
conditional upon the Commissioner's approval thereof, and such a declaration
confers no rights upon the Company until the Commissioner has approved the
payment of such a dividend or distribution or the Commissioner has not
disapproved such payment within such 30 day period.

Also, under Georgia insurance law, Georgia Blue may pay dividends to its
shareholders only out of unassigned surplus or upon special approval of the
Commissioner upon certain specified terms and conditions. Georgia insurance law
provides that notwithstanding any other provision of law, Georgia Blue may,
conditioned upon receipt of the Commissioner's approval, declare a dividend from
other than unassigned surplus; provided, however, that such declaration confers
no rights upon the security holders of Georgia Blue and Georgia Blue may not pay
such dividend until the Commissioner has approved the payment of such dividend
or not disapproved the payment of such dividend within 30 days after receipt of
notice from Georgia Blue. Georgia insurance law provides that the term
"unassigned surplus" means undistributed, accumulated surplus, including net
income and unrealized gains, since its organization.

Moreover, pursuant to the Conversion Statute, a dividend may be paid by
Georgia Blue only if such dividend would not cause the surplus funds of Georgia
Blue (as defined in the Conversion Statute) to be less than Georgia Blue's
surplus funds as of the date of the Conversion or if the Commissioner were to
find that such a dividend is in the public interest. As a result of this
provision, absent such a finding, Georgia Blue's dividend capacity after the
Conversion will be limited to the increase in its surplus funds, if any, after
September 30, 1995.

17
<PAGE> 22

CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1995 and as adjusted to give effect to (1) the Conversion, the
formation of the Company, the sale of the Preferred Stock and the application of
the net proceeds from the sale of the Preferred Stock as if these transactions
occurred as of December 31, 1995 and (2) the distribution of the Class A Stock
and related costs of distribution of $836,000 as if the distribution occurred as
of December 31, 1995. This table should be read in conjunction with Georgia
Blue's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
-------- -----------
($ IN THOUSANDS)
<S> <C> <C>
Note payable............................................................ $ 2,000 $ 2,000
-------- -----------
Mandatorily redeemable preferred stock
Class B Convertible Preferred Stock, no par value; liquidation
preference, $1,000 per share; mandatory redemption, $900 per share.
Authorized, issued and outstanding, 49,901 shares.................. -- 46,073
-------- -----------
Shareholders' equity
Blank Preferred Stock, no par value.
Authorized and unissued 100,000,000 shares......................... -- --
Class A Convertible Common Stock, no par value, $0.01 stated value.
Authorized 50,000,000 shares; issued 800,000 shares................ -- 8
Common Stock, no par value.
Authorized and unissued 100,000,000 shares......................... -- --
Additional paid-in capital............................................ -- --
Net unrealized appreciation on securities............................. 6,428 6,428
Surplus............................................................... 166,611 --
Retained earnings..................................................... -- 165,767
-------- -----------
Total shareholders' equity.............................................. 173,039 172,203
-------- -----------
TOTAL CAPITALIZATION.................................................... $175,039 $ 220,276
======== =========
</TABLE>

18
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

GEORGIA BLUE

The following is Selected Consolidated Financial and Operating Data of
Georgia Blue for the periods described therein prior to the Conversion. The
information presented for the years ended as of December 31 has been derived
from the Consolidated Financial Statements of Georgia Blue, which have been
audited by Ernst & Young LLP, independent auditors, whose report for the three
years ended December 31, 1995 appears elsewhere in this Prospectus. The
following data, prepared in accordance with generally accepted accounting
principles, should be read in conjunction with the accompanying Consolidated
Financial Statements, the related notes thereto, and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1991(1) 1992(1) 1993 1994 1995
-------- -------- -------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Premiums............................... $815,863 $914,406 $939,671 $1,038,397 $1,159,476
Investment and other income............ 9,527 8,815 8,524 9,462 11,980
Realized gains......................... 1,379 5,777 4,658 2,512 15,265
-------- -------- -------- ---------- ----------
Total revenues................. 826,769 928,998 952,853 1,050,371 1,186,721
Benefits expense......................... 731,875 831,795 832,908 914,277 1,039,095
Operating expenses....................... 78,135 79,171 89,284 111,012 126,077
-------- -------- -------- ---------- ----------
Operating Income......................... 16,759 18,032 30,661 25,082 21,549
Loss on building repurchase.............. -- -- (7,566) -- --
-------- -------- -------- ---------- ----------
Income before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting
change................................. 16,759 18,032 23,095 25,082 21,549
Income taxes(2).......................... 3,127 3,559 4,796 5,621 3,857
Minority interest in CHPNs............... -- -- -- -- (282)
Extraordinary item -- reduction of income
taxes arising from carryforward of
prior years' net operating losses...... 2,746 3,081 -- -- --
Cumulative effect of change in accounting
for income taxes....................... -- -- 5,449 -- --
-------- -------- -------- ---------- ----------
Net Income............................... $ 16,378 $ 17,554 $ 23,748 $ 19,461 $ 17,410
======== ======== ======== ========= =========
</TABLE>

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

19
<PAGE> 24

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1991(1) 1992(1) 1993 1994 1995
-------- -------- -------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA BY PRODUCT GROUP:
Premium Revenues by Product Group:
HMO and POS............................ $ 49,613 $ 58,553 $ 76,196 $ 87,532 $ 144,662
Indemnity and PPO...................... 759,799 849,510 857,167 944,156 1,006,524
Life & Other........................... 6,451 6,343 6,308 6,709 8,290
-------- -------- -------- ---------- ----------
Total premium revenues......... $815,863 $914,406 $939,671 $1,038,397 $1,159,476
======== ======== ======== ========= =========
As a Percentage of Premium Revenues:
HMO and POS............................ 6.1% 6.4% 8.1% 8.4% 12.5%
Indemnity and PPO...................... 93.1 92.9 91.2 90.9 86.8
Life and Other......................... 0.8 0.7 0.7 0.7 0.7
-------- -------- -------- ---------- ----------
Total premium revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========= =========
Percentage of Net Income:
HMO and POS............................ 1.6% (4.5)% (0.9)% 4.9% 40.0%
Indemnity and PPO...................... 89.6 94.2 92.8 88.4 49.5
Life and Other......................... 8.9 10.4 8.1 6.7 10.5
-------- -------- -------- ---------- ----------
Total.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========= =========
Loss Ratio (Benefits Expense as a
Percentage of Premium Revenues):
HMO and POS............................ 92.1% 94.0% 93.2% 89.2% 83.7%
Indemnity and PPO...................... 89.9 91.1 88.5 88.2 90.7
Life and Other......................... 51.8 45.4 46.6 52.0 56.5
-------- -------- -------- ---------- ----------
Total loss ratio............... 89.7% 91.0% 88.6% 88.0% 89.6%
======== ======== ======== ========= =========
Operating Expense Ratio (Operating
Expenses as a Percentage of Premium
Revenues).............................. 9.6% 8.7% 9.5% 10.7% 10.9%
======== ======== ======== ========= =========
Combined Loss Ratio (Benefits Expense and
Operating Expenses as a Percentage of
Premium Revenues):
HMO and POS............................ 99.7% 101.7% 100.4% 98.3% 94.7%
Indemnity and PPO...................... 99.3 99.6 98.0 98.8 101.4
Life and Other......................... 92.3 88.1 92.1 94.8 94.9
-------- -------- -------- ---------- ----------
Total Combined Loss Ratio...... 99.3% 99.7% 98.1% 98.7% 100.5%
======== ======== ======== ========= =========
Effective Income tax rate(2)............. 18.7% 19.7% 20.8% 22.4% 17.9%
======== ======== ======== ========= =========
BALANCE SHEET DATA (AT PERIOD END):
Cash, equivalents and marketable
securities............................. $131,632 $153,711 $177,650 $ 201,976 $ 223,994
Total assets............................. 285,728 318,041 356,241 407,023 417,079
Total estimated benefit liabilities...... 156,454 161,290 153,881 167,895 175,846
Total liabilities........................ 197,291 212,050 226,502 258,353 244,040
Surplus.................................. 88,437 105,991 129,739 148,670 173,039
</TABLE>

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

20
<PAGE> 25

be subject to federal income taxes at the regular corporate tax rate,
which is currently 35%. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES --
Section 833 of the Code."

SELECTED PRO FORMA FINANCIAL INFORMATION OF THE COMPANY

The Company was organized on February 2, 1996 for the purpose of acting as
a holding company for Georgia Blue and its subsidiaries and to engage in certain
other health care related activities and therefore has no results of operations
prior to that time. The pro forma impact (unaudited) on the Company's December
31, 1995 balance sheet is set forth below and assumes the Conversion, the
formation of the Company, the sale of the Preferred Stock and the application of
the related net proceeds and the distribution of the Class A stock occurred as
of December 31, 1995. The financial statements of the Company's subsidiary,
Georgia Blue, consolidated with Georgia Blue's other wholly-owned subsidiaries,
HMO-Ga, GBG and GGL, as well as its 51% owned subsidiary, CHPN-Atlanta, would
not be materially different from the pro forma financial statements of the
Company for each of the periods presented and have therefore been excluded from
this presentation. See "SELECTED CONSOLIDATED FINANCIAL AND OPERATING
DATA -- Georgia Blue" and "CAPITALIZATION."

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1995
-----------------
<S> <C>
Cash, equivalents & marketable securities.................................... $ 271,399
Total assets................................................................. 464,484
Total estimated benefit liabilities.......................................... 175,846
Total liabilities............................................................ 244,040
Mandatorily redeemable preferred stock....................................... 46,073
Shareholders' equity......................................................... 172,203
</TABLE>

21
<PAGE> 26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company was incorporated under the laws of the State of Georgia on
February 2, 1996 for the purpose of acting as the holding company for Georgia
Blue and its subsidiaries and to engage in certain other health care related
activities. The Company acquired all of the outstanding capital stock of Georgia
Blue following the Conversion on February 2, 1996. The holding company structure
provides flexibility for expansion and flexibility in terms of capital formation
and financing opportunities. Nevertheless, the primary activity of the Company
currently is the ownership and operation of Georgia Blue and its subsidiaries.
Because the Company was not organized until February 2, 1996 and did not become
the holding company for Georgia Blue until the Conversion on February 2, 1996,
the discussions below relate to the historical operation of Georgia Blue. As
used hereafter in this "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," the term "Company" shall refer to Georgia
Blue and its subsidiaries for periods prior to the Conversion, and to the
Company, Georgia Blue and its subsidiaries for periods following the Conversion.

The Company, through its subsidiaries, has the largest health insurance
company market share in Georgia with over 670,000 insurance and administrative
service contracts covering or administering benefits for over 1.4 million
members as of December 31, 1995. The Company's current strategy centers around
the development of its managed care business, with a strong emphasis on the
expansion through HMO-Ga.

The Company's revenues, through its subsidiaries, consist of premiums,
investment and other income and related realized gains or losses on the sales of
securities. Premium revenues include premiums and other revenues from (i)
managed care products and services offered through a health maintenance
organization ("HMO"), preferred provider organization ("PPO"), and a point of
service network plan ("POS"); (ii) traditional comprehensive indemnity health
coverage to employer groups and individuals; (iii) administrative services and
cost containment programs for certain self-funded employers; and (iv) group life
products. Investment and other income includes dividends and interest earnings
from the Company's investment portfolio. Portfolio yield computations represent
the sum of interest and dividend income and realized gains or losses as a
percentage of the Company's average invested assets.

The growth of revenues and earnings in recent years is the result of a
strategic shift in focus that began in 1992, following the recruitment of a new
management team. As a result of the new strategy, HMO and POS premiums have
grown from 6% of total premiums at the end of 1992 to 13% at the end of 1995.
HMO and POS membership has grown from 45,000 members at the end of 1992 to over
131,000 members at the end of 1995. The growth in the HMO and POS programs is
attributable to new sales and to migration of business from other traditional
indemnity products offered by the Company. The HMO and POS products sold in the
Atlanta market are serviced through CHPN-Atlanta, the Company's first
operational CHPN.

Historically, substantially all of the Company's premium revenues and net
income have been derived primarily from its traditional indemnity and PPO
business. For the four years prior to 1995, the indemnity and PPO products
represented between 91% and 93% of total premium revenues. The developing trend
is movement from traditional indemnity business and toward managed care products
such as HMO and POS plans. With the focus on HMO and POS products, including the
introduction of the CHPN strategy in 1995, indemnity and PPO premiums declined
to 87% of total premiums for the year ended December 31, 1995. In recent years,
enrollment in indemnity products has been flat, while enrollment in HMO and POS
programs has grown as a result of increasing customer interest in controlling
costs of health care. The Company believes that its HMO and POS business will
become an increasingly significant part of its future after tax earnings. After
tax earnings for HMO and POS business represented 40% of the total net income
reported by the Company in 1995.

Prudent management of the Company's investments has played a significant
role in developing and maintaining the Company's financial strength. Investment
earnings, including realized gains on sales of investments, have represented an
average of over 72% of pre-tax income during the period from January 1,

22
<PAGE> 27

1991 through December 31, 1995. In 1995, investment earnings, including realized
gains, represented 122% of pre-tax income reflecting substantially higher
realized gains and lower earnings from operations during 1995 compared to
previous years.

Benefits expense consists primarily of health care claims and payments to
physicians, hospitals and other health care providers. The Company's
profitability largely depends on the ability to accurately predict and
effectively manage these health care costs. The Company's loss ratio (the ratio
of benefits expense divided by premiums) improved from 91.0% in 1992 to 88.0%
for 1994 as the Company continued efforts to improve medical utilization
management in the delivery of medical services. The loss ratio for 1995
increased slightly to 89.6% as a result of an increase in medical costs for
indemnity products which started in the third quarter of 1994 and continued
through 1995. As a result of the increases in medical costs for indemnity
products during late 1994 and 1995, the Company experienced some decline in
gross margins for indemnity products during 1995.

The Company processes and pays claims as fiscal intermediary for the
Medicare Part A program and as an administrative agent for the State of Georgia
Employee Health Benefit Plan and the BCBSA's Out-of-Area Program. Claim payments
from these agency programs which are excluded from benefits expense amounted to
$3.2 billion in 1995. The Company receives administrative fees and
reimbursements for expenses incurred in performing these agency services. These
fees and reimbursements are deducted from operating expenses.

The Company's emphasis on managed care products, and the expenses
associated with the change in its infrastructure, is reflected in the increase
in its operating expense ratio (the ratio of operating expenses divided by
premiums), which grew from 8.7% in 1992 to 10.9% in 1995.

In the State of Georgia, insurers are required to pay a tax on insurance
premiums in lieu of a state income tax. Premium taxes are charged to operating
expenses as incurred.

The Company has paid federal income taxes under the alternative minimum tax
system because of a special deduction available to certain Blue Cross and Blue
Shield plans under Section 833(b) of the Internal Revenue Code. If the deduction
provided under Section 833(b) were no longer available, the Company would be
subject to federal income taxes at the regular corporate tax rate, which is
currently 35%. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."

Significant health care reform legislation has been, and continues to be,
proposed by the Congress. Any such legislation could have a material impact on
the Company's business. With or without legislation, consumers and employer
groups are expected to continue to exert pressure on pricing of health care
products. To meet these demands, more predictable, lower cost products will be
required.

Results of operations are directly affected by premium rate adequacy which
depends on pricing and underwriting decisions, the level of membership serviced
by and the quality of the Company's physician, hospital, pharmacy and ancillary
health care services networks (and since January 1995, by the Company's CHPNs),
estimates of medical benefits, health care utilization, estimates of health care
cost trends, effective administration of benefit payments, operating
efficiencies, investment returns and federal and state laws and regulations.

RESULTS OF OPERATIONS

1995 Compared to 1994

Premiums increased 12% to $1.2 billion in 1995 from $1.0 billion in 1994.
Premiums for HMO and POS products posted the strongest gains, up 65% to $144.7
million in 1995, reflecting a 98% growth in HMO and POS membership. New sales
and, to a lesser extent, migration from other traditional indemnity products of
the Company, accounted for the membership growth. HMO and POS products
represented 13% of premiums during 1995 compared to 8% of premiums in 1994.
Premiums for indemnity and PPO products totaled $1.0 billion in 1995, a 7%
increase over 1994. Sales of new indemnity products were flat during 1995 while
sales of PPO products increased 18% in 1995 compared with 1994.

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<PAGE> 28

Investment and other income of $12.0 million in 1995 was up 27% over 1994
as a result of an increase in the Company's cash and investment portfolio. Other
income for 1995 also included $2.0 million related to the settlement of a lease
dispute.

Realized gains increased to $15.3 million in 1995 from $2.5 million in
1994, due primarily to the very strong performance of bond and stock markets in
1995. To take advantage of the strong market performance, during November 1995
the Company realized gains of $9.9 million on the sale of marketable securities,
which had a cost of $17.2 million. These results are not necessarily indicative
of results to be expected in the future.

Benefits expense increased 14% to $1.0 billion in 1995. HMO and POS
benefits expense increased 55% to $121.1 million in 1995 as compared to $78.1
million in 1994, as a result of the strong membership growth of 98%, which was
partially offset by a 7% reduction in medical cost per member per month. The
medical loss ratio for HMO and POS products improved significantly to 83.7% in
1995 compared to 89.2% in 1994. The medical loss ratio for the HMO and POS
products in 1995 has been favorably impacted by adjustments to medical costs for
prior periods. The medical loss ratio in 1995, excluding these favorable
adjustments, would be 85.0%, which still reflects significant improvement over
the medical loss ratio of 89.2% in 1994. The Company's continuing efforts to
improve medical and utilization management in the delivery of medical services
and efficiencies from the Company's first CHPN partnership in the Atlanta
market, CHPN-Atlanta, were the primary reasons for the improvement. During 1995,
its first year of operation, membership in CHPN-Atlanta increased from
approximately 50,000 members at January 1 to approximately 96,000 members at
December 31.

While the loss ratio experience in HMO and POS products continued to
improve during 1995, experience in the indemnity and PPO lines of business
declined. Benefits expenses for indemnity products increased 10%, while
enrollment increased only 7%, generating a higher loss ratio for indemnity and
PPO products of 90.7% in 1995 compared to 88.2% in 1994. Additionally, the
Company identified increasing medical cost trends in all markets of its
indemnity products in the second quarter of 1995 which related to the third and
fourth quarters of 1994. As a result, the Company recorded an additional $6.2
million in benefits expense in 1995. Furthermore, this upward trend in medical
costs for indemnity products has continued throughout 1995. The combination of
these factors resulted in the Company's total loss ratio increasing to 89.6% in
1995 from 88.0% in 1994.

The Company's infrastructure changed significantly in the last half of 1994
as it expanded its managed care administration and information systems,
increased its product development and marketing capabilities and enhanced its
medical and utilization management. Additionally, the Company adopted FASB No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
during 1995. The effect of the change in accounting for certain postretirement
benefits increased operating expenses by $1.6 million in 1995. As a result of
the infrastructure changes and the FASB No. 106 accounting change, operating
expenses increased 14% in 1995 to $126.1 million from $111.0 million in 1994.

As a percentage of net income, after tax earnings of the HMO and POS
products offered through HMO-Ga represented 40% of total net income in 1995.

1994 Compared to 1993

In 1994, premiums were approximately $1.0 billion, an 11% increase over
$939.7 million in 1993. Growth was strongest in HMO and POS products with
premiums increasing to $87.5 million from $76.2 million in 1993, a 15% increase.
HMO and POS membership grew 25% during 1994, while premiums per member per month
for HMO and POS products were 7% lower during 1994 as compared to 1993 as a
result of medical cost management actions implemented in late 1993 and 1994,
allowing for HMO and POS products to be offered at lower prices in 1994. Also
included in the pricing decline is the impact of shifts in product mix as the
Company focused on the small group (under 100 in size) segment which has lower
than average pricing. Premiums from traditional indemnity and PPO products
totaled $944.2 million in 1994, a 10% increase over $857.2 million in revenues
for those products in 1993. This increase principally resulted from a 9% growth
in enrollment.

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<PAGE> 29

Investment and other income in 1994 was $9.5 million, up from 1993
investment and other income of $8.5 million, due to a general rise in interest
rates as well as an increase in the Company's cash and investment portfolio. The
dollar value of the Company's investment portfolio increased 10% over the prior
year; however, the portfolio yield declined to 6.7% in 1994 from 7.6% in 1993
due to the performance of the capital markets in 1994, particularly the
performance of the bond market, as realized gains decreased 46% to $2.5 million
in 1994 from $4.7 million in 1993.

Benefits expense increased 10% to $914.3 million in 1994 from $832.9
million in 1993 as a result of a 10% increase in indemnity and HMO and POS
membership. HMO and POS products experienced a 25% growth in membership during
1994, yet total medical expenses for HMO and POS products increased only 10%,
causing the improvement in the HMO and POS medical loss ratio to 89.2% in 1994,
down from 93.2% in 1993. The decrease in the loss ratio reflects the Company's
efforts to manage the inflationary trend of health care expenses by negotiating
favorable rates with providers, and improving utilization and medical
management.

Lower medical loss ratios also were experienced in the traditional
indemnity and PPO products which showed a slight improvement to 88.2% for 1994
compared to 88.5% in 1993. In mid-1994, Georgia Blue entered into a statewide
pharmacy network agreement which decreased pharmacy costs for indemnity
products. In addition, the national health care reform debate in late 1993 and
early 1994, which centered around spiraling costs, caused downward pressure on
the growth in medical costs.

Operating expenses for 1994 increased 24% to $111.0 million in 1994 from
$89.3 million in 1993, reflecting a higher level of operating costs for the
Company's managed care administration and information systems and an increase in
the number of employees required to support increased business volumes, changes
in product mix and increased medical management, product development and
marketing capabilities. The operating expense ratio increased to 10.7% in 1994
from 9.5% in 1993, reflecting an upward trend consistent with the industry as
managed care capabilities are enhanced. The higher level of operating costs was
the primary reason for the Company's decrease in operating income to $25.1
million in 1994 from $30.7 million in 1993.

In 1993, the Company incurred a $7.6 million loss on the repurchase of its
former headquarters property for which the Company was required to make payments
as the loan guarantor when a third party defaulted.

The Company also implemented FASB Statement No. 109, "Accounting for Income
Taxes" in 1993. The cumulative effect of changing a different method of
accounting for income taxes resulted in a benefit of $5.4 million in 1993.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company has both short-term and long-term liquidity needs and has
structured its investment portfolios accordingly. Short-term liquidity needs to
fund its operating costs as well as the payment obligations to its customers are
met from funds invested primarily in institutional money market accounts. These
funds, the internal portfolio, are managed by Georgia Blue's management staff as
described below at "BUSINESS -- Investment Portfolio". The allocation of total
investments to the internal portfolio is based on average monthly dollars paid
out for benefits in underwritten business over the last twelve months or 15% of
the total investment portfolio, whichever is less. The average internal
portfolio allocation at the end of 1995 was $21 million.

Assets not required for short-term liquidity needs are transferred to an
externally managed portfolio for investment in the fixed income and equity
markets. This portfolio, which provides reserves for future payment obligations
and funds for long-term liquidity needs, is managed by several independent
advisory firms. See "CAPITAL RESOURCES" below.

The Company's investment policies are designed to provide liquidity to meet
anticipated payment obligations, preserve capital and maximize yield in
conformance with all regulatory requirements. At

25
<PAGE> 30

December 31, 1995, cash and investments were $224.0 million or 54% of total
assets. The allocation of the Company's investment portfolio has been
consistently maintained with over 65% in fixed maturities, all of which are
investment grade, and the balance in equity securities. Corporate and government
bonds are in issues with ratings of "A" or better by Moody's Investors Service
and Standard & Poor's Rating Group, and investments in equity securities are in
domestic dividend paying companies. The Company's portfolio currently does not
contain any derivative securities or instruments, or any real estate investments
or equity investments in corporations engaged solely in real estate activities.
Management believes that its conservative investment portfolio contributes to
its financial stability.

The Company's balance sheet has improved steadily since 1991 with total
assets growing to $417.1 million at December 31, 1995, up from $285.7 million at
December 31, 1991. Over half of the increase was a result of growth in the
Company's cash and investment portfolio as it invested excess cash generated
from operating activities and investment earnings. The Company also increased
property and equipment as part of the infrastructure investments to improve
managed care capabilities with capital expenditures of over $9.4 million in 1993
and $14.0 million in 1994, which included $8.2 million and $11.2 million,
respectively, for managed care administration processing capability, mainframe
upgrades, imaging equipment and expansion of personal computer applications.
Capital expenditures for 1995 totaled $10.1 million.

The Company has historically satisfied its ordinary cash requirements from
operations; however, net cash provided by operating activities decreased to $8.6
million for the year ended December 31, 1995 from $35.4 million for the year
ended December 31, 1994. This was primarily the result of an increase in claim
payouts, costs related to its conversion activities and a onetime payout in
January 1995 for unused vacation accumulated for prior years. The Company
believes its future cash resources will be adequate to meet its operating
requirements.

In April, 1996, Georgia Blue obtained a $55 million insolvency line of
credit with a group of banks. The insolvency line of credit may be drawn on
solely in the event of an insolvency of Georgia Blue to pay authorized insurance
policy claims. The insolvency line of credit is designed to satisfy certain
financial standards of the BCBSA. The Company does not anticipate making draws
under the insolvency line of credit.

The National Association of Insurance Commissioners ("NAIC") adopted the
Risk-Based Capital for Life and/or health Insurers Model Act ("RBC Model Act"),
effective December 31, 1993, to evaluate the adequacy of statutory capital and
surplus in relation to investment and insurance risk associated with (i) asset
quality, (ii) mortality and morbidity, (iii) asset and liability matching, and
(iv) other business factors. As of the date of this Prospectus, the RBC Model
Act has not been adopted in Georgia nor does it apply to Blue Cross and Blue
Shield plans. The NAIC currently is engaged in a study of the adoption of
risk-based capital rules for Blue Cross and Blue Shield plans. Using the RBC
Model Act, the Company's risk-based capital position at December 31, 1995 is
226% of the NAIC company action level requirement. With $140.9 million in
statutory surplus at December 31, 1995, Georgia Blue exceeded the Georgia
statutory capital requirement of $1.0 million. Consolidated GAAP surplus at
December 31, 1995 totaled $173.0 million, a 16% increase over the 1994 level of
$148.7 million. Included in consolidated GAAP surplus amounts are $7.0 million
in unrealized gains at December 31, 1995 and $0.5 million in unrealized losses
at December 31, 1994 as required by FASB No. 115 "Accounting for Certain
Investments in Debt and Equity Securities."

Capital Resources

The Company anticipates that the principal elements of its future capital
requirements are (i) information technology needs, (ii) equity contributions to
the CHPNs, (iii) potential medical access point developments, (iv) strategic
acquisitions, and (v) product development.

The Company anticipates that total capital outlays during the 1996-1998
period for information technology acquisitions, purchases and operating leases,
will be approximately $30 million.

Equity contributions to form a CHPN in markets other than metropolitan
Atlanta average $.5 million. In March 1994, Georgia Blue obtained a $25 million
revolving loan facility with a group of banks for the purpose of capitalizing
CHPNs. Loans under the credit facility convert to term loans in September 1999.
Interest

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<PAGE> 31

accrues on amounts advanced at a variable rate tied to the LIBOR rate. At
December 31, 1995 $2.0 million was outstanding under the credit facility.

Medical access point development could occur if the CHPNs are not able to
adequately cover the geography or range of services desired. The solution to
these access needs could take the form of physician practice acquisition, the
establishment of urgent care, 24-hour, or primary care clinic facilities, or
physician recruitment or relocation costs. The capital cost to develop a medical
access point varies, because of differing factors such as available facilities
and extent of existing infrastructure. The Company anticipates that the
development of a single medical access point could cost in the range of $.5
million to $2.0 million. To date, no CHPN has produced an access need that has
translated into additional capital requirements.

At the present time, the Company has no agreement with, or intentions or
plans to acquire, any other specific company or entity, and is not in discussion
with any company or entity with respect to any strategic acquisitions.

The Company believes that long-term capital requirements can be met with a
combination of (i) the Company's current resources (including the proceeds of
the sale of the Preferred Stock), (ii) cash flow from operations and (iii)
potential debt or equity offerings.

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<PAGE> 32

BUSINESS

INDUSTRY OVERVIEW

The health care industry in the United States has grown from a $12 billion
industry in 1950 to approximately $998 billion in 1993, according to the United
States Health Care Financing Administration, and represented more than 15% of
the United States Gross Domestic Product in 1994. Several factors have
contributed to the dramatic increase in health care expenditures, including the
aging of the population, increased use of high-technology treatments and tests,
the rising cost of malpractice insurance and higher operating costs for
hospitals, physicians and other health care providers. Prior to the development
of managed health care, most health insurers offered health care benefit plans
known as indemnity, or fee for service, plans which do not typically provide
incentives to use particular providers for the provision of care or include
other cost-containment features.

Due to the escalating cost of health care services, customers (both groups
and individuals) began to demand lower cost alternatives to traditional
indemnity insurance plans. Managed health care plans were developed to attempt
to provide quality health care services in an affordable manner. Typically, HMO
and PPO plans develop networks of health care providers to deliver health care
at favorable rates that incorporate health care quality and utilization
management, and other cost control measures. An important factor in controlling
costs is the number of members (i.e., enrolled health care consumers) that a
managed care benefit plan can direct to providers. Under many managed care
plans, providers are reimbursed based on either capitation (a fixed monthly fee
per member regardless of frequency of use, generally used by HMOs for physicians
and ancillary medical services such as laboratory services) or a negotiated per
diem (daily rates, generally used for hospitals) or limited fee schedules
(generally used for specialty physicians). Managed health care plans also
feature a variety of methods of health care utilization management to control
the type, quantity and setting of services obtained. Utilization management
programs are designed to provide economic incentives to encourage providers to
deliver medically necessary and cost-effective care.

Different types of health care utilization management and cost control
methods generally differentiate managed health care plans. HMOs generally
require members to use network providers exclusively except in very limited
cases, and to consult with a primary care physician prior to obtaining treatment
from specialists. HMOs generally include capitated payment arrangements with
network providers and charge members only modest copayments in addition to
regular monthly premiums. POS plans provide members with an HMO service option
for network coverage and also permit the member, at the time medical service is
required, to choose a provider that is not a member of the HMO or PPO networks.
POS plans may require the use of a primary care physician within the network to
coordinate health care services for the members while PPO plans do not. PPO and
POS plans also provide members with the option of using non-network providers
under indemnity-type coverage terms which require substantial coinsurance
payments by members and high deductibles. These member payments are generally
limited to an out-of-pocket maximum. Coinsurance and higher deductible
requirements for non-network care in POS and PPO plans are designed to encourage
greater utilization of network care by members, thereby reducing costs. See
"BUSINESS -- Business Lines and Products."

GENERAL

The Company, through its subsidiaries, has the largest health insurance
company market share in Georgia, with over 670,000 insurance and administrative
service contracts covering or administering benefits for over 1.4 million
members as of December 31, 1995 (including HMO, PPO and POS members). This
represents over 19% of the total Georgia population. The Company has one of the
State's largest PPO memberships, serving over 290,000 members as of December 31,
1995, and serves an additional 130,000 members through its health maintenance
organization, HMO-Ga, which also offers the Company's POS products. The Company
has two other subsidiaries, GGL and GBG. GGL offers group life, accident and
disability insurance products that are sold in conjunction with the Company's
health products. GGL has an A- rating from A.M. Best and is licensed to offer
its products in South Carolina, North Carolina, Alabama, Mississippi, Tennessee
and Georgia. GBG is a general insurance agency that principally sells life,
accidental

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<PAGE> 33

death and dismemberment, and disability coverage to complement health insurance
products. Cerulean Companies, Inc. will derive revenue from dividends from its
subsidiaries (Georgia Blue and its subsidiaries as well as any new subsidiaries
which the Company may form to conduct new businesses), service and/or management
fee arrangements between the Company and its subsidiaries, as well as revenues
the Company may derive from other non-regulated services it may provide
customers directly in the future.

The Company's core business products are its traditional indemnity products
and its HMO, POS and PPO products. See "BUSINESS -- Business Lines and
Products." The Company's current business strategy centers around the belief
that development of managed care products, with a strong HMO at the core,
represents the most prudent response to both current market place demands as
well as longer range health care reform. Where possible, the Company is
attempting to convert non-managed care contracts to managed care products. In
areas where there is no managed care, the Company's strategy is to solidify its
market presence through PPO network expansion, favorable changes in provider
reimbursement, and benefit design alterations that meet employers' needs.

The Company offers its traditional indemnity products and its HMO, POS and
PPO products exclusively within the boundaries of the State of Georgia. Although
the Company and certain of its subsidiaries are licensed by the BCBSA to refer
to themselves under the name of Blue Cross and Blue Shield only in the State of
Georgia, there are only limited BCBSA restrictions on the conduct of business by
the Company or its subsidiaries outside the State of Georgia under a different
name.

The Company has a comprehensive quality management program which focuses on
assessment, management and methodology for maintaining inpatient and ancillary
services. The quality management program monitors, collects data on and
evaluates inpatient and outpatient medical care, inclusive of preventive and
mental health services, as well as the level of customer service provided to its
members by physicians and other medical providers. Georgia Blue has an extensive
credentialing policy and function which monitors the recruitment and retention
of its provider panels throughout the state. HMO-Ga has applied for
accreditation of its quality management programs by the National Committee for
Quality Assurance, a nationwide organization which evaluates quality assurance
programs for HMOs.

The Georgia marketplace is extremely diverse, ranging from the major
metropolitan area of Atlanta, with a 1990 population in excess of 2.9 million,
to several mid-sized cities, including Augusta, Columbus, Macon and Savannah, to
smaller cities, including Rome, Cartersville, Gainesville and Athens, to very
rural areas. The southern half of the State of Georgia is primarily an agrarian
economy.

The metropolitan Atlanta area has an HMO market penetration of
approximately 28%; however, Georgia as a whole currently has one of the lowest
HMO penetrations in the country, at 13%. Based on industry sources, the five
states with the highest HMO penetration in the country each have penetration in
excess of 35%.

At present, HMO-Ga is licensed and operational as an HMO in seven markets
in Georgia representing more than 4.7 million residents, including Atlanta.
HMO-Ga's HMO and POS products are serviced through a network of primary care
physicians, specialist physicians and hospitals. Beginning January 1995, HMO-Ga
also began delivering its products through CHPNs. See "THE COMPANY" and "RISK
FACTORS -- Ability to Successfully Implement Strategic Plan."

ORGANIZATIONAL STRUCTURE

The Company's primary operating subsidiary, Georgia Blue, is organized in a
Business Unit, a Support Unit, and a Governance Unit structure. Business Units
have responsibility to sell products, at appropriate prices, and to manage the
effective delivery of product benefits at acceptable levels. Support Units
manage the delivery of administrative services to individual or multiple
Business Units within defined cost parameters, while meeting customer service
expectations. The Governance Units establish policy, provide direction for
Georgia Blue, and monitor compliance.

Within the Individual Business Unit, health insurance products are sold to
individuals (or individual families) under age 65, or to persons over age 65 who
are Medicare eligible. Local Market Business Units

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<PAGE> 34

offer a full line of health insurance products for employer groups. The
Major/National Business Unit offers a full line of health products to employer
groups with 500 or more covered employees, and the National Par Business Unit
supports participating plan accounts of Georgia employees of national employers
sold though other Blue Cross and Blue Shield plans.

STRATEGIC INITIATIVES

CHPNs

As a result of concern with rising health care costs and changing trends in
the health care industry, the Company determined to develop its own integrated
delivery system for managed health care products. The Company's community health
partnership networks, or CHPNs, are the cornerstone of this strategy. The
Company believes CHPNs will facilitate the introduction of its HMO and POS
products into new markets and address group customer demand for lower cost
health care while providing more predictable revenue.

CHPNs are locally based equity ventures between Georgia Blue and a local
physician group and/or hospital, which owns the remaining equity interests in
the CHPN. The Company anticipates that Georgia Blue, either alone or with a
contiguous state's Blue Cross/Blue Shield plan as a joint venture partner, will
own at least 51% of the equity interests in each CHPN it organizes. Clinical
services are provided by the physician or hospital partners as well as other
providers with which the CHPN maintains contracts, and Georgia Blue provides
sales, management and administrative services, including information systems and
data management services through service contracts with the CHPNs. Premium and
fee revenues are received from subscribers by HMO-Ga which keeps a flat
percentage as a contribution to surplus. After deduction for premium taxes and
administrative retention by Georgia Blue, the remaining premium revenue is used
for payment of medical expenses and for contribution to the CHPN's retained
earnings.

Georgia Blue has taken several actions to support the CHPNs, including (i)
hiring experienced managers to oversee sales, medical network management and
financial performance in the local markets, (ii) providing dedicated claims
processing and membership services, (iii) developing a strategic information
systems plan that addresses the information requirements, applications needs and
systems architecture necessary to support the CHPNs and (iv) enhancing medical
management activities and continued development of National Commission on
Quality Assurance ("NCQA") processes and Health Plan Employer Data and
Information Set ("HEDIS") reporting.

CHPN-Atlanta (which operates in the Atlanta metropolitan area and
surrounding counties) was the first CHPN to become operational. During 1995, its
first year of operation, membership in CHPN-Atlanta increased from approximately
50,000 members at January 1 to approximately 96,000 members at December 31.
CHPN-Atlanta is the only CHPN to date jointly owned by health care providers and
Georgia Blue which has been formed and capitalized. However, in the six other
Georgia markets serviced by HMO-Ga, HMO and POS products are being offered
through HMO-Ga in collaboration with local providers in connection with the
formation of CHPNs in those markets.

Information Technology

In 1995, the Company completed a Strategic Information Systems Plan
("SISP") which addresses specific information systems and network requirements
for the future. The Company has since embarked on the execution of the SISP and
expects to complete its implementation in the 1998-1999 timeframe. The SISP is
comprehensive and provides an assessment of the extent and cost of its
development and implementation. It identifies the capital, equipment, software
and intellectual property necessary to employ and support traditional kinds of
systems effectively in an expanding, for-profit environment. It also details new
technologies that will support and enable the Company to embark on major new
strategic business initiatives, such as CHPN's.

The Company believes the strategies outlined in the SISP will result in
more cohesive and efficiently interrelated uses of information technology, both
through systems targeted to specific uses, and through the

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<PAGE> 35

use of networks to deploy solutions Company-wide. The Company expects to obtain
substantial improvements in productivity and expense reduction as a result of
these new strategies.

Currently, the Company uses a mixture of systems and processing platforms
to meet its requirements. As provided in the SISP, the principal system is GTE's
Q/Care product, as modified for the Company. The primary modules have been
completed and installed. The Company is currently migrating both data and
applications from other systems, principally a claims processing system which
was internally developed, onto the Q/Care system. The predecessor systems will
then be retired. The Company expects implementation of the SISP to require three
to four years. When complete, the Company expects to have established a
technical infrastructure providing highly available, reliable and responsive
business and clinical systems that position the Company to excel in the dynamic
health care marketplace.

The Company anticipates that total capital outlays during the 1996-1998
period for information technology acquisitions, purchases and operating leases,
will be approximately $30 million. Approximately $18-22 million of the $30
million of capital outlays will be reflected in the financial statements during
this period in depreciation and lease payments. In addition to the capital
outlays, the Company expects to spend an additional $8 million in implementation
of SISP during this period for increases in information technology personnel and
outside vendors, such as consultants and software developers.

The Company also performs paperless claim clearinghouse/electronic data
interchange activities. The recent addition of on-line eligibility, claims
status, and preauthorization/referral processing options to providers as well as
online access by groups to their eligibility and claims information has
strengthened the Company's position for health care electronic commerce.

BUSINESS LINES AND PRODUCTS

Overview

The Company is a full service provider of health benefit programs in the
Georgia marketplace. The Company markets life, health and disability insurance
products to employer groups and individuals. The overall product portfolio
available includes standard indemnity insurance, PPO, HMO and POS health
benefits plans, life insurance products and ancillary products including dental
insurance, a vision affinity product, vision insurance and specialty products
for mental health and pharmacy.

Various funding arrangements are available for each health benefit product.
These arrangements range from fully insured to administrative services only
("ASO")/cost plus. Under a fully insured arrangement, Georgia Blue assumes the
full risk (subject to deductibles and other adjustments) with direct payment by
Georgia Blue generally to the provider. In an ASO/Cost Plus arrangement, Georgia
Blue administers the health insurance program for its customer and is
compensated according to the terms of the contract for its services by a fee in
excess of those amounts that are disbursed to providers. The formula for
compensation in cost plus arrangements varies from contract to contract, but
conceptually in such arrangements Georgia Blue receives reimbursement for
benefit payments processed and related administrative fees. ASO/Cost Plus
funding is generally utilized by employers with at least 500 covered
subscribers. Some employers may choose individual member or aggregate
reinsurance to protect against catastrophic losses.

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Shown below is certain information on each of the Company's major product
lines.

PERFORMANCE BY PRODUCT

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
AT DECEMBER 31, 1995 -----------------------
---------------------- REVENUES MEDICAL
PRODUCT CONTRACTS MEMBERS(2) ($000S) LOSS RATIO
- - ---------------------------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Indemnity........................................... 233,331 443,995 $ 575,588 88.7%
PPO................................................. 134,356 295,583 430,936 93.4
HMO................................................. 47,583 100,467 100,238 81.4
POS................................................. 14,186 31,159 44,423 88.9
Life and Other...................................... -- -- 8,291 56.5
Other Enrollment(1)................................. 243,657 536,045 -- --
--------- ---------- ----------
All Products........................................ 673,113 1,407,249 $1,159,476 89.6%
======= ========= =========
</TABLE>

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

(1) Includes Administrative Services Only (ASO), Third Party Administrator
(TPA), and National Service Only Services.
(2) Actuals for HMO and POS. Estimates for other products.

HMO and POS

The Company's HMO product has been offered through HMO-Ga since 1986. From
1986 through 1993, the product did not experience substantial growth. However,
in 1994 new management and an increased emphasis on sales of managed care
products dramatically increased HMO-Ga's products market acceptance. HMO-Ga's
HMO and POS products are now the Company's fastest growing products, due in
large part to the Company's CHPN initiatives.

At present, HMO-Ga is licensed and operational as an HMO in seven separate
markets in Georgia, including Atlanta, Athens, Augusta, Columbus, Macon, Rome
and Savannah, representing more than 4.7 million residents. On June 30, 1995,
HMO-Ga was the fourth largest provider of managed health care services in the
State of Georgia based on number of members.

HMO-Ga's HMO and POS products are offered to group subscribers as "Blue
Choice Healthcare Plan," which is a prepaid coverage and preventive care
product, and "Blue Choice Options," which is a point-of-service product that
allows members to choose between HMO-Ga network providers and out-of-network
providers. Premiums are collected on a monthly basis from employers. If offered
by employers, members can elect at annual enrollment whether they wish to be in
the "Blue Choice Healthcare Plan" or the "Blue Choice Options." The HMO and POS
products are currently not offered to individuals.

Under the Company's HMO product, HMO members select a primary care
physician who provides basic medical care for the member pursuant to a contract
with HMO-Ga. The primary care physician coordinates all of the medical and
health care for each HMO member, including physical examinations, specialist
care and hospitalization. Each primary care provider is credentialed and
periodically re-credentialed by the Company to maintain physician network
standards. The primary care physician coordinates with the member and the
Company to promote the delivery of quality care in a cost-effective manner. HMO
benefit plans require varying copayments for health care services. Coverage for
hospitalization services requires prior approval by the member's primary care
physician and must be provided in network facilities, except in cases of medical
emergency. HMO benefit plans also provide coverage for preventive treatment and
wellness programs. Benefits such as dental services, pharmacy services and
vision care may be purchased as options to the basic benefit plan with a variety
of copayment levels.

Blue Choice Options members are required to use a primary care physician
for basic medical services and pre-certification of specialist services whether
performed by network or non-network providers. Non-network services and services
obtained without primary care physician approval are subject to deductibles and
significant coinsurance requirements. Network hospitalization is fully covered.

32
<PAGE> 37

PPO

The Company's PPO was first introduced in Georgia in the mid-1980s and
began being offered as "Blue Choice PPO" in 1995. The Company's PPO is one of
five largest statewide provider networks in Georgia, with more than 290,000
members as of December 31, 1995.

The Company's PPO products deliver health care at lower costs than
traditional indemnity products due to benefit design, favorable pricing
arrangements with network providers and utilization management and other cost
control arrangements with network providers. Typically, the cost of services
through the PPO network are 80% to 100% covered by the Company's PPO benefit
plans. Non-network services are generally covered at 60% to 70%, subject to
generally higher deductible requirements. In addition, by the end of 1996, the
Company anticipates that all of the Company's PPO networks will utilize a fee
schedule rather than a traditional discount from charges, which will further
enhance the cost effectiveness of this product.

Full coverage is provided after a member has paid a specified annual
out-of-pocket maximum. The Company offers a broad range of PPO benefit plans
which enables the employer to choose the mix of benefits that is suited to its
employee's needs. Higher deductibles, coinsurance and out-of-pocket maximums and
other financial incentives encourage subscribers to use network provider
services. The Company's PPO also offers preventive health benefit coverage, such
as health assessments, immunizations and prenatal visits. Premiums for the
Company's PPO product are collected monthly from employers.

Indemnity

The Company's traditional indemnity product line includes benefit options
for both the individual and group markets on products that reimburse providers
on a fee for service basis. Premiums for this product are collected on a monthly
basis and calculated at annual renewals for both group customers and those in
the individual product line. The traditional indemnity products utilize the
state wide networks that the Company has established for physicians, hospitals
and pharmacies. The majority of new business opportunities for traditional
indemnity group business are in the rural markets where, the Company believes,
the flexibility of its indemnity products, in terms of plan design, is an
advantage.

The Company's indemnity products are offered to group subscribers as "New
CHIP," the traditional indemnity insurance product with certain managed care
features. Indemnity products are offered to individual subscribers as (i) "Flex
Plus," a comprehensive major medical product for people under age 65 that
provides the full range of benefits related to hospital, surgical, pharmacy and
other associated medical expenses with varying benefit designs for deductible
and coinsurance amounts, (ii) "hospital/surgical," a lower cost product than
"Flex Plus," which insures only catastrophic, non-routine services associated
with a more serious medical condition related to a surgical procedure or
in-patient hospital stay, and which is also offered to people over 65, and (iii)
"65 PLUS," a guaranteed issue plan that acts as a supplement to the federally
insured Medicare program.

Life Insurance

GGL offers group life and disability products to employers of all sizes and
is licensed to do business in six states throughout the Southeast. While GGL
offers its products in each of these states, 90% of its revenues are derived
from business in the State of Georgia. Term life insurance is commonly offered
with accidental death and dismemberment ("AD&D") for all groups with less than
100 employees. For larger groups, the life product may be offered with health
insurance. In addition to the standard term life and AD&D products, GGL also
offers a contributory, voluntary life insurance product as well as a dependent
life insurance product. GGL offers a variety of plan designs and coverage
amounts. GGL also offers both short and long term disability insurance.

Ancillary and Specialty Network Benefits

The Company offers a variety of ancillary and specialty network benefits to
enhance the Company's competitive position by ensuring that members have access
to a full range of health care products and is

33
<PAGE> 38

developing other such products. Offering an array of ancillary products and
specialty networks permits the Company to capitalize on its name recognition and
to appeal to employer groups that are increasingly seeking a variety of benefit
options. Currently, these ancillary and specialty network benefits are offered
in conjunction with the Company's medical benefit plan designs.

Dental. The Company has offered dental insurance since 1982, which is
similar to that offered by major commercial carriers. Dental insurance is
typically offered as a benefit enhancement that may be purchased in conjunction
with group products. A number of major commercial carriers and other entities
are offering managed dental care, although Georgia Blue does not currently offer
such a product.

Miscellaneous. The Company also offers vision, mental health/substance
abuse and pharmacy benefits as part of certain of its medical plan designs.
These benefits have not been designed as stand-alone products and are not sold
separately from medical products.

Workers Compensation

The Company is developing a managed care workers compensation product and
plans to enter the workers compensation market in 1996 to provide administrative
services to customers. The Company believes that by focusing on its core
business of network management, medical review and provider reimbursement it
will be able to successfully assemble and market networks and generate revenue
through access and related management fees. The Company plans to enter the
market for self-insured employers by utilizing third party administrators as its
distribution channel and by exploring a partnership with a major workers
compensation insurer, potentially on an exclusive basis.

MARKETING AND SALES

General

The Company's marketing operations vary depending upon the segment at which
sales efforts are directed; individuals (i.e., direct pay), small employer
groups (defined as groups of two to 99 employees), large employer groups
(defined as groups of 100 or more employees), and major national groups (defined
as groups of 500 or more employees). The Company's marketing efforts are
coordinated by local market managers in each of the established local market
regions as well as by an Assistant Vice-President of Major/National Accounts and
a Director of Individual Sales. Each of these individuals is overseen by the
Executive Vice-President of Market Operations.

From a competitive perspective, the Company's market is segmented generally
by geography, product and customer group size. Significant competition exists in
the Atlanta market for managed care products, while outside the Atlanta
metropolitan area the majority of competition has been for either traditional
indemnity or PPO products, although new market entrants with managed care
capabilities are beginning to penetrate these areas.

Because the Company believes that the majority of marketing opportunities
exist in the small group market, it has sought to become more active and
competitive in this area. The Company has pioneered cooperative buying programs
as an enhancement to its existing distribution channels. Cooperative programs
offer an exclusive endorsement of the Company's products and the opportunity for
reduction in sales costs. The Company believes that these cooperative programs
provide product access to additional small group customers. Cooperative programs
are currently active in Atlanta, Cartersville, Rome and Athens, Georgia.

Internal Sales and Service Force

The Company employs an internal sales staff of account executives and group
sales representatives to sell and service all of the Company's group product
lines. The sales force works with other members of the distribution channel,
including independent agents and brokers, and the Chamber of Commerce programs,
and makes direct calls on selected target accounts. Each geographic area has a
local market manager and a sales manager directly responsible for the results of
the unit. In addition, a centralized communications department develops direct
mail advertising and promotional material that targets specific audiences for

34
<PAGE> 39

potential distribution of products. Service representatives are assigned
specific accounts and work directly with the internal sales force and the
independent agents and brokers. Service representatives become the principal
administrative contact for employers and their benefit managers. Their duties
include conducting on-site meetings, providing health data reports, and
resolving any potential service issues.

The Company also maintains an additional fully-commissioned staff of sales
employees who sell the Company's individual indemnity insurance products (other
than the Medicare supplement). The Medicare supplement is sold by a
telemarketing staff.

Independent Insurance Agents and Brokers

The Company also markets its health insurance and managed care products
through independent agents, brokers and consultants who are paid commissions
from the premiums received by the Company. Brokers who meet selected production
and underwriting criteria are also eligible for a "Preferred Producer" bonus.
These independent agents and brokers are responsible for a significant portion
of the Company's enrollment growth over the past two years. This growth and the
anticipated growth in ensuing calendar years will also be dependent on the
Company's ability to continue productive relationships with these independent
agents and brokers.

The independent agents and brokers are not salaried employees of any
insurance company or managed care company and are free to sell multiple products
from multiple insurance firms. Some agents and brokers are career agents of
other insurance companies whom they represent and for whom they may be required
to maintain product exclusivity for a given type of product but are able to sell
group health insurance and managed care products from a number of carriers,
including the Company. The distribution channel for insurance products in the
Georgia market is dominated by independent agents and brokers, particularly in
rural areas, and most insurance companies utilize them to distribute their
products.

UNDERWRITING

In determining whether to accept groups and to establish appropriate rates
for its plans, the Company uses specific underwriting criteria based on its
accumulated actuarial data, with adjustments for factors such as claims
experience, member mix and industry differences, to evaluate anticipated health
care costs. The risk selection criteria utilized by the Company employ generally
accepted risk characteristics and a flexible underwriting formula to generate
new business and renewal rates. Rates and the rating process are monitored
monthly with any appropriate adjustments made on at least a quarterly basis. New
business ratings for all groups are accomplished through the use of an automated
proposal system with rates and risk selection criteria establishment being
implemented by field sales personnel. Additional levels of rating authority are
granted only to underwriters. For employer groups with 100 or more employees,
all ratings are determined by underwriting management who utilize the same
screening of risk characteristics that is conducted for employer groups of
smaller size but also attempt to blend in actual claim experience (utilizing a
flexible credibility formula and underwriting intervention) in order to
establish an appropriate rate level based on the Company's desired competitive
position.

Rates for groups smaller than 50 are regulated by Georgia law.

CUSTOMERS

35
<PAGE> 40

renewed for a seven-year term in July 1994. The State of Georgia program
accounts for over 33% of the Company's membership and plays an integral part in
the development of the Company's long-term provider network strategies. The
non-renewal or termination of any of the contracts with these employer groups
could have a material adverse effect on the Company's business, financial
condition and results of operations.

INVESTMENT PORTFOLIO

Georgia Blue's investment discretion is limited by the Georgia Insurance
Code. Georgia Blue's conservative management of the investment process has
played an integral role in developing and maintaining Georgia Blue's financial
strength. Earnings from the investment portfolio have contributed significantly
to the profits of Georgia Blue. Over the five-year period from January 1, 1991
to December 31, 1995, investment income plus gains realized on sales of
investments represented 72% of Georgia Blue's consolidated pre-tax income. Such
income and gains represented 124% of Georgia Blue's consolidated pre-tax income
in 1995. The increase in the percentage of investment income and realized gains
on sales of investments to pre-tax income is primarily the result of the
increase in realized gains to $15.3 million in 1995 from $2.5 million in 1994
coupled with the decrease in net income to $17.4 million in 1995 from $19.5
million in 1994.

Georgia Blue has established a two-tiered investment portfolio. Georgia
Blue's liquidity needs are met through an internally managed investment
portfolio (the "Internal Portfolio") and those assets not required for liquidity
are transferred to three external money managers for long term investment in the
fixed income and equity markets (the "External Portfolio").

The Internal Portfolio is invested primarily in institutional money market
accounts. The assets in the External Portfolio are held in custody by
NationsBank of Georgia. All bonds in both of the Company's investment portfolios
must have quality ratings of "A" or higher, by Moody's Investors Service and
Standard & Poors' Ratings Group. The equity investments in the Company's
investment portfolios are highly diversified and limited to high quality
domestic equity securities. There are no derivative securities or instruments in
the Company's investment portfolios.

Georgia Blue's investment portfolio represented 80.0% of the Company's
consolidated investment portfolio at December 31, 1995. During 1995, the
External Portfolio gained 21.3%, and the Internal Portfolio gained 5.6%. For the
five-year period from January 1, 1991 through December 31, 1995, the total
investment portfolio recorded an annualized return of approximately 11.0%.

The Internal Portfolio is managed by Georgia Blue's management staff, who
report to Georgia Blue's Treasurer and Chief Financial Officer ("CFO"). The
External Portfolio is managed by a number of independent advisory firms and is
subject to the review of Georgia Blue's CFO. The Finance Committee of the Board
of Directors of Georgia Blue meets with the CFO and reviews and approves Georgia
Blue's investment related activities at least quarterly. Investment performance
is then routinely reported by the Finance Committee to the Board of Directors of
Georgia Blue.

The investment process is dynamic and continually reviewed for improvements
and refinements. The CFO monitors the performance of Georgia Blue's investment
managers and compares their performance on a monthly basis to predetermined
benchmarks. The Finance Committee of the Board of Directors of Georgia Blue
formally reviews performance of each investment manager on a quarterly basis.
Performance also is calculated quarterly by an outside consultant, Alex Brown &
Sons Incorporated, including benchmarking to an extensive universe of other
professionally managed investment portfolios.

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<PAGE> 41

Shown below are Georgia Blue's consolidated invested assets by category.
The following tables should be read in conjunction with Georgia Blue's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.

INVESTMENTS BY CATEGORY

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- -------------------
% OF % OF
CARRYING CARRYING CARRYING CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities:
Available for sale securities............................. $115.0 65.1% $131.1 75.0%
Held-to-maturity securities............................... 13.4 7.6 -- --
Equity securities........................................... 46.6 26.4 42.7 24.5
Short-term investments...................................... 1.5 .9 .9 .5
-------- -------- -------- --------
Total investments................................. $176.5 100.0% $174.7 100.0%
====== ====== ====== ======
</TABLE>

Georgia Blue's consolidated portfolio is comprised primarily of highly
liquid investment securities. Georgia Blue's fixed maturities consist of United
States Government securities and corporate securities. At December 31, 1995, all
of Georgia Blue's fixed maturities consisted of instruments bearing fixed,
rather than variable, rates of interest. The following summarizes Georgia Blue's
fixed maturities by category.

FIXED MATURITIES BY CATEGORY

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995
-------------------
% OF
CARRYING CARRYING
VALUE VALUE
-------- --------
($ IN MILLIONS)
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies........ $109.6 83.6%
Corporate securities........................................................ 21.5 16.4
-------- --------
Total fixed maturities............................................ $131.1 100.0%
====== ======
</TABLE>

The following table summarizes Georgia Blue's fixed maturities by
contractual maturity. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without a call or repayment premium.

FIXED MATURITIES BY MATURITY CATEGORY

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995
-------------------
% OF
CARRYING CARRYING
VALUE VALUE
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................................... $ 7.7 5.9%
Due after one year through five years....................................... 63.7 48.6
Due after five years through ten years...................................... 53.4 40.7
Due after ten years......................................................... 6.3 4.8
-------- --------
Total fixed maturities............................................ $131.1 100.0%
====== ======
</TABLE>

COMPETITION

The market for each of the Company's products in Georgia is highly
competitive on both a regional and statewide basis and has undergone significant
changes in recent years. From a competitive perspective, the market is segmented
generally by geography, product and employer group size. Significant competition
exists

37
<PAGE> 42

in the metropolitan Atlanta market for managed care products, while outside of
the metropolitan Atlanta area the majority of competition currently is for
either traditional indemnity or PPO products, although new market entrants with
managed care capabilities are beginning to penetrate these areas. The Company
has many competitors in its indemnity, PPO and HMO operations, many of which
have substantially greater financial and other resources than the Company.
However, based upon current data available in publications circulated generally
and within the health care industry the Company does not consider any one of its
competitors to be dominant in any of the Company's markets.

Price competition among benefit plans in the Company's markets,
particularly the Atlanta metropolitan area, may intensify. As of January, 1996,
92% of the Atlanta HMO and POS market was held by the Company and four national
competitors, according to public information, of which the Company's share was
11% and the largest competitor's share was 22%. Since January, 1996, three
additional national competitors have entered the Atlanta HMO and POS market.
Because the Company's existing business operations are confined to markets
within the State of Georgia, the Company currently is unable to subsidize losses
in these markets with profits from other markets. The Company believes that
certain larger, national competitors are able to subsidize losses in the Georgia
market with profits from other markets in which they operate and may pursue such
a strategy in the Company's markets in an effort to increase market share. The
national health care industry has recently seen a consolidation of companies
that offer health care insurance, including traditional indemnity and managed
care products. In addition to intensifying competition, this consolidation may
result in corporations with enhanced financial resources, positioned to pursue
such a strategy of subsidizing losses to increase their market position in
Georgia.

Further, future legislation at the federal and state levels may also result
in increased competition in the Company's market. Competition may also be
affected by independent agents and brokers who sell the Company's health care
benefit plans as well as the benefit plans of the Company's competitors.
Additionally, provider-sponsored initiatives, through which certain hospital and
physician alliances compete with traditional means of health care financing, are
developing in some product segments. No assurance can be given that the Company
will be able to compete effectively with such competition in the future.

FACILITIES

The Company's corporate headquarters occupy approximately 240,000 square
feet of leased space in a 17-story building located in Atlanta, Georgia and its
main claims operations center occupies approximately 176,000 square feet of
owned space in a four-story building located in Columbus, Georgia. Both
facilities are in excellent condition, are suitable for the Company's existing
needs and are in desirable and accessible locations. The Company leases space in
25 other buildings in communities throughout Georgia for a variety of corporate
purposes. None of these leases has a remaining term of more than five years.

EMPLOYEES

The Company had 2,012 employees at December 31, 1995. No Company employees
are represented by any union, and the Company believes that its relations with
its employees are satisfactory.

GOVERNMENT REGULATION

Holding Company Regulation

The Company will be an insurance holding company and as such will be
subject to regulation by the Georgia Insurance Department (the "Department").
Georgia regulations require the filing of financial and other information
concerning the operations and interrelationships of entities within an insurance
holding company system. Such regulations extend to contracts, loans, dividends,
distributions, management agreements and other transactions between holding
company entities. Such agreements must be submitted to the Department for
approval, based on concepts of fair and reasonable terms; reasonable charges and
fees; and that following any such related party transaction the insurer's
surplus with regard to policyholders shall be reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial needs.

38
<PAGE> 43

Regulation of Insurance Subsidiaries

Georgia Blue's insurance business is subject to comprehensive regulation.
The Department has broad authority to regulate, among other things: licenses to
transact the business of insurance; investment activity of insurers; premium
rates for certain insurance products; trade practices of insurers; agent
licensing; policy forms; insurance underwriting and claims practices; and
insurer reserve adequacy and solvency. Georgia Blue is required to file a
detailed annual report with the Department, and its business and accounts are
subject to periodic examination by the Department, which also regulates
insurance holding company systems, including the acquisition and sale of
licensed entities, payment of dividends by regulated entities, the terms of
affiliate transactions and other related matters. HMO-Ga is a licensed "health
maintenance organization" under Georgia insurance law. Pursuant to Georgia law,
HMOs are considered insurers, and, except as specifically provided to the
contrary, are regulated by the same provisions and in the same manner as
described above with respect to Georgia Blue.

Change or Acquisition of Control

Georgia insurance law requires the Commissioner's prior approval of any
transaction affecting change of control of, or other acquisition of, a domestic
insurer, or of any person or entity that controls a domestic insurer. In
general, a presumption of control exists if any person or entity beneficially
owns or controls 10% or more of the voting securities of a domestic insurer or
of a person that controls a domestic insurer. Any direct or indirect change in
control of a domestic insurer or an entity which controls a domestic insurer, is
subject to the approval of the Commissioner, following a public hearing.

Examinations

Georgia Blue, HMO-Ga and GGL are each subject to examination of their
affairs by the Department. The Department periodically conducts an examination
of insurance companies and HMOs domiciled in Georgia. The most recent
examination of Georgia Blue, HMO-Ga and GGL by the Department was completed
during the last quarter of 1995 and covered the period from January 1, 1992
through December 31, 1994. As a result of the most recent examination, no
matters were raised by the Department that would have a material impact upon the
statutory financial statements of either Georgia Blue, HMO-Ga or GGL.

TRADE NAMES, TRADE MARKS, SERVICE MARKS AND LICENSES

Pursuant to licenses from the BCBSA, the Company has the exclusive right to
do business under the name Blue Cross and Blue Shield of Georgia and to use the
Blue Cross and Blue Shield names, trademarks and service marks for all of the
indemnity and managed health care products and services it offers in all 159
counties in Georgia. The Company believes that the well-recognized Blue Cross
and Blue Shield names, trademarks and service marks will continue to provide a
significant marketing advantage in its licensed service area, particularly as
competitive pressures narrow differences among health care benefit plans. The
licenses from BCBSA are terminable in certain events described under "RISK
FACTORS -- Use of Blue Cross and Blue Shield Name." The Company cannot do
business using the Blue Cross and Blue Shield names, trademarks and service
marks outside of its licensed service area.

LEGAL PROCEEDINGS

The Company and its subsidiaries from time to time are parties to legal
proceedings arising out of, and incidental to, the Company's normal course of
business. In the opinion of the Company, adequate provision has been made for
losses which may result from these actions and, accordingly, the outcome of
these proceedings is not expected to have a material adverse effect on the
financial condition of the Company.

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<PAGE> 44

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information as of March 1, 1996
regarding each of the Directors of the Company and the executive officers of the
Company and Georgia Blue. Each Director of the Company also serves as a Director
of Georgia Blue.

<TABLE>
<CAPTION>
NAME AGE TITLE
- - ---------------------------- --- -----------------------------------------------------------
<S> <C> <C>
James L. LaBoon, Jr......... 59 Chairman of the Board of Directors of the Company and
Georgia Blue
Fred L. Tolbert, Jr......... 66 Vice Chairman of the Board of Directors of the Company and
Georgia Blue
Richard D. Shirk............ 50 Chief Executive Officer, President and Director of the
Company and Georgia Blue
James E. Albright........... 59 Director
W. Daniel Barker............ 69 Director
Elizabeth W. Camp........... 44 Director
Louis H. Felder, M.D........ 73 Director
Edward M. Gillespie......... 60 Director
Joseph D. Greene............ 55 Director
Mel H. Gregory, Jr.......... 59 Director
Frank J. Hanna, III......... 34 Director
R. Pierce Head, Jr.......... 68 Director
Charles H. Keaton........... 58 Director
James H. Leigh, Jr., M.D.... 53 Director
Julia L. Mitchell-Ivey...... 63 Director
Charles R. Underwood, M.D... 69 Director
W. Jerry Vereen............. 55 Director
A. Max Walker............... 73 Director
Dan H. Willoughby, M.D...... 72 Director
Joe M. Young................ 67 Director
John B. Zellars............. 72 Director
Raymond J. Colleran......... 53 Executive Vice President, Market Operations of Georgia Blue
John A. Harris.............. 45 Treasurer of the Company, Executive Vice President, Finance
& Strategic Planning of Georgia Blue
Mark Kishel, M.D............ 49 Executive Vice President, Chief Medical Officer of Georgia
Blue
Richard A. Steinhausen...... 52 Executive Vice President, Service Operations and
Information Systems of Georgia Blue
R. Neil Vannoy.............. 49 Executive Vice President, Community Operations of Georgia
Blue
</TABLE>

James L. LaBoon, Jr., is Chairman and President of Athens First Bank and
Trust Company, an affiliate of Synovus Financial Corporation, in Athens,
Georgia. Prior to joining Athens Bank and Trust, Mr. LaBoon was Vice President
of Finance and Chief Financial Officer of Wilkins Industries, Inc. He presently
serves as a Director of Athens First Bank & Trust Company, Synovus Mortgage
Corp., Athens Y.M.C.A. and Athens Symphony, Inc. Mr. LaBoon has been Chairman of
the Board of Directors of Georgia Blue since 1994 and a Director since 1984. He
has also served as a Director of the Company since its organization in February
1996, and as its Chairman since March 22, 1996. He is also a member of the Board
of Directors of GBG.

Fred L. Tolbert, Jr., is retired as President of Albany First Federal
Savings and Loan in Albany, Georgia. He currently operates his own real estate
investment company in Albany, Georgia. Mr. Tolbert is a Trustee of the Darton
College Foundation. He has been a Director of Georgia Blue since 1983 and Vice
Chairman of the Board since 1994. He has been Vice Chairman of the Board and a
Director of the Company since its

40
<PAGE> 45

organization in February 1996, and as its Vice Chairman since March 22, 1996. He
also serves as Chairman of the Board of GBG.

Richard D. Shirk joined Georgia Blue as President and Chief Executive
Officer on April 1, 1992 and has been a Director of Georgia Blue since that
date. He has been President, Chief Executive Officer and a Director of the
Company since its organization in February 1996, and has been Chairman of GGL
since 1992. Mr. Shirk has more than 25 years of experience in employee benefits
and managed care. He was a key senior officer of Equicor in its formation in
1986 serving as President of the Southern Region. When Equicor combined business
operations with CIGNA in 1990, Mr. Shirk was named Senior Vice President of the
Central Region and coordinated the integration of managed care operations of the
companies. Mr. Shirk is a board member of the Georgia Coalition for Health, the
National Institute of Health Care Management and The Georgia Caring Program for
Children Foundation. He is a board member of Central Atlanta Progress, and
serves as Chairman of the Georgia U.S.O.C. Steering Committee, as well as on the
board of directors of the Georgia Chamber of Commerce and the board of Seven
Seas Mutual Fund, Equitable Real Estate Hyperion Mortgage Opportunity Fund, Inc.
and Equitable Real Estate Hyperion High-Yield Commercial Mortgage Fund, Inc. He
is a director of the Buckhead Coalition and Metropolitan Atlanta Chapter of the
American Red Cross.

James E. Albright is a Partner with Albright & Fortenberry, Certified
Public Accountants, an accounting firm he founded in Columbus, Georgia, in 1971.
Prior to beginning his own firm, Mr. Albright was a Partner in the firm of Henry
& Albright, Certified Public Accountants. Mr. Albright is currently an officer
and Director of Darbyshire, Inc., Signature Construction, Inc., Presidential
Management, Inc. and Pine Mountain Trail Association, Inc. Mr. Albright has been
a Director of Georgia Blue since 1980 and a Director of the Company since its
organization in February 1996. He is also a member of the Board of Directors of
HMO-Ga.

W. Daniel Barker is retired from Emory University, where he held the
positions of Director of Hospitals for the Woodruff Health Sciences Center,
Executive Director of Emory University Hospital and Hospital Administrator of
Crawford Long Hospital of Emory University. Mr. Barker is currently on the Board
of Trustees at Wesley Woods Geriatric Hospital, a member of the Advisory
Committee at Carlyle Fraser Heart Center at Crawford Long Hospital, a member of
the Board of Directors of American Red Cross Blood Services/Southern Region, a
Trustee of the Luther C. Fischer Foundation, and a member of the Boards of
Directors of Allegiant Physician Services, Inc. and the United Network for Organ
Sharing. Previously, Mr. Barker served as President of Georgia Hospital
Association, Chairman of the American Hospital Association, Chairman of American
Hospital Publishing, Inc. and a member of the Board of Commissioners of the
Joint Commission of Accreditation of Health Care Organizations. Mr. Barker has
been a Director of Georgia Blue since 1962 and a Director of the Company since
its organization in February 1996.

Elizabeth W. Camp, is President of Camp Oil Company in Rome, Georgia. Prior
to joining Camp Oil, Ms. Camp held positions as an attorney at Silver, Freedman
& Taff, attorneys in Washington, D.C., and as an accountant at Arthur Andersen,
LLP in Atlanta, Georgia. Ms. Camp is a member of the Boards of Directors of
Citizens First Bank in Rome, Camp Oil Company, Inc. and Sav-A-Ton Oil. She is a
member and past Chairman of the Board of Alumni Advisors for the Terry School of
Business at the University of Georgia. She is also a member of the Board of
Trustees of Darlington School in Rome. She has been a Director of Georgia Blue
since 1993 and a Director of the Company since its organization in February
1996. Ms. Camp is also a member of the Board of Directors of HMO-Ga.

Louis H. Felder, M.D., is an internal medicine physician in Atlanta,
Georgia, where he has his own practice. Dr. Felder was previously Chief of Staff
at Piedmont Hospital in Atlanta. He is also a fellow in infectious diseases and
pathology at Emory University Hospital. Dr. Felder is currently a member of the
Board of Directors of Quality Care Providers, Inc. and Healthcare Partnership
Consultants. He has been a Director of Georgia Blue since 1974 and a Director of
the Company since its organization in February 1996. On March 22, 1996, Mr.
Felder tendered his resignation from the Board of Directors of the Company and
Georgia Blue effective upon election of a successor. The Company cannot predict
the identity of Mr. Felder's successor or when such appointment will be made.

41
<PAGE> 46

Edward M. Gillespie is retired from University Hospital in Augusta,
Georgia, where he served as President and Executive Director until 1991. Prior
to joining University Hospital, Mr. Gillespie held various hospital
administrative positions including Hospital Administrator of Rochester Methodist
Hospital in Rochester, Minnesota. Mr. Gillespie serves on the Boards of
Directors of Bankers First Savings Bank of Augusta, Bankers First Corporation,
Walton Rehabilitation Hospital and Brandon Wilde retirement community. He is
also President of Health Advance, a health care consulting organization. Mr.
Gillespie has been a Director of Georgia Blue since 1980 and a Director of the
Company since its organization in February 1996.

Joseph D. Greene is a professor of Business Administration for the School
of Business at Augusta College in Augusta, Georgia. Before joining Augusta
College, Mr. Greene was employed by Pilgrim Health and Life Insurance Company,
where he retired as Executive Vice President after 32 years of employment with
the company. Mr. Greene is past Chairman of the Georgia Board of Regents. He
currently serves on the Boards of Directors of McDuffie Bank & Trust of Thomson,
the Georgia Academy for Children, the Greater Augusta Community Foundation, the
National Science Center Discovery, the Minority Business Development Corporation
and the University of Georgia Terry College of Business. Mr. Greene has been a
Director of Georgia Blue since 1993 and a Director of the Company since its
organization in February 1996. He is also a member of the Board of Directors of
HMO-Ga.

Mel H. Gregory, Jr. is retired, following a 35 year career in executive
insurance positions with The Equitable Companies. He held positions as Executive
Vice President, Agency Operations; President and Chief Operating Officer,
Equitable Variable Life Insurance Company; Chief Executive Officer, Equico
Securities; and as a member of The Equitable's Executive Committee. Mr. Gregory
is also a Director of GGL.

Frank J. Hanna, III is, and has been since 1993, the Chief Executive
Officer of HBR Capital, Ltd., an investment firm based in Atlanta, Georgia. HBR
Capital makes a variety of investments in the Financial Services and Healthcare
industries. Prior to his work with HBR Capital, Mr. Hanna served as President of
A.P. Management, Inc. Mr. Hanna began his career in Atlanta as a corporate
attorney with Troutman Sanders. Mr. Hanna is also extensively involved in
education, including serving as a founding member of the Board of Directors of
the Archbishop Donellen School in Atlanta. Mr. Hanna is a graduate of the
University of Georgia and the University of Georgia School of Law. Mr. Hanna
became a director of each of the Company and Georgia Blue in February, 1996.

R. Pierce Head, Jr., is a retired Senior Vice President of Georgia Power
Company, where he worked for 40 years in various capacities in the risk
management, employee benefits, information systems, general services and labor
relations areas. While at Georgia Power, Mr. Head chaired several task forces
and received a number of awards, including a Presidential Citation for hiring
the physically challenged. Mr. Head has been a Director of Georgia Blue since
1981 and a Director of the Company since its organization in February 1996.

Charles H. Keaton, is President and Chief Executive Officer of Hughston
Sports Medicine Hospital in Columbus, Georgia. Previously, Mr. Keaton was
Administrator and Chief Executive Officer of Doctors Hospital in Columbus and
Chester County Hospital in South Carolina. Mr. Keaton is past Chairman and a
current member of the Board of Directors of Georgia Hospital Association and the
Federation of American Hospitals and a member of the Board of Governors of the
American Hospital Association. He has been a Director of Georgia Blue since 1983
and a Director of the Company since its organization in February 1996. He also
serves as a member of the Board of Directors of HMO-Ga.

James H. Leigh, Jr., M.D., is a surgeon in Gainesville, Georgia, where he
has a private practice. He is a member of the Northeast Georgia Medical Center
staff and the Lanier Park Hospital consultant staff. Dr. Leigh is currently a
member of the Board of Directors of Longstreet Clinic. Dr. Leigh is also past
Chief of Surgery and Chief of Staff at Northeast Georgia Medical Center. Dr.
Leigh served as an Assistant Professor of Surgery at the University of Tennessee
College of Medicine. Dr. Leigh was a member of the Board of Directors of the
Northeast Georgia Health Association and an Alternate Director of the Medical
Association of Georgia. He has been a Director of Georgia Blue since 1975 and a
Director of the Company since its organization in February 1996.

42
<PAGE> 47

Julia L. Mitchell-Ivey, is a consultant and former Vice President and
Assistant Corporate Secretary at First Union National Bank of Georgia.
Previously, she held various positions at Decatur Federal Savings and Loan
Association including Corporate Treasurer, Corporate Secretary and Division Vice
President. Ms. Mitchell-Ivey is the immediate past Chairperson of the Board of
Directors of Metropolitan Atlanta Rapid Transit Authority (MARTA) and Chairman
of the Board of Directors of Private Colleges and Universities Authority, and a
member of the Board of Directors of the Y.W.C.A. and the DeKalb Chamber of
Commerce. She has been a Director of Georgia Blue since 1980 and a director of
the Company since its organization in February 1996. She is Chairman of the
Board of Directors of HMO-Ga.

Charles R. Underwood, M.D., is President of Surgical Arts, P.C. in
Marietta, Georgia, where he practices general surgery. He is also past Chief of
Surgery and past Chief of Staff at Kennestone Hospital in Marietta, Georgia. He
served as a Clinical Associate Professor of Surgery at Emory University School
of Medicine and Instructor of Surgery at Washington University School of
Medicine in St. Louis, Missouri. Dr. Underwood is a member of the Board of
Trustees of Georgia Hospital Association and a member of the Board of the
American Cancer Society/Georgia Division. He has been a Director of Georgia Blue
since 1973 and a Director of the Company since its organization in February
1996. He served as Chairman of the Board of Directors of Georgia Blue from 1991
to 1994.

W. Jerry Vereen is President and Chief Executive Officer of Riverside
Manufacturing Company in Moultrie, Georgia and is acting Chairman of the Board
of Directors of Riverside Manufacturing Company and all of its subsidiary
corporations. Mr. Vereen serves on the Boards of Directors of Georgia Power
Company, Georgia Chamber of Commerce, Gerber Scientific, Inc., American Apparel
Manufacturers Association and the Textile Clothing Technological Corporation and
is an Advisory Director of NationsBank of Georgia, National Association Southern
Region. Mr. Vereen is a member of the Board of the Governor's Development
Council. He has been a Director of Georgia Blue since 1993 and a Director of the
Company since its organization in February 1996.

A. Max Walker is a financial consultant and a Director and Chairman of the
Board of the following investment companies: Hatteras Income Securities, Nations
Fund, Nations Fund Trust, Nations Government Income Term Trust 2003, Nations
Government Income Term Trust 2004, Nations Balanced Target Maturity Fund,
Nations Institutional Reserves, and Nations Portfolios, Inc. Previously, he was
Vice President and Treasurer of Southern Bell Telephone and Telegraph Company
and an investment banker with Merrill Lynch Pierce Fenner & Smith. Mr. Walker
has been a Director of Georgia Blue since 1975 and a Director of the Company
since its organization in February 1996.

Dan H. Willoughby, M.D. owns a private practice in internal medicine in
Savannah, Georgia. He was twice the Chief of Staff at Candler General Hospital
and a member of the Board of Trustees of Candler Health Services and Candler
General Hospital. He was also Chief of Medical Staff at St. Joseph Hospital and
President of Georgia Medical Society as well as a member of the House of
Delegates of the Medical Association of Georgia. Dr. Willoughby has been a
Director of Georgia Blue since 1980 and a director of the Company since its
organization in February 1996. He is also a member of the Board of Directors of
HMO-Ga.

Joe M. Young is the General Manager of LOR, Inc. and Rollins Investment
Fund, two entities which manage the holdings of the family of the late O. Wayne
Rollins. His service with LOR, Inc. commenced in 1979 and with Rollins
Investment Fund at its inception in 1988. He also serves as an officer and
director of several other related entities and as a Trustee of several Rollins
Family Foundations and Trusts. Since 1992 he has been a director of Valley
Systems, Inc. a public company traded on the NASDAQ Exchange. Mr. Young became a
director of each of the Company and Georgia Blue as of February 1996.

John B. Zellars is the retired Chairman, President and CEO of Georgia
Federal Bank, where he was employed for 38 years. He has been a Director of GGL
since 1982. Mr. Zellars is also a director of Finance Institutions Insurance
Group, Inc. and Douglas Federal Bank. Mr. Zellars is a graduate of Emory
University and Emory University Law School, and a member of the State Bar of
Georgia.

Raymond J. Colleran joined Georgia Blue in February 1993, as Executive Vice
President, Market Operations. Prior to February 1993 Mr. Colleran for the
previous years held a number of key management

43
<PAGE> 48

positions with Equitable Life, Equicor, and CIGNA. These included Regional
Financial Officer and Regional Account Vice President with Equitable Life; Vice
President in Charge of Sales and Accounts for Equicor; President of the East
Central Region for Equicor; and most recently, Senior Vice President in Charge
of Sales for the East Central Region for CIGNA. Mr. Colleran is an active member
of the Blue Cross and Blue Shield Association National Labor Office Board and
the Buckhead Chamber of Commerce Executive Committee.

John A. Harris has served as Georgia Blue's Executive Vice-President,
Finance and Strategic Planning since January 1993. He has served as Treasurer of
the Company since its organization in February 1996. Prior to joining Georgia
Blue, he worked in the health care industry for 10 years, primarily in managed
care companies, but also with multi-line carriers. His positions included Chief
Financial Officer, Western Market Group, for the Employee Benefits Division of
Lincoln National; Assistant Corporate Controller for Financial Planning,
Reporting and Analysis for Equicor; President, VIP Health Plan (an IPA model HMO
in California); and Vice-President, Finance for CIGNA Health plans for Southern
California.

Mark Kishel, M.D., has been Executive Vice President and Chief Medical
Officer of Georgia Blue since October 1993. Prior to joining Georgia Blue for
the previous years, he developed staff, group and IPA model HMOs, as well as
PPOs, for major carriers and other managed care organizations including
Travelers, Lincoln National, and Health America. His management experience
includes capitated Medicaid, managed workers compensation, POS, and HMO
networks. Dr. Kishel has developed quality management and utilization management
programs for various start-up companies and consulted in physician hospital
organizations and university-sponsored health plan development. As a practicing
pediatrician and family physician for 11 years, Dr. Kishel assisted in the
development of a model primary care system that addressed the needs of the
indigent and uninsured in Arizona. He is a Director of the Atlanta Boys and
Girls Clubs, Inc.

Richard A. Steinhausen joined Georgia Blue in August 1995 as Executive Vice
President, Service Operations and Information Systems. Mr. Steinhausen has more
than 30 years of health care industry experience. Most recently, he served as
Vice President Employee Benefits Division of Washington National. Previously, he
was a Senior Vice President of Equicor, and President of its National Benefits
Sector. He also served as a Regional Vice President, Claims for Equitable Life
Assurance Society.

R. Neil Vannoy joined Georgia Blue as Senior Vice President of Public
Affairs and Product Development in July 1992. In 1994, he was appointed
Executive Vice President of Community Operations of Georgia Blue and is
responsible for community healthcare partnership developments, legislative
affairs, government programs and product development and communications. Prior
to joining Georgia Blue, Mr. Vannoy served in management positions with
Prudential Insurance Company for 16 years, including Vice President, Group
Corporate at Prudential's New Jersey headquarters, Vice President in charge of
the company's Southern Group Operations, Vice President of Florida Group
Operations and Vice President of Group Marketing and Sales at the New York City
group office. Mr. Vannoy is a member of the Boards of Directors of Atlanta
Health Alliance, and The Georgia Caring Program for Children Foundation. He
serves on the Professional Advisory Council of Mission New Hope in Atlanta,
supported the development of the Georgia Coalition for Health as a member of the
steering committee, serves on the technical advisory committee of the Georgia
Health Policy Center and is co-chair of the Research Demonstration Committee of
the Atlanta Regional Commission's Health Collaborative. Mr. Vannoy earned a
bachelor's degree from the University of Kentucky and a master's degree from
Central Michigan University.

INFORMATION REGARDING THE BOARD OF DIRECTORS

The Company's Articles of Incorporation provide that the Board of Directors
shall consist of up to 21 members with the actual number of Directors to be
fixed from time to time by the Board of Directors. The Board of Directors of the
Company has fixed the number of directors at 21. The Articles of Incorporation
provide for the classification of the Company's directors into three classes,
with each class containing approximately the same number of Directors and the
term of one class expiring each year. At each Annual Meeting of Shareholders,
the Directors of one class are elected by the shareholders entitled to vote
thereon to hold office for a term expiring at the third Annual Meeting following
their election and until their successors

44
<PAGE> 49

are elected and qualified. Set forth below is the name of each Director, the
class in which he or she serves and the year in which his or her current term
expires.

Class One -- Term Expires at the 1996 Annual Meeting of Shareholders

James E. Albright
Elizabeth W. Camp
Mel H. Gregory, Jr.
James L. LaBoon, Jr.
James H. Leigh, Jr., M.D.
Julia L. Mitchell-Ivey
John B. Zellars

Class Two -- Term Expires at 1997 Annual Meeting of Shareholders

Louis H. Felder, M.D.
Edward M. Gillespie
Joseph D. Greene, CLU
W. Jerry Vereen
A. Max Walker
Dan H. Willoughby, M.D.
Joe M. Young*

Class Three -- Term Expires at 1998 Annual Meeting of Shareholders

W. Daniel Barker
Frank J. Hanna, III*
R. Pierce Head, Jr.
Charles H. Keaton
Richard D. Shirk
Fred L. Tolbert, Jr.
Charles R. Underwood, M.D.
- - ---------------

* Messrs. Hanna and Young are Preferred Designated Directors.

Pursuant to the Articles of Incorporation, so long as shares of Preferred
Stock are issued, outstanding and entitled to vote and no Common Stock is
outstanding, the holders of the outstanding shares of Class A Stock, voting
separately as a class, will be entitled to elect up to six of the Company's
Directors (referred to as the Class A Designated Directors), with two of such
Directors serving in each class of Directors. The holders of shares of Preferred
Stock, voting separately as a class, are entitled to elect the remaining
Directors, including two Preferred Designated Directors nominated by the holders
of the outstanding Preferred Stock. If no shares of Preferred Stock and Common
Stock are issued, outstanding and entitled to vote, all rights to vote in the
election of Directors are vested in the holders of outstanding Class A Stock and
Blank Preferred Stock. Pursuant to the Shareholders' Agreement, each of the
holders of Preferred Stock has agreed to vote for the election of the two
Preferred Designated Directors and all of the persons nominated for election as
Directors by the Nominating Committee of the Board of Directors and approved by
two-thirds of the Continuing Directors of the Company. As a result, the current
Board of Directors will have the ability to designate a majority of the
Directors of the Company. For further information regarding the Board of
Directors, and the election of Directors by holders of Preferred Stock and Class
A Stock, see "DESCRIPTION OF CAPITAL STOCK -- Class A Stock -- Voting" and
"Preferred Stock -- Voting."

DIRECTOR COMPENSATION

Non-employee Directors each receive an annual Director's fee of $12,000,
plus Director's fees for attendance at Board and committee meetings, which in
1995 totaled from $6,750 to $13,000. In addition, the

45
<PAGE> 50

Chairman, the Vice Chairman and each Committee Chairman receive additional
annual fees of $7,500, $3,500 and $2,000, respectively. Each non-employee
Director may defer his or her Director fees pursuant to certain of Georgia
Blue's non-qualified, deferred compensation plans. Directors also are reimbursed
for reasonable expenses incurred in connection with the performance of their
duties.

EXECUTIVE COMPENSATION

General

The following table presents certain information concerning compensation
paid or accrued by Georgia Blue for services rendered in all capacities during
the fiscal year ended December 31, 1995, for the Chief Executive Officer and
four most highly compensated executive officers whose total annual salary and
bonus in 1995 exceeded $100,000 (collectively, the "Named Executive Officers").

TABLE 1: SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
PAYOUTS
-----------------
ANNUAL COMPENSATION ALL
----------------------------------------- OTHER
OTHER ANNUAL LTIP COMPEN-
COMPENSATION PAYOUTS SATION
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)(2) ($)(3) ($)(4) ($)(5)
- - ----------------------------------------- ------------ ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Richard D. Shirk......................... $425,000 $ -- $ 54,002 $ -- $ 5,087
Chief Executive Officer, President and
Director
Mark Kishel, M.D......................... 203,750 -- -- 91,000 3,130
Executive Vice President and Chief
Medical Officer
Raymond J. Colleran...................... 194,250 -- -- 87,360 4,909
Executive Vice President, Market
Operations
R. Neil Vannoy........................... 192,750 -- -- 84,630 801
Executive Vice President of Community
Operations
John A. Harris........................... 187,500 -- -- 53,625 2,803
Executive Vice President, Finance and
Strategic Planning
</TABLE>

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

(1) Includes amounts deferred at the election of the officers pursuant to the
Company's 401(k) Retirement Savings Program and other deferred compensation
plans. See "MANAGEMENT -- Executive Compensation -- Deferred Compensation
Plan" and "-- 401(k) Retirement Savings Program" below.
(2) Threshold financial performance criteria pursuant to the Annual Incentive
Program was not achieved for 1995; no bonuses were earned for the period.
(3) Includes $26,054 paid for vacation earned in prior years. Perquisites for
other named executive officers were less than 10% of their total salary for
the period.
(4) Includes payments in 1995 to the named executives for long-term incentive
awards for the 1992-1994 performance period, except for Mr. Shirk whose
award for the 1992-1994 performance period was deferred by the Compensation
Committee until 1996.
(5) Reflects contributions to the Retirement Savings Program in 1995: Mr. Shirk,
$3,186; Dr. Kishel, $2,375; Mr. Colleran, $2,375; and Mr. Harris, $2,375;
and premium payments on group term life insurance in 1995: Mr. Shirk,
$1,901; Dr. Kishel, $755; Mr. Colleran, $1,184; Mr. Vannoy, $801; and Mr.
Harris, $428.

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<PAGE> 51

Long-Term Incentive Plan

The Compensation Committee of the Board of Directors is responsible for the
administration and governance of the Company's Long-Term Incentive Plan
("LTIP"), including identification of participants, determination of specific
goals and performance measure categories. The LTIP is designed to reward
participants for their contributions to the successful achievement of specific
goals related to the Company's long-term business strategy. Specific financial
(60%), market share (20%), and customer service (20%) goals based on the
Company's long-term business strategy are established for three-year performance
periods. The LTIP has minimum threshold, target and maximum performance levels.
Participants must be employed by the Company on the last day of the performance
period. At the end of 1995, long-term incentive award opportunities had been
established for three performance period cycles, the 1993-1995 performance
period, the 1994-1996 performance period and the 1995-1997 performance period.
The Compensation Committee makes the final award determination related to the
achievement of the defined goals for each performance period.

The long-term incentive award opportunities granted by Georgia Blue to
Named Executive Officers during 1995 for the 1995-1997 performance period are
reflected in Table 2. Final award determinations by the Compensation Committee
for this performance cycle would be made in fiscal 1998.

TABLE 2: LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE NON-STOCK PRICE-BASED PLANS
PERIOD UNTIL -------------------------------
NAME MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- - ---------------------------------------------- -------------------- --------- -------- --------
<S> <C> <C> <C> <C>
Richard D. Shirk.............................. 1995-1997 $ 106,250 $212,500 $425,000
Chief Executive Officer, President and
Director
Mark Kishel, M.D. ............................ 1995-1997 41,000 82,000 164,000
Executive Vice President and Chief Medical
Officer
Raymond J. Colleran........................... 1995-1997 39,000 78,000 156,000
Executive Vice President, Market Operations
R. Neil Vannoy................................ 1995-1997 39,000 78,000 156,000
Executive Vice President of Community
Operations
John A. Harris................................ 1995-1997 39,000 78,000 156,000
Executive Vice President, Finance and
Strategic Planning
</TABLE>

Retirement Plan

Table 3 reflects the estimated annual lifetime benefits calculated on a
straight-life annuity basis and payable under the terms of the Non-Contributing
Retirement Program for Certain Employees of Blue Cross and Blue Shield of
Georgia (the "Retirement Plan"), as currently in effect, to persons in specified
compensation and years of service classifications upon retirement at age 65.
Benefit amounts as reflected in the table are after reductions for a portion of
Social Security benefits.

TABLE 3: PENSION PLAN TABLE

<TABLE>
<CAPTION>
5 YEAR YEARS OF SERVICE
AVERAGE -------------------------------------
EARNINGS 15 20 25 30
- - ---------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$100,000.................................................. $33,756 $45,012 $56,268 $64,512
150,000.................................................. 41,268 55,000 68,772 82,512
</TABLE>

47
<PAGE> 52

The Retirement Plan is a qualified defined benefit pension plan that covers
all employees of Georgia Blue and its participating affiliate companies, who
have attained age 21 and have completed 1,000 hours of service in a 12-month
period after their date of hire, or who complete 1,000 hours of service in any
calendar year thereafter. Benefits under the Retirement Plan are based upon
length of service with Georgia Blue, with varying provisions for employees who
are terminated or take early, normal or deferred retirement. The annual
retirement benefit is calculated according to a specific formula, called the
Final Average Salary formula. The benefit is 60% of the Final Average Salary
(i.e., the average of the highest five consecutive years of annual salaries out
of the last 10 years of credited service) reduced by 50% of the participant's
Social Security Benefit. If the participant has less than 30 years service, the
result is multiplied by a service fraction. The fraction is the years of
credited service up to 30 divided by 30. A participant becomes fully vested
after five years of service or the attainment of age 62, whichever occurs first.
Generally, upon retirement, participants can elect to receive their benefits in
the form of a lump sum payment, lifetime only pension, lifetime pension with a
guaranteed payout period (10 or 20 years) or 50%, 66 2/3% or 100% joint
pensions. Actuaries hired by the Retirement Program determine the amount to be
contributed to the Retirement Program by Georgia Blue to fund benefits for its
employees. All contributions are held in trust. Benefits under the Retirement
Program are insured by the Pension Benefit Guaranty Corporation.

The compensation covered by the Retirement Plan includes generally the base
rate of annual earnings actually paid to a participant by Georgia Blue up to
$150,000, the maximum amount of compensation that may be recognized under
qualified pension plans; for each Named Executive Officer, the compensation in
the Summary Compensation Table exceeds this maximum amount. The Retirement Plan
also provides, subject to certain conditions, for the payment of vested benefits
of a deceased employee to his or her spouse during such spouse's lifetime.

Georgia Blue makes contributions to the Retirement Plan to fund the
benefits which accrue thereunder. Annual contribution amounts are determined
actuarially. Participant contributions are not permitted.

The amounts shown in the Summary Compensation Table above do not include
Georgia Blue's contributions in connection with the Retirement Plan for the
Named Executive Officers. Such amounts are not and cannot be readily separated
or individually calculated. Georgia Blue made a contribution of $3,893,692 to
the Retirement Plan for the plan year ended December 31, 1995.

As of the plan year ended December 31, 1995, Messrs. Shirk, Colleran,
Kishel, Harris and Vannoy had 3 years, 9 months; 2 years, 11 months; 2 years, 3
months; 3 years; and 3 years, 5 months years of service, respectively.

The Retirement Plan is administered by the Blue Cross and Blue Shield
Association. Bankers Trust Company serves as Trustee to the Retirement Plan.

401(K) RETIREMENT SAVINGS PROGRAM

The 401(k) Retirement Savings Program (the "Savings Program") is sponsored
by Georgia Blue, and GGL and HMO-Ga participate. The Savings Program is a
tax-deferred savings plan designed to help participants build long-term savings
for the future. Generally, all employees are eligible to participate after they
complete 30 days of service and have attained age 21. A participant may
contribute to the Savings Program on a before-tax basis from 1% to 15% of pay up
to the maximum dollar contribution amount ($9,240 in 1995). The employer will
match $.050 for every dollar the participant contributes up to $500 (maximum
$250). For the remaining contribution, the employer will add $0.25 for each
dollar the participant contributes. Participants become 25% vested in all
employer matching contributions after two years, 50% vested after three years,
75% vested after four years, and 100% vested once they complete five years of
service. Lump sum distributions generally may be made from the Savings Program
upon termination of employment or attainment of age 50 1/2. Participants may
also obtain a hardship withdrawal or borrower money from their account. All
contributions to the Savings Program and investment earnings are held in trust
for the exclusive benefit of participants and their beneficiaries. The name of
the trust is The National 401(k) Master Trust. The trustee is INVESCO Trust
Company.

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<PAGE> 53

DEFERRED COMPENSATION PLANS

Georgia Blue offers certain Directors and employees the opportunity to
defer income pursuant to Georgia Blue's "Deferred Compensation Plan for Select
Management." Qualified Directors and employees may elect to defer payment of all
or any portion of such person's compensation during any year for a period of
three years or more. At the election of the qualified Director or employee, such
deferred compensation may be paid in a lump sum or in monthly installments over
a period from 5 to 20 years. Approximately 33 Directors and employees
participate in these arrangements, and become general creditors of Georgia Blue
thereunder. Georgia Blue's total obligation to these participants, which is
unsecured, was less than $2.2 million as of December 31, 1995.

COMPENSATION COMMITTEE

The Compensation Committee is comprised of Directors Tolbert (Chair),
Barker, Hanna, Underwood, Vereen and Young. (Messrs. Hanna and Young are new
members of the Committee in 1996.) Mr. LaBoon sits with the Committee ex
officio. The Committee meets quarterly. The Compensation Committee sets the
compensation for the Chief Executive Officer and the other Named Executive
Officers at a meeting early in each fiscal year after reviewing, in each case,
the performance targets established for the prior year in comparison to the
prior year's actual performance. At this meeting the Committee also sets
performance targets for the new fiscal year as well as any targets for
additional compensation plans pursuant to which the Chief Executive Officer and
the other Named Executive Officers may earn compensation with respect to that
fiscal year and sets annual salaries in accordance with the same considerations.
All elements of compensation for the fiscal year ended December 31, 1995 for all
the Named Executive Officers were set in the same manner.

EXECUTIVE OR OTHER SEVERANCE AGREEMENTS

Georgia Blue is a party to an Employment Agreement dated March 4, 1992 with
Richard D. Shirk, President and Chief Executive Officer. This agreement
contemplates an ever-renewing 24-month term, and, under certain conditions of
termination, a 24-month continuation of salary and certain other benefits.
Additionally, Dr. Kishel is a party to a letter agreement which, under certain
limited termination circumstances, provides for a twelve month salary
continuation.

STOCK OWNERSHIP

Currently, no shares of Common Stock are outstanding or beneficially owned
by any person and no shares of Blank Preferred Stock are outstanding or
beneficially owned by any person.

All of the issued shares of Class A Stock are held by the Escrow Agent for
distribution to Eligible Subscribers. No directors or officers of the Company or
of Georgia Blue own any shares of capital stock of the Company except Frank J.
Hanna, III. Georgia Strategic Healthcare, LLC owns approximately 80% of the
Preferred Stock. Frank J. Hanna, III, Frank J. Hanna, Jr. and David Hanna share
sole voting and dispositive power with regard to all of the shares of Preferred
Stock owned by Georgia Strategic Healthcare, LLC. (The address of Georgia
Strategic Healthcare, LLC is Suite 1750, Two Ravinia Drive, Atlanta, Georgia
30346.)

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes certain federal income tax consequences
to Georgia Blue and the Company with respect to the Conversion and the formation
of the Company and to the Eligible Subscribers with respect to their acceptance
of the Shares of Class A Stock. This summary does not discuss any tax
consequences arising under the laws of any state, locality, foreign country or
other jurisdiction. This discussion is based upon currently existing provisions
of the Code, existing and temporary United States Treasury regulations
promulgated thereunder and current administrative rulings and court decisions,
all of which are subject to change or different interpretations so as to result
in tax consequences different from those discussed below.

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THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF AN ELIGIBLE
SUBSCRIBER'S ACCEPTANCE OF THE COMPANY'S OFFER OF CLASS A STOCK AND DOES NOT
REPRESENT ADVICE REGARDING THE FEDERAL TAX CONSEQUENCES TO ELIGIBLE SUBSCRIBERS
OF ACCEPTANCE OF THE COMPANY'S OFFER OF, THE CLASS A STOCK. THE COMPANY
ENCOURAGES EACH ELIGIBLE SUBSCRIBER TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO SUCH SUBSCRIBER OF THE
ACCEPTANCE OF THE COMPANY'S OFFER OF CLASS A STOCK, AS WELL AS ANY TAX
CONSEQUENCES TO SUCH SUBSCRIBER ARISING UNDER THE LAWS OF ANY STATE, LOCALITY,
FOREIGN COUNTRY OR OTHER JURISDICTION.

ISSUANCE OF CLASS A STOCK TO THE ELIGIBLE SUBSCRIBERS

There is a risk that each Eligible Subscriber who accepts the offer of the
Shares of Class A Stock may be required to recognize taxable income (to the
extent of the value of the Shares of Class A Stock received by such Eligible
Subscriber) upon receipt of the Shares of Class A Stock and, as a result, may
incur federal income tax liability in connection with his or her receipt of the
Shares of Class A Stock. The Company has obtained an opinion from Ernst & Young
LLP, certified public accountants, to the effect that the Eligible Subscribers
who accept the offer for the Shares of Class A Stock should not incur federal
income tax liability in connection with their receipt of the Shares of Class A
Stock; however, because this is a unique transaction in which there are no
precedential authorities outstanding, no assurance can be given that the
Internal Revenue Service will not challenge this position. The opinion of Ernst
& Young LLP is based upon the representations and assumptions provided by the
Company. These representations and assumptions have not been independently
verified by Ernst & Young LLP. In addition, Ernst & Young LLP has undertaken no
obligation to update this opinion for changes in facts or law subsequent to the
date of issuance.

TAX CONSEQUENCES TO THE COMPANY OF THE CONVERSION

There is a risk that the Conversion of Georgia Blue to a "for profit"
corporation and the issuance of its stock to the Company will be viewed as a
taxable exchange or a taxable event. The Company has concluded that the
Conversion and the issuance of Georgia Blue stock to the Company was tax free
both to Georgia Blue and to the Company and will prepare its tax returns
accordingly.

SECTION 833 OF THE CODE

Since January 1, 1987, Georgia Blue has been treated for federal income tax
purposes as an organization to which Section 833 of the Code applies. An
organization to which Section 833 applies is entitled to certain tax benefits,
including a deduction for federal income tax purposes pursuant to Section 833(b)
of the Code. Such deduction is equal to the excess of (a) 25% of (i) the sum of
the claims incurred during the taxable year and (ii) the expenses incurred
during the taxable year in connection with the administration, adjustment or
settlement of claims, over (b) the adjusted surplus at the beginning of the tax
year. For calendar year 1994, Georgia Blue's deduction under Section 833(b) was
$15,981,317 and for calendar year 1995 is estimated to be $15,321,000. An
organization will no longer be entitled to the benefits of Section 833 for a
particular taxable year, including the deduction pursuant to Section 833(b), if
a material change has occurred in the operation of such organization or in its
structure after August 16, 1986 and before the close of that taxable year. There
is a risk that the Conversion, the amendment to the Articles of Incorporation of
Georgia Blue to those of a for profit corporation as permitted by Georgia law,
the formation of the Company and/or the acquisition by the Company of Georgia
Blue stock may be considered as a material change in the operations or structure
of Georgia Blue, which would result in the loss of the benefits under Section
833 (including the loss of the Section 833(b) deduction) and, accordingly, the
payment of federal income taxes at a higher effective rate in the future. The
Company has concluded that a material change in operations or structure did not
occur, for purposes of Section 833, upon the acquisition by the Company of
Georgia Blue's newly issued stock and will

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<PAGE> 55

take the deduction. No assurance can be given that the Internal Revenue Service
will not challenge this deduction.

USE OF GEORGIA BLUE'S NET OPERATING LOSS

Net operating loss carryforward to the calendar year 1995 was $72,723,583
and is estimated to be $64,962,000 to the calendar year 1996. However, there is
a risk that the Internal Revenue Service could assert that Georgia Blue does not
have a net operating loss carryforward. In addition, even if it is determined
that Georgia Blue has a net operating loss carryforward, the utilization of such
net operating loss subsequent to the formation of the Company may be limited
annually pursuant to Section 382 of the Code to an amount equal to the product
of the federal long term tax exempt rate multiplied by the value of Georgia Blue
immediately before the formation of the Company. Furthermore, the consolidated
return rules of the Code and the regulations thereunder may further limit the
use of Georgia Blue's net operating loss in the future.

DESCRIPTION OF CAPITAL STOCK

Set forth below is a description of the material terms and provisions of
the capital stock of the Company. The following description does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Articles of Incorporation of the Company (the "Articles of Incorporation") and
to the Bylaws of the Company (the "Bylaws"). The Articles of Incorporation and
Bylaws are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.

GENERAL

The authorized capital stock of the Company consists of (i) 50,000,000
shares of Class A Convertible Common Stock, no par value per share (the Class A
Stock), (ii) 49,901 shares of Class B Convertible Preferred Stock, no par value
per share (the Preferred Stock), (iii) 100,000,000 shares of Common Stock, no
par value per share, and (iv) 100,000,000 shares of Blank Preferred Stock (the
Blank Preferred Stock) that may be issued in one or more series with such voting
powers, designations, preferences, rights, qualifications, limitations and
restrictions as shall be specified by the Board of Directors of the Company. On
February 2, 1996, the Company issued into escrow 800,000 shares of Class A Stock
to be distributed in the manner described in this Prospectus and had issued and
outstanding 49,901 shares of Preferred Stock held by 18 shareholders of record
(including one share of Preferred Stock issued to Georgia Blue), but no shares
of Common Stock and no shares of Blank Preferred Stock. See "CAPITALIZATION."

CLASS A STOCK

Voting

So long as any shares of Preferred Stock and Class A Stock are issued and
outstanding and no shares of Common Stock are issued and outstanding, the
holders of outstanding shares of Class A Stock, voting separately as a single
class (with each share being entitled to one vote) and to the exclusion of all
other classes and series of capital stock of the Company, shall be entitled to
elect two Class A Designated Directors to each of the Company's three classes of
Directors as follows: (i) at or prior to the first annual meeting of
shareholders, a special nominating committee composed of two Continuing
Directors and the two Preferred Designated Directors will nominate two persons
for election as Class A Designated Directors to be voted on by the holders of
the Class A Stock at such first annual meeting to serve for a three year term;
(ii) at or prior to the annual meeting of shareholders held in the second year
following the issuance of the Shares, a special nominating committee composed of
two Continuing Directors and the two Class A Designated Directors will nominate
two additional persons for election as Class A Designated Directors to be voted
on by the holders of the Class A Stock at such second annual meeting to serve
for a three year term; (iii) at or prior to the annual meeting of shareholders
held in the third year following the issuance of the Shares, a nominating
committee composed of two Continuing Directors and the four Class A Designated
Directors will nominate two additional persons for election as Class A
Designated Directors to be voted on by the holders of Class A Stock at such
third annual meeting to serve for a three year term; and (iv) at each annual
meeting of shareholders

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<PAGE> 56

thereafter, a special nominating committee composed of the six Class A
Designated Directors will nominate two persons for election as Class A
Designated Directors to replace the two Class A Designated Directors whose term
expires at that annual meeting. Notwithstanding any nomination by a special
nominating committee, the holders of the Class A Stock shall be entitled to
nominate and elect any eligible individual as a Class A Designated Director each
year.

Notwithstanding the foregoing, in the event shares of Class A Stock and
Common Stock are outstanding at the same time, all rights to vote would be
vested in the holders of the Common Stock, except (i) the rights of the holders
of Preferred Stock to elect Preferred Designated Directors (see "DESCRIPTION OF
CAPITAL STOCK -- Preferred Stock -- Voting"), and (ii) such other voting rights
as are provided to the holders of the Class A Stock as provided by the Georgia
Business Corporation Code. Accordingly, in the event the Company issues any
shares of Common Stock, the holders of Class A Stock will have no voting rights
(including the right to elect Class A Designated Directors) except as expressly
provided by law. See "DESCRIPTION OF CAPITAL STOCK -- Class A Stock -- Voting."

If no Preferred Stock and no Common Stock are outstanding, all rights to
vote will be vested in the holders of the outstanding shares of Class A Stock or
the Blank Preferred Stock. The Company anticipates that Preferred Stock will be
outstanding during all periods the Class A Stock is outstanding.

Dividends

So long as any shares of the Company's Preferred Stock are issued,
outstanding and entitled to vote, no dividends may be paid in cash, stock or
other property on the Class A Stock without the approval of the Board of
Directors of the Company and of the holders of a majority of the shares of
Preferred Stock then issued, outstanding and entitled to vote. If no shares of
Preferred Stock are issued and outstanding, dividends may be declared on the
Class A Stock at the discretion of the Board of Directors of the Company out of
funds legally available therefor. See "DIVIDENDS."

Liquidation

So long as shares of Class A Stock and Preferred Stock are outstanding, but
no shares of Common Stock are outstanding, the holders of shares of Class A
Stock will be entitled to receive any distributions of the Company's assets upon
the liquidation, dissolution or winding up of the Company, but only after and on
the condition that all the holders of issued and outstanding shares of Preferred
Stock, if any, shall have received an amount of such assets equal to $1,000 per
share of Preferred Stock, plus all accrued and unpaid dividends (the "Preferred
Liquidation Amount"). Upon any dissolution, liquidation or winding up of the
affairs of the Company, the assets of the Company shall be distributed ratably
among the holders of Preferred Stock in proportion to the sum of their
respective Preferred Liquidation Amount, until payment in full of the full
Preferred Liquidation Amount. After payment or distribution to all holders of
Preferred Stock of the full Preferred Liquidation Amount, all of the remaining
assets of the Company available for distribution to shareholders shall be
distributed ratably among the holders of the Class A Stock then issued and
outstanding. In the event no Class A Stock or Preferred Stock is issued and
outstanding at the time of a dissolution, liquidation or winding up, the assets
of the Company available for distribution to stockholders will be distributed
ratably among the holders of the Common Stock then issued and outstanding. In
addition, the Class A Stock could be subject to a priority in liquidation
created by the Company in any future class or series of Blank Preferred Stock.
See "DESCRIPTION OF CAPITAL STOCK -- Preferred Stock -- Liquidation Preference"
and "DESCRIPTION OF CAPITAL STOCK -- Blank Preferred Stock."

Conversion of Class A Stock

General. Shares of Class A Stock and Preferred Stock will be converted
into shares of Common Stock pursuant to a Discretionary Conversion, an Automatic
Conversion or a Preliquidation Conversion, each as described below (each a
"Stock Conversion"). In the event of a Stock Conversion, each share of Class A
Stock will be converted into one share of Common Stock.

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Discretionary Conversion. The Company may, upon approval of the holders of
a majority of the then issued and outstanding shares of Preferred Stock entitled
to vote, convert all, but not less than all, of the issued and outstanding
shares of Class A Stock and Preferred Stock by delivering written notice of
conversion to the holders of such shares, whereupon each share of such Class A
Stock and Preferred Stock automatically shall be converted into Common Stock on
the date determined by the Board of Directors. Such a conversion is referred to
herein as a "Discretionary Conversion."

Automatic Conversion. On the earlier of (i) December 1, 2001 or (ii) the
closing date of the first public offering of Common Stock registered under the
Securities Act, each issued and then outstanding share of Class A Stock and
Preferred Stock shall automatically be converted into Common Stock, without
further action on the part of the Company or its shareholders. Such a conversion
is referred to herein as an "Automatic Conversion."

Preliquidation Conversion. Immediately preceding any liquidation,
dissolution or winding up of the Company and upon approval of the holders of a
majority of the then issued and outstanding shares of Preferred Stock entitled
to vote, all of the issued and outstanding shares of Class A Stock and Preferred
Stock shall automatically be converted into Common Stock without further action
on the part of the Company or the shareholders. Such a conversion is referred to
herein as a "Preliquidation Conversion."

Restrictions on Transfer; Right of First Refusal

Transfer Restrictions on Class A Stock; Right of First Refusal. Shares of
Class A Stock may not be sold, transferred, encumbered, pledged or otherwise
disposed of prior to December 1, 1998, except (i) upon the death of the holder
of such shares, in which case such shares may be transferred by such holder's
estate to an heir taking by law or pursuant to testamentary succession, (ii) by
operation of law or (iii) as required by a final judicial decree. Pursuant to
the Articles of Incorporation and subject to the limitations described below,
during the period from December 1, 1998 to December 1, 2001, if a holder of
shares of Class A Stock desires to sell all or any portion of such Class A
Stock, the holder must first offer the shares of Class A Stock to the Company
upon the same terms and conditions as the proposed sale. A holder of Class A
Stock who proposes to dispose of all or any portion of his or her shares must
give written Notice to the Company of his or her intention to dispose of the
shares, setting forth the type of disposition, the proposed purchaser, the
number of offered shares, the price per share and the terms of payment. The
Company may accept such offer with respect to all, but not less than all, of the
offered shares within thirty (30) days following receipt of the Notice by giving
notice of such exercise to the holder proposing to dispose of the shares. If any
of the consideration for the offered shares consists of anything other than
cash, the Company may substitute for such consideration the cash equivalent as
reasonably determined by the Company. The Company may exercise this right of
first refusal to acquire up to 2% of the issued and outstanding shares of Class
A Stock in any one calendar year, or such greater amount as may be approved by
the holders of more than a majority of the Preferred Stock then issued,
outstanding and entitled to vote. If the Company declines to exercise its right
of first refusal or if the purchase by the Company is not consummated through no
fault of the offeror, the offeror may transfer the offered shares to the
proposed purchaser, at the price and on the terms and conditions set forth in
the Notice, provided that such transfer must be made within 30 days of the date
the offeror became free to transfer the shares or such right to transfer will
expire.

Registration of, Transfer of, and Transfer Restrictions on Common Stock
Issued in a Stock Conversion. The shares of Conversion Stock have not been
registered under the Securities Act and until such registration, if any, their
transfer by Eligible Subscribers would be subject to the provisions of Rule 144
under the Securities Act. In addition, pursuant to Rule 144, Eligible
Subscribers receiving shares of Conversion Stock upon conversion of their Class
A Stock may be required to hold such Conversion Stock for a two-year period from
the time of Conversion or until the earlier registration, if any, of the
Conversion Stock. Sales of Conversion Stock (i.e., Common Stock issued in
exchange for Class A Stock upon a Stock Conversion) will be limited for a period
of time following the Stock Conversion pursuant to certain "lockup" provisions
included in the Company's Articles of Incorporation. The lockup provisions are
intended to assist in the development of an orderly trading market in the Common
Stock, the development of an adequate investment research following of the
Company, and the promotion of institutional demand for the Common Stock.

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The Conversion Stock will be subject to a lockup (a "Lockup") for the
following periods (each a "Lockup Period"), during which periods such Common
Stock shall, as described below, be issued in uncertificated form and will be
subject to the restrictions on sale, pledge or other transfer described below.
The first Lockup Period (the "First Lockup Period") will terminate on the
six-month anniversary of the Stock Conversion date. The second Lockup Period
(the "Second Lockup Period") will terminate on the twelve-month anniversary of
the Stock Conversion date. One-half of all the Conversion Stock will be released
from the restrictions of the Lockup at the termination of the First Lockup
Period, and the remaining one-half of all the Conversion Stock will be released
from the restriction of the Lockup at the termination of the Second Lockup
Period.

Except as set forth in the next sentence, the Company will not recognize
during a Lockup Period any sale, pledge or other transfer of any right or
interest in or to any Conversion Stock or other securities subject to the Lockup
nor shall any such attempted transaction be valid or binding. During a Lockup
Period, the Company will recognize only the following transfer of rights or
interests in or to the Conversion Stock subject to the Lockup: (i) the death of
the holder of such shares, in which case such shares may be transferred by such
holder's estate to an heir taking by law or pursuant to testamentary succession,
(ii) a transfer by operation of law or (iii) as required by a final judicial
decree.

All distributions of Conversion Stock, or of securities convertible into or
exchangeable for Conversion Stock, as dividends or distributions on account of
such Conversion Stock subject to the Lockup may, at the discretion of the
Company, also be subject to the same Lockup, and for the same Lockup Period, as
the Conversion Stock in respect of which it is distributed.

No Stock Certificates

Class A Stock and Conversion Stock will be issued in uncertified form
pursuant to the Georgia Business Corporation Code (the "GBCC"). An appropriate
notice will be sent to each holder in compliance with GBCC. No certificates will
be issued for any such Stock at any time.

PREFERRED STOCK

Voting

So long as any shares of Preferred Stock are issued and outstanding and
entitled to vote, the holders of the Preferred Stock (the "Preferred
Shareholders"), voting separately as a single class (with each share being
entitled to one vote) and to the exclusion of all other classes and series of
capital stock of the Company, will be entitled to nominate and elect two
Directors of the Company who shall be designated "Preferred Designated
Directors." Under the Shareholders' Agreement, the Preferred Shareholder holding
the largest number of shares of Preferred Stock (the "Large Holder") shall
nominate one director and the Preferred Shareholders have agreed under the
Shareholders' Agreement to vote for such nominee. The Large Holder shall have
the ability to replace such Preferred Designated Director and shall be entitled
to nominate his successor, and all of the Preferred Shareholders are obligated
under the Shareholders' Agreement to vote for the individual so nominated by the
Large Holder. The second Preferred Designated Director shall be selected by the
Large Holder and at least a majority of the then issued and outstanding
remaining shares of Preferred Stock entitled to vote. For so long as any shares
of Preferred Stock of the Company are issued and outstanding, a Preferred
Designated Director may be removed only by a vote of the Preferred Shareholders,
but such removal may be made only in the manner provided in the Shareholders'
Agreement for the election of such Preferred Designated Director to be so
removed. For so long as any shares of Preferred Stock of the Company are issued
and outstanding, if any Preferred Designated Director resigns, does not stand
for reelection or otherwise ceases to serve as a member of the Board of
Directors for any reason, including the expiration of his term, the Preferred
Shareholders, and only the Preferred Shareholders, may designate another person
to serve as a Preferred Designated Director, but only upon approval of such
successor in the manner provided in the Shareholders' Agreement for the election
of such Preferred Designated Director.

In addition, for so long as any shares of Preferred Stock are issued and
outstanding and entitled to vote, the Preferred Shareholders, voting separately
as a single class (with each share being entitled to one vote) and

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to the exclusion of all other classes and series of capital stock of the
Company, will be entitled to elect the remaining directors of the Company (other
than the Class A Designated Directors). However, pursuant to the Shareholders'
Agreement, so long as no shares of Common Stock are issued and outstanding, the
Preferred Shareholders are obligated to vote their shares so that the persons
(other than the Preferred Designated Directors and the Class A Designated
Directors) nominated by the Nominating Committee of the Company's Board of
Directors and approved by two-thirds of the Continuing Directors of the Company
are elected as Directors of the Company. On all matters to come before the
shareholders other than the election of Directors, the Preferred Shareholders
will be entitled to vote as a class and each share of Preferred Stock which is
issued, outstanding and entitled to vote will have one vote. No vote of the
Preferred Shareholders will be deemed the vote of the class unless there has
been an affirmative vote or consent of the holders of a majority of the shares
of Preferred Stock then issued, outstanding and entitled to vote.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of the Company,
the holders of shares of Preferred Stock are entitled to receive out of the
assets of the Company available for distribution to shareholders, before any
distribution of assets is made to holders of Class A Stock or Common Stock or of
any other shares of capital stock of the Company, the Preferred Liquidation
Amount (i.e., liquidating distributions in the amount of $1,000 per share plus
accrued and unpaid dividends). After payment of such Preferred Liquidation
Amount, the holders of shares of Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company.

If upon any liquidation, dissolution or winding up of the affairs of the
Company, the assets of the Company distributable as aforesaid among the holders
of the Preferred Stock are insufficient to permit the payment to them of the
full Preferred Liquidation Amount, then the entire assets of the Company to be
so distributed will be distributed ratably among the holders of the Preferred
Stock in proportion to the sum of their respective Preferred Liquidation Amount,
including all accrued and unpaid dividends, until payment in full of such
Preferred Liquidation Amount.

Dividends

The holders of the Preferred Stock will be entitled to receive, out of
funds at the time legally available therefor, dividends at the rate of $60.00
per annum per share on and prior to December 1, 1998 and $100.00 per annum per
share after December 1, 1998, which will be fully cumulative and will accrue
without interest from the date of original issuance. Dividends are payable in
cash annually in arrears on December 1 of each year commencing December 1, 1996
(each a "Dividend Due Date") to the holders of Preferred Stock of record on a
record date fixed by the Board of Directors, which will be not more than 60 nor
less than 10 days preceding each Dividend Due Date. If any Dividend Due Date is
not a business day, then such dividend will be payable on the next business day
following such Dividend Due Date, provided that, for the purposes of computing
such dividend payment, no interest or sum in lieu of interest will accrue from
such Dividend Due Date. Dividends on account of dividends in arrears for any
past dividend period may be declared at any time and paid on any business day,
without reference to any regular Dividend Due Date. The amount of dividends
payable for the initial dividend period and any period shorter than a full
annual dividend period will be computed on the basis of a 360-day year of twelve
30-day months. Dividends paid on shares of Preferred Stock in an amount less
than the total amount of such dividends at the time accumulated and payable on
such shares will be allocated pro rata among all such shares at the time issued,
outstanding and entitled to vote.

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Conversion of Preferred Stock

Shares of Preferred Stock shall be converted into shares of Common Stock
pursuant to a Discretionary Conversion, an Automatic Conversion or a
Preliquidation Conversion upon the same terms and conditions (other than the
number of shares of Common Stock issuable upon conversion of Preferred Stock) as
Class A Stock. See "DESCRIPTION OF CAPITAL STOCK -- General -- Conversion of
Class A Stock."

Upon a Stock Conversion, each share of Preferred Stock shall convert into
the number of fully paid and nonassessable shares of Common Stock equal to
0.0004446420631%, as adjusted from time to time as described below (such
percentage, as adjusted, is referred to herein as, the "Preferred Conversion
Percentage") of the number of shares of Common Stock issuable upon conversion of
all outstanding Class A Stock and Preferred Stock (the "Fully Diluted Share
Number"), in each case calculated immediately prior to the time the Preferred
Stock is converted into Common Stock, but giving effect to any adjustments
described below immediately after such time of conversion.

For purposes of determining the Preferred Conversion Percentage, the
Conversion Price will initially be equal to the quotient of (i) 49,900,000 (the
"Stated Value") divided by (ii) 0.285142857142857 of the number of shares of
Class A Stock issued and outstanding immediately after distribution of the
shares of Class A Stock to the Eligible Subscribers entitled to the same and
will be adjusted from time to time as described below. In case the Company
issues shares of Common Stock at a price, or Rights (as defined herein), having
an Exercise Price (as defined below) per share less than the Conversion Price on
the date such shares or Rights are issued, the Conversion Price in effect at the
opening of business on the day following the date on which such shares or Rights
are issued shall be reduced by multiplying the Conversion Price on the date such
shares or Rights are issued by a fraction (i) the numerator of which shall be
(A) the number of shares of Common Stock issuable upon conversion of all then
outstanding Class A Stock and upon exercise of Rights outstanding immediately
prior to the time at which such shares or Rights are issued plus (B) the number
of shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so issued, or the number of shares of Common
Stock which the aggregate of the Exercise Price of such Rights so issued, would
purchase at such Conversion Price and (ii) the denominator of which shall be the
sum of (A) the number of shares of Common Stock issuable upon conversion of all
then outstanding Class A Stock and upon exercise of Rights outstanding
immediately prior to the time at which such shares or Rights are issued plus (B)
the number of shares of Common Stock so issued or the number of shares of Common
Stock issuable upon the exercise of such Rights so issued, such reduction to
become effective immediately after the opening of business on the day following
the date on which such shares or Rights are issued. "Exercise Price" of any
Rights is the total amount received or receivable by the Company as
consideration for the issue or sale of such Rights plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon exercise
thereof. In case part or all of the subscription or purchase price for the
Company's Common Stock shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the vote of the Board of
Directors of the Company.

Upon each such adjustment of the Conversion Price, the Preferred Conversion
Percentage shall be adjusted so that the Preferred Conversion Percentage
immediately after such adjustment shall be equal to (i) the product of (A) the
Preferred Conversion Percentage immediately prior to such adjustment times (B)
the Fully Diluted Share Number immediately prior to such adjustment times (C)
the Adjustment Factor (as defined below) divided by (ii) the sum of (A) the
number of shares of Common Stock issuable upon conversion of all outstanding
Class A Stock plus (B) the quotient of (x) the aggregate Stated Value of all
outstanding shares of Preferred Stock divided by (y) the Conversion Price, as so
adjusted. As used herein, with respect to any adjustment, the "Adjustment
Factor" shall be equal to the quotient of (i) the Conversion Price immediately
prior to such adjustment divided by (ii) the Conversion Price immediately after
such adjustment.

Upon the issuance of any shares of Class A Stock after the distribution of
shares of Class A Stock, the Conversion Price shall be adjusted so that the
Conversion Price immediately after such adjustment shall be equal to the
quotient of (i) the product of (A) 175,000,000 multiplied by (B) the Conversion
Price immediately prior to such adjustment divided by (ii) the sum of (A) the
product of (x) the number of shares

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of Class A Stock so issued multiplied by (y) the Conversion Price immediately
prior to such adjustment plus (B) 175,000,000.

No such adjustment in the Conversion Price (and, therefore, no adjustment
in the number of shares of Common Stock issuable upon conversion of shares of
Preferred Stock) shall be required unless such adjustment would require a change
of at least one half of one percent (0.5%) in such price; provided, however,
that any such adjustments which are not so required to be made shall be carried
forward and taken into account in determining any subsequent adjustment. All
calculations shall be made to the nearest one-hundredth of a cent.

Notwithstanding the foregoing, no adjustment to the Conversion Price shall
be made (i) on account of the grant of any option pursuant to a stock option
plan of the Company approved by the holders of a majority of the then issued and
outstanding shares of Preferred Stock entitled to vote by written consent or at
a meeting or (ii) on account of any shares of Common Stock or Rights as to which
holders of Preferred Stock exercise their preemptive rights.

Upon the repurchase or redemption of any Class A Stock by the Company, the
Preferred Conversion Percentage as adjusted shall be further adjusted such that
the adjusted Preferred Conversion Percentage shall be equal to the Preferred
Conversion Percentage times the quotient of (i) Post-Adjustment Valuation
(defined below) divided by (ii) Post-Adjustment Valuation less Class A
Repurchases (defined below). As used herein, "Post-Adjustment Valuation" shall
equal the sum of (i) $175,000,000 plus (ii) the number of shares of Preferred
Stock issued and outstanding at time of such adjustment times $1,000. As used
herein, "Class A Repurchases" shall be equal to the total cumulative dollar
value of Class A Stock repurchased or redeemed by the Company as of the time of
such adjustment.

Redemption of Preferred Shares

Each holder of Preferred Stock will have the option to require the Company
to redeem for cash any or all of such holder's outstanding shares of Preferred
Stock (i) after the effective date of a "Change in Control" (as defined below),
provided, however, that a majority of the members of the Board of Directors
shall have approved such Change in Control or (ii) on December 1, 2001 (a
"Conversion Redemption"). If the effective date of a Change in Control or
Conversion Redemption is also the effective date of a Stock Conversion, the
holders of Preferred Stock, in lieu of such redemption, may at their option have
their shares of Preferred Stock converted to Common Stock on the Redemption Date
(described below). The holders of the Preferred Stock may exercise the right to
have shares of Preferred Stock so redeemed by providing written notice to the
Company no later than 15 days prior to the Redemption Date specifying the number
of shares of Preferred Stock to be redeemed. The "Redemption Date" is (i) in the
case of a Change in Control, the date established by the Board of Directors,
which may be not less than thirty or more than sixty days after the effective
date of the Change in Control, or (ii) in the case of the Conversion Redemption,
December 1, 2001. The Company shall pay to each holder who has given such
redemption notice an amount per share (in cash) equal to $1,250, or in the case
of a Conversion Redemption, $900 per share, plus accrued and unpaid dividends to
the Redemption Date. The Company will be required to notify the holders of the
Preferred Stock in writing (i) of the occurrence of a Change in Control and the
related Redemption Date within fifteen days after the effective date of a Change
in Control and (ii) of a Conversion Redemption no later than November 1, 2001. A
"Change in Control" will be deemed to have occurred at such time as any person
(including any syndicate or group deemed to be a "person" under Section 13(d)(3)
of the Exchange Act other than the Company, any subsidiary of the Company or any
employee benefit plan of the Company), is or becomes the beneficial owner,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of the Company
entitling such person to exercise 50% or more of the total voting power of
capital stock of the Company entitled to vote generally in the election of
directors.

Preemptive Rights

First Registered Offering of Common Stock. Except for this distribution of
Class A Stock to Eligible Subscribers, if the Company proposes to issue, grant
or sell shares of Common Stock or Rights pursuant to the

57
<PAGE> 62

first offering of Common Stock which is registered under the Securities Act or
any corresponding securities laws of any foreign jurisdiction (the "Foreign
Laws"), the Company shall first give to each holder of the Preferred Stock a
notice (i) setting forth the information required or permitted to be included
therein by Rule 134 or other applicable provisions under the Securities Act or
the Foreign Laws, and (ii) including the range of prices within which the
Company anticipates offering such shares. Each holder of Preferred Stock shall
have the preemptive right, exercisable by notice to the Company no later than
fifteen days after receipt by such holder of the Company's notice, to purchase
such holder's "Common Proportionate Share" (as defined below), or any portion
thereof, of such shares or Rights for the same price and on the same terms as
offered to the public purchasers of such Common Stock. A holder's "Common
Proportionate Share" means the quotient which results when (i) the sum of (A)
the number of shares of Common Stock then issuable upon conversion of all shares
of both the Class A Stock and the Preferred Stock then held by such holder, plus
(B) the number of shares of Common Stock then held by such holder, is divided by
(ii) the sum of (A) the total number of shares of Common Stock issuable upon
conversion of all shares of both the Class A Stock and the Preferred Stock
issued, outstanding and entitled to vote, plus (B) the number of shares of
Common Stock issued and outstanding at that time.

Other Common Stock or Rights. If the Company proposes to issue, grant or
sell shares of Common Stock or Rights to acquire Common Stock other than as
described in the previous paragraph, the Company shall first give to each holder
of the Preferred Stock a notice setting forth in reasonable detail the price and
other terms on which such shares of Common Stock or Rights are proposed to be
issued, granted or sold, and the amount thereof proposed to be issued, granted
or sold. Each holder of Preferred Stock shall have the preemptive right,
exercisable by notice to the Company no later than 30 days after receipt by such
holder of the Company's notice, to purchase such holder's "Common Proportionate
Share" (as defined above), or any portion thereof, of such shares of Common
Stock or Rights for the same price and on the same terms as set forth in the
Company's notice.

Preferred Stock or Rights. If the Company proposes to issue, grant or sell
shares of its Preferred Stock or Rights to acquire shares of its Preferred
Stock, the Company shall first give to each holder of the Preferred Stock a
notice setting forth in reasonable detail the price and other terms on which
such shares of Preferred Stock or Rights are proposed to be issued, granted or
sold, and the amount thereof proposed to be issued, granted or sold. Each holder
of Preferred Stock shall have the preemptive right, exercisable by notice to the
Company no later than 30 days after receipt by such holder of the Company's
notice, to purchase such holder's "Preferred Proportionate Share" (as defined
below), or any portion thereof, of such shares of Preferred Stock or Rights for
the same price and on the same terms as set forth in the Company's notice. A
holder's "Preferred Proportionate Share" means the quotient which results when
the number of shares of Preferred Stock then held by such holder is divided by
the total number of shares of Preferred Stock issued, outstanding and entitled
to vote at that time.

Preemptive Rights Inapplicable. These preemptive rights will not apply to
(i) the grant of stock options or shares of the Company's stock issued pursuant
to stock ownership, stock purchase or other similar plans approved by the Board
of Directors of the Company, (ii) the issuance of shares of capital stock upon
the exercise of any stock options granted pursuant to a plan described in (i)
above, (iii) the issuance of shares of capital stock pursuant to any Rights as
to the issuance, granting or sale of which the holders of Preferred Stock were
previously extended preemptive rights in accordance with the Company's Articles
of Incorporation, (iv) the issuance of any shares to effect any approved merger,
consolidation or other acquisition of any business, division or assets, (v) the
issuance of shares for consideration other than cash as a part of a transaction
involving the purchase, leasing (as lessee) or licensing (as licensee) by the
Company of goods, services, equipment or intellectual property rights that are
to be used by the Company or its subsidiaries for bona fide operating purposes,
(iv) the issuance of shares of Class A Stock in accordance with the Plan of
Conversion filed in connection with the Conversion and approved by the Georgia
Department of Insurance or (vii) shares issued to holders of Class A Stock and
Preferred Stock as a result of a Stock Conversion.

Rights Defined. As used above, "Rights" means any options, warrants or
rights exercisable for, or otherwise giving the holder thereof the right to
acquire, or securities (other than Class A Stock and Preferred Stock)
convertible into or exchangeable for, directly or indirectly, any capital stock
or any other such options,

58
<PAGE> 63

warrants or rights or any instrument the value of which is measured by reference
to the value of the shares of the Company's capital stock.

Registration Rights

If, at any time after a Registration Event (as defined below) occurs, the
initial purchasers of the Preferred Stock (or their successors or assignees)
holding or entitled to at least 45% of the then outstanding Common Stock issued
or issuable upon conversion of such Preferred Stock propose to dispose of at
least 20% of such Common Stock then outstanding, then such holders will have the
right, on no more than two occasions, to cause the Company to use its best
efforts to register such holder's shares of Common Stock under a registration
statement filed with the Securities and Exchange Commission. In addition, such
holders of Common Stock will, subject to certain exceptions and limitations,
have the right to include their shares of Common Stock in a registration
statement filed by the Company to register Common Stock for sale for its own
account or for the account of any other person, other than in connection with
the Company's first public offering of Common Stock. For purposes of the
foregoing, "Registration Event" means the first occurrence of a Stock
Conversion, except a Preliquidation Conversion.

Transfer Restrictions

Pursuant to the Shareholders' Agreement, holders of shares of Preferred
Stock have agreed that during the term of the Shareholders' Agreement, such
holders will not sell, transfer, give, encumber, pledge or otherwise dispose of
any shares of Preferred Stock except (i) upon the death of such Preferred
Shareholder, in which case such Preferred Stock may be transferred by such
Preferred Shareholder's estate to an heir taking by law or pursuant to
testamentary succession, (ii) by operation of law, (iii) as required by a final
judicial decree, (iv) if a majority of the Continuing Directors have first
approved such action, or (v) to an entity controlling, controlled by or subject
to common control with such Preferred Shareholder, in each case for no
consideration. No sale, transfer, gift, encumbrance, pledge or other disposition
of any Preferred Stock shall be valid unless and until the proposed transferee
shall have agreed in writing to be bound by the terms and conditions of the
Shareholders' Agreement, in form and substance satisfactory to the Company.

COMMON STOCK

Voting Rights

Except for the rights of the holders of Preferred Stock and Blank Preferred
Stock, and except as otherwise provided by the GBCC or the Articles of
Incorporation of the Company, upon issuance of Common Stock, all rights to vote
shall be vested in the holders of Common Stock. Each outstanding share of Common
Stock is entitled to one vote.

Dividends

Subject to the restrictions imposed by the terms of the Preferred Stock,
dividends may be declared for distribution from time to time to the holders of
shares of Common Stock at the discretion of the Board of Directors of the
Company. See "DESCRIPTION OF CAPITAL STOCK -- Preferred Stock -- Dividends."

Liquidation

In the event no Class A Stock or Preferred Stock is issued and outstanding
at the time of a liquidation, dissolution or winding up of the affairs of the
Company, the entire assets of the Company available for distribution to
stockholders will be distributed pro rata among the holders of the Common Stock
then issued and outstanding. See "DESCRIPTION OF CAPITAL STOCK -- Class A
Stock -- Liquidation" and "DESCRIPTION OF CAPITAL STOCK -- Preferred
Stock -- Liquidation."

59
<PAGE> 64

Restrictions on Acquisition, Ownership and Voting of Securities

Unless approved by two-thirds of the Continuing Directors, so long as
Common Stock is issued and outstanding and no Preferred Stock is issued and
outstanding: (i) no person, including all of such person's affiliates and
associates, may, directly or indirectly, whether through merger, consolidation
or otherwise, acquire or hold the beneficial ownership of more than the
Permissible Ownership Amount (as defined below) of the outstanding shares of any
class of equity securities of the Company; and (ii) that portion of shares of a
class of equity securities of the Company the beneficial ownership of which is
held or acquired by any person, including all of such person's affiliates and
associates, which are in excess of the Permissible Voting Amount (as defined
below) shall not be entitled to vote.

The portion of any shares of a class of outstanding equity securities
beneficial ownership of which is held or acquired by any person, including its
affiliates and associates, which are in excess of the Permissible Ownership
Amount shall be deemed to be "Excess Shares." If notwithstanding such
prohibition, a person, including its affiliates and associates, becomes the
owner (a "Purported Owner") of Excess Shares, then, among other things: (i) the
Excess Shares of such Purported Owner shall, within twenty days following the
discovery of the Purported Owner's ownership of the Excess Shares, be
transferred to and held in an escrow account, or other similar arrangement,
administered by an escrow agent (the "Escrow Agent") for the benefit of such
Purported Owner and pursuant to which such Purported Owner does not have the
right to vote the Excess Shares; (ii) subject to all applicable securities and
other laws, within 90 days following the placement of the Excess Shares with the
Escrow Agent (the "Sales Period"), the Escrow Agent shall use its reasonable
best efforts to sell, or cause to be sold, the Excess Shares at the highest
available price and in a commercially reasonable manner; provided, however, that
if such a sale cannot take place within the Sales Period due to restrictions
imposed by any applicable securities, stock exchange or other laws, rules,
regulations or orders, such Sales Period shall be automatically extended until
90 days following the expiration of all such restrictions; and (iii) cash
dividends, distributions, property, sales and other proceeds received by the
Escrow Agent with respect to such Excess Shares shall be distributed to the
Purported Owner promptly upon the Escrow Agent's receipt thereof, less the
Escrow Agent's reasonable fee.

"Permissible Ownership Amount" means 20% of the total shares of Common
Stock outstanding at the time such term is applied; provided, however, that the
Permissible Ownership Amount then in effect shall be increased to greater than
20% under either or both of the following circumstances: (i) if a majority of
the Continuing Directors shall determine in their reasonable judgment that
setting the Permissible Ownership Amount then in effect at a percentage greater
than the Permissible Ownership Amount then in effect does not have the effect of
causing the Company to lose its licenses from the BCBSA (i.e., the Blue Cross
and Blue Shield Association) or causing a Terminating Event under the License
Addendum between the Company and the BCBSA as constituted from time to time (the
"License Addendum"), then the Board of Directors shall have the right to change,
and shall change, the Permissible Ownership Amount then in effect to such
greater amount; and (ii) if the references to 20% in Section 2.1 in the License
Addendum between the Company and the BCBSA shall be changed to a percentage
higher than the Permissible Ownership Amount then in effect, then the
Permissible Ownership Amount then in effect shall automatically change to that
new percentage.

"Permissible Voting Amount" means 5% of the total shares of Common Stock
outstanding at the time this term is applied; provided, however that the
Permissible Voting Amount then in effect shall be increased to greater than 5%
under either or both of the following circumstances: (i) if a majority of the
Continuing Directors shall determine in their reasonable judgment that setting
the Permissible Voting Amount then in effect at a percentage greater than the
Permissible Voting Amount then in effect does not have the effect of causing the
Company to lose its licenses from the BCBSA or causing a Terminating Event under
the License Addendum, then the Board of Directors shall have the right to
change, and shall change, the Permissible Voting Amount then in effect to such
greater amount; and (ii) if the references to 5% in Section 2.1 in the License
Addendum between the Company and the BCBSA shall be changed to a percentage
higher than the Permissible Voting Amount then in effect, then the Permissible
Voting Amount then in effect shall automatically change to that new percentage.

60
<PAGE> 65

ADDITIONAL ANTI-TAKEOVER PROTECTION

In addition to the protections described above, the Company's Bylaws
contain provisions that are designed to encourage persons who might attempt to
acquire control of the Company to negotiate with the Board of Directors and to
make it more difficult for such a person to complete an acquisition transaction
that is not approved in advance by the Board of Directors as being in the best
interests of the Company and its shareholders. In this way, the Board of
Directors' ability to negotiate on behalf of the Company and its shareholders
with regard to the proposed acquisition is maximized. Additionally, the Articles
of Incorporation provide for the classification of the Company's Board of
Directors into three classes with one being elected each year and the members of
each class serving three year terms. Such provisions discourage and make more
difficult a change in control of the Company or the removal of incumbent
management, even if favorable to the Company's shareholders.

BLANK PREFERRED STOCK

In its Articles of Incorporation, the Company has authorized 100,000,000
shares of Blank Preferred Stock. None of such shares has been issued. The
Articles provide that the Board of Directors may from time to time issue such
shares in such series or classes with such terms, preferences and other
provisions as the Board shall determine, provided that such issuance is approved
by a majority of the holders of the Preferred Stock then issued, outstanding and
entitled to vote.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

As permitted by the GBCC, the Company's Articles of Incorporation contain
provisions that eliminate the personal liability of Directors for monetary
damages to the Company or its shareholders for breach of their fiduciary duties
as directors, except to the extent such elimination of liability is prohibited
by the GBCC. In accordance with the GBCC, these provisions do not limit the
liability of any Director (i) for any appropriation of a business opportunity of
the Company in violation of the Director's duty; (ii) for acts or omissions
which involve intentional misconduct or a knowing violation of law; (iii) for
any dividend payment, stock repurchase, stock redemption or distribution in
liquidation that is prohibited under Georgia law; or (iv) for any transaction
from which the Director derived an improper personal benefit. These provisions
do not limit or eliminate the rights of the Company or any shareholder to seek
an injunction or any other non-monetary relief in the event of a breach of a
Director's fiduciary duty.

The Company's Articles of Incorporation also provide for indemnification of
Directors against expenses and liability (including amounts paid in settlement)
arising out of third-party proceedings as well as proceedings brought by or in
the right of the Company, provided only that the liability has not been incurred
in a proceeding in which the Director is adjudged liable to the Company, or is
subjected to injunctive relief in favor of the Company, (i) for any
appropriation, in violation of the Director's duties, of any business
opportunity of the Company; (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law; (iii) for the types of liability
involving unlawful distributions to shareholders of the Company; or (iv) for any
transaction in which the Director received an improper personal benefit.

The purpose of these provisions is to assist the Company in retaining
qualified individuals to serve as Directors by limiting their exposure to
personal liability for serving as such. The Company has applied for directors
and officers liability insurance and expects to maintain coverages which are
usual for companies of similar size and in similar circumstances in its
industry.

LEGAL MATTERS

Certain legal matters in connection with the shares of Class A Stock
offered hereby will be passed upon for the Company by Long, Aldridge & Norman,
LLP, Atlanta, Georgia.

61
<PAGE> 66

EXPERTS

The consolidated financial statements of Blue Cross and Blue Shield of
Georgia, Inc. as of December 31, 1994 and 1995, and for each of the three years
in the period ended December 31, 1995 and the balance sheet of Cerulean
Companies, Inc. as of February 2, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

This Prospectus constitutes a part of a Registration Statement on Form S-1
(the "Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act with respect to
the Class A Stock offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. The
Registration Statement and the exhibits and schedules thereto can be inspected
and copied at the public reference facilities and regional offices of the
Commission referred to below.

As a result of the offering of the Class A Stock, the Company will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file periodic reports and
other information with the Commission. The Registration Statement and such
reports and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago Illinois 60621. Copies of such materials can also be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements and notes thereto, together with an
opinion thereon expressed by an independent accounting firm.

62
<PAGE> 67

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The Company was organized on February 2, 1996 for the purpose of acting as
a holding company for Georgia Blue and its subsidiaries and to engage in certain
other health care related activities and therefore has no results of operations
prior to that time. As a result, the Consolidated Financial Statements contained
herein are the Consolidated Financial Statements of Georgia Blue. See "SELECTED
CONSOLIDATED FINANCIAL AND OPERATING DATA -- Selected Pro Forma Financial
Information of the Company."

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.
Report of Independent Auditors.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995...................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and
1995........................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995....................................................................... F-5
Notes to Consolidated Financial Statements........................................ F-6
CERULEAN COMPANIES, INC.
Report of Independent Auditors.................................................... F-20
Balance Sheet as of February 2, 1996.............................................. F-21
Notes to Balance Sheet............................................................ F-22
</TABLE>

F-1
<PAGE> 68

REPORT OF INDEPENDENT AUDITORS

Board of Directors

Blue Cross and Blue Shield of Georgia, Inc.

We have audited the accompanying consolidated balance sheets of Blue Cross
and Blue Shield of Georgia, Inc. and subsidiaries as of December 31, 1994 and
1995, and the related consolidated statements of income, surplus and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Blue Cross and
Blue Shield of Georgia, Inc. and subsidiaries at December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

As discussed in Notes 7, 2, and 11 to the financial statements, in 1993,
1994 and 1995 the Company changed its method of accounting for income taxes,
investments in debt and equity securities and post retirement benefits other
than pensions, respectively.

ERNST & YOUNG LLP

Atlanta, Georgia

February 7, 1996

F-2
<PAGE> 69

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities:
Available-for-sale, at fair value (amortized cost:
$119,942,417; $126,115,087)................................. $114,947,239 $131,055,098
Held-to-maturity, at amortized cost (fair value: $13,361,809;
$-0-)....................................................... 13,366,533 --
Equity securities, at fair value (cost: $42,309,265;
$39,657,474)................................................. 46,642,536 42,729,087
Short-term investments, at fair value (cost: $1,535,000;
$932,958).................................................... 1,535,000 905,383
------------ ------------
Total investments....................................... 176,491,308 174,689,568
Cash and cash equivalents......................................... 25,484,560 49,304,688
Reimbursable portion of estimated benefit liabilities............. 99,261,300 102,132,300
Accounts receivable (Note 4)...................................... 30,213,582 36,063,899
FEP assets held by agent.......................................... 30,709,084 12,137,107
Property and equipment (Note 5)................................... 32,386,518 33,952,436
Other assets...................................................... 12,477,090 8,798,587
------------ ------------
Total assets............................................ $407,023,442 $417,078,585
=========== ===========
LIABILITIES AND SURPLUS
Liabilities:
Estimated benefit liabilities (Note 8).......................... $167,895,476 $175,846,250
Unearned premiums............................................... 5,039,667 7,289,126
FEP stabilization reserve....................................... 30,709,084 12,137,107
Accounts payable and accrued expenses........................... 20,416,622 16,635,534
Payables to other plans......................................... 3,875,957 2,442,748
Other liabilities............................................... 28,416,273 27,688,394
Note payable (Note 6)........................................... 2,000,000 2,000,000
------------ ------------
Total liabilities....................................... 258,353,079 244,039,159
Surplus........................................................... 148,670,363 173,039,426
------------ ------------
Total liabilities and surplus........................... $407,023,442 $417,078,585
=========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE> 70

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Revenues (Note 2):
Premiums........................................ $939,670,647 $1,038,397,310 $1,159,475,955
Investment and other income..................... 8,524,434 9,462,343 11,980,241
Realized gains.................................. 4,657,562 2,512,078 15,265,396
------------ -------------- --------------
Total revenues.......................... 952,852,643 1,050,371,731 1,186,721,592
Benefits expense (Note 8)......................... 832,907,684 914,277,412 1,039,095,566
Operating expenses, net of expense reimbursements
of $46,930,981 in 1993, $55,028,004 in 1994, and
$68,986,042 in 1995 (Note 9).................... 89,283,634 111,012,554 126,076,519
------------ -------------- --------------
Operating income.................................. 30,661,325 25,081,765 21,549,507
Loss on building repurchase (Note 13)............. (7,566,171) -- --
------------ -------------- --------------
Income before income taxes, minority interest and
cumulative effect of a change in accounting
principle....................................... 23,095,154 25,081,765 21,549,507
Income taxes (Note 7)............................. 4,796,000 5,621,000 3,857,000
------------ -------------- --------------
Income before minority interest and cumulative
effect of a change in accounting principle...... 18,299,254 19,460,765 17,692,507
Minority interest................................. -- -- (282,061)
Cumulative effect on prior years (to January 1,
1993) of changing to a different method of
accounting for income taxes (Note 7)............ 5,449,000 -- --
------------ -------------- --------------
Net income........................................ $ 23,748,154 $ 19,460,765 $ 17,410,446
=========== ============= =============
</TABLE>

CONSOLIDATED STATEMENTS OF SURPLUS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Surplus at beginning of year......................... $105,990,686 $129,738,840 $148,670,363
Net income........................................... 23,748,154 19,460,765 17,410,446
Unrealized appreciation (depreciation) of
available-for-sale securities, net of income tax
benefit of $132,665 in 1994 and income taxes of
$1,692,063 in 1995................................. -- (529,242) 6,958,617
------------ ------------ ------------
Surplus at end of year............................... $129,738,840 $148,670,363 $173,039,426
=========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 71

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 23,748,154 $ 19,460,765 $ 17,410,446
Adjustments to reconcile net income to net cash
provided by operating activities:
Items that did not use cash:
Depreciation................................. 4,666,807 6,207,710 8,451,468
Building write-down.......................... 700,000 -- --
Amortization................................. 602,713 652,741 424,299
Provision for uncollectible receivables...... 263,524 282,268 659,361
Gain on sale of investments.................. (4,657,562) (2,512,078) (15,265,396)
Loss (gain) on sale of property and
equipment.................................. (81,516) 404,265 33,183
Decrease (increase) in certain assets:
Accounts receivable........................ 2,389,287 (6,770,727) (9,380,679)
Other assets............................... (2,156,754) (5,802,463) 1,991,162
Increase (decrease) in certain liabilities:
Estimated benefit liabilities........... (7,410,225) 14,015,702 7,950,774
Unearned premiums....................... (1,232,666) (1,182,457) 2,249,459
Accounts payable and accrued expenses... 4,996,311 981,118 (3,781,088)
Payables to other plans................. (907,936) (643,822) (1,433,209)
Other liabilities....................... 8,201,385 10,287,409 (727,878)
------------- ------------- -------------
Net cash provided by operating
activities............................ 29,121,522 35,380,431 8,581,902
INVESTING ACTIVITIES
Investments purchased............................. (137,382,293) -- --
Investments sold or matured....................... 109,188,401 -- --
Investments available-for-sale:
Investments purchased........................... -- (106,836,313) (197,281,258)
Investments sold or matured..................... 97,473,024 210,596,136
Investments held-to-maturity:
Investments purchased........................... -- (17,020,558) (149,844)
Investments matured............................. -- 6,691,372 12,123,761
Proceeds from sale of building.................... -- 4,200,000 --
Property and equipment purchased.................. (9,427,267) (14,794,935) (10,068,720)
Property and equipment sold....................... 890,047 542,460 18,151
------------- ------------- -------------
Net cash provided by (used in) investing
activities............................ (36,731,112) (29,744,950) 15,238,226
FINANCING ACTIVITIES
Proceeds from note payable........................ -- 2,000,000 --
------------- ------------- -------------
Net cash provided by financing activities......... -- 2,000,000 --
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents..................................... (7,609,590) 7,635,481 23,820,128
Cash and cash equivalents at beginning of year.... 25,458,669 17,849,079 25,484,560
------------- ------------- -------------
Cash and cash equivalents at end of year.......... $ 17,849,079 $ 25,484,560 $ 49,304,688
============ ============ ============
</TABLE>

See accompanying notes.

F-5
<PAGE> 72

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. ORGANIZATION

At December 31, 1995, Blue Cross and Blue Shield of Georgia, Inc. (the
"Company") operated as a not-for-profit corporation under Georgia law. House
Bill 699 passed during the 1995 session of the Georgia General Assembly
permitted the Company to pursue a change to for-profit status subject to a plan
of conversion approved by the Georgia Commissioner of Insurance. On February 2,
1996, the Company converted from a not-for-profit corporation to a for-profit
corporation and became a wholly owned subsidiary of Cerulean Companies, Inc.
("Cerulean") pursuant to a Plan of Conversion approved by the Georgia
Commissioner of Insurance on December 27, 1995. Cerulean is a newly formed
Georgia corporation organized for the purpose of acting as the holding company
for the Company. In connection with the conversion, Cerulean issued 49,900
shares of Class B Convertible Preferred Stock ("Preferred Stock") to raise $49.9
million in capital. In addition, pursuant to the plan of conversion, Cerulean
will distribute Class A Convertible Common Stock ("Class A Stock") to more than
160,000 estimated subscribers of the Company as of September 1, 1995, the record
date, who remain subscribers at the time of the issuance of Class A Stock. The
distribution of the shares of Class A Stock will follow an effective
registration of those securities with the Securities and Exchange Commission.
The net proceeds to Cerulean from the sale of the Preferred Stock totaled
approximately $46.1 million after deducting estimated offering expenses.
Cerulean currently intends to use the proceeds for general corporate purposes,
which may include strategic information systems development, medical access
point development, medical service organization and other strategic
acquisitions.

The Company and its subsidiaries operate principally in the health and life
insurance business and offer a comprehensive array of insurance products,
including managed care products and services offered through a health
maintenance organization ("HMO"), preferred provider organization ("PPO"), and a
point of service network plan ("POS"), traditional comprehensive indemnity
health coverage to employer groups and individuals, administrative services and
cost containment programs for self-funded employers and group life insurance
products.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements of the Company and its
majority-owned subsidiaries have been prepared in conformity with generally
accepted accounting principles ("GAAP") and require the use of management's
estimates. As to the Company's managed care, health and life insurance
operations, GAAP varies in some respects from statutory accounting practices
permitted or prescribed by insurance regulatory authorities. The Company, its
health maintenance organization and its life insurance subsidiary are subject to
regulation by the Georgia Insurance Department including minimum capital and
surplus requirements and restrictions on payment of dividends.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned health maintenance and life insurance
subsidiaries, a non-insurance subsidiary and community health partnership
network joint ventures ("CHPNs") in which the Company has a majority interest.
All significant intercompany transactions and balances have been eliminated in
consolidation.

INVESTMENTS

In 1993, the Financial Accounting Standards Board ("FASB") issued Statement
115, Accounting for Certain Investments in Debt and Equity Securities. Statement
115 requires that fixed maturity securities are to be classified as either
"held-to-maturity", "available-for-sale", or "trading". The Company adopted
State-

F-6
<PAGE> 73

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ment 115 as of January 1, 1994, with no effect on net income and a $7,589,000
increase in surplus (net of deferred taxes of $1,897,000).

Management determines the appropriate classification of its fixed maturity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Fixed maturity securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold them to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization as well as interest earned is included in investment income.

Fixed maturity and equity securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of surplus. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest earned is included in investment
income. The cost of securities sold is based on the specific identification
method. At December 31, 1995, the Company classified all of its fixed maturity
and equity securities as available-for-sale. The Company's investment portfolio
is not significantly concentrated in any particular industry or geographic
region.

CASH AND CASH EQUIVALENTS

Cash equivalents are liquid, short-term investments with maturities of
three months or less at the time of purchase and are combined with cash account
balances. These investments are stated at cost, which approximates fair value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets, which are 40 years for building and
building improvements, 7 years for furniture and equipment and 5 years for
autos.

ESTIMATED BENEFIT LIABILITIES

The Company provides for claims incurred but unreported and the cost of
adjudicating claims based primarily on past experience, membership demographics,
claims run-off patterns and other current medical trend information, using
accepted actuarial methods. Estimates are adjusted as changes in these factors
occur and such adjustments are reported in the year of determination. Portions
of the Company's estimated benefit liabilities are reimbursable due to the
nature of certain self-funded and rate stabilization reserve programs.
Offsetting receivables have been recorded in the balance sheet.

PREMIUM REVENUES

Premiums are generally billed to subscribers in advance of coverage. Income
is recognized ratably over the related period of coverage. Unearned premiums,
which represents the portion of premiums that will be earned in future periods,
is reflected as a liability in the balance sheet.

Premium income (or the equivalent) and any related administrative fees from
cost-plus business, including dues from the FEP program and certain national
groups, are recognized at the time the related claims are incurred.

F-7
<PAGE> 74

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RATE STABILIZATION RESERVES

The Company has entered into agreements with certain groups whose
subscription fees are based on experience rating. On each group's anniversary
date, the gain or loss resulting from its experience is determined.

Accumulated net gains which represent the accumulated excess of
subscription income over claims incurred and retention for administrative
expenses are recorded as a rate stabilization reserve liability. Under the terms
of these agreements, groups may utilize these excess funds to reduce prospective
rates, leave the excess funds on deposit with the Company or receive a refund.
The accumulated excess of claims incurred and retention for administrative
expenses over subscription income is generally expensed by the Company. However,
in a few shared risk arrangements, net losses are recorded as receivables to the
extent they are recoverable from the respective groups.

NATIONAL ACCOUNTS

The Company participates in the underwriting of certain national
(multiple-plan) groups. Claims paid plus certain administrative expenses are
reimbursed by a control plan. The Company's share of underwriting gains or
losses on these national groups is recognized when settlements are rendered by
the control plan, which is typically between 6 and 18 months after the
expiration of the contract period.

FEDERAL EMPLOYEE PROGRAM

The Company and other Blue Cross and Blue Shield plans participate in the
Federal Employee Program (FEP) which underwrites a voluntary health insurance
contract for employees (and their dependents) of the federal government. The
Blue Cross and Blue Shield Association has been designated as the contract
agent. A premium stabilization reserve liability (FEP stabilization reserve) and
an offsetting asset (FEP assets held by agent) have been recorded in the balance
sheet, and subscription income, investment income and operating expenses,
including FEP operations center expenses, have been recorded in the statement of
income to recognize the Company's portion of the FEP's results.

RISKS AND UNCERTAINTIES

The Company primarily conducts business in the State of Georgia, and a
significant portion of its customer base is concentrated with companies that are
located in the metropolitan Atlanta area. As a percentage of premium revenues,
the Company's two largest customers are the Federal Employee Program and the
University System of Georgia. The Federal Employee Program represented 24% of
premium revenues in 1993 and 1994 and 23% in 1995. The University System of
Georgia, a customer since 1994, represented 12% and 11% of premium revenues,
respectively, in 1994 and 1995. In 1993, the second largest customer represented
less than 10% of premium revenues.

Results of operations are directly affected by premium rate adequacy which
depends on pricing and underwriting decisions, the level of membership serviced
by the Company's physician, hospital, pharmacy and other networks (and since
January 1995, by the Company's CHPNs), estimates of medical benefits, health
care utilization, estimates of health care cost trends, effective administration
of benefit payments, operating efficiencies, investment returns and federal and
state laws and regulations.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to the
current year presentation.

F-8
<PAGE> 75

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS

Investments at December 31, 1994 and December 31, 1995 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1994
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U. S.
government agencies...... $ 99,102,329 $ 93,318 $(3,890,600) $ 95,305,047 $ 95,305,047
Foreign governments......... 1,007,744 -- (103,544) 904,200 904,200
Corporate securities........ 19,832,344 49,077 (1,143,429) 18,737,992 18,737,992
------------ ---------- ----------- ------------ ------------
Total fixed
maturities........ 119,942,417 142,395 (5,137,573) 114,947,239 114,947,239
Equity Securities:
Preferred stocks............ 1,000,000 -- -- 1,000,000 1,000,000
Common stocks............... 41,309,265 6,477,894 (2,144,623) 45,642,536 45,642,536
------------ ---------- ----------- ------------ ------------
Total equity
securities........ 42,309,265 6,477,894 (2,144,623) 46,642,536 46,642,536
------------ ---------- ----------- ------------ ------------
Total
available-for-sale
securities........ $162,251,682 $6,620,289 $(7,282,196) $161,589,775 $161,589,775
=========== ========= ========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1994
HELD-TO-MATURITY SECURITIES
-----------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities
and obligations of U. S.
government agencies..... $11,591,113 $ -- $ (4,724) $11,586,389 $11,591,113
Corporate securities....... 1,775,420 -- -- 1,775,420 1,775,420
----------- ---------- ---------- ----------- -----------
Total fixed
maturities....... 13,366,533 -- (4,724) 13,361,809 13,366,533
Short-term investments....... 1,535,000 -- -- 1,535,000 1,535,000
----------- ---------- ---------- ----------- -----------
Total
held-to-maturity
securities....... $14,901,533 $ -- $ (4,724) $14,896,809 $14,901,533
========== ======== ======== ========== ==========
</TABLE>

F-9
<PAGE> 76

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1995
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
------------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U. S.
government agencies....... $105,204,549 $4,419,820 $ (59,147) $109,565,222 $109,565,222
Corporate securities......... 20,910,538 641,086 (61,748) 21,489,876 21,489,876
------------ ---------- --------- ------------ ------------
Total fixed
maturities......... 126,115,087 5,060,906 (120,895) 131,055,098 131,055,098
Equity Securities:
Preferred stocks............. 1,000,000 -- -- 1,000,000 1,000,000
Common stocks................ 38,657,474 3,824,858 (753,245) 41,729,087 41,729,087
------------ ---------- --------- ------------ ------------
Total equity securities...... 39,657,474 3,824,858 (753,245) 42,729,087 42,729,087
Short-term investments....... 932,958 -- (27,575) 905,383 905,383
------------ ---------- --------- ------------ ------------
Total
available-for-sale
securities......... $166,705,519 $8,885,764 $(901,715) $174,689,568 $174,689,568
=========== ========= ========= =========== ===========
</TABLE>

Fair values for fixed maturities and short-term investments are based on
quoted market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services. The fair values for common stocks are based on quoted market prices.

The amortized cost and fair values of fixed maturities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
AVAILABLE-FOR-SALE SECURITIES
-----------------------------
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less......................................... $ 7,600,238 $ 7,716,239
Due after one year through five years........................... 62,144,021 63,665,990
Due after five years through ten years.......................... 50,135,697 53,342,559
Due after ten years............................................. 6,235,131 6,330,310
------------ ------------
Total fixed maturity securities....................... $126,115,087 $131,055,098
=========== ===========
</TABLE>

Bonds, certificates of deposit and money market funds carried at a value of
$710,000 and $802,000 were on deposit with insurance regulatory authorities at
December 31, 1994 and 1995, respectively, in accordance with statutory
requirements.

F-10
<PAGE> 77

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment and other income for the years ended December 31, 1993, 1994 and
1995 is summarized as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities................................. $6,567,460 $ 7,253,006 $ 8,231,507
Equity securities................................ 1,074,195 1,118,939 1,711,034
Short-term investments and cash equivalents...... 1,370,029 2,203,227 1,827,176
---------- ----------- -----------
Interest and dividend income..................... 9,011,684 10,575,172 11,769,717
Less investment expenses......................... (855,284) (667,694) (785,327)
---------- ----------- -----------
Net investment income............................ 8,156,400 9,907,478 10,984,390
Other income (loss).............................. 368,034 (445,135) 995,851
---------- ----------- -----------
Investment and other income...................... $8,524,434 $ 9,462,343 $11,980,241
========= ========== ==========
</TABLE>

The other income (loss) amount for the year ended December 31, 1995
includes the receipt of $2 million related to the settlement of a lease dispute.

Realized and unrealized investment gains and losses for the years ended
December 31, 1993, 1994 and 1995 were as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ -----------
<S> <C> <C> <C>
Realized gains:
Fixed maturities.............................. $2,586,685 $ 342,379 $ 1,487,683
Equity securities............................. 2,610,471 3,644,722 15,406,816
---------- ------------ -----------
Total gains........................... 5,197,156 3,987,101 16,894,499
Realized losses:
Fixed maturities.............................. (22,173) (406,314) (529,914)
Equity securities............................. (517,421) (1,068,709) (1,099,189)
---------- ------------ -----------
Total losses.......................... (539,594) (1,475,023) (1,629,103)
---------- ------------ -----------
Net realized investment gains................... 4,657,562 2,512,078 15,265,396
Changes in unrealized gains (losses):
Fixed maturities.............................. 494,838 (9,065,045) 9,939,912
Equity securities............................. 120,394 (2,045,746) (1,261,656)
Short-term investments.......................... -- -- (27,576)
---------- ------------ -----------
Net unrealized gains (losses)................... 615,232 (11,110,791) 8,650,680
---------- ------------ -----------
Total realized and unrealized gains
(losses)............................ $5,272,794 $ (8,598,713) $23,916,076
========= =========== ==========
</TABLE>

4. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Groups and subscribers.................................... $17,217,949 $20,902,147
Other Blue Cross and Blue Shield plans.................... 4,170,282 5,270,938
Federal Employee Program.................................. 1,539,271 1,541,541
Inter-Plan Bank........................................... 555,885 427,718
Other..................................................... 8,595,309 10,446,030
Less: Allowance for doubtful accounts..................... (1,865,114) (2,524,475)
----------- -----------
$30,213,582 $36,063,899
========== ==========
</TABLE>

F-11
<PAGE> 78

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
Land...................................................... $ 1,131,528 $ 1,131,528
Building & improvements................................... 11,857,657 12,824,077
Furniture & equipment..................................... 52,338,689 60,667,142
------------ ------------
65,327,874 74,622,747
Less accumulated depreciation............................. (32,941,356) (40,670,311)
------------ ------------
$ 32,386,518 $ 33,952,436
=========== ===========
</TABLE>

Depreciation expense was $4,666,807, $6,207,710 and $8,451,468 for 1993,
1994 and 1995, respectively, including $386,670 in 1993, $418,813 in 1994 and
$746,113 in 1995 for building improvements.

6. LINES OF CREDIT

The Company has available a $5,500,000 line of credit with a bank to
finance its working capital needs. Interest accrues on amounts advanced at the
prime rate. There were no borrowings on this line of credit in 1993, 1994 or
1995.

In 1994, the Company entered into a revolving credit loan agreement with a
group of banks to finance its community health partnership networks and other
related costs. Under terms of the agreement, the Company can borrow up to
$25,000,000. Interest accrues on amounts advanced at a variable rate tied to the
LIBOR rate. Borrowings outstanding under the revolving credit loan agreement
totaled $2,000,000 at December 31, 1994 and 1995. The weighted average interest
rate on amounts outstanding for 1994 and 1995 was 6% and 6.8%, respectively.

F-12
<PAGE> 79

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, Accounting for Income Taxes. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. The significant components of the deferred tax asset, which
is included in other assets in the balance sheet, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax asset:
Regular tax operating loss carryforwards................ $ 25,017,000 $ 22,737,000
Other temporary differences............................. 6,812,000 6,259,000
Alternative minimum tax credit.......................... 1,005,000 3,107,000
Unrealized investment losses............................ 132,665 --
------------ ------------
Total deferred tax asset................................ 32,966,665 32,103,000
Valuation allowance for deferred tax asset.............. (30,573,000) (29,805,000)
------------ ------------
Deferred tax asset, net of valuation allowance
Deferred tax liability:................................... 2,393,665 2,298,000
Unrealized investment gains............................. -- 1,692,063
------------ ------------
Total deferred tax liability............................ -- 1,692,063
------------ ------------
Net deferred tax asset.................................... $ 2,393,665 $ 605,937
=========== ===========
</TABLE>

The other temporary differences consist principally of differences between
tax and generally accepted accounting principles related to estimated benefit
liabilities and accounting accruals.

At December 31, 1995, the Company has net operating loss carryforwards of
$64,962,000 for regular income tax purposes that expire in the years 2001
through 2003. For financial reporting purposes, a valuation allowance has been
recorded to reduce the deferred tax assets related to net operating loss
carryforwards to the amount expected to be realized under the alternative
minimum tax system.

The significant components of the provision for income taxes are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense................................ $1,429,000 $5,793,000 $3,895,000
Utilization of alternative minimum tax net
operating loss carryforwards..................... 4,120,000 -- --
Deferred tax benefit from other temporary
differences...................................... (753,000) (172,000) (38,000)
---------- ---------- ----------
Total tax expense.................................. $4,796,000 $5,621,000 $3,857,000
========= ========= =========
</TABLE>

F-13
<PAGE> 80

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
Increases (reductions) in tax rate resulting from:
Alternative minimum tax............................... (15.0) (15.0) (15.0)
Utilization of alternative minimum tax net operating
loss carryforwards................................. 1.3 -- --
Other................................................... (0.5) 2.4 (2.1)
----- ----- -----
Effective tax rate...................................... 20.8% 22.4% 17.9%
===== ===== =====
</TABLE>

The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. Income tax expense in 1993, 1994 and 1995 consisted primarily
of federal alternative minimum tax. Federal income taxes paid during 1993, 1994
and 1995 were $834,000, $4,800,000 and $3,300,000, respectively.

8. ESTIMATED BENEFIT LIABILITIES

The following table provides a reconciliation of the beginning and ending
estimated benefit liabilities including claims adjudication expenses, net of
reimbursable reserves and life reserves, for 1993, 1994 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1......................... $161,289,999 $153,879,774 $167,895,476
Less: Reimbursable reserves and life
reserves................................... 105,357,244 98,196,291 105,931,261
------------ ------------ ------------
Net balance at January 1..................... 55,932,755 55,683,483 61,964,215
Plus incurred related to:
Current year............................... 273,726,010 283,484,304 340,152,289
Prior year................................. (7,660,336) (5,027,504) 4,669,051
------------ ------------ ------------
Total incurred..................... 266,065,674 278,456,800 344,821,340
Less paid related to:
Current year............................... 219,728,708 219,754,710 276,661,685
Prior year................................. 46,586,238 52,421,358 62,881,094
------------ ------------ ------------
Total paid......................... 266,314,946 272,176,068 339,472,779
------------ ------------ ------------
Net balance at December 31................... 55,683,483 61,964,215 67,312,776
Plus: Reimbursable reserves and life
reserves................................... 98,196,291 105,931,261 108,533,474
------------ ------------ ------------
Balance at December 31....................... $153,879,774 $167,895,476 $175,846,250
=========== =========== ===========
</TABLE>

The provision for claims decreased by $7,727,975 in 1993 and $4,727,849 in
1994 because of lower-than-anticipated health care trends for both periods and
increased by $5,171,051 in 1995 due to higher than anticipated utilization and
claims costs.

F-14
<PAGE> 81

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. AGENCY CONTRACTS

The Company processes and pays claims as fiscal intermediary for the
Medicare Program and as an administrative agent for the State of Georgia and the
Inter-Plan Bank. Claims from these programs, which are excluded from the
accompanying statement of income, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Claims processed for:
Medicare.............................. $1,873,379,182 $2,120,785,277 $2,431,829,705
State of Georgia...................... 624,082,406 687,321,822 757,743,385
Inter-Plan Bank....................... 22,596,123 19,316,104 56,311,783
-------------- -------------- --------------
$2,520,057,711 $2,827,423,203 $3,245,884,873
============= ============= =============
</TABLE>

The Company receives reimbursement for administrative expenses incurred in
performing these services. These expense reimbursements have been included in
reimbursements deducted from operating expenses in the accompanying statement of
income.

The operating expense reimbursements in connection with processing Medicare
claims have been audited through 1992 by government representatives. Management
is of the opinion that no significant adjustments will be made affecting cost
reimbursement through December 31, 1995.

10. OPERATING LEASES

The Company has an operating lease arrangement for its home office
facility. The term of the lease is ten years, with two five-year renewal
options. Annual rental includes base rental plus pro-rated real estate taxes and
operating expenses.

In addition, the Company leases other office space and data processing
equipment. Future minimum lease obligations (including estimated real estate
taxes and operating expenses) under all noncancellable operating leases are as
follows:

<TABLE>
<S> <C>
1996.................................................................... $10,263,929
1997.................................................................... 5,714,754
1998.................................................................... 5,119,007
1999.................................................................... 4,408,739
2000.................................................................... 683,022
Thereafter.............................................................. --
-----------
$26,189,451
==========
</TABLE>

Rent expense amounted to approximately $9,710,000 in 1993, $9,014,000 in
1994 and $9,933,000 in 1995.

11. EMPLOYEE BENEFITS

PENSION PLAN

The Company and its subsidiaries participate in a multi-employer
noncontributory defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
compensation during those years. The Company's funding policy is to contribute
amounts sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future. The Projected Unit Credit Method is used to
determine funding requirements and pension expense.

F-15
<PAGE> 82

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the funded status and amounts recognized in
the consolidated financial statements at the respective dates:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $22,769,577 in 1994 and $28,999,214 in 1995........ $27,004,395 $ 34,768,974
========== ===========
Actuarial present value of projected benefit obligation for
service rendered to date................................. $38,161,237 $ 53,243,916
Plan assets at fair value, primarily short-term
investments, listed stocks, corporate bonds and U.S.
government securities.................................... 29,232,920 39,807,076
----------- ------------
Plan assets (less than) projected benefit obligation....... (8,928,317) (13,436,840)
Unrecognized net loss...................................... 7,568,876 9,885,573
Unrecognized transition asset.............................. (1,202,645) (1,068,272)
Unrecognized prior service cost............................ (48,550) 2,960,032
----------- ------------
Accrued pension liability.................................. $(2,610,636) $ (1,659,507)
========== ===========
</TABLE>

The net pension cost includes the following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the
period........................................ $ 1,815,453 $ 2,026,435 $ 2,367,130
Interest cost on projected benefit obligation... 2,468,774 2,697,487 3,296,580
Actual return on Plan assets.................... (2,947,678) (252,295) (7,348,111)
Net amortization and deferral................... 291,200 (2,715,148) 4,626,964
----------- ----------- -----------
Net pension cost...................... $ 1,627,749 $ 1,756,479 $ 2,942,563
========== ========== ==========
</TABLE>

The following assumptions were used in the pension calculations:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Weighted-average discount rate................................... 8.5 % 8.0% 8.5%
Rate of increase in future compensation.......................... 4.5 3.5-7 3.5-7
Expected long-term rate of return on assets...................... 9 9 9
</TABLE>

DEFINED CONTRIBUTION PLAN

The Company offers a defined contribution plan ("401(k) plan") covering
substantially all employees. Under this plan, employees can contribute up to 15%
of their base compensation, subject to certain maximum limitations. The Company
matches 50% of the employees' first $500 contributed and 25% thereafter, up to a
maximum of 6% of the employees' annual compensation. The Company's matching
contributions vest 25% per year commencing at the end of the second year of
participation. Employee contributions vest immediately. The Company contributed
$568,000 to this 401(k) plan during 1993, $720,000 during 1994 and $878,000
during 1995.

POSTRETIREMENT PLAN

The Company sponsors a Defined Dollar Benefit Plan that provides
postretirement health, dental, vision and life insurance benefits to full-time
associates with at least ten years of service or part-time associates with

F-16
<PAGE> 83

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the equivalent of ten years full-time employment. These benefits are also
available to spouses. Credits based on length of service are provided to
retirees annually to be used towards the cost of postretirement benefits.
Spouses of retirees receive one half of the credits received by retirees. For
those who retired prior to January 1, 1995, insurance is provided by the Company
at no cost to the retiree. Additionally, a group of associates who meet the
"rule of 80" (those who were at least age 55 with ten years of service, and
whose combined years of service plus age equaled 80 or greater) by December 31,
1994, are grandfathered and will receive postretirement benefits at no cost
whenever they retire.

Effective January 1, 1995, the Company changed its method of accounting for
such benefits from a pay-as-you-go method to a full accrual method and adopted
FASB Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("FASB Statement No. 106"). This
Statement requires that the projected future cost of providing postretirement
benefits, such as health care and life insurance, be recognized as an expense as
employees render service instead of when the benefits are paid. The
implementation required the recognition of a transition obligation (as defined
in the Statement) representing the unfunded obligation attributable to prior
employee service. The Company has elected to amortize the transition obligation
over a period of 20 years. The effect of the change for 1995 was to increase net
periodic postretirement benefit cost by $1,986,664 and decrease net income by
$1,589,331. Postretirement benefit costs for 1993 and 1994, which were recorded
on a pay-as-you-go basis, have not been restated. The cost of providing
postretirement benefits to retirees in 1993 and 1994 was not separable from the
cost of providing these benefits to the Company's active employees.

The following table presents the plan's funded status reconciled with
amounts recognized in the Company's balance sheet:

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $(10,556,100) $(10,656,900)
Fully eligible active plan participants................. (111,200) (117,100)
Other active plan participants.......................... (5,433,600) (6,511,300)
------------ ------------
(16,100,900) (17,285,300)
Fair value of plan assets................................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess of
plan assets............................................. (16,100,900) (17,285,300)
Unrecognized transition obligation........................ 16,100,900 15,295,800
Unrecognized gain (loss).................................. -- 2,836
------------ ------------
Accrued postretirement benefit cost....................... $ -- $ (1,986,664)
=========== ===========
</TABLE>

The net periodic postretirement benefit cost includes the following
components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Service cost............................................................ $ 405,900
Interest cost........................................................... 1,284,600
Amortization of transition obligation over 20 years..................... 805,100
------------
Net periodic postretirement benefit cost................................ $2,495,600
==========
</TABLE>

The valuation is based on census information as of January 1, 1995 and
claims development based on the benefits provided. The discount rate assumed is
7.75%, the salary increase rate assumed is 5.0% and the health care cost trend
rate is assumed to be 9.5% in 1995, decreasing .5% each year to an ultimate rate
of 6.0%. The

F-17
<PAGE> 84

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $1,348,300 and the aggregate of
the estimated service and interest cost components of net periodic
postretirement benefit cost for 1995 by $113,700.

12. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company is involved in and subject to
claims, contractual disputes and other uncertainties. Management, after
reviewing with legal counsel all actions and proceedings, believes that the
aggregate losses, if any, will not have a material effect on the Company's
financial position or results of operations.

13. LOSS ON BUILDING REPURCHASE

In 1993, the Company incurred a loss of $7,566,171 related to the
repurchase of the Company's former home office property. In a prior year, when
the Company relocated its home office, it guaranteed repayment of a loan to a
financial institution by a third party. During 1993, the third party failed to
make required payments and the Company, as guarantor, satisfied the loan
obligation to the financial institution in the amount of $6,841,000 including
accrued interest. In addition, the Company regained title to the former home
office property in foreclosure proceedings and recorded the building at its fair
value. In 1994, the building was sold for $4,200,000.

14. STATUTORY FINANCIAL INFORMATION AND ACCOUNTING PRACTICES

The Company and its two insurance subsidiaries, HMO Georgia, Inc. and
Greater Georgia Life Insurance Company, are domiciled in the state of Georgia
and prepare their statutory financial statements in accordance with accounting
principles and practices prescribed by the Georgia Insurance Department.
Prescribed statutory accounting practices include state laws, regulations and
general administrative rules, as well as a variety of publications of the
National Association of Insurance Commissioners ("NAIC"). Permitted statutory
accounting practices encompass all accounting practices that are not prescribed;
such practices may differ from state to state, may differ from company to
company within a state and may change in the future. The NAIC currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of prescribed statutory accounting
practices. Accordingly, when that project is completed, it will likely change,
to some extent, prescribed statutory accounting practices and may result in
changes to the accounting practices that the Company and its insurance
subsidiaries use to prepare their statutory financial statements. The Company
and its insurance subsidiaries do not have permitted practices which would
require authorization by the Georgia Insurance Department.

The following table presents the amount of statutory capital and surplus
for the Company and its insurance subsidiaries.

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Blue Cross and Blue Shield of Georgia, Inc.............. $126,139,088 $140,902,860
HMO Georgia, Inc........................................ 4,416,456 10,452,691
Greater Georgia Life Insurance Company.................. 15,413,874 17,682,483
</TABLE>

F-18
<PAGE> 85

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the amount of statutory net income (loss) for
the Company and its insurance subsidiaries.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Blue Cross and Blue Shield of Georgia, Inc....... $20,085,154 $19,736,121 $9,533,254
HMO Georgia, Inc................................. (203,035) 1,668,520 6,174,947
Greater Georgia Life Insurance Company........... 1,533,075 1,341,264 1,865,264
</TABLE>

The minimum amount of statutory capital and surplus necessary to satisfy
regulatory requirements of the Georgia Insurance Department is $1,000,000 for
the Company and $3,000,000 each for HMO Georgia, Inc. and Greater Georgia Life
Insurance Company. The Company and its insurance subsidiaries may distribute
dividends only out of realized profits (undistributed, accumulated, net earnings
since organization) or upon special approval by the State of Georgia Insurance
Commissioner.

F-19
<PAGE> 86

REPORT OF INDEPENDENT AUDITORS

Board of Directors

Cerulean Companies, Inc.

We have audited the accompanying balance sheet of Cerulean Companies, Inc.
as of February 2, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Cerulean Companies, Inc. at
February 2, 1996 in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Atlanta, Georgia

May 6, 1996

F-20
<PAGE> 87

CERULEAN COMPANIES, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
FEBRUARY 2,
1996
-----------
<S> <C>
ASSETS
Cash in bank...................................................................... $ 1,000
-----------
Total assets............................................................ $ 1,000
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Mandatorily Redeemable Preferred Stock
Class B Convertible Preferred Stock, no par value; liquidation preference,
$1,000 per share; mandatory redemption, $900 per share. Authorized 49,901
shares, issued and outstanding, 1 share...................................... $ 1,000
Shareholder's Equity
Class A Convertible Common Stock, no par value, $.01 stated value. Authorized
50,000,000 shares; none issued and outstanding............................... --
-----------
Total liabilities and shareholder's equity.............................. $ 1,000
========
</TABLE>

See accompanying notes.

F-21
<PAGE> 88

CERULEAN COMPANIES, INC.

NOTES TO BALANCE SHEET

AS OF FEBRUARY 2, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Cerulean Companies, Inc. ("Cerulean") was incorporated on February 2, 1996
by Blue Cross and Blue Shield of Georgia, Inc. ("Georgia Blue") as part of a
plan of conversion approved by the Georgia Commissioner of Insurance for Georgia
Blue to convert from a not-for-profit corporation to a for-profit corporation.
The sole purpose of Cerulean is to act as the holding company for Georgia Blue
and its subsidiaries. As a result, Cerulean has not conducted any business
activities to date. Subsequent to incorporation, Georgia Blue became a
wholly-owned subsidiary of Cerulean.

As part of the conversion plan and subsequent to its incorporation,
Cerulean raised $49.9 million in capital through the issuance of 49,900 shares
of Class B Convertible Preferred Stock ("Preferred Stock"). Also as part of the
conversion plan and subsequent to its incorporation, Cerulean issued 800,000
shares of Class A Convertible Common Stock ("Class A Stock") in escrow for
distribution upon an effective registration of those shares with the Securities
and Exchange Commission to subscribers of Georgia Blue as of September 1, 1995
who remain subscribers at the time of distribution of Class A Stock.

MANDATORILY REDEEMABLE PREFERRED STOCK

There were 49,901 authorized shares of Preferred Stock, of which one share
has been issued as of incorporation. The Preferred Stock has a liquidation
preference of $1,000 per share and a mandatory redemption value of $900 per
share. Subsequent to incorporation, Cerulean issued 49,900 shares of Preferred
Stock to raise $49.9 million in capital. The net proceeds to Cerulean from the
sale of Preferred Stock totaled approximately $46.1 million after deducting
estimated offering costs.

SHAREHOLDER'S EQUITY

There are 50,000,000 shares of Class A Convertible Common Stock authorized.
None were issued at incorporation. Subsequent to incorporation, but as part of
the conversion plan, Cerulean issued 800,000 shares of Class A Stock in escrow
for distribution upon an effective registration of those share with the
Securities and Exchange Commission to subscribers of Georgia Blue as of
September 1, 1995 who remain subscribers at the time of the distribution of
Class A Stock.

F-22
<PAGE> 89

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSONS TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Conversion........................
Dividends.............................
Capitalization........................
Selected Consolidated Financial and
Operating Data......................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Stock Ownership.......................
Certain Federal Income Tax
Consequences........................
Description of Capital Stock..........
Legal Matters.........................
Experts...............................
Additional Information................
Index to Consolidated Financial
Statements..........................
Index to Financial Statement
Schedules...........................
Index of Exhibits.....................
</TABLE>

------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
800,000 SHARES

CERULEAN COMPANIES, INC.
CLASS A CONVERTIBLE COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 90

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Estimated expenses of the offering are:

<TABLE>
<S> <C> <C>
Securities and Exchange Commission registration fee............ $ 15,845
Blue sky fees and expenses..................................... 20,000
Printing and engraving expenses................................ 200,000
Legal fees and expenses........................................ 150,000
Accounting fees and expenses................................... 60,000
Miscellaneous expenses......................................... 495,000
Postage................................................... 480,000
Other..................................................... 15,000
--------
Total................................................ $940,845
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Code") enables a corporation in its articles of incorporation to eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of duty of care or other duty as a
director. This section also provides, however, that no such provision may
eliminate or limit the liability of a director (i) for any appropriation, in
violation of his duties, of any business opportunity of the corporation, (ii)
for acts or omissions involving intentional misconduct or a knowing violation of
law, (iii) for certain other types of liability involving unlawful distributions
to stockholders and (iv) for transactions from which the director received an
improper personal benefit. Article XI of the Company's Articles of Incorporation
contains a provision eliminating or limiting the personal liability of a
director of the Company to the full extent authorized by Section 14-2-202(b).
Consequently, the stockholders' potential recourse for monetary damages against
the Company's directors is limited to situations in which one of the four
exceptions noted above is applicable.

In addition, Section 14-2-856 of the Code provides for indemnification of
directors of a corporation for liability and expenses incurred by them in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (including civil actions brought as derivative actions by or in the
right of a corporation), in which they may become involved by reason of being a
director of a corporation. This section permits a corporation to indemnify or
obligate itself to indemnify a director made a party to any such proceeding,
provided that a corporation may not indemnify a director for any liability
incurred in a proceeding in which the director is adjudged liable to the
corporation or is subjected to injunctive relief in favor of the corporation (i)
for any appropriation, in violation of his duties, of any business opportunity
of the corporation; (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law; (iii) for certain types of liability
involving unlawful distributions to stockholders; or (iv) for any transaction
from which he received an improper personal benefit.

Section 14-2-856 also permits a corporation to advance or reimburse
expenses in advance of final disposition of a proceeding if the director
furnishes the corporation a written affirmation of his good faith belief that
his conduct does not constitute behavior of the kind described above, and the
director furnishes the corporation a written undertaking, executed personally or
on his behalf, to repay any advances if it is ultimately determined that he is
not entitled to indemnification. This section also provides such indemnification
for persons who, at the request of the corporation, act as directors or officers
of other companies in which the corporation is a stockholder or creditor or is
otherwise interested.

II-1
<PAGE> 91

Section 14-2-857 provides that a corporation may indemnify or advance
expenses to an officer of the corporation who is not a director, to the extent
consistent with public policy, as provided in the corporation's articles of
incorporation, bylaws or by specific action of the board of directors.

Article VIII of the Company's Bylaws provides that the Company shall
indemnify its directors and officers, among certain other persons, to the
fullest extent permitted under applicable law.

Blue Cross and Blue Shield of Georgia, Inc. has primary director and
officer liability coverage with Glen Falls Insurance Company in the amount of
$10,000,000 and excess layer director and officer liability coverage with Great
American Insurance Company in the amount of $10,000,000. The total amount of
director and officer liability is $20,000,000 and the policies expire on
September 1, 1996.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On February 2, 1996, the Company issued and sold an aggregate of 49,901
shares of Class B Convertible Preferred Stock (the "Preferred Stock") to 18
persons (including one share issued to Georgia Blue), each of whom is an
"accredited investor" as defined in Rule 501(a) of Regulation D of the rules and
regulations of the Securities and Exchange Commission. The Robinson-Humphrey
Company, Inc. acted as Placement Agent in connection with the sale of certain of
the shares of the Preferred Stock. The aggregate offering price of the shares of
Preferred Stock to the investors was $49,900,000. The Company paid an aggregate
of $16,539 in Placement Agent fees. The shares of Preferred Stock were sold
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D (Rule 506) promulgated by
the Securities and Exchange Commission thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS. The following exhibits are filed as part of this
Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ ----------------------------------------------------------------------------------
<C> <C> <S>
*2.1 -- Blue Cross and Blue Shield of Georgia, Inc. Plan of Conversion, filed with the
Insurance Department of the State of Georgia, October 30, 1995.
*2.2 -- Form A Statement regarding the Acquisition of Control of or Merger with a Domestic
Insurer filed with respect to Blue Cross and Blue Shield of Georgia by Cerulean on
October 30, 1995, as amended and supplemented.
*2.3 -- Conversion Order dated December 27, 1995 from Georgia Insurance Commissioner.
*3.1 -- Articles of Incorporation of Cerulean Companies, Inc.
*3.2 -- Bylaws of Cerulean Companies, Inc.
*4.1 -- Stock Escrow Agreement among Cerulean Companies, Inc., Blue Cross and Blue Shield
of Georgia, Inc. and SunTrust Bank, Atlanta.
4.2 -- Specimen Form of Class A Convertible Common Stock (uncertificated stock).
5 -- Opinion of Long, Aldridge & Norman, LLP.
*10.1 -- Administrative Services Agreement between the State Personnel Board and Blue Cross
and Blue Shield of Georgia, Inc., dated July 1, 1994.
*10.2 -- $25,000,000 Revolving Loan Facility Among Blue Cross and Blue Shield of Georgia,
Inc., as Borrower, Wachovia Bank of Georgia, N.A., Bank South, N.A., Trust Company
Bank, as Banks and Wachovia Bank of Georgia, N.A., as Agent, dated March 21, 1994,
as amended.
*10.3 -- Plaza Lease Capital Plaza Associate ("Landlord") and Blue Cross and Blue Shield of
Georgia, Inc. ("Tenant") dated December 23, 1986.
*10.4 -- Executive Compensation Plans and Arrangements.
(a) Employment Agreement between Blue Cross and Blue Shield of Georgia, Inc. and
Richard D. Shirk dated March 4, 1992.
</TABLE>

II-2
<PAGE> 92

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ ----------------------------------------------------------------------------------
<C> <C> <S>
(b) Employment Agreement between Blue Cross and Blue Shield of Georgia, Inc. and
Mark Kishel, M.D., dated September 23, 1993.
(c) Deferred Compensation Plan.
(d) Annual Executive Incentive Plan.
(e) Long-Term Incentive Plan.
10.5 -- $55,000,000 Insolvency Credit Agreement dated as of April 18, 1996 among Blue
Cross and Blue Shield of Georgia, Inc. the Banks Listed Herein and Wachovia Bank
of Georgia, N.A., as agent.
11 -- Not Applicable.
*21 -- Subsidiaries of the registrant.
23.1 -- Consent of Long, Aldridge & Norman, LLP (included in the opinion to be filed as
Exhibit 5).
23.2 -- Consent of Ernst & Young LLP.
*24. -- Powers of attorney.
99.1 -- Form of Eligible Subscriber Election.
99.2 -- Initial Letter from CEO to Eligible Subscribers.
99.3 -- Follow-Up Letter to Eligible Subscribers.
99.4 -- Final Letter to Eligible Subscribers.
99.5 -- Script for Telephone Communication with Eligible Subscribers (Georgia only).
</TABLE>

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

* Previously filed

(b) FINANCIAL STATEMENT SCHEDULES. Not applicable.

ITEM 17. UNDERTAKINGS

(a) RULE 415 OFFERING. The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1993;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(b) ACCELERATION OF EFFECTIVENESS. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by

II-3
<PAGE> 93

the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-4
<PAGE> 94

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on March 26, 1996.

CERULEAN COMPANIES, INC.
(Registrant)

By: /s/ RICHARD D. SHIRK
------------------------------------
Richard D. Shirk
President and Principal Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 26, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- - --------------------------------------------- --------------------------------------------
<C> <S>
/s/ RICHARD D. SHIRK President and Principal Executive Officer
- - --------------------------------------------- and Director
Richard D. Shirk

/s/ JOHN A. HARRIS Treasurer (Principal Financial and
- - --------------------------------------------- Accounting Officer)
John A. Harris

/s/ JAMES E. ALBRIGHT Director
- - ---------------------------------------------
James E. Albright

/s/ W. DANIEL BARKER Director
- - ---------------------------------------------
W. Daniel Barker

/s/ ELIZABETH W. CAMP Director
- - ---------------------------------------------
Elizabeth W. Camp

/s/ LOUIS H. FELDER, M.D. Director
- - ---------------------------------------------
Louis H. Felder, M.D.

/s/ EDWARD M. GILLESPIE Director
- - ---------------------------------------------
Edward M. Gillespie

/s/ JOSEPH D. GREENE Director
- - ---------------------------------------------
Joseph D. Greene

/s/ MEL H. GREGORY, JR. Director
- - ---------------------------------------------
Mel H. Gregory, Jr.

/s/ FRANK J. HANNA, III Director
- - ---------------------------------------------
Frank J. Hanna, III

/s/ R. PIERCE HEAD, JR. Director
- - ---------------------------------------------
R. Pierce Head, Jr.
</TABLE>

II-5
<PAGE> 95

<TABLE>
<CAPTION>
SIGNATURE TITLE
- - --------------------------------------------- --------------------------------------------
<C> <S>
/s/ CHARLES H. KEATON Director
- - ---------------------------------------------
Charles H. Keaton

/s/ JAMES L. LABOON, JR. Director
- - ---------------------------------------------
James L. LaBoon, Jr.

/s/ JAMES H. LEIGH, JR., M.D. Director
- - ---------------------------------------------
James H. Leigh, Jr., M.D.

/s/ JULIA L. MITCHELL-IVEY Director
- - ---------------------------------------------
Julia L. Mitchell-Ivey

/s/ RICHARD D. SHIRK Director
- - ---------------------------------------------
Richard D. Shirk

/s/ FRED L. TOLBERT, JR. Director
- - ---------------------------------------------
Fred L. Tolbert, Jr.

/s/ CHARLES R. UNDERWOOD, M.D. Director
- - ---------------------------------------------
Charles R. Underwood, M.D.

/s/ W. JERRY VEREEN Director
- - ---------------------------------------------
W. Jerry Vereen

/s/ A. MAX WALKER Director
- - ---------------------------------------------
A. Max Walker

/s/ DAN H. WILLOUGHBY, M.D. Director
- - ---------------------------------------------
Dan H. Willoughby, M.D.

/s/ JOE M. YOUNG Director
- - ---------------------------------------------
Joe M. Young

/s/ JOHN B. ZELLARS Director
- - ---------------------------------------------
John B. Zellars
</TABLE>

II-6
<PAGE> 96

INDEX OF EXHIBITS

The following exhibits are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- - ------ ------------------------------------------------------------------------------ ----
<C> <C> <S> <C>
*2.1 -- Blue Cross and Blue Shield of Georgia, Inc. Plan of Conversion, filed with the
Insurance Department of the State of Georgia, October 30, 1995.
*2.2 -- Form A Statement regarding the Acquisition of Control of or Merger with a
Domestic Insurer filed with respect to Blue Cross and Blue Shield of Georgia
by Cerulean on October 30, 1995, as amended and supplemented.
*2.3 -- Conversion Order dated December 27, 1995 from Georgia Insurance Commissioner.
*3.1 -- Articles of Incorporation of Cerulean Companies, Inc.
*3.2 -- Bylaws of Cerulean Companies, Inc.
*4.1 -- Stock Escrow Agreement among Cerulean Companies, Inc., Blue Cross and Blue
Shield of Georgia, Inc. and SunTrust Bank, Atlanta.
4.2 -- Specimen Form of Class A Convertible Common Stock (uncertificated stock).
5 -- Opinion of Long, Aldridge & Norman, LLP.
*10.1 -- Administrative Services Agreement between the State Personnel Board and Blue
Cross and Blue Shield of Georgia, Inc., dated July 1, 1994.
*10.2 -- $25,000,000 Revolving Loan Facility Among Blue Cross and Blue Shield of
Georgia, Inc., as Borrower, Wachovia Bank of Georgia, N.A., Bank South, N.A.,
Trust Company Bank, as Banks and Wachovia Bank of Georgia, N.A., as Agent,
dated March 21, 1994, as amended.
*10.3 -- Plaza Lease Capital Plaza Associate ("Landlord") and Blue Cross and Blue
Shield of Georgia, Inc. ("Tenant") dated December 23, 1986.
*10.4 -- Executive Compensation Plans and Arrangements.
(a) Employment Agreement between Blue Cross and Blue Shield of Georgia, Inc.
and Richard D. Shirk dated March 4, 1992.
(b) Employment Agreement between Blue Cross and Blue Shield of Georgia, Inc.
and Mark Kishel, M.D., dated September 23, 1993.
(c) Deferred Compensation Plan.
(d) Annual Executive Incentive Plan.
(e) Long-Term Incentive Plan.
10.5 -- $55,000,000 Insolvency Credit Agreement dated as of April 18, 1996 among Blue
Cross and Blue Shield of Georgia, Inc. the Banks Listed Herein and Wachovia
Bank of Georgia, N.A., as agent.
11 -- Not Applicable.
*21 -- Subsidiaries of the registrant.
23.1 -- Consent of Long, Aldridge & Norman, LLP (included in the opinion to be filed
as Exhibit 5).
23.2 -- Consent of Ernst & Young LLP.
*24 -- Powers of attorney.
99.1 -- Form of Eligible Subscriber Election.
99.2 -- Initial Letter from CEO to Eligible Subscribers.
99.3 -- Follow-Up Letter to Eligible Subscribers.
99.4 -- Final Letter to Eligible Subscribers.
99.5 -- Script for Telephone Communication with Eligible Subscribers (Georgia only).
</TABLE>

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

* Previously filed

<PAGE> 1
EXHIBIT 4.2

CLASS A CLASS A
CONVERTIBLE
COMMON STOCK COMMON STOCK

CERULEAN COMPANIES, INC.
NUMBER SHARES
CA INCORPORATED UNDER THE LAWS
OF THE STATE OF GEORGIA

THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN ATLANTA, GEORGIA CUSIP

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A CONVERTIBLE COMMON STOCK OF

---------------------- -----------------------
- - -------------------------- CERULEAN COMPANIES, INC. ---------------------------
---------------------- -----------------------

transferable on the books of the Corporation by the holder hereof in person or
by attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to all the provisions of the Articles of Incorporation of the
Corporation, as amended from time to time, to all of which each holder of this
Certificate, by acceptance hereof, assents.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated
/s/ /s/
Secretary CERULEAN COMPANIES, INC. President &
CORPORATE Chief Executive Officer
SEAL
GEORGIA

COUNTERSIGNED AND REGISTERED TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<TABLE>
<S> <C>
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR - MONICA BELTRAN - 215-830-2155
680 BLAIR MILL ROAD PROOF OF NOVEMBER 15, 1995
HORSHAM, PA 19044 CERULEAN
215-657-3480 H 40655fc1

SALES PERSON - MIKE GARRETT - 214-823-2700 Opr. eg NEW
/home/ed/inprogress/home11/Cerulean40655 /net/banknote/home11/C

</TABLE>

<PAGE> 2
CERULEAN COMPANIES, INC.

THE CORPORATION IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE CLASS OF STOCK.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE,
PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK WHICH
THE CORPORATION IS AUTHORIZED TO ISSUE OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.

These shares of Class A Convertible Stock (the "Shares") represented by
this certificate may not be sold, transferred, encumbered, pledged or otherwise
disposed of prior to December 1, 1998, except: (a) upon the death of the
holder, in which case the Shares may be transferred by such holder's estate to
an heir taking by law or pursuant to testamentary succession, (b) by operation
of law or (c) as required by a final judicial decree.

During the period from December, 1998 to December 1, 2001, if the
holder of these Shares (the "Offeror") desires to sell all or any portion of
such Shares, such holder shall first offer such Shares (the "Offered Shares")
to the Corporation by giving written notice of his/her intention to dispose of
such Offer Shares (the "Notice"). The Notice must name the type of
disposition, the proposed purchaser, the number of Offered Shares, the price
per share and the terms of payment. The Corporation may accept such offer with
respect to all, but not less than all, of the Offered Shares, within thirty
(30) days following receipt of the Notice. The Corporation may exercise its
option by giving notice of such exercise to the Offeror. If any of the
consideration for the Offered Shares consists of anything other than cash, the
Corporation may substitute for such consideration the cash equivalent as
reasonably determined by the Corporation.

If the right of first refusal provided above is not exercised as to
all of the Offered Shares or if the purchase by the Corporation is not
consummated within the time specified, through no fault of the Offeror, the
Offeror may transfer the Offered Shares to the proposed purchaser, at the price
and on the terms and conditions set forth in the Notice. If the transfer of
the Offered Shares by the Offeror to the proposed purchaser named in the Notice
is not made within thirty (30) days after the date the Offeror became free to
transfer, the right to transfer in accordance with the Notice will expire.

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <S>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian ____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________
in common (State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

For value received ___________________________________ hereby sell,
assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee

________________________________________________________________________________

__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.

Date:___________________________ _______________________________________

_______________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
Certificate, in every particular,
without alteration or enlargement, or
any change whatever.

<TABLE>
<S> <C>
- - ----------------------------------------------- ---------------------------------------------------------
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR - MONICA BELTRAN - 215-830-2155
680 BLAIR MILL ROAD PROOF OF NOVEMBER 15, 1995
HORSHAM, PA 19044 CERULEAN
215-957-3480 H 40655bk1
---------------------------------------------- --------------------------------------------------------
SALES PERSON - MIKE GARRETT - 214-823-2700 Opr. eg NEW
- - ----------------------------------------------- ---------------------------------------------------------
/home/ed/inprogress/home11/Cerulean40655 /net/banknote/home11/C
- - ----------------------------------------------- ---------------------------------------------------------
</TABLE>

<PAGE> 1
EXHIBIT 5

LAN LETTERHEAD

May 8, 1996

Cerulean Companies, Inc.
3350 Peachtree Road, N.E.
Atlanta, Georgia 30326

RE: Legality of Class A Convertible Common Stock

Ladies and Gentlemen:

We have acted as counsel to Cerulean Companies, Inc., a Georgia
corporation (the "Company"), in connection with the proposed offering by the
Company of up to 800,000 shares (the "Shares") of Class A Convertible Common
Stock, $ .01 par value per share (the "Class A Stock"), of the Company,
including the preparation of a Registration Statement on Form S-1 (Registration
No. 333-2796) (the "Registration Statement") and the filing thereof with the
Securities and Exchange Commission (the "Commission"). The Shares were issued
into escrow on February 2, 1996 under an agreement with SunTrust Bank, Atlanta,
pending their distribution after effectiveness of the Registration Statement to
those subscribers who are "Eligible Subscribers" as described in the
Registration Statement. All of the shares being offered are being distributed
by the Company.

The opinion hereinafter set forth is given pursuant to Item 16(a) of Form
S-1 and Item 601(b)(5) of Regulation S-K. The only opinion rendered by this
firm consists of the matters set forth below (our "Opinion"), and no opinion is
implied or to be inferred beyond such matters. Additionally, our Opinion is
based upon and subject to the qualifications, limitations and exceptions set
forth in this letter.

In rendering our Opinion, we have examined such agreements, documents,
instruments and records as we deemed necessary or appropriate under the
circumstances for us to express our Opinion, including, without limitation, the
Articles of Incorporation, as amended, and the Bylaws of the Company, the
minutes of the proceedings of the Board of Directors and the shareholders of
the Company. In making all of our examinations, we assumed the genuineness of
all

<PAGE> 2
Cerulean Companies, Inc.
May 8, 1996
page 2

signatures, the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as
copies, and the due execution and delivery of all documents by any persons or
entities other than the Company where due execution and delivery by such
persons or entities is a prerequisite to the effectiveness of such documents.

As to various factual matters that are material to our Opinion, we have
relied upon the factual statements set forth in a certificate of officers of
the Company and certificates of public officials of the State of Georgia. We
have not independently verified or investigated, nor do we assume any
responsibility for, the factual accuracy or completeness of such factual
statements.

The members of this firm are admitted to the Bar of the State of Georgia
and are duly qualified to practice law in that state. Because the Company is
organized under, and the subject of our Opinion therefore is governed by, the
Business Corporation Code of the State of Georgia (the "Georgia Code"), we do
not herein express any opinion concerning any matter respecting or affected by
any laws other than laws set forth in the Georgia Code that are now in effect
and that, in the exercise of reasonable professional judgment, are normally
considered in transactions such as the offering and sale of the Shares. The
Opinion hereinafter set forth is based upon pertinent laws and facts in
existence as of the date hereof, and we expressly disclaim any obligation to
advise you of changes to such pertinent laws or facts that hereafter may come
to our attention.

Based upon and subject to the foregoing, we are of the Opinion that the
800,000 Shares to be distributed by the Company to Eligible Subscribers will
be, upon their distribution, validly issued, fully paid and nonassessable.

We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our name under the caption
"Legal Matters" set forth in the Prospectus forming a part of the Registration
Statement as well as its use in those state jurisdictions where such an opinion
or such disclosure is necessary in order to qualify the Shares for distribution
in such states.

Very truly yours,

LONG, ALDRIDGE & NORMAN, LLP

<PAGE> 1

Exhibit 10.5
Insolvency Line of Credit

$55,000,000.00

INSOLVENCY CREDIT AGREEMENT

dated as of

April 18, 1996

among

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

The Banks Listed Herein

and

WACHOVIA BANK OF GEORGIA, N.A.,
as Agent
<PAGE> 2

TABLE OF CONTENTS

INSOLVENCY CREDIT AGREEMENT

<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------

SECTION 1.02. Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------------------------

SECTION 1.03. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------

SECTION 1.04. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------------

SECTION 1.05. Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------

ARTICLE II

THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 2.01. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------

SECTION 2.02. Method of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------

SECTION 2.03. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----

SECTION 2.04. Maturity of Loans; Repayment of Obligations and Liquidation of Collateral . . . . . . . . . . . . . 17
-------------------------------------------------------------------------

SECTION 2.05. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------

SECTION 2.06. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----

SECTION 2.07. Optional Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------------------------------------

SECTION 2.08. Mandatory Reduction and Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------------------------------------------

SECTION 2.09. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------------

SECTION 2.10. Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------------------------

SECTION 2.11. General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------------------

SECTION 2.12. Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------------
</TABLE>

(i)
<PAGE> 3

<TABLE>
<S> <C> <C>
SECTION 2.13. Reliance on Actions of Insurance Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------------------------------------

ARTICLE III

CONDITIONS TO BORROWINGS . . . . . . . . . . . . . . . . . . . . . . 21

SECTION 3.01. Conditions to the Execution and Delivery of this Agreement . . . . . . . . . . . . . . . . . . . . . 21
----------------------------------------------------------

SECTION 3.02. Conditions to Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------

ARTICLE IV

REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 24

SECTION 4.01. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------------------

SECTION 4.02. Corporate and Governmental Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . 24
----------------------------------------------------------

SECTION 4.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------

SECTION 4.04. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------

SECTION 4.05. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------

SECTION 4.06. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------

SECTION 4.07. Compliance with Laws; Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------------------------------

SECTION 4.08. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------

SECTION 4.09. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------

SECTION 4.10. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------------------

SECTION 4.11. Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------------

SECTION 4.12. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------

SECTION 4.13. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------

SECTION 4.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------------

SECTION 4.15. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------------

SECTION 4.16. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------
</TABLE>

(ii)
<PAGE> 4

<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V

COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 28

SECTION 5.01. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------

SECTION 5.02. Inspection of Property, Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-----------------------------------------

SECTION 5.03. Liquidity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------------

SECTION 5.04. Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------

SECTION 5.05. Operating Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------

SECTION 5.06. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------------

SECTION 5.07. Minimum Consolidated Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------------------------

SECTION 5.08. Covenant to Pledge Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------------------

SECTION 5.09. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------

SECTION 5.10. Loans or Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-----------------

SECTION 5.11. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-----------

SECTION 5.12. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
---------------

SECTION 5.13. Maintenance of Existence, Trade Name and License . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------------------------------

SECTION 5.14. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-----------

SECTION 5.15. Consolidations, Mergers and Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------------------------------------

SECTION 5.16. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------------

SECTION 5.17. Compliance with Laws; Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
--------------------------------------

SECTION 5.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------

SECTION 5.19. Change in Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------

SECTION 5.20. Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-----------------------

SECTION 5.21. Environmental Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------

SECTION 5.22. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------

SECTION 5.23. Environmental Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------
</TABLE>

(iii)
<PAGE> 5

<TABLE>
<S> <C> <C>
SECTION 5.24. Debt of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------

SECTION 5.25. Borrower Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-------------------

SECTION 5.26. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------------

ARTICLE VI

DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------

SECTION 6.02. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------

ARTICLE VII

THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 7.01. Appointment; Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
----------------------------------

SECTION 7.02. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-----------------

SECTION 7.03. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
--------

SECTION 7.04. Rights of Agent as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------------

SECTION 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------

SECTION 7.06. CONSEQUENTIAL DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------------

SECTION 7.07. Payee of Note Treated as Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------------------------------

SECTION 7.08. Nonreliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------------------------------------

SECTION 7.09. Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
--------------

SECTION 7.10. Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-------------------------------

ARTICLE VIII

CHANGE IN CIRCUMSTANCES; COMPENSATION . . . . . . . . . . . . . . . . . . 46

SECTION 8.01. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------------------------------

ARTICLE IX

MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 48
-------------

SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------
</TABLE>

(iv)
<PAGE> 6

<TABLE>
<S> <C> <C>
SECTION 9.02. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------

SECTION 9.03. Expenses; Documentary Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------------------------

SECTION 9.04. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
---------------

SECTION 9.05. Setoff; Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
--------------------------

SECTION 9.06. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
----------------------

SECTION 9.07. No Margin Stock Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
--------------------------

SECTION 9.08. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
----------------------

SECTION 9.09. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------

SECTION 9.10. Representation by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----------------------

SECTION 9.11. Obligations Several . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-------------------

SECTION 9.12. Georgia Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----------

SECTION 9.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
------------

SECTION 9.14. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------

SECTION 9.15. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------------

SECTION 9.16. Waiver of Jury Trial; Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
---------------------------------------------

SECTION 9.17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
------------
</TABLE>

(v)
<PAGE> 7

EXHIBIT A Form of Promissory Note

EXHIBIT B Form of Pledge Agreement

EXHIBIT C Form of Commissioner's Confirmation of Credit
Facility and Collateral Pledge

EXHIBIT D Form of Assignment and Acceptance

EXHIBIT E Form of Notice of Borrowing

EXHIBIT F Form of Compliance Certificate

EXHIBIT G Form of Closing Certificate

EXHIBIT H Form of Borrower's Counsel Opinion

EXHIBIT I Form of Special Counsel to the Agent's Opinion

Schedule 4.08 Subsidiaries

(vi)
<PAGE> 8

INSOLVENCY CREDIT AGREEMENT

INSOLVENCY CREDIT AGREEMENT dated as of April 18, 1996 among
BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC., the BANKS listed on the signature
pages hereof and WACHOVIA BANK OF GEORGIA, N.A., as Agent.

WHEREAS, as a condition of continued membership in the
national Blue Cross and Blue Shield association, Blue Cross and Blue Shield of
Georgia, Inc. is required to make financial provision to protect its insureds
in the event of its insolvency; and

WHEREAS, Blue Cross and Blue Shield of Georgia, Inc., the Banks and
Wachovia Bank of Georgia, N.A., as Agent, have agreed to enter into this
Insolvency Credit Agreement to provide Blue Cross and Blue Shield of Georgia,
Inc. with certain financial resources to pay Authorized Claims (as hereinafter
defined), in accordance with the terms and conditions hereinafter set forth.

NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. The terms as defined in this
Section 1.01 shall, for all purposes of this Agreement and any amendment hereto
(except as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein:

"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a "Controlling
Person"), (ii) any Person (other than the Borrower or a Subsidiary) which is
controlled by or is under common control with a Controlling Person, or (iii)
any Person (other than a Subsidiary) of which the Borrower owns, directly or
indirectly, 20% or more of the common stock or equivalent equity interests. As
used herein, the term "control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
<PAGE> 9

"Agent" means Wachovia Bank of Georgia, N.A., a national
banking association organized under the laws of the United States of America,
in its capacity as agent for the Banks hereunder, and its successors and
permitted assigns in such capacity.

"Agent's Letter Agreement" means that certain letter
agreement, dated as of December 26, 1995, between the Borrower and the Agent
relating to the structure of the Loans, and certain fees from time to time
payable by the Borrower to the Agent, together with all amendments and
modifications thereto.

"Agreement" means this Insolvency Credit Agreement, together
with all amendments and supplements hereto.

"Applicable Margin" has the meaning set forth in Section
2.05(a).

"Assignee" has the meaning set forth in Section 9.08(c).

"Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 9.08(c) in the form attached hereto as
Exhibit D.

"Authority" has the meaning set forth in Section 8.01.

"Authorized Claims" means insurance policy or subscriber
contract claims, together with administrative expenses related to such claims,
of any insured policyholders of the Borrower for covered services as defined in
the applicable insurance policy or subscriber contract which (i) relate to
medical services which were incurred prior to the date of Insolvency; (ii) are
determined to be legitimate by the Insurance Commissioner; and (iii) had either
not been submitted for payment as of the date of Insolvency or, if submitted,
had not been processed for payment by the Borrower as of the date of
Insolvency.

"Bank" means each bank listed on the signature pages hereof as
having a Commitment, and its successors and permitted assigns.

"Base Rate" means for any day, the rate per annum equal to the
higher as of such day of (i) the Prime Rate, and (ii) one-half of one percent
above the Federal Funds Rate. For purposes of determining the Base Rate for
any day, changes in the Prime Rate shall be effective on the date of each such
change.

2
<PAGE> 10

"Borrower" means BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.,
a business corporation organized under the Georgia Business Corporation Code,
and its successors and its permitted assigns.

"Borrowing" means a borrowing hereunder consisting of Loans
made to the Borrower at the same time by the Banks pursuant to Article II.

"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Georgia are authorized by law to close.

"Capital Stock" means any nonredeemable capital stock of the
Parent, the Borrower or any Consolidated Subsidiary (to the extent issued to a
Person other than the Borrower), whether common or preferred.

"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. and its
implementing regulations and amendments.

"CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.

"Change of Law" shall have the meaning set forth in Section
8.01.

"Closing Certificate" has the meaning set forth in Section
3.01(e).

"Closing Date" means April 18, 1996.

"Code" means the Internal Revenue Code of 1986, as amended, or
any successor Federal tax code.

"Collateral" means the Treasury Securities and all other
collateral security which may secure the obligations from time to time.

"Commitment" means, with respect to each Bank, (a) the amount
set forth opposite the name of such Bank on the signature pages hereof, as such
amount may be reduced from time to time pursuant to Sections 2.07, 2.08 and
5.08, minus (b) the amount of all Loans advanced under this Agreement.

"Commissioner's Confirmation of Credit Facility and Collateral
Pledge" means that confirmation substantially in the form of Exhibit C and
otherwise satisfactory to the Lenders in all respects.

3
<PAGE> 11

"Compliance Certificate" has the meaning set forth in Section
5.01(c).

"Consolidated Debt" means at any date the Debt of the Borrower
and its Consolidated Subsidiaries, determined on a consolidated basis as of
such date.

"Consolidated Interest Expense" for any period means interest,
whether expensed or capitalized, in respect of Debt of the Borrower or any of
its Consolidated Subsidiaries outstanding during such period.

"Consolidated Net Income" means, for any period, the Net
Income of the Borrower and its Consolidated Subsidiaries determined on a
consolidated basis, but excluding (i) extraordinary items and (ii) any equity
interests of the Borrower or any Subsidiary in the unremitted earnings of any
Person that is not a Subsidiary.

"Consolidated Operating Profits" means, for any period, the
consolidated operating income of the Borrower and its Consolidated
Subsidiaries, as determined in accordance with GAAP.

"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of the Borrower in its consolidated financial
statements as of such date.

"Consolidated Surplus" means the excess of consolidated total
assets over consolidated total liabilities, as set forth or reflected on the
most recent consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries prepared in accordance with GAAP.

"Consolidated Total Assets" means, at any time, the total
assets of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis, as set forth or reflected on the most recent consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in
accordance with GAAP.

"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.

"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all

4
<PAGE> 12

obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases,
(v) all obligations of such Person to reimburse any bank or other Person in
respect of amounts payable under a banker's acceptance, (vi) all Redeemable
Preferred Stock of such Person (in the event such Person is a corporation),
(vii) all obligations of such Person to reimburse any bank or other Person in
respect of amounts paid under a letter of credit or similar instrument, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or
not such Debt is assumed by such Person, and (ix) all Debt of others Guaranteed
by such Person.

"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

"Default Rate" means, with respect to any Loan, on any day,
the sum of 2% plus the interest rate (including the Applicable Margin) then
applicable to Loans hereunder.

"Deferred Taxes" means for any period the sum of all deferred
taxes of the Borrower and its Consolidated Subsidiaries for such period, as
determined in accordance with GAAP.

"Depreciation" means for any period the sum of all
depreciation expenses of the Borrower and its Consolidated Subsidiaries for
such period, as determined in accordance with GAAP.

"Dollars" or "$" means dollars in lawful currency of the
United States of America.

"EBIT" means, for any period, the Borrower's Consolidated Net
Income before Consolidated Interest Expense and taxes.

"Environmental Authority" means any foreign, federal, state,
local or regional government that exercises any form of jurisdiction or
authority under any Environmental Requirement.

"Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites for
conducting the business of the Borrower or any Subsidiary required by any
Environmental Requirement.

"Environmental Judgments and Orders" means all judgments,
decrees or orders arising from or in any way

5
<PAGE> 13

associated with any Environmental Requirements, whether or not entered upon
consent, or written agreements with an Environmental Authority or other entity
arising from or in any way associated with any Environmental Requirement,
whether or not incorporated in a judgment, decree or order.

"Environmental Liabilities" means any liabilities, whether
accrued, contingent or otherwise, arising from and in any way associated with
any Environmental Requirements.

"Environmental Notices" means notice from any Environmental
Authority or by any other person or entity, of possible or alleged
noncompliance with or liability under any Environmental Requirement, including
without limitation any complaints, citations, demands or requests from any
Environmental Authority or from any other person or entity for correction of
any violation of any Environmental Requirement or any investigations concerning
any violation of any Environmental Requirement.

"Environmental Proceedings" means any judicial or
administrative proceedings arising from or in any way associated with any
Environmental Requirement.

"Environmental Releases" means releases as defined in CERCLA
or under any applicable state or local environmental law or regulation.

"Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Borrower,
any Subsidiary or the Properties, including but not limited to any such
requirement under CERCLA or similar state legislation and all federal, state
and local laws, ordinances, regulations, orders, writs, decrees and common law.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law. Any reference to any
provision of ERISA shall also be deemed to be a reference to any successor
provision or provisions thereof.

"Event of Default" has the meaning set forth in Section 6.01.

"Excepted Representations" has the meaning set forth in
Section 3.02(g).

"Existing Credit Agreement" means the Credit Agreement dated
as of March 21, 1994, by and among the Agent, the Banks and the Borrower, as
the same is amended, supplemented, extended, renewed, replaced or otherwise
modified from time to time.

6
<PAGE> 14

"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate charged to the Agent on such day on such transactions, as
determined by the Agent.

"Financial Covenants" means Sections 5.03, 5.04, 5.05, 5.06
and 5.07.

"Fiscal Quarter" means any fiscal quarter of the Borrower.

"Fiscal Year" means any fiscal year of the Borrower.

"Franchise Covenant" means Section 5.13.

"GAAP" means generally accepted accounting principles applied
on a basis consistent with those which, in accordance with Section 1.02, are to
be used in making the calculations for purposes of determining compliance with
the terms of this Agreement.

"Georgia Insurance Code" means Official Code of Georgia
Annotated Section 33-1-1 et seq., as amended from time to time.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to provide collateral security, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided that
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary

7
<PAGE> 15

course of business. The term "Guarantee" used as a verb has a corresponding
meaning.

"Hazardous Materials" includes, without limitation, (a) solid
or hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. Section 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or
in any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
or (d) pesticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any applicable state or local law or regulation,
as each such Act, statute or regulation may be amended from time to time.

"Income Available for Fixed Charges" for any period means the
sum of (i) Consolidated Net Income, (ii) taxes on income, (iii) Depreciation,
(iv) Consolidated Interest Expense, and (v) all payment obligations of the
Borrower and its Consolidated Subsidiaries for such period under all operating
leases and rental agreements, all determined with respect to the Borrower and
its Consolidated Subsidiaries on a consolidated basis for such period and in
accordance with GAAP.

"Insurance Commissioner" means the Commissioner of Insurance
of the State of Georgia and his/her authorized agents and designees, including,
without limitation, any liquidator, receiver, rehabilitator or conservator
appointed for the Borrower by the Commissioner of Insurance of the State of
Georgia pursuant to Section 33-37-1, et. seq. of the Georgia Insurance Code.

"Insolvency" means the "Insolvency" of the Borrower as defined
in Section 33-37-3(11) of the Georgia Insurance Code.

"Interest Period" means with respect to each Borrowing, the
period commencing on the date of such Borrowing and ending 30 days thereafter;
provided that:

(a) any Interest Period (subject to paragraph (b) below)
which would otherwise end on a day which is not a Business Day shall
be extended to the next succeeding Business Day; and

(b) no Interest Period which begins before the
Termination Date and would otherwise end after the Termination Date,
as applicable, may be selected.

"Investment" means any investment in any Person, whether by
means of purchase or acquisition of obligations or

8
<PAGE> 16

securities of such Person, capital contribution to such Person, loan or advance
to such Person, making of a time deposit with such Person, Guarantee or
assumption of any obligation of such Person or otherwise.

"Lending Office" means, as to each Bank, its office located at
its address set forth on the signature pages hereof (or identified on the
signature pages hereof as its Lending Office or such other office as such Bank
may hereafter designate as its Lending Office) by notice to the Borrower and
the Agent.

"Lien" means, with respect to any asset, any mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, security interest, security
title, preferential arrangement which has the practical effect of constituting
a security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For
the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed
to own subject to a Lien any asset which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.

"Liquid Investments" means the sum of (i) the sum of (1) cash,
(2) short term investments (as determined in accordance with GAAP), plus (3)
long term investments (as determined in accordance with GAAP) at market value,
plus (ii) 85% of advances from non-federal employee plan providers to the
Borrower, less (iii) the sum of (1) pledged investments described in 5.08, plus
(2) reserves held by the Borrower with respect to customer groups of Borrower
that also have employees in states other than Georgia whose claims are
processed by other member plans of the Blue Cross and Blue Shield Association.

"Liquidation Order" means the judicial declaration of the
Insolvency of the Borrower and the entry of a final, nonappealable order of
liquidation of the Borrower as described in Section 33-37-17 of the Georgia
Insurance Code.

"Loan" means, as to any Bank, a Loan made by it pursuant to
Section 2.01(a).

"Loan Documents" means this Agreement, the Notes, any other
document evidencing, relating to or securing the Loans, and any other document
or instrument delivered from time to time in connection with this Agreement,
the Notes or the Loans, as such

9
<PAGE> 17

documents and instruments may be amended or supplemented from time to time.

"Long-Term Debt" means at any date any Consolidated Debt which
matures (or the maturity of which may at the option of the Borrower or any
Consolidated Subsidiary be extended such that it matures) more than one year
after such date.

"Margin Stock" means "margin stock" as defined in Regulations
G, T, U or X.

"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences, whether or not
related, a material adverse change in, or a material adverse effect upon, any
of (a) the financial condition, operations, business, properties or prospects
of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the
rights and remedies of the Agent or the Banks under the Loan Documents, or the
ability of the Borrower to perform its obligations under the Loan Documents to
which it is a party, as applicable, or (c) the legality, validity or
enforceability of any Loan Document, and includes, without limitation, the
Insolvency of the Borrower.

"Monthly Underwriting Load" means the following sum divided by
twelve (12): (i) the amount of all paid and incurred benefit claims during the
preceding twelve months, less (ii) eighty (80%) percent of claims expense for
non-underwritten claims for which Borrower only provides administrative
services (but not including the State of Georgia Employee Health Benefit Plan),
plus (iii) one hundred (100%) percent of claims expense related to the Federal
Employees Health Benefit Plan.

"Multiemployer Plan" shall have the meaning set forth in
Section 4001(a)(3) of ERISA.

"Net Income" means, as applied to any Person for any period,
the aggregate amount of net income of such Person, after taxes, for such
period, as determined in accordance with GAAP.

"Notes" means promissory notes of the Borrower, substantially
in the form of Exhibit A, evidencing the obligation of the Borrower to repay
the Loans, together with all amendments, consolidations, modifications,
renewals, and supplements thereto.

"Notice of Borrowing" has the meaning set forth in Section
2.02.

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<PAGE> 18

"Obligation Amount" has the meaning set forth in Section 5.08.

"Obligations" means the Loans, all interest thereon, all fees
under this Agreement and all other amounts which the Borrower may owe the Agent
and the Banks under this Agreement and the other Loan Documents, whether now
existing or hereafter incurred.

"Parent" means Cerulean Companies, Inc., a Georgia
corporation.

"Participant" has the meaning set forth in Section 9.08(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a
member of the Controlled Group for employees of any member of the Controlled
Group or (ii) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which a member of the Controlled Group is then making or accruing an obligation
to make contributions or has within the preceding 5 plan years made
contributions.

"Pledge Agreement" means the Pledge Agreement executed and
delivered by the Borrower in the form attached hereto as Exhibit B.

"Pledge Events" means the following: (i) a Material Adverse
Effect occurs; (ii) the Borrower fails to comply with any of the Financial
Covenants; (iii) an Event of Default occurs; (iv) the Excepted Representations
are not true at any time when the same are made or deemed to have been made
hereunder; or (v) in the event that the events described in the immediately
preceding clauses (i), (ii), (iii) or (iv) have not occurred, the entry of a
Liquidation Order.

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<PAGE> 19

"Premiums Earned" for any period means the amount of premiums
earned by the Borrower and its Consolidated Subsidiaries.

"Preferred Stock" means the Parent's Class B Convertible
Preferred Stock.

"Prime Rate" refers to that interest rate so denominated and
set by Wachovia from time to time as an interest rate basis for borrowings.
The Prime Rate is but one of several interest rate bases used by Wachovia.
Wachovia lends at interest rates above and below the Prime Rate.

"Proceeds Covenant" means Section 5.16.

"Properties" means all real property owned, leased or
otherwise used or occupied by the Borrower or any Subsidiary, wherever located.

"Quarterly Date" means each March 31, June 30, September 30,
and December 31.

"Redeemable Preferred Stock" of any Person means any preferred
stock issued by such Person which is at any time prior to the Termination Date
either (i) mandatorily redeemable (by sinking fund or similar payments or
otherwise) or (ii) redeemable at the option of the holder thereof.

"Regulation G" means Regulation G of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

"Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

"Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.

"Reimbursable Claims Reserves" means, as of any date, those
claims reserves required to be maintained by the Borrower

12
<PAGE> 20

which are offset by corresponding accounts receivable from the applicable
parties for which the claims reserves are maintained.

"Required Banks" means at any time Banks having at least 100%
of the aggregate amount of the Commitments or, if the Commitments are no longer
in effect, Banks holding at least 100% of the aggregate outstanding principal
amount of the Notes.

"Restricted Payment" means (i) any dividend or other
distribution on any shares of the Borrower's capital stock (except dividends
payable solely in shares of its capital stock) or (ii) any payment on account
of the purchase, redemption, retirement or acquisition of (a) any shares of the
Borrower's capital stock (except shares acquired upon the conversion thereof
into other shares of its capital stock) or (b) any option, warrant or other
right to acquire shares of the Borrower's capital stock.

"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower, and
shall also mean any corporation or other entity in which the Borrower owns at
least 50% of the equity that is utilized to offer the community partnership
networks referred to in Section 5.16.

"Statutory Assets" means, as of any date, the assets of the
Borrower as determined in accordance with the Georgia Insurance Code.

"Statutory Liabilities" means, as of any date, the liabilities
of the Borrower as determined in accordance with the Georgia Insurance Code.

"Statutory Surplus" means the remainder of (x) Statutory
Assets minus (y) Statutory Liabilities.

"Termination Date" means whichever is applicable of (i) April
17, 1997, (ii) such later date to which it is extended by the Banks' notice
pursuant to Section 2.10, in their sole and absolute discretion, (iii) the date
the Commitments are terminated pursuant to Section 6.01 following the
occurrence of an Event of Default, (iv) the date on which the Borrower fails to
timely comply with any provision of Section 5.08 (except as expressly provided
therein), time being of the essence, (v) the date the Borrower terminates the
Commitments entirely pursuant to Section 2.07, or (vi) the date on which the
Insurance Commissioner in writing attempts to or in fact does (1) disallow,
disavow or otherwise invalidates this Agreement, the Notes, the

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<PAGE> 21

Pledge Agreement, or any of the other Loan Documents, or (2) sets aside,
objects to or otherwise asserts a claim against the perfected first priority,
security interest and lien of the Agent and the Banks in the Collateral
securing the Obligations.

"Third Parties" means all lessees, sublessees, licensees and
other users of the Properties, excluding those users of the Properties in the
ordinary course of the Borrower's business and on a temporary basis.

"Transferee" has the meaning set forth in Section 9.08(d).

"Treasury Securities" has the meaning set forth in Section
5.08.

"Underwritten Subscription Income" means income recorded as
premiums received with respect to underwritten subscriber contracts, whether a
group contract or an individual contract, for which the Borrower bears a risk
of underwriting loss due to adverse claims experience.

"Wachovia" means Wachovia Bank of Georgia, N.A., a national
banking association, and its successors.

"Wholly Owned Subsidiary" means any Subsidiary all of the
shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
the Borrower.

SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made,
and all financial statements required to be delivered hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent (except for
changes concurred in by the Borrower's independent public accountants or
otherwise required by a change in GAAP) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks unless with respect to any such change
concurred in by the Borrower's independent public accountants or required by
GAAP, in determining compliance with any of the provisions of this Agreement or
any of the other Loan Documents: (i) the Borrower shall have objected to
determining such compliance on such basis at the time of delivery of such
financial statements, or (ii) the Required Banks shall so object in writing
within 30 days after the delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements

14
<PAGE> 22

as to which such objection shall not have been made (which, if objection is
made in respect of the first financial statements delivered under Section 5.01
hereof, shall mean the financial statements referred to in Section 4.04).

SECTION 1.03. References. Unless otherwise indicated,
references in this Agreement to "Articles", "Exhibits", "Schedules", "Sections"
and other Subdivisions are references to articles, exhibits, schedules,
sections and other subdivisions hereof.

SECTION 1.04. Use of Defined Terms. All terms defined in
this Agreement shall have the same defined meanings when used in any of the
other Loan Documents, unless otherwise defined therein or unless the context
shall require otherwise.

SECTION 1.05. Terminology. All personal pronouns used in
this Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the
plural shall include the singular. Titles of Articles and Sections in this
Agreement are for convenience only, and neither limit nor amplify the
provisions of this Agreement.

ARTICLE II

THE CREDITS

SECTION 2.01. Commitments to Lend. Each Bank severally
agrees, on the terms and conditions set forth herein, to make Loans to the
Borrower for the sole purpose of paying Authorized Claims from time to time
after the Borrower's Insolvency in amounts not exceeding the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $1,000,000 or any larger multiple of $500,000 (except that
any such Borrowing may be in the aggregate amount of the Commitments) and shall
be made from the several Banks ratably in proportion to their respective
Commitments. Notwithstanding any provision of this Agreement to the contrary,
the Borrower may not reborrow Loans after the payment thereof (whether by
direct payment by the Borrower or upon liquidation of the Collateral).

SECTION 2.02. Method of Borrowing. (a) The Borrower shall
give the Agent notice (a "Notice of Borrowing"), which shall be substantially
in the form of Exhibit E, prior to 10:00 A.M. (Atlanta, Georgia time) on the
same Business Day for each Borrowing (i) specifying the date and aggregate
amount of such Borrowing, which shall be a Business Day, (ii) certifying, among
other things listed in Exhibit E, that the proceeds of such

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<PAGE> 23

Borrowing shall be used solely for the payment of Authorized Claims.

(b) Upon receipt of a Notice of Borrowing, the Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Borrowing and such Notice of Borrowing shall not
thereafter be revocable by the Borrower.

(c) Not later than 12:00 P.M. (Atlanta, Georgia time) on the
date of each Borrowing, each Bank shall (except as provided in subsection (d)
of this Section) make available its ratable share of such Borrowing, in Federal
or other funds immediately available in Atlanta, Georgia, to the Agent at its
address referred to in Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower at the
Agent's aforesaid address. Unless the Agent receives notice from a Bank, at
the Agent's address referred to in or specified pursuant to Section 9.01, no
later than 11:00 A.M. on the Business Day on which a Loan is to be made stating
that such Bank will not make a Loan in connection with such Borrowing, the
Agent shall be entitled to assume that such Bank will make a Loan in connection
with such Borrowing and, in reliance on such assumption, the Agent may (but
shall not be obligated to) make available such Bank's ratable share of such
Borrowing to the Borrower for the account of such Bank. If the Agent makes
such Bank's ratable share available to the Borrower and such Bank does not in
fact make its ratable share of such Borrowing available on such date, the Agent
shall be entitled to recover such Bank's ratable share from such Bank or the
Borrower (and for such purpose shall be entitled to charge such amount to any
account of the Borrower maintained with the Agent), together with interest
thereon for each day during the period from the date of such Borrowing until
such sum shall be paid in full at a rate per annum equal to the rate at which
the Agent determines that it obtained (or could have obtained) overnight
Federal funds to cover such amount for each such day during such period,
provided that any such payment by the Borrower of such Bank's ratable share and
interest thereon shall be without prejudice to any rights that the Borrower may
have against such Bank. If the Agent does not exercise its option to advance
funds for the account of such Bank, it shall forthwith notify the Borrower of
such decision.

SECTION 2.03. Notes. (a) The Loans of each Bank shall be
evidenced by a single Promissory Note, in each instance payable to the order of
such Bank for the account of its Lending Office in an amount equal to the
original principal amount of such Bank's Commitment on the Closing Date.

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<PAGE> 24

(b) Upon receipt of each Bank's Note pursuant to Section 3.01,
the Agent shall deliver such Note to such Bank. Each Bank shall record, and
prior to any transfer of its Note shall endorse on the schedule forming a part
thereof appropriate notations to evidence, the date, amount and maturity of
each Loan made by it, and the date and amount of each payment of principal made
by the Borrower with respect thereto, and such schedule shall constitute
rebuttable presumptive evidence of the principal amount owing and unpaid on
such Bank's Note; provided that the failure of any Bank to make any such
recordation or endorsement shall not affect the obligation of the Borrower
hereunder or under the Notes. Each Bank is hereby irrevocably authorized by
the Borrower so to endorse its Note and to attach to and make a part of its
Note a continuation of any such schedule as and when required.

SECTION 2.04. Maturity of Loans; Repayment of Obligations
and Liquidation of Collateral. (a) Each Loan included in any Borrowing shall
mature, and the principal amount thereof shall be due and payable, on the last
day of the Interest Period. In the event that the Borrower fails to pay any of
the Obligations when due, without notice to the Borrower and irrespective of
the occurrence or non-occurrence of any Default or Event of Default, the Agent
is authorized to set off against and liquidate such portions of the Collateral
as the Agent deems necessary to pay such Obligations. The Agent will give the
Borrower notice of any such liquidation of the Collateral promptly thereafter;
provided, however, the Borrower shall have no remedy and the Agent shall not be
liable for any damages as a result of the Agent's failure to so give notice.

(b) Notwithstanding the foregoing, the outstanding
principal amount of the Loans, if any, together with all accrued but unpaid
interest thereon, if any, shall be due and payable on April 17, 1997, unless
the Termination Date is otherwise extended by the Banks, in their sole and
absolute discretion as provided in Section 2.10.

SECTION 2.05. Interest Rate. (a) "Applicable Margin" means
2% per annum.

(b) Each Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate per annum equal to the Base Rate for such day plus the
Applicable Margin. Such interest shall be payable for each Interest Period on
the last day thereof. Any overdue principal of and, to the extent permitted by
applicable law, overdue interest on any Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the Default Rate.

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<PAGE> 25

(c) In the event that all of the Collateral is liquidated
and applied to the Obligations and a deficiency exists, then the Obligations
shall bear interest at the Default Rate.

SECTION 2.06. Fees. (a) The Borrower shall pay to the
Agent, for the ratable account of each Bank, a facility fee on the Closing
Date, equal to the aggregate amount of each such Bank's Commitment on the
Closing Date multiplied by 0.075%.

(b) The Borrower shall pay to the Agent for the ratable
account of each Bank, an annual commitment fee calculated at the rate of 0.125%
per annum on the average daily amount of such Bank's Commitment. Such
commitment fees shall accrue from and including the Closing Date to but
excluding the Termination Date and shall be payable, in arrears, on each
Quarterly Date, upon the occurrence of a Pledge Event, upon the entry of a
Liquidation Order, and on the Termination Date.

(c) The Borrower shall pay to the Agent, for the account
and sole benefit of the Agent, such fees and other amounts at such times as set
forth in the Agent's Letter Agreement.

SECTION 2.07. Optional Termination or Reduction of
Commitments. The Borrower may, upon at least 3 Business Days' notice to the
Agent, terminate at any time, or proportionately reduce the Commitments from
time to time by an aggregate amount of at least $1,000,000 or any larger
multiple of $1,000,000. If the Commitments are terminated in their entirety,
all accrued fees (as provided under Section 2.06) shall be due and payable on
the effective date of such termination.

SECTION 2.08. Mandatory Reduction and Termination of
Commitments. The Commitments shall terminate on the Termination Date and any
Loans then outstanding (together with accrued interest thereon) shall be due
and payable on such date.

SECTION 2.09. Optional Prepayments. The Borrower may, upon
at least 1 Business Day's notice to the Agent, prepay any Borrowing in whole at
any time, or from time to time in part in amounts aggregating at least
$1,000,000 or any larger multiple of $500,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.

SECTION 2.10. Extension of Termination Date. Upon the
written request of the Borrower, which request shall be delivered to the Agent
at least 30 days prior to the Termination Date, the Banks shall have the option
(without any obligation whatsoever so to do) of extending the Termination Date
for an additional 364-

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<PAGE> 26

day period. In the event that a Bank fails to give the Borrower and the Agent
notice expressly agreeing to such extension of the Termination Date at least 15
days prior to the Termination Date, then such failure shall be deemed to be a
refusal of such Bank to extend the Termination Date for such an additional
364-day period; provided, that the Termination Date shall not be extended with
respect to any of the Banks unless all Banks have given notice of agreement to
extend the Termination Date.

SECTION 2.11. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans
and of fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the
date when due, in Federal or other funds immediately available in Atlanta,
Georgia, to the Agent at its address referred to in Section 9.01. The Agent
will promptly distribute to each Bank its ratable share of each such payment
received by the Agent for the account of the Banks. In the event the Borrower
fails to timely make payments of the Obligations when due, the Agent is
authorized and directed to set off against and liquidate the Collateral and
apply the proceeds to the Obligations in such order as the Agent may determine
in its sole discretion in accordance with the provisions of Section 2.04.

(b) Whenever any payment of principal of, or interest on,
the Loans or of fees hereunder shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day.

(c) All payments of principal, interest and fees and all
other amounts to be made by the Borrower pursuant to this Agreement with
respect to any Loan or fee relating thereto shall be paid without deduction
for, and free from, any tax, imposts, levies, duties, deductions, or
withholdings of any nature now or at anytime hereafter imposed by any
governmental authority or by any taxing authority thereof or therein excluding
in the case of each Bank, taxes imposed on or measured by its net income, and
franchise taxes imposed on it, by the jurisdiction under the laws of which such
Bank (as the case may be) is organized or any political subdivision thereof
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, imposts,
levies, duties, deductions or withholdings of any nature being "Taxes"). In
the event that the Borrower is required by applicable law to make any such
withholding or deduction of Taxes with respect to any Loan or fee or other
amount, the Borrower shall pay such deduction or withholding to the applicable
taxing authority, shall promptly furnish to any Bank in respect of which such
deduction or withholding is made all receipts and other

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<PAGE> 27

documents evidencing such payment and shall pay to such Bank additional amounts
as may be necessary in order that the amount received by such Bank after the
required withholding or other payment shall equal the amount such Bank would
have received had no such withholding or other payment been made. If no
withholding or deduction of Taxes are payable in respect to any Loan or fee
relating thereto, the Borrower shall furnish any, at such Bank's request, a
certificate from each applicable taxing authority or an opinion of counsel
acceptable to such, in either case stating that such payments are exempt from
or not subject to withholding or deduction of Taxes. If the Borrower fails to
provide such original or certified copy of a receipt evidencing payment of
Taxes or certificate(s) or opinion of counsel of exemption, the Borrower hereby
agrees to compensate such Bank for, and indemnify them with respect to, the tax
consequences of the Borrower's failure to provide evidence of tax payments or
tax exemption.

In the event any Bank receives a refund of any Taxes paid by
the Borrower pursuant to this Section 2.11, it will pay to the Borrower the
amount of such refund promptly upon receipt thereof; provided, however, if at
any time thereafter it is required to return such refund, the Borrower shall
promptly repay to it the amount of such refund.

Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.11 shall be applicable with respect to any
Participant, Assignee or other Transferee, and any calculations required by
such provisions (i) shall be made based upon the circumstances of such
Participant, Assignee or other Transferee, and (ii) constitute a continuing
agreement and shall survive the termination of this Agreement and the payment
in full or cancellation of the Notes.

SECTION 2.12. Computation of Interest and Fees. Interest
on the Loans shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed (including the first day but excluding the
last day). Commitment fees and any other fees payable hereunder shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).

SECTION 2.13. Reliance on Actions of Insurance
Commissioner. In the event that the Insurance Commissioner exercises control
(but solely for such period) over the Borrower pursuant to the Georgia
Insurance Code, including, without limitation, pursuant to Articles 1, 2, 3 or
4 of Chapter 37 thereof, the Agent and the Banks are irrevocably authorized and

20
<PAGE> 28

directed by the Borrower to rely on the directions and instructions of and to
deal solely with the Insurance Commissioner as successor to the Borrower under
this Agreement and the other Loan Documents. The Borrower hereby releases the
Agent and the Banks and each affiliate thereof and their respective directors,
officers, employees and agents from, and hold each of them harmless against,
any and all losses, liabilities, claims or damages which may be claimed or
asserted by the Borrower as a result of such reliance on and dealings with the
Insurance Commissioner by the aforementioned parties in this Section 2.13.

ARTICLE III

CONDITIONS TO BORROWINGS

SECTION 3.01. Conditions to the Execution and Delivery of
this Agreement. The obligation of each Bank to execute and deliver this
Agreement is subject to the satisfaction of the conditions set forth in Section
3.02 and receipt by the Agent of the following (in sufficient number of
counterparts (except as to the Notes) for delivery of a counterpart to each
Bank and retention of one counterpart by the Agent):

(a) from each of the parties hereto of either (i) a duly
executed counterpart of this Agreement signed by such party or (ii) a
facsimile transmission stating that such party has duly executed a
counterpart of this Agreement and sent such counterpart to the Agent;

(b) a duly executed Promissory Note for the account of
each Bank complying with the provisions of Section 2.03;

(c) an opinion letter (together with any opinions of
local counsel relied on therein) of Long, Aldridge & Norman, counsel
for the Borrower, dated as of the Closing Date, substantially in the
form of Exhibit H and covering such additional matters relating to the
transactions contemplated hereby as the Agent or any Bank may
reasonably request;

(d) an opinion of Jones, Day, Reavis & Pogue, special
counsel for the Agent, dated as of the Closing Date, substantially in
the form of Exhibit I and covering such additional matters relating to
the transactions contemplated hereby as the Agent may reasonably
request;

(e) a certificate (the "Closing Certificate")
substantially in the form of Exhibit G), dated as of the Closing Date,
signed by a principal financial officer of the

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<PAGE> 29

Borrower, to the effect that (i) no Default has occurred and is
continuing on the Closing Date and (ii) the representations and
warranties of the Borrower contained in Article IV are true on and as
of the Closing Date.

(f) all documents which the Agent or any Bank may
reasonably request relating to the existence of the Borrower, the
corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and
substance satisfactory to the Agent, including, without limitation, a
certificate of incumbency of the Borrower, signed by the Secretary or
an Assistant Secretary of the Borrower, certifying as to the names,
true signatures and incumbency of the officer or officers of the
Borrower authorized to execute and deliver the Loan Documents, and
certified copies of the following items: (i) the Borrower's Articles
of Incorporation, (ii) the Borrower's Bylaws, (iii) a certificate of
the Secretary of State of the State of Georgia as to the good standing
of the Borrower as a Georgia business corporation, and (iv) the action
taken by the Board of Directors of the Borrower authorizing the
Borrower's execution, delivery and performance of this Agreement, the
Notes and the other Loan Documents to which the Borrower is a party;

(g) a certified copy of the certificate of authority to
transact business from the Georgia Insurance Commissioner's office;

(h) the execution and delivery of an amendment or waiver
and consent letter agreement with respect to the Existing Credit
Agreement permitting the execution, delivery and performance of this
Agreement; and

(i) payment of all fees and expenses of the Agent and its
counsel described in the Agent's Letter Agreement.

SECTION 3.02. Conditions to Borrowings. The obligation of
each Bank to make a Loan on the occasion of each Borrowing is subject to the
satisfaction of the following conditions:

(a) full compliance with Section 5.08 (after giving
effect to any time period permitted therein for such compliance);

(b) the entry of a Liquidation Order;

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<PAGE> 30

parties to the Existing Credit Agreement shall be identical to the
Banks which are parties to this Agreement and shall hold the identical
pro rata interests therein;

(d) receipt by the Agent of a Notice of Borrowing and
along therewith in connection with the first Borrowing hereunder, the
receipt of an executed and delivered Commissioner's Confirmation of
Credit Facility and Collateral Pledge;

(e) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing under the
Proceeds Covenant or the Franchise Covenant;

(f) an opinion letter dated as of the date of the first
advance of any Loan hereunder, substantially in the form of Exhibit H
and covering such additional matters relating to the transactions
contemplated hereby as the Agent or any Bank may reasonably request,
including without limitation, the matters addressed by the opinion
described in Section 5.08(b);

(g) the fact that the representations and warranties of
the Borrower contained in Article IV of this Agreement shall be true
on and as of the date of such Borrowing (except for representations
and warranties relating to the following: (collectively, the "Excepted
Representations") (i) any Material Adverse Effect set forth in Section
4.04(b), 4.05, 4.06, 4.12, or Section 4.14, (ii) payment and/or filing
of returns with respect to taxes set forth in Section 4.07, (iii)
Liens set forth in Section 4.11 which may not be permitted under
Section 5.12 (provided that Liens which are against the Collateral
shall not be excepted from any representation or warranty required by
this Section 3.02(g)), or (iv) any Default under a Financial
Covenant); and

(h) the fact that no such Borrowing will exceed the
amount of its Commitment.

Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the truth and accuracy of the
facts specified in paragraphs (e), (f), and (g) of this Section.

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<PAGE> 31

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

SECTION 4.01. Corporate Existence and Power. The Borrower
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, is duly qualified to
transact business in every jurisdiction where, by the nature of its business,
such qualification is necessary (except where the failure to be so qualified
could not reasonably be expected to have or cause a Material Adverse Effect),
and has all corporate powers and all necessary licenses, authorizations,
consents and approvals under the Georgia Insurance Code and all other material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.

SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement, the Notes and the other Loan Documents (i) are within the Borrower's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of or filing with, any
governmental body, agency or official, except for filings with and/or action by
the Georgia Insurance Commissioner's Office which have been made, or, in the
case of action, will be obtained (or, in the case of first sentence of Section
5.16, will be made or obtained prior to any relevant Investment in a given
community partnership network), (iv) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the certificate of
incorporation or by-laws of the Borrower or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Borrower or any
of its Subsidiaries, and (v) do not result in the creation or imposition of any
Lien, other than pursuant to Section 9.05, on any asset of the Borrower or any
of its Subsidiaries.

SECTION 4.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower enforceable in accordance with its
terms, and the Notes and the other Loan Documents, when executed and delivered
in accordance with this Agreement, will constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, provided that, the enforceability hereof and thereof is subject in each
case to (i) laws relating to bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally,, and (ii) general principles of

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<PAGE> 32

equity, provided further that, clause (i) in the immediately preceding proviso
shall not apply to any representation and warranty made in any Notice of
Borrowing.

SECTION 4.04. Financial Information. (a) The consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of December
31, 1994 and the related consolidated statements of income, surplus and cash
flows for the Fiscal Year then ended, reported on by Ernst & Young, copies of
which have been delivered to each of the Banks, and the unaudited financial
statements of the Borrower and its Consolidated Subsidiaries for the interim
period ended September 30, 1995, copies of which have been delivered to each of
the Banks, fairly present, in conformity with GAAP, the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such dates and
their consolidated results of operations and cash flows for such periods
stated. The analysis of assets, liabilities, reserves and other funds of the
Borrower and each of its insurance Subsidiaries as of December 31, 1994 and the
related underwriting and investment exhibit and the statement of cash flows for
the Fiscal Year then ended, copies of which have been delivered to each of the
Banks, and the unaudited financial statements of the Borrower and its insurance
Subsidiaries for the interim period ended September 30, 1995, copies of which
have been delivered to each of the Banks, fairly present, in conformity with
the Georgia Insurance Code, the financial position of the Borrower and its
insurance Subsidiaries as of such dates and their results of operations and
cash flows for such periods stated.

(b) Except as described in Schedule 4.04, since December
31, 1994 there has been no event, act, condition or occurrence having a
Material Adverse Effect.

SECTION 4.05. No Litigation. There is no action, suit or
proceeding pending, or to the knowledge of the Borrower threatened, against or
affecting the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official which could have a
Material Adverse Effect or which in any manner draws into question the
validity of or could impair the ability of the Borrower to perform its
obligations under, this Agreement, the Notes or any of the other Loan
Documents.

SECTION 4.06. Compliance with ERISA. (a) The Borrower and
each member of the Controlled Group have fulfilled their obligations in all
material respects under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not

25
<PAGE> 33

incurred any liability to the PBGC or a Plan under Title IV of ERISA.

(b) Neither the Borrower nor any member of the Controlled
Group is or ever has been obligated to contribute to any Multiemployer Plan.

SECTION 4.07. Compliance with Laws; Payment of Taxes. The
Borrower and its Subsidiaries are in compliance in all material respects with
all applicable laws, regulations and similar requirements of governmental
authorities, including, without limitation, the Georgia Insurance Code, except
where such compliance is being contested in good faith through appropriate
proceedings, and except as set forth in the Closing Certificate. There have
been filed on behalf of the Borrower and its Subsidiaries all Federal, state
and local income, excise, property and other tax returns which, to the best of
the Borrower's knowledge, are required to be filed by them and all taxes due
pursuant to such returns or pursuant to any assessment received by or on behalf
of the Borrower or any Subsidiary have been paid. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of taxes
or other governmental charges are, in the opinion of the Borrower, adequate.

SECTION 4.08. Subsidiaries. Each of the Borrower's
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, is duly qualified
to transact business in every jurisdiction where, by the nature of its
business, such qualification is necessary (except where the failure to be so
qualified could not reasonably be expected to have or cause a Material Adverse
Effect), and has all corporate powers and all necessary licenses,
authorizations, consents and approvals under the Georgia Insurance Code and all
other material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. On the Closing Date the
Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule
4.08, which accurately sets forth each such Subsidiary's complete name and
jurisdiction of incorporation, which Schedule 4.08 shall be revised and
restated and delivered to the Banks with any financial statements required by
Section 5.01(a) and (c) to reflect any additional Subsidiaries and their
respective jurisdictions of incorporation which may be created or acquired
after the Closing Date.

SECTION 4.09. Investment Company Act. Neither the Borrower
nor any of its Subsidiaries is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.

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<PAGE> 34

SECTION 4.10. Public Utility Holding Company Act. Neither
the Borrower nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.

SECTION 4.11. Ownership of Property; Liens. Each of the
Borrower and its Consolidated Subsidiaries has title to its properties
sufficient for the conduct of its business, and none of such property is
subject to any Lien except as permitted in Section 5.12.

SECTION 4.12. No Default. Neither the Borrower nor any of
its Consolidated Subsidiaries is in default under or with respect to any
agreement, instrument or undertaking to which it is a party or by which it or
any of its property is bound which could have or cause a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.

SECTION 4.13. Full Disclosure. All information heretofore
furnished by the Borrower to the Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrower to the Agent or any
Bank will be, true, accurate and complete in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified. The Borrower has disclosed to the Banks in writing any and all
facts which could have or cause a Material Adverse Effect.

SECTION 4.14. Environmental Matters. (a) Neither the
Borrower nor any Subsidiary is aware that, or has received notice that, any of
them is subject to any Environmental Liability which could have or cause a
Material Adverse Effect and neither the Borrower nor any Subsidiary has been
designated as a potentially responsible party under CERCLA or under any state
statute similar to CERCLA. None of the Properties has been identified on any
current or proposed (i) National Priorities List under 40 C.F.R. Section 300,
(ii) CERCLIS list or (iii) any list arising from a state statute similar to
CERCLA.

(b) No Hazardous Materials have been or are being used,
produced, manufactured, processed, treated, recycled, generated, stored,
disposed of, managed or otherwise handled at, or shipped or transported to or
from the Properties or are otherwise present at, on, in or under the
Properties, or, to the best of the knowledge of the Borrower, at or from any
adjacent site or facility, except for Hazardous Materials, such as cleaning
solvents, pesticides and other materials used, produced,

27
<PAGE> 35

manufactured, processed, treated, recycled, generated, stored, disposed of,
managed, or otherwise handled in minimal amounts in the ordinary course of
business in compliance with all applicable Environmental Requirements.

(c) The Borrower, and each of its Subsidiaries and
Affiliates, has procured all material Environmental Authorizations necessary
for the conduct of its business, and is in compliance in all material respects
with all Environmental Requirements in connection with the operation of the
Properties and the Borrower's, and each of its Subsidiary's and Affiliate's,
respective businesses.

SECTION 4.15. Capital Stock. All Capital Stock,
debentures, bonds, notes and all other securities of the Parent, the Borrower
and its Subsidiaries presently issued and outstanding are validly and properly
issued in accordance with all applicable laws, including, but not limited to,
the "Blue Sky" laws of all applicable states and the federal securities laws.
The issued shares of Capital Stock of the Borrower's Wholly Owned Subsidiaries
are owned by the Borrower free and clear of any Lien or adverse claim. At
least a majority of the issued shares of capital stock of each of the
Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned
by the Borrower free and clear of any Lien or adverse claim.

SECTION 4.16. Margin Stock. Neither the Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of purchasing or carrying any Margin Stock, and no
part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation X.

ARTICLE V

COVENANTS

The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable hereunder or under any Note remains
unpaid:

SECTION 5.01. Information. The Borrower will deliver to
each of the Banks:

(a) as soon as available and in any event within 90 days
after the end of each Fiscal Year, a consolidated balance sheet of the
Borrower and its Consolidated

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<PAGE> 36

Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of income, surplus and cash flows for such
Fiscal Year, setting forth, in conformity with GAAP, in each case in
comparative form with the figures for the previous fiscal year, all
certified by Ernst & Young or other independent public accountants of
nationally recognized standing, with such certification to be free of
exceptions and qualifications not acceptable to the Required Banks;

(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year, the analysis of assets,
liabilities, reserves and other funds of the Borrower and each of its
insurance Subsidiaries as of the end of such Fiscal Year and the
related underwriting and investment exhibit and the statement of cash
flows for such Fiscal Year, setting forth in conformity with the
Georgia Insurance Code, in each case in comparative form with the
figures for the previous fiscal year, all certified as to fairness of
presentation and consistency by the chief financial officer or the
chief accounting officer of the Borrower;

(c) as soon as available and in any event within 45 days
after the end of each of the first 3 Fiscal Quarters of each Fiscal
Year, a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the
related statement of income and statement of cash flows for such
Fiscal Quarter and for the portion of the Fiscal Year ended at the end
of such Fiscal Quarter, setting forth in conformity with GAAP in each
case in comparative form with the figures for the corresponding Fiscal
Quarter and the corresponding portion of the previous Fiscal Year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation and consistency by the chief financial officer or the
chief accounting officer of the Borrower;

(d) as soon as available and in any event within 45 days
after the end of each of the first 3 Fiscal Quarters of each Fiscal
Year, the analysis of assets, liabilities, reserves and other funds of
the Borrower and each of its insurance Subsidiaries as of the end of
such Fiscal Quarter and the related underwriting and investment
exhibit for such Fiscal Quarter and for the portion of the Fiscal Year
ended at the end of such Fiscal Quarter, setting forth in conformity
with the Georgia Insurance Code in each case in comparative form with
the figures for the corresponding Fiscal Quarter and the corresponding
portion of the previous Fiscal Year, all certified (subject to normal
year-end

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<PAGE> 37

adjustments) as to fairness of presentation and consistency by the
chief financial officer or the chief accounting officer of the
Borrower;

(e) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a), (b), (c), and (d)
above, a certificate, substantially in the form of Exhibit F (a
"Compliance Certificate"), of the chief financial officer or the chief
accounting officer of the Borrower (i) setting forth in reasonable
detail the calculations required to establish whether the Borrower was
in compliance with the requirements of Sections 5.03 through 5.09,
inclusive, 5.12, 5.24 and 5.25, on the date of such financial
statements, (ii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or
proposes to take with respect thereto, and (iii) restating and
reaffirming that the representations and warranties, other than the
Excepted Representations in the event the same are no longer true,
contained in Article IV hereof are true on and as of the date such
certificate is delivered and disclosing in detail satisfactory to the
Banks the facts and circumstances which make the Excepted
Representations no longer true;

(f) simultaneously with the delivery of each set of
annual financial statements referred to in paragraph (a) above, a
statement of the firm of independent public accountants which reported
on such statements to the effect that nothing has come to their
attention to cause them to believe that any Default under any of
Sections 5.03 through Section 5.09 inclusive, Section 5.12, Section
5.15, Section 5.24, or Section 5.25, existed on the date of such
financial statements;

(g) within 5 Domestic Business Days after the Borrower
becomes aware of the occurrence of any Default, a certificate of the
chief financial officer or the chief accounting officer of the
Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;

(h) promptly upon the mailing thereof to the shareholders
of the Parent generally, copies of all financial statements, reports
and proxy statements so mailed;

(i) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent)

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<PAGE> 38

and annual, quarterly or monthly reports which the Parent shall have
filed with the Securities and Exchange Commission;

(j) if and when any member of the Controlled Group (i)
gives or becomes aware that it is required to give notice to the PBGC
of any "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii) receives notice
of complete or partial withdrawal liability under Title IV of ERISA, a
copy of such notice; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice;

(k) from time to time such additional information
regarding the financial position or business of the Borrower and its
Subsidiaries as the Agent, at the request of any Bank, may reasonably
request, including, without limitation, should the Consolidated
Surplus be less than $10,000,000 in excess of the amount required by
Section 5.07, monthly reports of the type required by Section 5.01(a);
and

(l) on the date of Insolvency, and on the sooner to occur
thereafter of (i) the 5th Business Day of each month, or (ii) each
Borrowing, a certificate of the chief financial officer or chief
accounting officer setting forth the calculation of the "market value"
of the Treasury Securities (as defined in and required by Section
5.08) set forth as item number 11 on the Compliance Certificate.

SECTION 5.02. Inspection of Property, Books and Records.
The Borrower will (i) keep, and cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries in conformity with
GAAP or the Georgia Insurance Code or both, as applicable, shall be made of all
dealings and transactions in relation to its business and activities; and (ii)
permit, and cause each Subsidiary to permit, representatives of any Bank at
such Bank's expense prior to the occurrence of a Default and at the Borrower's
expense for such Bank's reasonable expenses after the occurrence of a Default
to visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants. The Borrower agrees to cooperate
and assist in such

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<PAGE> 39

visits and inspections, in each case upon actual notice to an officer of the
Borrower (which may be telephonic) to the Borrower and at such reasonable times
and as often as may reasonably be desired.

SECTION 5.03. Liquidity Ratio. The Borrower's ratio of (i)
Liquid Investments to (ii) Monthly Underwriting Load shall at all times not be
less than 2.0 to 1.0.

SECTION 5.04. Capital Ratio. The Borrower's ratio of (i)
Statutory Liabilities for money borrowed to (ii) the sum of (x) Statutory
Liabilities for money borrowed plus (y) Statutory Surplus shall at all times be
less than or equal to 0.15 to 1.0.

SECTION 5.05. Operating Leverage. At the end of each
Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 1995,
the ratio of (i) Underwritten Subscription Income for the immediately preceding
4 Fiscal Quarters then ended to (ii) Consolidated Surplus shall at all times be
less than or equal to 4.0 to 1.0.

SECTION 5.06. Interest Coverage Ratio. At the end of each
Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 1995,
the Borrower's ratio of (i) EBIT to (ii) Consolidated Interest Expense for the
immediately preceding 4 Fiscal Quarters then ended, shall at all times not be
less than 2.5 to 1.0.

SECTION 5.07. Minimum Consolidated Surplus. Consolidated
Surplus will at no time be less than $135,000,000 plus 50.0% of cumulative
annual Consolidated Net Income during any period after December 31, 1995 (taken
as one accounting period), but excluding from such calculations of Consolidated
Net Income, any year in which the Consolidated Net Income is negative, plus
100% of all increases after December 31, 1995 in the Borrower's capital stock
and additional paid-in capital from the issuance of equity securities and other
equity capital investments.

SECTION 5.08. Covenant to Pledge Collateral. On or before
the date which is 10 Business Days after the occurrence of a Pledge Event
(unless the Commitments are then terminated as provided herein), the Borrower
shall pledge and grant a perfected, first priority, security interest to the
Agent, for the ratable benefit of the Banks, in book-entry U.S. government
treasury instruments each with maturities of not greater than 5 years, which
instruments shall be continuously maintained on the records of a Federal
Reserve Bank solely and exclusively for the account of the Agent for the
account and benefit of the Banks, equal to a market value equal to at all times
at least 120% of

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<PAGE> 40

the sum (such sum being referred to herein as the "Obligation Amount") of (x)
the amount of the Commitments plus (y) the amount of the outstanding Loans
(collectively, the "Treasury Securities"), and in connection therewith, shall
provide the Agent with the following items:

(a) an executed and delivered Pledge Agreement, along
with such other agreements, instruments and documents that might be
reasonably requested by the Agent in connection therewith, effecting
the pledge and grant of a perfected, first priority, security interest
in the Treasury Securities subject to no other lien, security interest
or encumbrance (along with evidence reasonably requested by the Agent
confirming the Banks' perfected, first priority, security interest
therein); and

(b) an opinion of counsel confirming the enforceability
and perfection of the Bank's pledge and security interest in the
Treasury Securities and such other matters as reasonably requested by
the Agent relating thereto.

The "market value" under this Section 5.08 shall mean the
market value of the Treasury Securities in the United States national markets
therefor and shall be determined by the Borrower as set forth in Section 5.01,
and (ii) may be determined by the Agent at any time and from time to time. Any
dispute in the calculation of the market value shall be determined by the Agent
in its sole and absolute discretion, provided that such determination shall be
rebuttable in the event of manifest error. In the event that at any time the
market value of the Treasury Securities is less than 120% of the Obligation
Amount, then (i) prior to Insolvency, either (a) within 30 days after such
determination if such market value of the Treasury Securities continues to be
equal to or greater than 110% but less than 120% of the Obligation Amount, or
(b) within 5 Business Days after such determination if such market value of the
Treasury Securities is less than 110% of the Obligation Amount, then the
Borrower shall provide the Agent with additional Treasury Securities as a part
of the Collateral sufficient for the Borrower to comply with this Section 5.08,
or (ii) after an Insolvency, immediately upon such determination the
Commitments (unless terminated by the Borrower) shall be pro rata automatically
reduced to an amount such that the market value of the Collateral is equal to
120% of the Obligation Amount; PROVIDED, HOWEVER, that with respect to this
clause (ii), in the event that within 5 Business Days of such automatic
reduction of the Commitments the Borrower provides additional Treasury
Securities as a part of the Collateral, the Commitments shall be increased to
an amount (but in no event to exceed the amount of

33
<PAGE> 41

the Commitments immediately prior to such automatic reduction) such that the
market value of the Collateral is equal to 120% of the sum of (x) the amount of
the Commitments so increased plus (y) the amount of the outstanding Loans.
Prior to an Insolvency, in the event that the market value of the Treasury
Securities is equal to or greater than 140% of the Obligation Amount for a
continuous period consisting of 6 months, then, upon request by the Borrower,
the Agent shall promptly release, at the Borrower's sole cost and expense,
sufficient Treasury Securities (and liquidate portions of the same as may be
necessary) such that the market value of the Treasury Securities shall equal
120% of the Obligation Amount. Prior to an Insolvency, in the event that a
Pledge Event occurs as a result of a default under any of the Financial
Covenants and the Borrower is in full compliance with all Financial Covenants
for the immediately succeeding 2 Fiscal Quarters thereafter and no other Pledge
Event has occurred, then the Agent shall terminate the Pledge Agreement,
subject to the occurrence of any subsequent Pledge Event thereafter in which
case the requirements of this Section 5.08 shall continue in full force and
effect.

SECTION 5.09. Restricted Payments. The Borrower will not
declare or make any Restricted Payment during any Fiscal Year if the aggregate
amount of such Restricted Payments (i) with respect to Preferred Stock would
exceed $3,500,000 in any Fiscal Year during Fiscal Year 1996, 1997 and 1998;
(ii) with respect to Preferred Stock would exceed $5,500,000 in any Fiscal Year
during Fiscal Year 1999 and thereafter; or (iii) excluding Restricted Payments
permitted under clauses (i) and (ii) in this Section 5.09 above, would exceed
10.0% of Consolidated Net Income for such Fiscal Year; provided that after
giving effect to the payment of any such Restricted Payments, the Borrower will
be in full compliance with all of the provisions of this Agreement. Provided
further, however, under clauses (i) and (ii) of this Section 5.09, to the
extent that the Preferred Stock accumulates payments in any Fiscal Year and
Restricted Payments would have been permitted under this Section 5.09 in
connection therewith, the Borrower may carry forward the unused permitted
allowance for such Restricted Payments in such Fiscal Year and add the same to
the permitted allowance scheduled for any subsequent Fiscal Year until such
time as such unused permitted allowance is fully used.

SECTION 5.10. Loans or Advances. Neither the Borrower nor
any of its Subsidiaries shall make loans or advances to any Person except: (i)
loans or advances to employees not exceeding $500,000 in the aggregate
principal amount outstanding at any time, in each case made in the ordinary
course of business and consistent with practices existing on the Closing Date;
(ii) deposits required by government agencies or public utilities; and (iii)
loans or advances to Subsidiaries; provided that after

34
<PAGE> 42

giving effect to the making of any loans, advances or deposits permitted by
this Section, the Borrower will be in full compliance with all the provisions
of this Agreement.

SECTION 5.11. Investments. Neither the Borrower nor any of
its Subsidiaries shall make Investments in any Person, subject to the
restrictions on asset transfers and capital contributions in Subsidiaries
contained in Section 5.15, except as permitted by the Georgia Insurance Code.

SECTION 5.12. Negative Pledge. Neither the Borrower nor
any Consolidated Subsidiary will create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except:

(a) Liens existing on the date of this Agreement securing
Debt outstanding on the date of this Agreement in an aggregate
principal amount not exceeding $2,500,000;

(b) any Lien existing on any asset of any corporation at
the time such corporation becomes a Consolidated Subsidiary and not
created in contemplation of such event;

(c) any Lien on any asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring or constructing such asset, provided that such Lien attaches
to such asset concurrently with or within 18 months after the
acquisition or completion of construction thereof;

(d) any Lien on any asset of any corporation existing at
the time such corporation is merged or consolidated with or into the
Borrower or a Consolidated Subsidiary and not created in contemplation
of such event;

(e) any Lien existing on any asset prior to the
acquisition thereof by the Borrower or a Consolidated Subsidiary and
not created in contemplation of such acquisition;

(f) Liens securing Debt owing by any Subsidiary to the
Borrower;

(g) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing paragraphs of this Section, provided that (i) such
Debt is not secured by any additional assets, and (ii) the amount of
such Debt secured by any such Lien is not increased;

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<PAGE> 43

(h) Liens incidental to the conduct of its business or
the ownership of its assets which (i) do not secure Debt and (ii) do
not in the aggregate materially detract from the value of its assets
or materially impair the use thereof in the operation of its business;

(i) Liens in favor of the Agent and the Banks on the
Collateral;

(j) any Lien on Margin Stock; and

Provided Liens permitted by the foregoing paragraphs (a) through (h) shall at
no time secure Debt in an aggregate amount greater than 10.0% of Consolidated
Surplus.

SECTION 5.13. Maintenance of Existence, Trade Name and
License. The Borrower shall, and shall cause each Subsidiary to, maintain its
corporate existence and carry on its business in substantially the same fields
as such business is now carried on and maintained, except as otherwise
permitted by Section 5.15. The Borrower shall maintain or cause to be
maintained in full force and effect the license or other agreements as
necessary for the use by the Borrower of the name "Blue Cross and Blue Shield
of Georgia" from Blue Cross Blue Shield Association.

SECTION 5.14. Dissolution. Neither the Borrower nor any of
its Subsidiaries shall suffer or permit dissolution or liquidation either in
whole or in part or redeem or retire any shares of its own stock or that of any
Subsidiary, except for (x) asset sales and (y) through corporate
reorganization, in each case to the extent permitted by Section 5.15.

SECTION 5.15. Consolidations, Mergers and Sales of Assets.
The Borrower will not, nor will it permit any Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person (including, without limitation, any
transfer of assets or capital contribution by the Borrower to a Subsidiary), or
discontinue or eliminate any business line or segment, or dissolve, provided
that (a) the Borrower may merge with another Person if (i) such Person was
organized under the laws of the United States of America or one of its states,
(ii) the Borrower is the corporation surviving such merger and (iii)
immediately after giving effect to such merger, no Default shall have occurred
and be continuing, (b) Subsidiaries of the Borrower may merge with one another
and sell, lease, or otherwise transfer assets to one another or to the
Borrower, (c) the Borrower may establish a Wholly Owned Subsidiary to own
interests in other Subsidiaries, (d) HMO Georgia, Inc., a Wholly Owned
Subsidiary of the Borrower may raise capital by selling up to 49.0% of its

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<PAGE> 44

capital stock, and (e) the foregoing limitation on the sale, lease or other
transfer of assets and on the discontinuation or elimination of a business line
or segment shall not prohibit, during any Fiscal Year, a transfer of assets
(including, without limitation, the sale of a Subsidiary) or the discontinuance
or elimination of a business line or segment (in a single transaction or in a
series of related transactions) or the dissolution of a Subsidiary unless the
aggregate assets to be so transferred or utilized in a business line or segment
to be so discontinued, or the total assets of a Subsidiary to be so dissolved,
either (x) when combined with all other assets transferred (including, without
limitation, any transfer of assets or capital contribution by the Borrower to a
Subsidiary), and all other assets utilized in all other business lines or
segments discontinued and the total assets of all such Subsidiaries dissolved
during such Fiscal Year exceed $25,000,000 or (y) when combined with all other
assets transferred and all other assets utilized in all other business lines or
segments discontinued and the total assets of all such Subsidiaries dissolved
since March 21, 1994 exceed 50% of Consolidated Total Assets at the end of the
Fiscal Year immediately preceding the Fiscal Year in which such transfer,
discontinuation or dissolution is proposed.

SECTION 5.16. Use of Proceeds. The proceeds of the Loans
shall be used by the Borrower solely for the purpose of paying Authorized
Claims.

SECTION 5.17. Compliance with Laws; Payment of Taxes. The
Borrower will, and will cause each of its Subsidiaries and each member of the
Controlled Group to, comply in all material respects with applicable laws
(including but not limited to the Georgia Insurance Code and ERISA),
regulations and similar requirements of governmental authorities (including but
not limited to PBGC), except where the necessity of such compliance is being
contested in good faith through appropriate proceedings. The Borrower will,
and will cause each of its Subsidiaries to, pay promptly when due all taxes,
assessments, governmental charges, claims for labor, supplies, rent and other
obligations which, if unpaid, might become a lien against the property of the
Borrower or any Subsidiary, except liabilities being contested in good faith
and against which, if requested by the Agent, the Borrower will set up reserves
in accordance with GAAP.

SECTION 5.18. Insurance. The Borrower will maintain, and
will cause each of its Subsidiaries to maintain (either in the name of the
Borrower or in such Subsidiary's own name), with financially sound and
reputable insurance companies, insurance on all its property in at least such
amounts and against at least such risks as are usually insured against in the
same general

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area by companies of established repute engaged in the same or similar
business.

SECTION 5.19. Change in Fiscal Year. The Borrower will not
change its Fiscal Year without the consent of the Required Banks.

SECTION 5.20. Maintenance of Property. The Borrower shall,
and shall cause each Subsidiary to, maintain all of its properties and assets
in good condition, repair and working order, ordinary wear and tear excepted.

SECTION 5.21. Environmental Notices. Upon acquiring
knowledge thereof, Borrower shall furnish to the Banks and the Agent prompt
written notice of all Environmental Liabilities, pending, threatened or
anticipated Environmental Proceedings, Environmental Notices, Environmental
Judgments and Orders, and Environmental Releases at, on, in, under or in any
way affecting the Properties or any adjacent property, and all facts, events,
or conditions that could lead to any of the foregoing.

SECTION 5.22. Environmental Matters. The Borrower and its
Subsidiaries will not, and will not permit any Third Party to, use, produce,
manufacture, process, treat, recycle, generate, store, dispose of, manage at,
or otherwise handle, or ship or transport to or from the Properties any
Hazardous Materials except for Hazardous Materials such as cleaning solvents,
pesticides and other similar materials used, produced, manufactured, processed,
treated, recycled, generated, stored, disposed, managed, or otherwise handled
in minimal amounts in the ordinary course of business in compliance with all
applicable Environmental Requirements.

SECTION 5.23. Environmental Release. The Borrower agrees
that upon its acquiring knowledge of the occurrence of an Environmental Release
at or on any of the Properties it will act immediately to investigate the
extent of, and to take appropriate remedial action to eliminate, such
Environmental Release, whether or not ordered or otherwise directed to do so by
any Environmental Authority.

SECTION 5.24. Debt of Subsidiaries. The Borrower shall not
permit any Subsidiary to incur any Debt except for (i) Debt owing to the
Borrower and (ii) other Debt which shall not exceed in the aggregate for all
Subsidiaries an amount in excess of $1,000,000.

SECTION 5.25. Borrower Operations. During any Fiscal Year
(i) Borrower's Premiums Earned (including amounts received from employers for
payments of claims and payment of an

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<PAGE> 46

administrative charge to Borrower pursuant to administrative service only
relationships with such employers, but excluding such revenues or amounts
received with regard to the State of Georgia Health Plan administrative service
relationship) shall not be less than $600,000,000, and (ii) investment income
earned by Borrower (not including any dividends or other income received by
reason of Borrower's equity interest in any Subsidiary) shall not be less than
interest payable during such Fiscal Year in respect of the Loans.

SECTION 5.26. Transactions with Affiliates. Except for
transactions with respect to Restricted Payments expressly permitted by Section
5.09, neither the Borrower nor any of its Subsidiaries shall enter into, or be
a party to, any transaction with any Affiliate of the Borrower or such
Subsidiary (which Affiliate is not the Borrower or a Wholly Owned Subsidiary),
except as permitted by law and in the ordinary course of business and pursuant
to reasonable terms which are fully disclosed to the Agent and the Banks, and
consented to in writing by the Required Banks.

ARTICLE VI

DEFAULTS

SECTION 6.01. Events of Default. (1) If one or more of the
following events ("Events of Default") shall have occurred and be continuing,
then, the Banks may pursue their rights and remedies described in paragraph (3)
of this Section 6.01 below:

(a) (i) the Borrower shall fail to pay when due any
principal of any Loan, any interest on any Loan, or any fee or any
other Obligations, and (ii) the liquidation of the Collateral pursuant
to Section 2.04 does not provide sufficient funds to pay any of the
Obligations when due as described in the immediately preceding clause
(i); or

(b) the Borrower shall fail to observe or perform any
covenant contained in Sections 5.01, 5.02(ii), 5.08 to 5.10,
inclusive, Section 5.12 to 5.16, inclusive, Section 5.19, or Sections
5.24 to 5.26, inclusive; or

(c) the Borrower shall fail to observe or perform any
covenant or agreement contained or incorporated by reference in this
Agreement (other than those covered by paragraph (a) or (b) above and
other than the Financial Covenants) and such failure shall not have
been cured within 30 days after the earlier to occur of (i) written
notice thereof has been given to the Borrower by the Agent at the
request of any

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<PAGE> 47

Bank or (ii) the Borrower otherwise becomes aware of any such failure;
or

(d) any representation, warranty, certification or
statement made by the Borrower in Article IV of this Agreement (other
than with respect to the Excepted Representations) or in any
certificate, financial statement or other document delivered pursuant
to this Agreement shall prove to have been incorrect or misleading in
any material respect when made (or deemed made), or with respect to
the Excepted Representations, the Borrower fails to disclose the facts
and circumstances relating thereto as required by Section 5.01(e); or

(e) the Borrower or any Subsidiary shall fail to make any
payment in respect of Debt outstanding in an aggregate principal
amount exceeding $1,000,000 (other than the Notes) when due or within
any applicable grace period; or

(f) any event or condition (other than the Borrower's
Insolvency) shall occur which results in the acceleration of the
maturity of Debt outstanding of the Borrower or any Subsidiary in an
aggregate principal amount exceeding $5,000,000 (including, without
limitation, any required mandatory prepayment or "put" of such Debt to
the Borrower or any Subsidiary) or enables (or, with the giving of
notice or lapse of time or both, would enable) the holders of such
Debt or any Person acting on such holders' behalf to accelerate the
maturity thereof (including, without limitation, any required
mandatory prepayment or "put" of such Debt to the Borrower or any
Subsidiary); or

(g) the Borrower or any member of the Controlled Group
shall fail to pay when due any material amount which it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA;
or notice of intent to terminate a Plan or Plans shall be filed under
Title IV of ERISA by the Borrower, any member of the Controlled Group,
any plan administrator or any combination of the foregoing; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate
or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such
Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; or
a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any such Plan or Plans must be
terminated; or

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<PAGE> 48

(h) one or more judgments or orders for the payment of
money in an aggregate amount in excess of $500,000 shall be rendered
against the Borrower or any Subsidiary and such judgment or order
shall continue unsatisfied and unstayed for a period of 30 days; or

(i) a federal tax lien shall be filed against the
Borrower or any Subsidiary under Section 6323 of the Code or a lien of
the PBGC shall be filed against the Borrower or any Subsidiary under
Section 4068 of ERISA and in either case such lien shall remain
undischarged for a period of 25 days after the date of filing; or

(j) (i) the Parent shall fail to own 100% of all issued and
outstanding shares of capital stock of the Borrower, or (ii) any
Person or two or more Persons acting in concert shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act
of 1934) of 20% or more of the outstanding shares of the voting stock
of the Parent; or (iii) as of any date a majority of the Board of
Directors of the Parent consists of individuals who were not either
(A) directors of the Parent as of the corresponding date of the
previous year, (B) selected or nominated to become directors by the
Board of Directors of the Parent of which a majority consisted of
individuals described in clause (A), or (C) selected or nominated to
become directors by the Board of Directors of the Parent of which a
majority consisted of individuals described in clause (A) and
individuals described in clause (B).

(2) Notwithstanding the foregoing provisions of paragraph (1) of
this Section 6.01, (i) upon full compliance by the Borrower with Section 5.08,
the occurrence of an event described in clause (e) of such paragraph (1) shall
not constitute an Event of Default, and (ii) after the Borrower's Insolvency,
the occurrence of any Default described in clauses (b), (c) and (e) through (j)
(other than Defaults of either the Franchise Covenant or the Proceeds Covenant)
shall not constitute an Event of Default.

(3) Upon the occurrence and continuation of an Event of Default,
the Agent shall (i) if requested by the Required Banks, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, and (ii)
if requested by the Required Banks, by notice to the Borrower declare the Notes
(together with accrued interest thereon) to be, and the Notes shall thereupon
become, along with all other Obligations, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower together

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<PAGE> 49

with interest at the interest rates provided in Section 2.05. Notwithstanding
the foregoing, the Agent shall have available to it all other remedies at law
or equity, and shall exercise any one or all of them at the request of the
Required Banks.

(4) In addition to the rights of the Banks to liquidate Collateral
to pay the Obligations as set forth in Section 2.04, upon the occurrence and
continuation of an Event of Default, in accordance with the terms of the Pledge
Agreement, the Agent may foreclose upon and liquidate the Collateral and apply
the proceeds thereof to the Obligations in such order as determined by the
Required Banks in their sole discretion. The Borrower shall remain liable for
any deficiency in the event that the proceeds of the Collateral are
insufficient to repay the Obligations.

SECTION 6.02. Notice of Default. The Agent shall give
notice to the Borrower of any Default under Section 6.01(1)(c) promptly upon
being requested to do so by any Bank and shall thereupon notify all the Banks
thereof.

ARTICLE VII

THE AGENT

SECTION 7.01. Appointment; Powers and Immunities. Each
Bank hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. The Agent: (a)
shall have no duties or responsibilities except as expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee for any Bank; (b) shall not
be responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by
any Bank under, this Agreement or any other Loan Document, or for the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document referred to or provided for
herein or therein or for any failure by the Borrower to perform any of its
obligations hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or under any other
Loan Document except to the extent requested by the Required Banks, and then
only on terms and conditions satisfactory to the Agent; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under

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<PAGE> 50

any other Loan Document or any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or wilful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The provisions of this Article VII are solely for the benefit
of the Agent and the Banks, and the Borrower shall not have any rights as a
third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and under the other Loan Documents,
the Agent shall act solely as agent of the Banks and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for the Borrower. The duties of the Agent shall be
ministerial and administrative in nature, and the Agent shall not have by
reason of this Agreement or any other Loan Document a fiduciary relationship in
respect of any Bank.

SECTION 7.02. Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telefax, telegram or cable) believed by it
to be genuine and correct and to have been signed or sent by or on behalf of
the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants or other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Loan
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and thereunder in accordance with
instructions signed by the Required Banks, and such instructions of the
Required Banks in any action taken or failure to act pursuant thereto shall be
binding on all of the Banks.

SECTION 7.03. Defaults. The Agent shall not be deemed to
have knowledge of the occurrence of a Default or an Event of Default (other
than the nonpayment of principal of or interest on the Loans) unless the Agent
has received notice from a Bank or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of a Default or
an Event of Default, the Agent shall give prompt notice thereof to the Banks.
The Agent shall give each Bank prompt notice of each nonpayment of principal of
or interest on the Loans whether or not it has received any notice of the
occurrence of such nonpayment. The Agent shall (subject to Section 9.06) take
such action hereunder with respect to such Default or Event of Default as shall
be directed by the Required Banks, provided that, unless and until the Agent
shall have received such directions, the Agent may (but shall not be

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<PAGE> 51

obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.

SECTION 7.04. Rights of Agent as a Bank. With respect to
the Loans made by it, Wachovia in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Agent, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include Wachovia in its
individual capacity. The Agent may (without having to account therefor to any
Bank) accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Borrower (and any of its Affiliates)
as if it were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower (in addition to any agency fees and arrangement
fees heretofore agreed to between the Borrower and the Agent) for services in
connection with this Agreement or any other Loan Document or otherwise without
having to account for the same to the Banks.

SECTION 7.05. Indemnification. Each Bank severally agrees
to indemnify the Agent, to the extent the Agent shall not have been reimbursed
by the Borrower, ratably in accordance with its Commitment percentage, for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including, without limitation, counsel fees
and disbursements) or disbursements of any kind and nature whatsoever which may
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or any other Loan Document or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (excluding, unless an Event of Default has
occurred and is continuing, the normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or any such other documents; provided,
however that no Bank shall be liable for any of the foregoing to the extent
they arise from the gross negligence or wilful misconduct of the Agent. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.

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SECTION 7.06. CONSEQUENTIAL DAMAGES. THE AGENT SHALL NOT
BE RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY OTHER PERSON OR
ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

SECTION 7.07. Payee of Note Treated as Owner. The Agent
may deem and treat the payee of any Note as the owner thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
shall have been filed with the Agent and the provisions of Section 9.08(c) have
been satisfied. Any requests, authority or consent of any Person who at the
time of making such request or giving such authority or consent is the holder
of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of that Note or of any Note or Notes issued in exchange
therefor or replacement thereof.

SECTION 7.08. Nonreliance on Agent and Other Banks. Each
Bank agrees that it has, independently and without reliance on the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Agent shall not be required to keep itself informed
as to the performance or observance by the Borrower of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the properties or books of the Borrower or any
other Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility
to provide any Bank with any credit or other information concerning the
affairs, financial condition or business of the Borrower or any other Person
(or any of their Affiliates) which may come into the possession of the Agent.

SECTION 7.09. Failure to Act. Except for action expressly
required of the Agent hereunder or under the other Loan Documents, the Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction
by the Banks of their indemnification obligations under Section 7.05 against
any and all liability and expense which may be incurred by the

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<PAGE> 53

Agent by reason of taking, continuing to take, or failing to take any such
action.

SECTION 7.10. Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving notice thereof to the Banks and the
Borrower and the Agent may be removed at any time with or without cause by the
Required Banks. Upon any such resignation or removal, the Required Banks shall
have the right to appoint a successor Agent, which successor Agent shall be
acceptable to the Borrower, and the Borrower shall have consented thereto
(which consent shall not be unreasonably withheld). If no successor Agent
shall have been so appointed by the Required Banks and shall have accepted such
appointment within 30 days after the retiring Agent's notice of resignation or
the Required Banks' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent. Any successor Agent shall
be a bank which has a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VII shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent
hereunder.

ARTICLE VIII

CHANGE IN CIRCUMSTANCES; COMPENSATION

SECTION 8.01. Increased Cost and Reduced Return. (a) If,
after the date hereof, the adoption of any applicable law, rule or regulation,
or any change therein or any existing or future law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as an "Authority" and
any such event being referred to as a "Change of Law"), or compliance by any
Bank (or its Lending Office) with any request or directive (whether or not
having the force of law) of any Authority:

(i) shall subject any Bank (or its Lending Office) to any
tax, duty or other charge with respect to its Loans, Notes, or its
obligation to make Loans, or shall change the basis of taxation of
payments to any Bank (or its Lending

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<PAGE> 54

Office) of the principal of or interest on its Loans, or any other
amounts due under this Agreement in respect of its Loans, or its
obligation to make Loans (except for changes in the rate of tax on the
overall net income of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank's principal executive office or
Lending Office is located); or

(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System);

and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Loan or to reduce the amount
of any sum received or receivable by such Bank (or its Lending Office) under
this Agreement or under its Notes with respect thereto, by an amount reasonably
deemed by such Bank to be material, then, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.

(b) If any Bank shall have determined that after the date
hereof the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any Authority, has or would have the effect of reducing the
rate of return on such Bank's capital as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for
such adoption, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within 15 days after demand by such Bank,
the Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such reduction.

(c) Each Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment
of such Bank, be otherwise disadvantageous to such Bank. A certificate of any
Bank claiming compensation under this Section shall set forth in reasonable
detail the nature of the occurrence giving rise to the compensation, the
additional amount or amounts

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<PAGE> 55

to be paid to it hereunder and the method by which such amounts were
determined, and such certificate shall be conclusive in the absence of manifest
error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.

(d) The provisions of this Section 8.01 shall be
applicable with respect to any Assignee, and any calculations required by such
provisions shall be made based upon the circumstances of such Assignee
(provided, that, any Bank may share amounts received under this Section 8.01
with any Participant to the extent such Bank deems it appropriate).

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telecopier or similar writing) and shall be given to such party at its address
or telecopier number set forth on the signature pages hereof or such other
address or telecopier number as such party may hereafter specify for the
purpose by notice to each other party. Each such notice, request or other
communication shall be effective (i) if given by telecopier, when such telecopy
is transmitted to the telecopier number specified in this Section and the
appropriate confirmation is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
return receipt requested, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Agent under Article II or Article VIII shall not be effective
until received.

SECTION 9.02. No Waivers. No failure or delay by the Agent
or any Bank in exercising any right, power or privilege hereunder or under any
Note or other Loan Document shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.

SECTION 9.03. Expenses; Documentary Taxes. The Borrower
shall pay (i) all reasonable out-of-pocket expenses incurred by the Agent,
including reasonable and actually incurred fees and disbursements of special
counsel for the Banks and the Agent, in connection with the preparation of this
Agreement and the other Loan Documents, any waiver or consent hereunder or
thereunder or any amendment hereof or thereof or any Default or

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<PAGE> 56

alleged Default hereunder or thereunder and, (ii) if a Default occurs, all
reasonable and actually incurred out-of-pocket expenses incurred by the Agent
and the Banks, including reasonable and actually incurred fees and
disbursements of counsel, in connection with such Default and collection and
other enforcement proceedings resulting therefrom, including out-of-pocket
expenses incurred in enforcing this Agreement and the other Loan Documents.
The Borrower shall indemnify the Agent and each Bank against any transfer
taxes, documentary taxes, assessments or charges made by any Authority by
reason of the execution and delivery of this Agreement or the other Loan
Documents.

SECTION 9.04. Indemnification. The Borrower shall
indemnify the Agent, the Banks and each affiliate thereof and their respective
directors, officers, employees and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims or damages to which any of
them may become subject, insofar as such losses, liabilities, claims or damages
arise out of or result from any actual or proposed use by the Borrower of the
proceeds of any extension of credit by any Bank hereunder or breach by the
Borrower of this Agreement or any other Loan Document or from any
investigation, litigation (including, without limitation, any actions taken by
the Agent or any of the Banks to enforce this Agreement or any of the other
Loan Documents) or other proceeding (including, without limitation, any
threatened investigation or proceeding) relating to the foregoing, and the
Borrower shall reimburse the Agent and each Bank, and each affiliate thereof
and their respective directors, officers, employees and agents, upon demand for
any expenses (including, without limitation, reasonable and actually incurred
legal fees) incurred in connection with any such investigation or proceeding;
but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or wilful misconduct of the Person
to be indemnified.

SECTION 9.05. Setoff; Sharing of Setoffs. (a) The Borrower
agrees that the Agent and each Bank shall have a lien for all indebtedness and
obligations owing to them from the Borrower upon all deposits or deposit
accounts of the Borrower, of any kind, or any interest in any deposits or
deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or
assigned to the Agent or any such Bank or otherwise in the possession or
control of the Agent or any such Bank for any purpose for the account or
benefit of the Borrower and including any balance of any deposit account or of
any credit of the Borrower with the Agent or any such Bank, whether now
existing or hereafter established hereby authorizing the Agent and each Bank at
any time or times with or without prior notice to apply such

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<PAGE> 57

balances or any part thereof to such of the indebtedness and obligations owing
by the Borrower to the Banks and/or the Agent then past due and in such amounts
as they may elect, and whether or not the collateral, if any, or the
responsibility of other Persons primarily, secondarily or otherwise liable may
be deemed adequate; provided, that, no Bank shall exercise any such right of
setoff except (i) during the continuance of an Event of Default and (ii) in
compliance with applicable laws and regulations (including, the Georgia
Insurance Code). For the purposes of this paragraph, all remittances and
property shall be deemed to be in the possession of the Agent or any such Bank
as soon as the same may be put in transit to it by mail or carrier or by other
bailee.

(b) Each Bank agrees that if it shall, by exercising any
right of setoff or counterclaim or otherwise, receive payment of a proportion
of the aggregate amount of principal and interest owing with respect to the
Notes held by it which is greater than the proportion received by any other
Bank in respect of the aggregate amount of all principal and interest owing
with respect to the Notes held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks owing to such other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks owing to such other Banks
shall be shared by the Banks pro rata; provided that (i) nothing in this
Section shall impair the right of any Bank to exercise any right of setoff or
counterclaim it may have and to apply the amount subject to such exercise to
the payment of indebtedness of the Borrower other than its indebtedness under
the Notes, and (ii) if all or any portion of such payment received by the
purchasing Bank is thereafter recovered from such purchasing Bank, such
purchase from each other Bank shall be rescinded and such other Bank shall
repay to the purchasing Bank the purchase price of such participation to the
extent of such recovery together with an amount equal to such other Bank's
ratable share (according to the proportion of (x) the amount of such other
Bank's required repayment to (y) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Note, whether or not acquired pursuant
to the foregoing arrangements, may exercise rights of setoff or counterclaim
and other rights with respect to such participation as fully as if such holder
of a participation were a direct creditor of the Borrower in the amount of such
participation.

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<PAGE> 58

SECTION 9.06. Amendments and Waivers. (a) Any provision of
this Agreement, the Notes or any other Loan Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Borrower and the Required Banks (and, if the rights or duties of the Agent are
affected thereby, by the Agent); provided that, no such amendment or waiver
shall, unless signed by all Banks, (i) change the Commitment of any Bank or
subject any Bank to any additional obligation, (ii) change the principal of or
rate of interest on any Loan or any fees hereunder, (iii) change the date fixed
for any payment of principal of or interest on any Loan or any fees hereunder,
(iv) change the amount of principal, interest or fees due on any date fixed for
the payment thereof, (v) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the percentage of Banks,
which shall be required for the Banks or any of them to take any action under
this Section or any other provision of this Agreement, (vi) change the manner
of application of any payments made under this Agreement or the Notes, (vii)
release or substitute all or any substantial part of the collateral (if any)
held as security for the Loans, or (viii) release any Guarantee given to
support payment of the Loans.

(b) The Borrower will not solicit, request or negotiate
for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement unless each Bank shall be informed thereof by the
Borrower and shall be afforded an opportunity of considering the same and shall
be supplied by the Borrower with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and correct copies of
any waiver or consent effected pursuant to the provisions of this Agreement
shall be delivered by the Borrower to each Bank forthwith following the date on
which the same shall have been executed and delivered by the requisite
percentage of Banks. The Borrower will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any Bank (in its capacity as such) as
consideration for or as an inducement to the entering into by such Bank of any
waiver or amendment of any of the terms and provisions of this Agreement unless
such remuneration is concurrently paid, on the same terms, ratably to all such
Banks.

SECTION 9.07. No Margin Stock Collateral. Each of the
Banks represents to the Agent and each of the other Banks that it in good faith
is not, directly or indirectly (by negative pledge or otherwise), relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.

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<PAGE> 59

SECTION 9.08. Successors and Assigns. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided that the Borrower
may not assign or otherwise transfer any of its rights under this Agreement.

(b) Any Bank may, with the consent of the Borrower at any
time when no Default shall be in existence (which consent shall not be
unreasonably withheld), at any time sell to one or more Persons which is (or
becomes upon such participation) a party to the Existing Credit Agreement
holding an identical pro rata interest therein and in this Agreement (each a
"Participant") participating interests in any Loan owing to such Bank, any Note
held by such Bank, any Commitment hereunder or any other interest of such Bank
hereunder. In the event of any such sale by a Bank of a participating interest
to a Participant, such Bank's obligations under this Agreement shall remain
unchanged, such Bank shall remain solely responsible for the performance
thereof, such Bank shall remain the holder of any such Note for all purposes
under this Agreement, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. In no event shall a Bank that sells a
participation be obligated to the Participant to take or refrain from taking
any action hereunder except that such Bank may agree that it will not (except
as provided below), without the consent of the Participant, agree to (i) the
change of any date fixed for the payment of principal of or interest on the
related loan or loans, (ii) the change of the amount of any principal, interest
or fees due on any date fixed for the payment thereof with respect to the
related loan or loans, (iii) the change of the principal of the related loan or
loans, (iv) any change in the rate at which either interest is payable thereon
or (if the Participant is entitled to any part thereof) fee is payable
hereunder from the rate at which the Participant is entitled to receive
interest or fee (as the case may be) in respect of such participation, (v) the
release or substitution of all or any substantial part of the collateral (if
any) held as security for the Loans, or (vi) the release of any Guarantee given
to support payment of the Loans. Each Bank selling a participating interest in
any Loan, Note, Commitment or other interest under this Agreement shall, within
10 Business Days of such sale, provide the Borrower and the Agent with written
notification stating that such sale has occurred and identifying the
Participant and the interest purchased by such Participant. The Borrower
agrees that each Participant shall be entitled to the benefits of Article VIII
with respect to its participation in Loans outstanding from time to time.

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<PAGE> 60

assignment) a party to the Existing Credit Agreement holding an identical pro
rata interest therein and in this Agreement (each an "Assignee") all, or a
proportionate part of all, of its rights and obligations under this Agreement,
the Notes and the other Loan Documents, and such Assignee shall assume all such
rights and obligations, pursuant to an Assignment and Acceptance, executed by
such Assignee, such transferor Bank and the Agent (and, in the case of an
Assignee that is not then a Bank, by the Borrower); provided that (i) no
interest may be sold by a Bank pursuant to this paragraph (c) unless the
Assignee shall agree to assume ratably equivalent portions of the transferor
Bank's Commitment, (ii) the amount of the Commitment of the assigning Bank
subject to such assignment (determined as of the effective date of the
assignment) shall be equal to $5,000,000 (or any larger multiple of
$1,000,000), and (iii) no interest may be sold by a Bank (except during the
existence of a Default) pursuant to this paragraph (c) to any Assignee that is
not then a Bank without the consent of the Borrower and the Agent, which
consent shall not be unreasonably withheld. Upon (A) execution of the
Assignment and Acceptance by such transferor Bank, such Assignee, the Agent and
(if applicable) the Borrower, (B) delivery of an executed copy of the
Assignment and Acceptance to the Borrower and the Agent, (C) payment by such
Assignee to such transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, and (D) payment of a
processing and recordation fee of $2,500 to the Agent, such Assignee shall for
all purposes be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank under this Agreement to the same extent as if it were
an original party hereto with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by the
Borrower, the Banks or the Agent shall be required. Upon the consummation of
any transfer to an Assignee pursuant to this paragraph (c), the transferor
Bank, the Agent and the Borrower shall make appropriate arrangements so that,
if required, new Notes are issued to such Assignee.

(d) Subject to the provisions of Section 9.09, the Borrower
authorizes each Bank to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee any and all
financial information in such Bank's possession concerning the Borrower which
has been delivered to such Bank by the Borrower pursuant to this Agreement or
which has been delivered to such Bank by the Borrower in connection with such
Bank's credit evaluation prior to entering into this Agreement.

(e) No Transferee shall be entitled to receive any greater
payment under Section 8.01 than the transferor Bank would

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<PAGE> 61

have been entitled to receive with respect to the rights transferred, unless
such transfer is made with the Borrower's prior written consent or by reason of
the provisions of Section 8.01 requiring such Bank to designate a different
Lending Office under certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.

(f) Anything in this Section 9.08 to the contrary
notwithstanding, any Bank may assign and pledge all or any portion of the Loans
and/or obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect of such
assigned Loans and/or obligations made by the Borrower to the assigning and/or
pledging Bank in accordance with the terms of this Agreement shall satisfy the
Borrower's obligations hereunder in respect of such assigned Loans and/or
obligations to the extent of such payment. No such assignment shall release
the assigning and/or pledging Bank from its obligations hereunder.

SECTION 9.09. Confidentiality. Each Bank agrees to
exercise its best efforts to keep any information delivered or made available
by the Borrower to it which is clearly indicated to be confidential
information, confidential from anyone other than persons employed or retained
by such Bank who are or are expected to become engaged in evaluating,
approving, structuring or administering the Loans; provided, however that
nothing herein shall prevent any Bank from disclosing such information (i) to
any other Bank, (ii) upon the order of any court or administrative agency,
(iii) upon the request or demand of any regulatory agency or authority having
jurisdiction over such Bank, (iv) which has been publicly disclosed, (v) to the
extent reasonably required in connection with any litigation to which the
Agent, any Bank or their respective Affiliates may be a party, (vi) to the
extent reasonably required in connection with the exercise of any remedy
hereunder, (vii) to such Bank's legal counsel and independent auditors and
(viii) to any actual or proposed Participant, Assignee or other Transferee of
all or part of its rights hereunder which has agreed in writing to be bound by
the provisions of this Section 9.09; provided, that, should disclosure of any
such confidential information be required by virtue of either clause (ii) or
(iii) of the immediately preceding sentence, any relevant Bank shall promptly
notify the Borrower of same (unless otherwise prohibited by law) so as to allow
the Borrower to seek a protective order or to take any other appropriate
action; provided, further, that, no Bank shall be required to delay compliance
with any directive to disclose any such information so as to allow the Borrower
to effect any such action.

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<PAGE> 62

SECTION 9.10. Representation by Banks. Each Bank hereby
represents that it is a commercial lender or financial institution which makes
Loans in the ordinary course of its business and that it will make its Loans
hereunder for its own account in the ordinary course of such business;
provided, however that, subject to Section 9.08, the disposition of the Notes
held by that Bank shall at all times be within its exclusive control.

SECTION 9.11. Obligations Several. The obligations of each
Bank hereunder are several, and no Bank shall be responsible for the
obligations or commitment of any other Bank hereunder. Nothing contained in
this Agreement and no action taken by the Banks pursuant hereto shall be deemed
to constitute the Banks to be a partnership, an association, a joint venture or
any other kind of entity. The amounts payable at any time hereunder to each
Bank shall be a separate and independent debt, and each Bank shall be entitled
to protect and enforce its rights arising out of this Agreement or any other
Loan Document and it shall not be necessary for any other Bank to be joined as
an additional party in any proceeding for such purpose.

SECTION 9.12. Georgia Law. This Agreement and each Note
shall be construed in accordance with and governed by the law of the State of
Georgia.

SECTION 9.13. Severability. In case any one or more of the
provisions contained in this Agreement, the Notes or any of the other Loan
Documents should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby and
shall be enforced to the greatest extent permitted by law.

SECTION 9.14. Interest. In no event shall the amount of
interest due or payable hereunder or under the Notes exceed the maximum rate of
interest allowed by applicable law, and in the event any such payment is
inadvertently made to any Bank by the Borrower or inadvertently received by any
Bank, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify such Bank in writing that it elects to have such
excess sum returned forthwith. It is the express intent hereof that the
Borrower not pay and the Banks not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may legally be paid by the
Borrower under applicable law.

SECTION 9.15. Interpretation. No provision of this
Agreement or any of the other Loan Documents shall be construed against or
interpreted to the disadvantage of any party hereto

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<PAGE> 63

by any court or other governmental or judicial authority by reason of such
party having or being deemed to have structured or dictated such provision.

SECTION 9.16. Waiver of Jury Trial; Consent to
Jurisdiction. The Borrower (a) and each of the Banks and the Agent irrevocably
waives any and all right to trial by jury in any legal proceeding arising out
of this Agreement, any of the other Loan Documents, or any of the transactions
contemplated hereby or thereby, (b) submits to the nonexclusive personal
jurisdiction in the State of Georgia, the courts thereof and the United States
District Courts sitting therein, for the enforcement of this Agreement, the
Notes and the other Loan Documents, (c) waives any and all personal rights
under the law of any jurisdiction to object on any basis (including, without
limitation, inconvenience of forum) to jurisdiction or venue within the State
of Georgia for the purpose of litigation to enforce this Agreement, the Notes
or the other Loan Documents, and (d) agrees that service of process may be made
upon it in the manner prescribed in Section 9.01 (ii) for the giving of notice
to the Borrower. Nothing herein contained, however, shall prevent the Agent
from bringing any action or exercising any rights against any security and
against the Borrower personally, and against any assets of the Borrower, within
any other state or jurisdiction.

SECTION 9.17. Counterparts. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument.

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<PAGE> 64

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

BLUE CROSS AND BLUE SHIELD OF (SEAL)
GEORGIA, INC.

By: /s/
-----------------------------------
Title: SRVP and CFO

Attest: /s/
--------------------------------
Title: Assistant Secretary

3350 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: Senior Vice President &
Chief Financial Officer
Telecopier number: 404-842-8451
Confirmation number: 404-842-8455

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<PAGE> 65

COMMITMENTS WACHOVIA BANK OF GEORGIA, N.A., (SEAL)
as Agent and as a Bank

$22,000,000
By: /s/
-----------------------------------
Title: Assistant Vice President

Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Mail Code 3940
Atlanta, Georgia 30303-1757
Attention: Atlanta Corporate Group
Telecopier number: 404-332-5016
Confirmation number: 404-332-5985

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<PAGE> 66

NATIONSBANK, N.A. (SOUTH) (SEAL)

$22,000,000
By: /s/
------------------------------------
Title:

Lending Office
NationsBank, N.A. (South)
600 Peachtree Street, 21st Floor
Atlanta, Georgia 30308
Attention: Christina I. Earnshaw
Telecopier number: 404-607-6318
Confirmation number: 404-607-5558

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<PAGE> 67

$11,000,000 SUNTRUST BANK, ATLANTA (SEAL)

By: /s/
----------------------------------
Title: VP

By: /s/
----------------------------------
Title: SVP

Lending Office
SunTrust Bank, Atlanta
25 Park Place, 23rd Floor
Mail Code 175
Atlanta, Georgia 30303
Attention: Mr. John Taylor
Telecopier number: 404-230-5305
Confirmation number: 404-723-3886

___________

TOTAL COMMITMENTS:

$55,000,000.00

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<PAGE> 68

EXHIBIT A

PROMISSORY NOTE

Atlanta, Georgia
As of April 18, 1996

For value received, BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.,
a Georgia business corporation organized under the Georgia Business Corporation
Code (the "Borrower"), promises to pay to the order of
___________________________ ________________, a ________________ (the "Bank"),
for the account of its Lending Office, the principal sum of __________
_________ and No/100 Dollars ($_________), or such lesser amount as shall equal
the unpaid principal amount of each Loan made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below, on the dates provided in
the Credit Agreement. The Borrower promises to pay interest on the unpaid
principal amount of this Note on the dates and in the amounts and at the rate
or rates provided for in the Credit Agreement. Interest on any overdue
principal of and, to the extent permitted by law, overdue interest on the
principal amount hereof shall bear interest at the Default Rate, as provided
for in the Credit Agreement referred to below. All such payments of principal
and interest shall be made in lawful money of the United States in Federal or
other immediately available funds at the office of Wachovia Bank of Georgia,
N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other
address as may be specified from time to time pursuant to the Credit Agreement.

All Loans made by the Bank, the interest rate applicable thereto
from time to time, the respective maturities thereof and all repayments of the
principal thereof shall be recorded by the Bank and, prior to any transfer
hereof, endorsed by the Bank on the schedule attached hereto, or on a
continuation of such schedule attached to and made a part hereof; provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrower hereunder or under the Credit Agreement.

This note is one of the Loan Notes referred to in the Insolvency
Credit Agreement dated as of April 18, 1996, among the Borrower, the banks
listed on the signature pages thereof and Wachovia Bank of Georgia, N.A., as
Agent (as the same may be amended and modified from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for

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<PAGE> 69

provisions for the optional and mandatory prepayment and the repayment hereof
and the acceleration of the maturity hereof.

IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed, under seal, by its duly authorized officer as of the day and year
first above written.

BLUE CROSS AND BLUE SHIELD OF GEORGIA,
INC. (SEAL)

By: __________________________
Title:

Attest: ______________________
Title:

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<PAGE> 70

Promissory Note (cont'd)

<TABLE>
<CAPTION>
LOANS AND PAYMENTS OF PRINCIPAL
- - ----------------------------------------------------------------------------------------
Amount Amount of
of Principal Maturity Notation
Date Loan Repaid Date Made By
<S> <C> <C> <C> <C>

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

- - ----------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 71

EXHIBIT B

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), made and
entered into as of _________________________, 199___, by and between WACHOVIA
BANK OF GEORGIA, N.A., as agent for the ratable benefit of the "Banks" parties
to that certain Credit Agreement described below (the "Agent), and BLUE CROSS
AND BLUE SHIELD OF GEORGIA, INC. (the "Borrower") (capitalized terms not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement);

W I T N E S S E T H:

WHEREAS, Borrower is or hereafter may become indebted to the Banks for
certain debts, liabilities and obligations incurred or to be incurred from time
to time in connection with extensions of credit by the Banks to the Borrower
pursuant to the terms and conditions set forth in that certain Credit Agreement
dated as of April 18, 1996, between the Borrower and the Banks (as amended,
supplemented, restated, renewed, substituted, or otherwise modified from time
to time, the "Credit Agreement"); and

WHEREAS, in order to comply with Section 5.08 of the Credit Agreement,
Borrower has agreed to make and enter into this Agreement;

NOW, THEREFORE, for $10 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Banks hereby agree as follows:

1. Pledge of Collateral. The Borrower does hereby pledge,
hypothecate, assign, transfer, set over, deliver and grant a security interest
in and to the Agent, for the ratable benefit of the Banks, in all of the
Borrower's right, title and interest in and to the following: [DESCRIBE
TREASURIES] (the "Treasury Securities"), along with all rights of payment,
accounts and general intangibles of the Borrower relating thereto and all
proceeds thereof (hereinafter the Treasury Securities and such other property
being collectively referred to as the "Collateral"), all as security for the
payment and performance when due of any and all of the Obligations (defined in
the Credit Agreement). The Treasury Securities are held on the books and
records of the Agent in the name of and for the account of the

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<PAGE> 72

Agent through appropriate entries on the books and records of the Federal
Reserve Bank of Atlanta, Georgia (the "FRB") to the account of the Agent at the
FRB. The Agent will hold all instruments, drafts, and all other items of
payment relating to the Collateral in its name (or by its nominee or custodian)
and subject to its sole dominion and control.

2. Rights of the Agent in the Collateral. The Borrower agrees
that with respect to the Collateral the Agent shall have all the rights and
remedies of a secured party under the applicable Uniform Commercial Code, as
well as those provided by other applicable law and/or in this Agreement.
Notwithstanding the fact that the proceeds of the Collateral constitute part of
the Collateral, the Borrower may not dispose of the Collateral, or any part
thereof. Provided, however, if no Default has occurred, the Agent will remit
upon receipt all interest paid, if any, on the Treasuries Securities to the
Borrower. In the event that the Borrower fails to pay any of the Obligations
when due, irrespective of the occurrence or non-occurrence of any Default or
Event of Default, as provided in the Credit Agreement the Agent is authorized
to set off against and liquidate such portions of the Collateral as the Agent
deems necessary to pay the Obligations.

3. Representations and Warranties. The Borrower represents and
warrants to the Agent and the Banks as follows:

(a) All of the information regarding the Collateral set
forth herein and on the exhibits hereto is true and accurate in all material
respects.

(b) The Borrower has good and marketable title and
uncontested rights to the Collateral. The Borrower is the sole owner of all of
the Collateral, free and clear of all security interests, pledges, agreements,
liens, claims and encumbrances whatsoever, other than the pledge, assignment
and security interest created under this Agreement. The Borrower does not
possess any certificate or instrument evidencing ownership of the Collateral by
which ownership thereof may be transferred.

(c) The Agent has, upon execution hereof, and will
continue to have, as security for the Obligations, a valid and perfected, first
priority pledge, assignment and security interest in all of the Collateral,
free of all other liens, claims, rights or encumbrances of any third parties
whatsoever.

(d) All representations and warranties contained in or
made under or in connection with this Agreement shall survive the incurring of
any Obligations.

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<PAGE> 73

(e) The Borrower's chief executive office is located at
3350 Peachtree Road, N.E., Atlanta, Georgia 30326.

4. Covenants. Until payment in full and the performance of all
of the Obligations, the Borrower covenants and agrees with the Agent and the
Banks as follows:

(a) The Borrower shall deliver immediately to the Agent
any certificates, instruments or other writings evidencing ownership interests
in the Collateral received by the Borrower. All of any portion of the
Collateral at any time received or held by the Borrower shall be received and
held by the Borrower in trust for the benefit of the Agent, and shall be kept
separate and apart from, and not commingled with, the Borrower's other assets.

(b) The Borrower will do or cause to be done all things
necessary to preserve and to keep in full force and effect its interests in the
Collateral, and shall defend, at its sole expense, the title to the Collateral
and any part thereof. Further, the Borrower shall promptly, upon request by
the Agent, execute, acknowledge and deliver any financing statement,
endorsement, renewal, affidavit, deed, assignment, continuation statement,
security agreement, stock power, instrument, notice, application, certificate
or other document as the Agent may require in order to perfect, preserve,
maintain, protect, continue, realize upon, and/or extend the lien and security
interest of the Agent under this Agreement and the priority thereof. The
Borrower shall pay to the Agent upon demand all taxes, costs and expenses
(including but not limited to reasonable attorney's fees) incurred by the Agent
in connection with the preparation, execution, recording and filing of any such
document or instrument mentioned aforesaid.

(c) The Borrower agrees that the Agent may at any time
take such steps as the Agent deems reasonably necessary to protect the Agent's
interest in, and to preserve the Collateral. The Borrower agrees to cooperate
fully with the Agent's efforts to preserve the Collateral and will take such
actions to preserve the Collateral as the Agent may in good faith direct. All
of the Agent's expenses of preserving the Collateral, including, without
limitation, reasonable attorneys fees, shall be part of the Obligations.

(d) The Borrower shall give the Agent not less than
thirty (30) days' prior written notice of any change in the location of the
Borrower's chief executive office.

(e) The Borrower will not sell, assign, transfer or
otherwise dispose of the Collateral or any part thereof.

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<PAGE> 74

(f) The Borrower will not create, incur, assume or suffer
to exist any pledge, assignment, security interest, lien or any other
encumbrance upon any of the Collateral, other than in favor of the Agent.

(g) The Borrower shall comply with all of its obligations
under the Credit Agreement, including, without limitation, Section 5.08
thereof.

5. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under the provisions of
this Agreement:

(a) An "Event of Default" (as defined in the Credit
Agreement) occurs under the Credit Agreement.

(b) If the Borrower shall fail to duly perform, comply
with or observe any of the terms, conditions or covenants of this Agreement.

6. Rights and Remedies.

(a) In addition to the rights of the Agent and the Banks
to set off against and liquidate Collateral to pay the Obligations as set forth
in Section 2.04 of the Credit Agreement, upon the occurrence of an Event of
Default, the Agent may foreclose upon and liquidate the Collateral as provided
in this Section and apply the proceeds thereof to the Obligations in such order
as determined by the Required Banks in their sole discretion. The Borrower
shall remain liable for any deficiency in the event that the proceeds of the
Collateral are insufficient to repay the Obligations.

(b) Further, upon the occurrence of any Event of Default,
in accordance with the terms of the Credit Agreement the Banks may at any time
thereafter terminate any commitments to the Borrower under the Credit
Agreement, accelerate the Obligations, and as set forth below exercise any one
or more of the following rights, powers or remedies.

(c) The Agent shall have all of the rights and remedies
of a secured party under the applicable Uniform Commercial Code and other
applicable laws.

(d) The Agent may sell or redeem the Collateral, or any
part thereof, in one or more sales, at public or private sale, conducted by any
officer or agent of, or auctioneer or attorney for, the Agent, at the Agent's
place of business or elsewhere, for cash, upon credit or future delivery, and
at such price or prices as the Agent shall, in its sole discretion,

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<PAGE> 75

determine, and the Agent may be the purchaser of any or all of the Collateral
so sold.

If any consent, approval, or authorization of any governmental
authority or any entity having any interest therein, should be necessary to
effectuate any sale or other disposition of the Collateral, the Borrower agrees
to execute all such applications and other instruments, and to take all other
action, as may be required in connection with securing any such consent,
approval or authorization.

(e) In addition to all other rights and remedies provided
hereunder or as shall exist at law or in equity from time to time, the Agent
may (but shall be under no obligation to), without notice to the Borrower, and
the Borrower hereby irrevocably appoints the Agent as its attorney-in-fact,
with power of substitution, in the name of the Agent or in the name of the
Borrower or otherwise, for the use and benefit of the Agent, but at the cost
and expense of the Borrower and without notice to the Borrower:

(i) exercise exclusive control over,
compromise, extend or renew any of the Collateral or deal with the
same as it may deem advisable;

(ii) make exchanges, substitutions or
surrenders of all or any part of the Collateral;

(iii) copy, transcribe, or remove from any place
of business of the Borrower all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing any
of the Collateral or without cost or expense to the Agent, make such
use of the Borrower's places of business as may be reasonably
necessary to administer, control and collect the Collateral;

(iv) demand, collect, receipt for and give
renewals, extensions, discharges and releases of any of the
Collateral;

(v) institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon, any
of the Collateral;

(vi) settle, renew, extend, compromise,
compound, exchange or adjust claims in respect of any of the
Collateral or any legal proceedings brought in respect thereof;

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<PAGE> 76

(vii) endorse or sign the name of the Borrower
upon any items of payment, instruments, securities, powers,
applications, documents, or other writing relating to or part of the
Collateral and on any proof of claim relating thereto; and

(viii) take any other action necessary or
beneficial to realize upon or dispose of the Collateral.

(f) Any proceeds of sale or other disposition of the
Collateral will be applied by the Agent to the payment of the Obligations in
such order and manner of application as the Required Banks may from time to
time in their sole and absolute discretion determine. If the sale or other
disposition of the Collateral fails to fully satisfy the Obligations, the
Borrower shall remain liable to the Banks for any deficiency.

(g) If the Borrower shall fail to perform, observe or
comply with any of the conditions, covenants, terms, stipulations or agreements
contained in this Agreement, the Credit Agreement or any of the other Loan
Documents, the Agent, without notice to or demand upon the Borrower and without
waiving or releasing any of the Obligations or any Event of Default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of the Borrower, and may
enter upon the premises of the Borrower for that purpose and take all such
action thereon as the Agent may consider necessary or appropriate for such
purpose and the Borrower hereby irrevocably appoints the Agent as its
attorney-in-fact to do so, such appointment being coupled with an interest and
with power of substitution, in the name of the Agent or in the name of the
Borrower or otherwise, for the use and benefit of the Agent, but at the cost
and expense of the Borrower and without notice to the Borrower.

(h) The Agent may from time to time proceed to protect or
enforce its rights by an action or actions at law or in equity or by any other
appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement, the Credit Agreement or in any of the
other Loan Documents, or for an injunction against the violation of any of the
terms of this Agreement or any of the other Loan Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Credit Agreement, the Loan Documents, and/or applicable laws.

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<PAGE> 77

(i) The Borrower shall pay on demand all costs and
expenses (including reasonable attorney's fees), all of which shall be deemed
part of the Obligations, incurred by and on behalf of the Agent incident to any
collection, servicing, sale, disposition or other action taken by the Agent
with respect to the Collateral or any portion thereof. All sums paid or
advanced by the Agent hereunder, together with interest thereon at the Default
Rate from the date of payment, advance or incurring until paid in full and all
costs and expenses, shall be paid by the Borrower to the Agent on demand, and
shall constitute and become a part of the Obligations.

(j) Each right, power and remedy of the Agent as provided
for in this Agreement, the Credit Agreement or in any of the other Loan
Documents or in any related instrument or agreement or now or thereafter
existing at law or in equity or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for in this Agreement, the Credit Agreement or in the other Loan
Documents or in any related document, instrument or agreement or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Agent of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later
exercise by the Agent of any or all such other rights, powers or remedies.

(k) No failure or delay by the Agent to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement, the Credit Agreement or of any of the other Loan Documents or of any
related documents, instruments or agreements, or to exercise any right, power
or remedy consequent upon a breach thereof, shall constitute a waiver of any
such term, condition, covenant or agreement or of any such breach, or preclude
the Agent from exercising any such right, power or remedy at any later time or
times. By accepting payment after the due date of any amount payable under
this Agreement, the Credit Agreement or under any of the other Loan Documents
or under any related document, instrument or agreement, the Agent shall not be
deemed to waive the right either to require prompt payment when due of all
other amounts payable under this Agreement, the Credit Agreement or under any
other of the Loan Documents, or to declare a default for failure to effect such
prompt payment of any such other amount.

(l) All references to the Agent and to the Agent's
rights, powers, and remedies in this Agreement shall mean the Agent as agent
and representative of the Banks pursuant to the terms of the Credit Agreement.

7. Miscellaneous.

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<PAGE> 78

(a) Notices required hereunder shall be deemed given when
performed in accordance with Section 9.01 of the Credit Agreement.

(b) This Agreement, the Credit Agreement and the other
Loan Documents may not be amended, modified, or changed in any respect except
as provided in Section 9.06 of the Credit Agreement.

(c) The rights, powers and remedies provided in this
Agreement, the Credit Agreement and in the other Loan Documents are cumulative,
may be exercised concurrently or separately, may be exercised from time to time
and in such order as the Agent shall determine and are in addition to, and not
exclusive of, rights, powers and remedies provided by existing or future
applicable laws. In order to entitle the Agent to exercise any remedy reserved
to it in this Agreement, it shall not be necessary to give any notice, other
than such notice as may be expressly required by law or in this Agreement.
Without limiting the generality of the foregoing, the Agent may:

(i) proceed against the Borrower with or
without proceeding against any other entity who may be liable for all
or any part of the Obligations;

(ii) proceed against the Borrower with or
without proceeding under the Credit Agreement or any of the other Loan
Documents or against any Collateral or other collateral and security
for all or any part of the Obligations;

(iii) without notice, release or compromise with
any guarantor or other entity liable for all or any part of the
Obligations under the Credit Agreement or any of the other Loan
Documents or otherwise; and

(iv) without reducing or impairing the
obligations of the Borrower and without notice thereof: (1) fail to
perfect the pledge, assignment, security interest and lien in any or
all Collateral or to release any or all the Collateral or to accept
substitute collateral security, (2) waive any provision of this
Agreement, the Credit Agreement, or the other Loan Documents, (3)
exercise or fail to exercise rights of set- off or other rights, or
(4) accept partial payments or extend from time to time the maturity
of all or any part of the Obligations.

(d) In case one or more provisions, or part thereof,
contained in this Agreement, the Credit Agreement or in the other Loan
Documents shall be invalid, illegal or unenforceable

71
<PAGE> 79

in any respect under any law, then without need for any further agreement,
notice or action:

(i) the validity, legality and enforceability
of the remaining provisions shall remain effective and binding on the
parties thereto and shall not be affected or impaired thereby;

(ii) the obligation to be fulfilled shall be
reduced to the limit of such validity; and

(iii) if affected provision or part thereof does
not pertain to repayment of the Obligations, but operates or would
prospectively operate to invalidate this Agreement in whole or in
part, then such provision or part thereof only shall be void, and the
remainder of this Agreement shall remain operative and in full force
and effect.

(e) This Agreement and all other Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Agent and the
Banks and their respective successors and assigns, as permitted by the Credit
Agreement.

(i) This Agreement, shall be governed by the
laws of the state of Georgia (the "State") except to the extent that the
creation and perfection of the Agent's security interest in the Collateral may
be governed by the laws of another jurisdiction.

(ii) The Borrower irrevocably submits to the
nonexclusive jurisdiction of any state or federal court sitting in the State
over any suit, action or proceeding arising out of or relating to this
Agreement, the Credit Agreement or any of the other Loan Documents. The
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Final judgment in any such suit, action or
proceeding brought in any such court shall be conclusive and binding upon the
Borrower and may be enforced in any court in which the Borrower is subject to
jurisdiction, by a suit upon such judgment, provided that service of process is
effected upon the Borrower in one of the manners specified herein or as
otherwise permitted by applicable laws.

(iii) The Borrower hereby consents to process
being served in any suit, action or proceeding of the nature referred to in
this Section by the mailing of a copy thereof by registered or certified mail,
postage prepaid, return receipt re

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<PAGE> 80

quested, to the Borrower at the Borrower's address designated in Section 9.01
of the Credit Agreement. The Borrower irrevocably agrees that such service (i)
shall be deemed in every respect effective service of process upon the Borrower
in any such suit, action or proceeding, and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon the
Borrower. Nothing in this Section shall affect the right of the Agent to serve
process in any manner otherwise permitted by law or limit the right of the
Agent otherwise to bring proceedings against the Borrower in the courts of any
jurisdiction or jurisdictions.

(f) This Agreement, the Credit Agreement and the Loan
Documents are intended by the Agent and the Borrower to be a complete,
exclusive and final expression of the agreements contained herein. Neither
the Agent, the Banks nor the Borrower shall hereafter have any rights under any
prior agreements but shall look solely to this Agreement, the Credit Agreement
and the Loan Documents for definition and determination of all of their
respective rights, liabilities and responsibilities under this Agreement.

(g) TO THE FULLEST EXTENT PERMITTED BY LAW, THE BORROWER
AND THE AGENT AND THE BANKS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO WHICH THEY MAY BE PARTIES, ARISING OUT OF OR IN ANY
WAY PERTAINING TO (A) THIS AGREEMENT, (B) THE CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.

This waiver is knowingly, willingly and voluntarily made by
the Borrower and the Agent and the Banks, and the Borrower and the Agent and
the Banks hereby represent that no representations of fact or opinion have been
made by any individual to induce this waiver of trial by jury or to in any way
modify or nullify its effect. The Borrower and the Agent and the Banks further
represent that they have been represented in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of their
own free will, and that they have had the opportunity to discuss this waiver
with counsel.

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<PAGE> 81

IN WITNESS WHEREOF, Borrower has caused this Agreement to be
duly executed under seal as of the date first above written.

BLUE CROSS AND BLUE SHIELD OF GEORGIA,
INC. (SEAL)

By:_____________________________________
Title:

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<PAGE> 82

EXHIBIT C

Form of Commissioner's Confirmation
of Credit Facility and Collateral Pledge

COMMISSIONER'S CONFIRMATION OF
CREDIT FACILITY AND COLLATERAL PLEDGE

Reference is made to the Insolvency Credit Agreement (the "Credit
Agreement") dated as of _______________, 1996, among BLUE CROSS AND BLUE SHIELD
OF GEORGIA, INC. (the "Borrower"), the Banks listed therein, and WACHOVIA BANK
OF GEORGIA, N.A., as Agent. Capitalized terms used herein have the meanings
ascribed thereto in the Credit Agreement.

Pursuant to Section 3.02(d) of the Credit Agreement, __________________
____________, the duly authorized ___________________, acting on behalf of the
Commissioner of Insurance of The Insurance Department of the State of Georgia,
(the "Commissioner") pursuant to the Insurance Title of the Official Code of
Georgia Annotated Section 33-1-1 et seq., as amended from time to time (the
"Georgia Insurance Code") as the "Receiver" (as defined in the Georgia Insurance
Code) for the Borrower, hereby certifies, acknowledges and agrees in favor of
the Agent and the Banks on behalf of the Commissioner and the Receiver that (i)
a final, nonappealable order of liquidation and judicial declaration of
insolvency has been filed against the Borrower pursuant to Chapter 37, Article 4
of the Georgia Insurance Code, (ii) the Commissioner and the Receiver hereby
affirm and ratify the terms and conditions of the Credit Agreement, the Notes,
the Pledge Agreement, and all other Loan Documents and certify that such terms
and conditions comply with all laws and regulations relating to Georgia
insurance companies applicable to the Borrower, (iii) neither the Commissioner
nor the Receiver shall set aside as a fraudulent or preferential transfer,
object to, disallow, or otherwise assert any claim against the perfected, first
priority, security interest and lien in the Collateral, subject to no other
claims, securing the Obligations in favor of the Agent and the Banks as provided
in the Credit Agreement and the Pledge Agreement, and such security interest and
lien shall be valid against the Commissioner, the Receiver and all other parties
and deemed to have been incurred for new and contemporaneous consideration upon
the funding of the Loans, and (iv) advances of the Loans at the request of the
Commissioner or the Receiver on behalf of the Borrower under the Credit
Agreement shall constitute secured borrowings by the Commissioner or the
Receiver pursuant to Section 33-37-20 of the Georgia Insurance Code.

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<PAGE> 83

Certified as of this _____ day of _______________, [199___/200__].

THE INSURANCE DEPARTMENT OF THE STATE OF
GEORGIA

By:___________________________________
Name:
Title:

[Receiver]

By:___________________________________
Name:
Title:

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<PAGE> 84

EXHIBIT D

ASSIGNMENT AND ACCEPTANCE
Dated __________ __, [199__/200__]

Reference is made to the Insolvency Credit Agreement dated as
of April 18, 1996 (together with all amendments and modifications thereto, the
"Credit Agreement") among Blue Cross and Blue Shield of Georgia, Inc., a ______
___ corporation (the "Borrower"), the Banks (as defined in the Credit
Agreement) and Wachovia Bank of Georgia, N.A., as Agent (the "Agent"). Terms
defined in the Credit Agreement are used herein with the same meaning.

_________________________________________ (the "Assignor") and
________________________________________ (the "Assignee") agree as follows:

1. The Assignor hereby sells and assigns to the
Assignee, without recourse to the Assignor, and the Assignee hereby purchases
and assumes from the Assignor, a ______% interest in and to all of the
Assignor's rights and obligations under the Credit Agreement as of the
Effective Date (as defined below) (including, without limitation, a ____%
interest (which on the Effective Date hereof is $__________) in the Assignor's
Commitment and a ______ interest (which on the Effective Date hereof is
$_______________) in the Loans owing to the Assignor and a ___% interest in the
Notes held by the Assignor (which on the Effective Date hereof is $__________).

2. The Assignor (i) makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto, other than that it is the legal and beneficial owner of the
interest being assigned by it hereunder, that such interest is free and clear
of any adverse claim and that as of the date hereof its Commitment (without
giving effect to assignments thereof which have not yet become effective) is
$__________ and the aggregate outstanding principal amount of Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) is $_________________; (ii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other

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<PAGE> 85

instrument or document furnished pursuant thereto; and (iii) attaches the Notes
referred to in paragraph 1 above and requests that the Agent exchange such
Notes for new Notes as follows: a Revolving Loan Note dated ________________,
____ in the principal amount of $_____________ payable to the order of the
Assignee and a Term Loan Note dated _____________, ___ in the principal amount
of $______________ payable to the order of the Assignee. In the case of an
assignment whereby the Assignor shall not transfer all of its interest in the
Notes and/or Commitments, new Notes shall be provided to the Assignor to
evidence the remaining obligations of the Borrower owing to it.

3. The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.04(a) thereof (or any more recent financial statements
of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (ii)
agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Credit Agreement; (iii) confirms that
it is a bank or financial institution; (iv) appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such powers under
the Credit Agreement as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a Bank;
(vi) specifies as its Lending Office (and address for notices) the office set
forth beneath its name on the signature pages hereof, (vii) represents and
warrants that the execution, delivery and performance of this Assignment and
Acceptance are within its corporate powers and have been duly authorized by all
necessary corporate action[, and (viii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to the Assignee's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the Assignee under the Credit
Agreement and the Notes or such other documents as are necessary to indicate
that all such payments are subject to such taxes at a rate reduced by an
applicable tax treaty].

4. The Effective Date for this Assignment and Acceptance
shall be __________, 19__ (the "Effective Date"). Following the execution of
this Assignment and Acceptance, it

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<PAGE> 86

will be delivered to the Agent for execution and acceptance by the Agent and to
the Borrower for execution by the Borrower.

5. Upon such execution and acceptance by the Agent [and
execution by the Borrower] IF THE ASSIGNEE IS NOT A BANK PRIOR TO THE EFFECTIVE
DATE AND NO DEFAULT SHALL EXIST, from and after the Effective Date, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent rights and
obligations have been transferred to it by this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent its rights and obligations have been transferred to the Assignee by
this Assignment and Acceptance, relinquish its rights (other than under
Sections 8.01, 9.03 and 9.04 of the Credit Agreement) and be released from its
obligations under the Credit Agreement.

6. Upon such execution and acceptance by the Agent [and
execution by the Borrower] IF THE ASSIGNEE IS NOT A BANK PRIOR TO THE EFFECTIVE
DATE AND NO DEFAULT SHALL EXIST, from and after the Effective Date, the Agent
shall make all payments in respect of the interest assigned hereby to the
Assignee. The Assignor and Assignee shall make all appropriate adjustments in
payments for periods prior to such acceptance by the Agent directly between
themselves.

7. This Assignment and Acceptance shall be governed by,
and construed in accordance with, the laws of the State of Georgia.

[NAME OF ASSIGNOR]

By:_____________________________________
Title:

[NAME OF ASSIGNEE]

By:_____________________________________
Title:

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<PAGE> 87

Lending Office:
[Address]

WACHOVIA BANK OF GEORGIA, N.A.,
As Agent

By:_____________________________________
Title:

[BLUE CROSS AND BLUE SHIELD OF
GEORGIA, INC.]
IF THE ASSIGNEE IS NOT A BANK PRIOR TO
THE EFFECTIVE DATE AND NO DEFAULT
SHALL EXIST.

By:_____________________________________
Title:

Attest:_________________________________
Title:

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<PAGE> 88

EXHIBIT E

NOTICE OF BORROWING

_____________________, [199__/200__]

Wachovia Bank of Georgia, N.A., as Agent
191 Peachtree Street, N.W.
Atlanta, Georgia 30303-1757
Attention: Atlanta Corporate Group

Re: Insolvency Credit Agreement (as amended and modified from time
to time, the "Credit Agreement") dated as of April 18, 1996 by
and among Blue Cross and Blue Shield of Georgia, Inc., the
Banks from time to time parties thereto, and Wachovia Bank of
Georgia, N.A., as Agent.

Gentlemen:

Unless otherwise defined herein, capitalized terms used herein shall
have the meanings attributable thereto in the Credit Agreement.

This Notice of Borrowing is delivered to you pursuant to Section 2.02
of the Credit Agreement.

The Borrower hereby requests a Borrowing in the aggregate principal
amount of $ ___________ to be made on _______ ______, [199__/200__].

The Borrower hereby represents and warrants that on the date the
Borrowing requested hereunder is made (both before and after giving effect to
the making of such and after giving effect to the application, directly or
indirectly, of the proceeds thereof):

(a) no Default has occurred and is continuing;

(b) the representations and warranties of the Borrower
contained in Article IV of the Credit Agreement are true on and as of
the date hereof except (i) for changes permitted by the Credit
Agreement, (ii) to the extent that such representations and warranties
relate solely to an earlier date, (iii) representations and warranties
relating to any Material Adverse Effect set forth in Section 4.04(b)
or Section 4.12, (iii) the matters relating to the Excepted

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<PAGE> 89

Representations disclosed in the schedules attached hereto, and (iv)
any Default under a Financial Covenant;

(d) the proceeds of the Borrowing will be used solely to
pay Authorized Claims; and

(e) the Insurance Commissioner hereby ratifies and
confirms all matters acknowledged, certified and agreed to set forth
in the Commissioner's Confirmation of Credit Facility and Collateral
Pledge.

The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer this _____ day of ___________,
[199__][20__].

INSURANCE DEPARTMENT OF THE STATE OF
GEORGIA, as successor in
interest to BLUE CROSS AND BLUE SHIELD
OF GEORGIA, INC.

By:_______________________________
Title:

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<PAGE> 90

EXHIBIT F

COMPLIANCE CERTIFICATE

Reference is made to the Insolvency Credit Agreement dated as
of April 18, 1996 (as modified and supplemented and in effect from time to
time, the "Credit Agreement") among BLUE CROSS AND BLUE SHIELD OF GEORGIA,
INC., the Banks from time to time parties thereto, and Wachovia Bank of
Georgia, N.A., as Agent. Capitalized terms used herein shall have the meanings
ascribed thereto in the Credit Agreement.

Pursuant to Section 5.01(c) of the Credit Agreement,
____________, the duly authorized _________________ __ of BLUE CROSS AND BLUE
SHIELD OF GEORGIA, INC. hereby (i) certifies to the Agent and the Banks that
the information contained in the Compliance Check List attached hereto is true,
accurate and complete as of ____________, and that no Defaults or Events of
Default exist and (ii) restates and reaffirms that the representations and
warranties contained in Article IV of the Credit Agreement are true on and as
of the date hereof as though restated on and as of this date.

By:___________________________
Title:

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<PAGE> 91

COMPLIANCE CHECK LIST
(Blue Cross and Blue Shield of Georgia, Inc.)
_________________________________

_____________, [199__/20___]

<TABLE>
<S> <C> <C>
1. Liquidity Ratio (Section 5.03)

(a) Liquid Investments $
----------

(b) Monthly Underwriting Load $
----------

Actual Ratio of (a) to (b)
----------

Minimum Ratio 2.0 to 1.0

2. Capital Ratio (Section 5.04)

(a) Statutory Liabilities
for money borrowed $_________

(b) Statutory Surplus $_________

Actual Ratio of (a) to (c) _________

Maximum Ratio 0.15 to 1.0

3. Operating Leverage Ratio (Section 5.05)

(a) Underwritten Subscription Income $_________

(b) Consolidated Surplus $_________

Maximum Ratio 4.0 to 1.0
</TABLE>

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<PAGE> 92

COMPLIANCE CHECK LIST
(Blue Cross and Blue Shield of Georgia, Inc.)
_________________________________

_____________, [199__/20___]

<TABLE>
<S> <C> <C>
4. Interest Coverage Ratio (Section 5.06)

(a) EBIT $_________

(b) Consolidated Interest Expense $_________

Minimum Ratio 2.5 to 1.0

5. Minimum Consolidated Surplus (Section 5.07)

(a) $135,000,000

(b) 50% of cumulative positive Consolidated
Net Income for Fiscal Years ending after
December 31, 199_ $
---------

(c) 100% of all increases after December 31,
199_, in the Borrower's capital stock
and additional paid-in capital from the
issuance of equity securities and other
equity capital investments

Required Minimum Consolidated
Net Worth (the sum of (a) plus (b)
plus (c)) $
---------

Consolidated Surplus $
---------

6. Restricted Payments (Section 5.09)

(a) Consolidated Net Income for
relevant Fiscal Year $
---------

(b) Permitted Restricted Payments
(product of (a) multiplied by 0.10) $
---------

Actual Restricted Payments $
---------
</TABLE>

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<PAGE> 93

COMPLIANCE CHECK LIST
(Blue Cross and Blue Shield of Georgia, Inc.)
_________________________________

_____________, [199__/20___]

<TABLE>
<S> <C> <C>
7. Negative Pledge (Section 5.12)

(a) Consolidated Surplus $_________

(b) Amount of Debt Secured by Liens $_________

Limitation (product of (a) multiplied by
10.0%) $_________

8. Consolidations, Mergers and Sales
of Assets (Section 5.15)

(a) Total Assets Sold, Business Lines
Discontinued, and Subsidiaries
Dissolved During Current Fiscal Year $_________

(b) Consolidated Total Assets At End
of Immediately Preceding Fiscal
Year $_________

Annual Limitation (lesser of (x)
$25,000,000 or (y) 50.0% of (b) above) $_________

9. Debt of Subsidiaries (Section 5.24)

The Borrower's Subsidiaries have no
Debt except for Debt permitted by Section
5.24(i), and the following Debt:

Description Amount
----------- ------

_________________________________________ $_________
_________________________________________ $_________
_________________________________________ $_________

Total $
=========

AGGREGATE LIMITATION [$_________]
</TABLE>

86
<PAGE> 94

COMPLIANCE CHECK LIST
(Blue Cross and Blue Shield of Georgia, Inc.)
_________________________________

_____________, [199__/20___]

<TABLE>
<S> <C> <C>
10. Borrower Operations (Section 5.25)

(a) Borrower's Premiums Earned For Most
Recently Ended Fiscal Year $_________

Minimum Requirement $600,000,000

(b) Investment Income Earned by Borrower
During Most Recently Ended Fiscal Year $_________

Minimum Requirement (Interest Charged on
the Loans During Most Recently Ended
Fiscal Year) $_________

11. Covenant to Pledge Collateral (Section 5.08)

(a) Total Commitments plus outstanding
Loans $_________

(b) 120% x (a) above $_________

[add schedules as necessary]

87
<PAGE> 95

EXHIBIT G

BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC.

CLOSING CERTIFICATE

Reference is made to the Insolvency Credit Agreement (the "Credit
Agreement") dated as of April 18, 1996, among Blue Cross and Blue Shield of
Georgia, Inc., the Banks listed therein, and Wachovia Bank of Georgia, N.A., as
Agent. Capitalized terms used herein have the meanings ascribed thereto in the
Credit Agreement.

Pursuant to Section 3.01(e) of the Credit Agreement, _________________
____________, the duly authorized ___________________ of Blue Cross and Blue
Shield of Georgia, Inc. hereby certifies to the Agent and the Banks that (i) no
Default has occurred and is continuing as of the date hereof, and (ii) the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof.

Certified as of this 18th day of April, 1996.

BLUE CROSS AND BLUE SHIELD OF
GEORGIA, INC.

By:___________________________
Printed Name:_________________
Title:________________________

88
<PAGE> 96

Schedule 4.04

None.

89
<PAGE> 97

Schedule 4.08

Subsidiaries

<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- - ---- -----------------------------
<S> <C>
Greater Georgia Life Insurance Georgia
Company, Inc.

HMO Georgia, Inc. Georgia

Group Benefits of Georgia, Inc. Georgia
</TABLE>

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Summary
Consolidated Financial Information", "Selected Consolidated Financial and
Operating Data", "Issuance of Class A Stock to the Eligible Subscribers" and
"Experts" and to the use of our reports on the consolidated financial
statements of Blue Cross and Blue Shield of Georgia, Inc. dated February 7,
1996 and the balance sheet of Cerulean Companies, Inc. dated May 6, 1996, in
the Registration Statement on Form S-1 and related Prospectus of Cerulean
Companies, Inc. for the registration of 800,000 shares of its Class A
Convertible Common Stock.

ERNST & YOUNG LLP

Atlanta, Georgia
May 6, 1996

<PAGE> 1
EXHIBIT 99.1

CERULEAN COMPANIES, INC. /X/ Please mark
a Georgia corporation your choice
CLASS A CONVERTIBLE COMMON STOCK as this
No Par Value

TO: SUNTRUST ATLANTA, ESCROW AGENT

Mark an "X" in the
appropriate box The undersigned has received the Prospectus of Cerulean
YES Companies, Inc. (the "Company") dated ________, 1996 and
/ / elects:

YES: To accept the offer described in the Prospectus to
receive 5 shares of Class A Convertible Common Stock of
the Company (the "Shares").

NO
/ / NO: Not to accept such offer.

I have read the information on
the reverse side of this card.

Signature(s)
------------------
Please sign this card exactly
as your name appears in the
lower left hand corner.

THIS OFFER ENDS AT 5:00 P.M. ATLANTA TIME ON _______________, 1996. IF THIS
FORM, PROPERLY EXECUTED, IS NOT RECEIVED BY THE ESCROW AGENT BY THAT TIME THE
OFFER WILL BE CONSIDERED REJECTED BY YOU AND THE SHARES WILL BE RETURNED BY THE
ESCROW AGENT TO THE COMPANY FOR CANCELLATION.

(CONTINUED ON REVERSE SIDE.)

<PAGE> 2
IN MAKING MY DECISION I HAVE CONSIDERED THE INFORMATION CONTAINED IN THE
PROSPECTUS, INCLUDING THE INFORMATION CONCERNING INCOME TAX UNDER "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" THEREIN.

I understand that the shares of Class A Stock are subject to restrictions on
their transfer (as described in the Prospectus in "Risk Factors - Prohibitions
on Transfer; Lack of Liquidity" and in "Description of Capital Stock - Class A
Stock - Restrictions on Transfer; Right of First Refusal" at and that I cannot
sell, pledge, or otherwise dispose of the Shares under any circumstances except
as described in the Prospectus and then only as described in the Prospectus.

I represent that I have no present intent to transfer, pledge, distribute or
otherwise dispose of the Shares and am receiving them with the intent to hold
them for investment and with no intent for their further distribution. I
understand that the Company is relying on this statement of intent in the
Company's actions in complying with applicable securities laws.

<PAGE> 1
EXHIBIT 99.2

[LOGO] BlueCross 3350 Peachtree Road, N.E. Richard D. Shirk
BlueShield Post Office Box 4445 President and CEO
of Georgia Atlanta, Georgia 30302-4445
An Independent Licensee (404) 842-8410
of the Blue Cross and FAX (404) 842-8451
Blue Shield Association.

[DATE]

Dear Subscriber:

I am pleased to report that on December 27, 1995, Georgia Insurance
Commissioner John Oxendine issued an Order approving Blue Cross and Blue Shield
of Georgia's restructuring plan. This important change will allow Georgia Blue
to raise the investment resources necessary to provide greater access to
quality health care at an affordable price for as many Georgians as possible.

An important element of the Commissioner's Order permits Cerulean
Companies, Inc. (the Company), the new holding Company for Georgia Blue, to
offer five shares of convertible common stock to Georgia Blue's Eligible
Subscribers who were insured as of September 1, 1995 and remained insured
through February 1, 1996. I have enclosed a prospectus which describes the
Company and these securities. The prospectus is the official document by which
you are offered these shares, conveying a part of the ownership in the Company
to you.

We are proud of the achievements Georgia Blue has made, and proud that we
can make this offer to you to share in the Company's future. I encourage you
to consider favorably this opportunity to join the new Georgia Blue corporate
family. Please read the prospectus carefully, make your decisions, and return
the election form today.

PLEASE RETURN THE SIGNED ELECTION FORM WHETHER YOU WANT THE STOCK OR
NOT.

Very truly yours,

Richard D. Shirk
President

U S A
[LOGO]
Official Health Plan
Sponsor of the 1996
U.S. Olympic Team

<PAGE> 1
EXHIBIT 99.3

[DATE]

Dear Subscriber:

I want to hear from you.

On May____, 1996 I wrote to you, offering an opportunity for you to
receive five shares of stock in Cerulean Companies, Inc. (the Company), the
holding company which owns Blue Cross and Blue Shield of Georgia. We believe
this new structure will allow the Company to raise the investment resources
necessary to provide greater access to quality health care at an affordable
price for as many Georgians as possible.

With my letter was a PROSPECTUS (a bound booklet describing the offer) and
an ELECTION FORM for you to fill out and send back to tell us whether you want
to receive the five shares of stock.

We have not received your ELECTION FORM. An extra copy is enclosed for
your use. Please fill it out and return it in the enclosed envelope as soon as
possible. If you did not get my first letter to you containing the prospectus
or have misplaced it, please call our toll free number 1-800-___-___ for
another copy.

IT IS IMPORTANT THAT YOU RETURN THE SIGNED ELECTION FORM WHETHER YOU WANT
THIS STOCK OR NOT.

We are proud of the achievements Georgia Blue has made, and proud that we
can make this offer to you to share in the Company's future. I encourage you
to consider favorably this opportunity to join the new Georgia Blue corporate
family. Please read the PROSPECTUS carefully, make your decision and return
the ELECTION FORM today.

Very truly yours,

Richard D. Shirk
President

U S A
[LOGO]
Official Health Plan
Sponsor of the 1996
U.S. Olympic Team

<PAGE> 1
EXHIBIT 99.4

[DATE]

Dear Subscriber:

Time is running out.

On May_____, 1996 and again on June_____, 1996, you were offered an
opportunity to receive five shares of stock in Cerulean Companies, Inc. (the
Company), the holding company which now owns Blue Cross and Blue Shield of
Georgia. We believe this new structure will allow the Company to raise the
investment resources necessary to provide greater access to quality health care
at an affordable price for as many Georgians as possible.

With my first letter was a PROSPECTUS (a bound booklet describing the
offer) and an ELECTION FORM for you to fill out and send back to tell us
whether you want to receive the five shares of stock. Under the terms of the
offering, your reply must be received by August 12, 1996 in order for you to
receive this stock.

Unfortunately, your ELECTION FORM has not been received. An extra copy is
enclosed. Please fill it out and return it in the enclosed envelope as soon as
possible. If you did not get my first letter containing the prospectus, or
have misplaced it, please call our toll free number 1-800-___-___ for another
copy.

We are proud of the achievements Georgia Blue has made, and proud that we
can make this offer to you to share in the Company's future. I encourage you
to consider favorably this opportunity to join the new Georgia Blue corporate
family. Please read the PROSPECTUS carefully, make your decision and return
the ELECTION FORM today.

REMEMBER, IF THE ELECTION FORM IS NOT RECEIVED BY 5 P.M. ON AUGUST 12,
1996, YOU WILL BE DEEMED TO HAVE ELECTED NOT TO RECEIVE THE FIVE SHARES OF
STOCK.

Very truly yours,

Richard D. Shirk
President

U S A
[LOGO]
Official Health Plan
Sponsor of the 1996
U.S. Olympic Team

<PAGE> 1

EXHIBIT 99.5

Script for calls to subscribers of Georgia Blue who are residents of Georgia

HELLO, MY NAME IS ______________. I AM CALLING YOU BECAUSE OUR RECORDS
INDICATE YOU ARE A SUBSCRIBER OF BLUE CROSS AND BLUE SHIELD OF GEORGIA, THE
HEALTH CARE INSURER. AM I SPEAKING WITH MR./MS. [SUBSCRIBER'S NAME]?

Yes...............(ASK Q2)
No................(ASK FOR MR./MS. [SUBSCRIBER'S NAME]. IF CALLER REACHES
SUBSCRIBER, THEN ASK Q2; IF SUBSCRIBER NOT AVAILABLE OR WRONG NUMBER, NOTE
RESULT, ASK FOR A TIME WHEN SUBSCRIBER MAY BE AVAILABLE, IF PHONE NUMBER IS
CORRECT AND TERMINATE) IS THERE A TIME I SHOULD CALL AGAIN TO REACH MR./MRS.
[SUBSCRIBER'S NAME]? THANK YOU FOR YOUR TIME.

Q2. AS AN ELIGIBLE SUBSCRIBER OF GEORGIA BLUE YOU ARE ENTITLED, IF YOU
CHOOSE, TO RECEIVE FREE OF CHARGE, FIVE SHARES OF STOCK IN OUR HOLDING COMPANY,
CERULEAN COMPANIES, INC. HAVE YOU RECEIVED THE INFORMATION WE SENT TO YOU
ABOUT THIS OFFER OF STOCK?
No................(ASK Q2A)
Yes...............(SKIP to Q3)

Q2A. WOULD YOU LIKE TO RECEIVE INFORMATION ABOUT THIS STOCK
OFFER?
Yes...............(ASK Q2B)
No................(NOTE RESPONSE AND TERMINATE) THANK YOU FOR
YOUR TIME.

Q2B. IS YOUR CORRECT MAILING ADDRESS (READ MAILING ADDRESS ON
CALL CARD)?
Yes...............(NOTE AND TERMINATE AS NOTED BELOW)
No................(FILL IN CORRECT ADDRESS ON CALL CARD AND
REPEAT ADDRESS TO BE SURE IT IS CORRECT, THEN TERMINATE AS
NOTED BELOW)
WE WILL SEND THE INFORMATION TO YOU. AFTER YOU RECEIVE IT,
PLEASE SEND IN YOUR RESPONSE WHETHER YOU WANT THE STOCK OR
NOT, SO THAT THE RESPONSE FORM IS RECEIVED BEFORE 5 P.M. ON
MONDAY, AUGUST 12, 1996. THANK YOU FOR YOUR TIME.

Q3. IN THE MATERIALS SENT TO YOU WAS AN ELECTION FORM TO BE SIGNED BY YOU TO
INDICATE WHETHER YOU WANT TO RECEIVE THE STOCK OR NOT. IF THIS ELECTION FORM
IS NOT RECEIVED BEFORE 5:00 P.M. ON MONDAY, AUGUST 12, 1996, YOU WILL NOT
RECEIVE ANY STOCK IN THIS OFFERING. HAVE YOU HAD A CHANCE TO SEND IN THE
ELECTION FORM ?
Yes................(NOTE AND TERMINATE) THANK YOU FOR YOUR TIME.
No / Don't know / Not sure.................(ASK Q4)

<PAGE> 2

Q4. DO YOU STILL HAVE THE ELECTION FORM WHICH WAS SENT TO YOU?
Yes.........................................(ASK Q5)
No / Don't know / Not sure...(SKIP TO Q6)

Q5. WOULD YOU BE WILLING TO COMPLETE AND RETURN THE FORM, WHETHER YOU WANT THE
STOCK OR NOT, SO THAT THE ELECTION FORM IS RECEIVED BEFORE 5:00 P.M. ON MONDAY,
AUGUST 12, 1996?
Yes or No...............(NOTE RESPONSE AND TERMINATE) THANK YOU FOR YOUR TIME.

Q6. COULD WE SEND YOU ANOTHER COPY OF THE ELECTION FORM TO COMPLETE AND
RETURN?
Yes................(ASK Q7)
No.................(NOTE RESPONSE AND TERMINATE) THANK YOU FOR YOUR TIME.

Q7. IS YOUR CORRECT MAILING ADDRESS (READ MAILING ADDRESS ON CALL CARD)?
Yes...........(NOTE AND TERMINATE AS NOTED BELOW)
No............(GET CORRECT ADDRESS ON CALL CARD AND REPEAT ADDRESS TO BE SURE
IT IS CORRECT, THEN TERMINATE AS NOTED BELOW)
WE WILL SEND AN ELECTION FORM TO YOU. AFTER YOU HAVE RECEIVED IT, PLEASE SEND
IN YOUR RESPONSE WHETHER YOU WANT THE STOCK OR NOT, SO THE RESPONSE FORM IS
RECEIVED BEFORE 5 P.M. ON MONDAY, AUGUST 12, 1996. THANK YOU FOR YOUR TIME.