WELLPOINT HEALTH NETWORKS INC /DE/, S-4, 1998-09-30

WELLPOINT HEALTH NETWORKS INC /DE/
S-4, 1998-09-30
HOSPITAL & MEDICAL SERVICE PLANS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WELLPOINT HEALTH NETWORKS INC.
(Exact name of registrant as specified in its charter)

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<S> <C> <C>
DELAWARE 8000 95-4635504
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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21555 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 703-4321
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
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THOMAS C. GEISER
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
21555 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 703-4321
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:

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WILLIAM L. HUDSON, ESQ. THOMAS WARDELL, ESQ.
GIBSON, DUNN & CRUTCHER LLP LONG ALDRIDGE & NORMAN LLP
ONE MONTGOMERY STREET ONE PEACHTREE CENTER, SUITE 5300
TELESIS TOWER, 26TH FLOOR AND 31ST FLOOR 303 PEACHTREE STREET
SAN FRANCISCO, CALIFORNIA 94104 ATLANTA, GEORGIA 30308
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement and the
effective time of the merger of Cerulean Companies, Inc., a Georgia corporation
("Cerulean"), with and into Water Polo Acquisition Corp. ("Merger Sub"), a
Delaware corporation and wholly-owned subsidiary of WellPoint Health Networks
Inc., a Delaware corporation ("WellPoint" or the "Registrant"), through which
Cerulean will become a wholly-owned subsidiary of WellPoint, as described in the
Agreement and Plan of Merger among Cerulean, WellPoint and Merger Sub dated as
of July 9, 1998 (the "Merger Agreement"), attached as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE

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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
A number of
shares with a
Common Stock $0.01 par value per value equal to
share............................ $500,000,000 N/A N/A (2)
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(1) This Registration Statement relates to Common Stock of the Registrant to be
issued in the proposed merger of Cerulean into Merger Sub through which
Cerulean will become a wholly-owned subsidiary of WellPoint.
(2) Pursuant to Rule 457(b) under the Securities Act of 1933, as amended (the
"Securities Act"), funds in excess of the Registration Fee calculated
pursuant to Rule 457(f)(2) were previously paid in connection with a
preliminary proxy statement filed with the Securities and Exchange
Commission by Cerulean on August 28, 1998.
---------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2

CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4

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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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(INFORMATION ABOUT THE TRANSACTION)
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Facing page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information; Inside Front Cover
Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information............... Summary; Risk Factors; Proposal
1 -- Approval of the .. Merger; WellPoint
Health Networks Inc. Unaudited Pro forma
Combined Condensed Financial Statements;
Information Concerning WellPoint;
Information Concerning Cerulean; Business
of Cerulean; Cerulean Companies, Inc.
Consolidated Financial Statements
4. Terms of the Transaction..................... Summary; Proposal 1 -- Approval of the
Merger; Certain Provisions of the Merger
Agreement; Related Agreement; Comparison of
Rights of Cerulean Shareholders and
WellPoint Shareholders
5. Pro Forma Financial Information.............. WellPoint Health Networks, Inc. Unaudited
Pro Forma Combined Condensed Financial
Statements
6. Material Contracts with the Company Being
Acquired..................................... Summary; Proposal 1 -- Approval of the
Merger; Certain Provisions of the Merger
Agreement; Related Agreement
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. *
8. Interests of Named Experts and Counsel....... Experts; Legal Matters
9. Disclosure of Securities and Exchange Commission
Position on Indemnification for Securities Act
Liabilities.................................. *

(INFORMATION ABOUT THE REGISTRANT)
10. Information with Respect to S-3 Registrants... Information Concerning WellPoint; WellPoint
Health Networks Inc. Unaudited Pro Forma
Combined Condensed Financial Statements
11. Incorporation of Certain Information by
Reference.................................... Available Information; Incorporation of
Certain Information of WellPoint by
Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. *
13. Incorporation of Certain Information by
Reference *
</TABLE>
<PAGE> 3

(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with Respect to S-3 Companies.... *
16. Information with Respect to S-2 or S-3
Companies.................................... *
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies......................... Summary; Risk Factors; Information
Concerning Cerulean; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business of Cerulean; Security Ownership of
Cerulean Management and Principal
Shareholders; Management of Cerulean;
Cerulean Companies, Inc. Consolidated
Financial Statements

(VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or
Authorizations Are to be Solicited........... Summary; Information Regarding the Meeting;
Proposal 1-Approval of the Merger; Certain
Provisions of the Merger Agreement; Certain
Relationships and Related Transactions;
WellPoint Management, Executive
Compensation and Other Matters; Security
Ownership of Cerulean Management and
Principal Shareholders; Management of
Cerulean
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited or in an
Exchange Offer............................... *
</TABLE>

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* Not Applicable.
<PAGE> 4

CERULEAN COMPANIES, INC.

3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580
, 1998

Dear Shareholder of Class A Convertible Common Stock:

You are cordially invited to attend a Special Meeting in lieu of an Annual
Meeting of Shareholders of holders of shares of Class A Convertible Common Stock
("Class A Stock") of Cerulean Companies, Inc. ("Cerulean") to be held at
, , , Georgia, at ,
Eastern time, on , , 1998 (the
"Meeting"). At this important meeting, you will be asked to consider and vote
upon the approval of an Agreement and Plan of Merger, dated as of July 9, 1998
(the "Merger Agreement"), a copy of which is attached as Appendix A to the
attached Proxy Statement/Prospectus, pursuant to which Cerulean will merge (the
"Merger") into a subsidiary of WellPoint Health Networks Inc. ("WellPoint") and
become a wholly-owned subsidiary of WellPoint. If the proposed Merger is
consummated, holders of outstanding shares of Class A Stock (excluding shares
held by shareholders who perfect their dissenters' rights under Georgia law)
shall have the right to receive for each share of Class A Stock (i)
approximately $ in cash, (ii) the equivalent value paid in shares of
WellPoint Common Stock ("WellPoint Stock"), or (iii) under certain
circumstances, a combination of cash and WellPoint Stock. The affirmative vote
of a majority of the shares of Class A Stock entitled to vote at the Meeting and
the affirmative vote of a majority of the shares of Class B Convertible
Preferred Stock ("Class B Stock") are required for approval of the Merger
Agreement and the transactions contemplated thereby.

The shareholders' meeting for holders of Class B Stock is scheduled to be
held on , 1998. The holder of a majority of the shares of Class B
Stock has indicated its intent to vote in favor of the Merger Agreement and the
transactions contemplated thereby. Accordingly, approval by the holders of Class
B Stock of the Merger Agreement and the transactions contemplated thereby is
reasonably assured.

You are also being asked to elect three Class A Designated Directors to
serve from the time of the Meeting until the annual meetings in 2001 (in the
case of two such directors) and in 1999 (in the case of the third such director)
or, in either case, only until the earlier consummation of the Merger. A
majority of the outstanding shares of Class A Stock must be present in person or
by proxy to establish a quorum for the election and a plurality of shares voting
is necessary for election.

Enclosed are the (i) Notice of Meeting, (ii) Proxy Statement/Prospectus and
(iii) Proxy and Election Form. Please read carefully the Proxy
Statement/Prospectus which describes in more detail the Merger Agreement and the
transactions contemplated thereby, including a description of the conditions to
consummation of the Merger and the effects of the Merger on the rights of
Cerulean shareholders, and the election of Class A Designated Directors.

YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF CERULEAN'S
SHAREHOLDERS, AND THAT THE PROPOSED MERGER IS FAIR TO CERULEAN'S SHAREHOLDERS
FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS
APPROVED AND ADOPTED THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL DESCRIBED
IN THE ATTACHED PROXY STATEMENT/PROSPECTUS. YOUR BOARD OF DIRECTORS ALSO
RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES FOR CLASS A DESIGNATED DIRECTORS
DESCRIBED IN THE ATTACHED PROXY STATEMENT/PROSPECTUS.

The Merger Agreement provides that the consummation of the transactions
contemplated by the Merger Agreement is subject to a number of conditions,
including approval of each class of shareholders of Cerulean. In view of the
importance of the action to be taken, we urge you to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed envelope, whether or
not you plan to attend the Meeting. If you attend the Meeting, you may vote in
person, even if you previously returned your proxy.
<PAGE> 5

The proxy card is also an election form. It provides for you the
opportunity to complete the information required in order to receive cash or
WellPoint Stock in the Merger. This is contained in the space marked W-9 and
requires you to fill in your social security number. If you wish to receive
cash, you must also check the box provided in the space marked W-9, sign the
card and return it so that it will be received prior to or at the Meeting. As
soon as possible after the Merger is consummated, the Exchange Agent will begin
forwarding cash or WellPoint Stock to those Cerulean shareholders whose proxy
and election card, with W-9 information properly completed, has been received.

We look forward to seeing you at the Meeting.

Sincerely,

Richard D. Shirk
President and Chief Executive Officer

2
<PAGE> 6

CERULEAN COMPANIES, INC.

3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580

NOTICE OF MEETING OF SHAREHOLDERS
To be held at on , , 1998

TO THE SHAREHOLDERS OF CLASS A CONVERTIBLE COMMON STOCK OF CERULEAN COMPANIES,
INC.:

NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
Shareholders (the "Meeting") of holders of outstanding shares of Class A
Convertible Common Stock ("Class A Stock") of Cerulean Companies, Inc.
("Cerulean") will be held at , , Georgia, at
, Eastern time, on , ,
1998, for the following purposes:

1. The Merger. To consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of July 9, 1998 (the "Merger
Agreement") among Cerulean, WellPoint Health Networks Inc., a Delaware
corporation ("WellPoint"), and Water Polo Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of WellPoint ("Merger Sub"), and the
consummation of the transactions contemplated thereby. The Merger Agreement
provides, among other things, for the merger of Cerulean with and into Merger
Sub (the "Merger") as a result of which Cerulean will become a wholly-owned
subsidiary of WellPoint. If the proposed Merger is consummated, holders of
outstanding shares of Class A Stock of Cerulean (excluding shares held by
shareholders who perfect their dissenters' rights under Georgia law) shall have
the right to receive for each share of Class A Stock (i) approximately
$ in cash, (ii) the equivalent value in shares of WellPoint Common
Stock ("WellPoint Stock"), or (iii) under certain circumstances, a combination
of cash and WellPoint Stock. The total value of the consideration to be paid to
Cerulean shareholders in the Merger is $500 million, subject to certain
adjustments. The Merger Agreement and the Merger are more fully described in the
accompanying Proxy Statement/Prospectus.

2. Election of three Class A Designated Directors. To elect three Class A
Designated Directors to serve from the time of the Meeting until the Annual
Meetings in 2001 (in the case of two such Directors) and in 1999 (in the case of
the third such Director) or, in either case, only until the earlier consummation
of the Merger.

3. Other Business. To transact such other business as may properly come
before the Meeting or any adjournments or postponements thereof.

Information relating to the above matters is set forth in the accompanying
Proxy Statement/Prospectus. A copy of the Merger Agreement is set forth as
Appendix A to the Proxy Statement/Prospectus and is incorporated herein by
reference.

THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE SUBJECT
TO CERTAIN CONDITIONS, INCLUDING THE APPROVAL OF EACH CLASS OF SHAREHOLDERS OF
CERULEAN.

Only shareholders of record of Cerulean at the close of business on
, 1998, are entitled to receive notice of and to vote at the Meeting
or any adjournments or postponements thereof. Approval of the Merger Agreement
and the consummation of the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the shares of Class A Stock
entitled to vote at the Meeting. Election of Class A Designated Directors
requires the affirmative vote of a plurality of the shares of Class A Stock
represented at the Meeting, assuming a quorum is present and acting throughout
the Meeting.

THE BOARD OF DIRECTORS OF CERULEAN RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY AND "FOR" THE BOARD'S NOMINEES FOR CLASS A DESIGNATED
DIRECTORS.
<PAGE> 7

Even if you plan to attend the Meeting, please fill in, date and sign the
enclosed proxy card with your vote and election of cash or WellPoint Stock and
promptly return it in the enclosed return envelope, which requires no postage if
mailed in the United States, to ensure that your shares will be represented at
the Meeting. If you attend in person, the proxy can be disregarded, if you wish,
and you may vote your shares in person. You should also complete the W-9
information on the proxy and election card at this time. It is not necessary for
you to do so in order to vote at the Meeting. It is necessary, however, that
this information be received, certified by you, before you can receive either
cash or WellPoint Stock. Soon after the consummation of the Merger, we expect to
begin to distribute cash or WellPoint Stock to those Cerulean shareholders whose
W-9 information has been received.

BY ORDER OF THE BOARD OF DIRECTORS

Richard D. Shirk
President and Chief Executive Officer

Atlanta, Georgia
, 1998

2
<PAGE> 8

PROXY STATEMENT
OF

CERULEAN COMPANIES, INC.
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PROSPECTUS
OF

WELLPOINT HEALTH NETWORKS INC.
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This Proxy Statement/Prospectus is being furnished to holders of Class A
Convertible Common Stock ("Class A Stock") of Cerulean Companies, Inc.
("Cerulean") in connection with the solicitation of proxies by the Board of
Directors of Cerulean for use at a Special Meeting in lieu of Annual Meeting of
Shareholders of Class A Stock of Cerulean to be held at , Eastern
time, on , , 1998, at ,
, , Georgia (the "Meeting") and at any
adjournments of the Meeting. The holders of Class A Stock on the Record Date
consist of those subscribers of Blue Cross Blue Shield of Georgia ("Georgia
Blue") who received stock of Cerulean as part of the conversion on February 2,
1996 of Georgia Blue from a not-for-profit corporation to a for-profit
corporation (the "Conversion").

This Proxy Statement/Prospectus is also being furnished to holders of Class
B Convertible Preferred Stock ("Class B Stock") of Cerulean in connection with a
meeting of the holders of Class B Stock to be held at Eastern time, on
, , 1998 at , ,
, Georgia.

This Proxy Statement/Prospectus also constitutes a prospectus of WellPoint
Health Networks Inc. ("WellPoint") relating to shares of Common Stock of
WellPoint ("WellPoint Stock") to be issued to shareholders of Cerulean pursuant
to the terms of the Agreement and Plan of Merger, dated as of July 9, 1998 (the
"Merger Agreement"), among Cerulean, WellPoint and Water Polo Acquisition Corp.,
a newly formed Delaware corporation and a wholly-owned subsidiary of WellPoint
("Merger Sub"). The Merger Agreement provides, among other things, that Cerulean
will merge (the "Merger") with and into Merger Sub and, as a result, Cerulean
will become a wholly-owned subsidiary of WellPoint. At the effective time of the
Merger (the "Effective Time"), each outstanding share of Class A Stock
(excluding shares held by shareholders who perfect their dissenters' rights
pursuant to Georgia law or of Series A Stock) and each outstanding share of
Cerulean Series A Preferred Stock ("Series A Stock") shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
for each share of Class A Stock or Series A Stock (i) approximately $ in
cash (the "Cash Price"), (ii) the equivalent value paid in shares of WellPoint
Stock (the "Stock Price"), or (iii) under certain circumstances, a combination
of cash and WellPoint Stock (such Cash Price, Stock Price or combination of cash
and WellPoint Stock, collectively, the "Merger Consideration"). At the effective
time of the Merger, each outstanding share of Class B Stock (excluding shares
held by shareholders who perfect their dissenters' rights pursuant to Georgia
law) shall cease to be outstanding and shall be converted into and exchanged for
the right to receive for each share of Class B Stock an amount of WellPoint
Stock equal in value to approximately $ .

This Proxy Statement/Prospectus incorporates by reference important
business and financial information about WellPoint that is not included in or
delivered with this Proxy Statement/Prospectus. This information is available
without charge to shareholders upon written or oral request. Shareholders may
obtain documents incorporated by reference in this Proxy Statement/Prospectus by
requesting them in writing or by telephone from WellPoint at: Investor
Relations, WellPoint Health Networks Inc., 21555 Oxnard Street, Woodland Hills,
California 91367, Telephone: (818) 703-4321. TO OBTAIN TIMELY DELIVERY,
SHAREHOLDERS MUST REQUEST THE INFORMATION NO LATER THAN , 1998, FIVE
BUSINESS DAYS BEFORE THE DATE OF THE MEETING.

This Proxy Statement/Prospectus and the accompanying proxy cards are first
being mailed to shareholders of Cerulean on or about , 1998.

SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
IMPORTANT RISKS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS IN CONNECTION WITH THE
MERGER AND THE ACQUISITION OF WELLPOINT STOCK OFFERED HEREBY.

THE WELLPOINT STOCK ISSUABLE IN THE MERGER HAS 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

WellPoint Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "WLP." On , 1998, the closing sale price for the
WellPoint Stock as quoted by the NYSE was $ per share. It is a condition to
the consummation of the Merger that the shares of WellPoint Stock to be issued
in the Merger be approved for listing on the NYSE.

The date of this Proxy Statement/Prospectus is , 1998.
<PAGE> 9

The transactions contemplated by the Merger Agreement are subject to the
satisfaction of certain conditions, including approval of the Merger Agreement
and the transactions contemplated thereby by the shareholders of Cerulean.

If you are a holder of Class A Stock, you are being asked at the Meeting to
approve and adopt the Merger Agreement and the Merger. The Merger cannot be
completed without the affirmative vote of a majority of the shares of Class A
Stock entitled to vote at the Meeting and the affirmative vote of a majority of
the shares of Class B Stock entitled to vote on the Merger Agreement. YOUR VOTE
IS VERY IMPORTANT. Holders of Class B Stock are also being asked to approve and
adopt the Merger Agreement and the Merger. The holder of a majority of the
shares of Class B Stock has indicated its intent to vote in favor of the Merger
Agreement and the transactions contemplated thereby. Accordingly, approval by
the holders of Class B Stock of the Merger Agreement and the transactions
contemplated thereby is reasonably assured.

Whether or not you plan to attend the Meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. This proxy card should
be returned to us as soon as possible. If you sign and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
"FOR" adoption of the Merger Agreement and approval of the Merger and "FOR" each
of the nominees for Class A Designated Director. If you fail to return your
card, you will in effect vote against the Merger Agreement and the Merger.

A copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement/Prospectus. The summaries of the portions of the Merger Agreement set
forth in this Proxy Statement/Prospectus do not purport to be complete and are
qualified in their entirety by reference to the Merger Agreement. We encourage
you to read the Merger Agreement carefully.

The Merger Agreement provides for an aggregate amount of Merger
Consideration of $500 million, subject to certain adjustments as provided in the
Merger Agreement, to be paid in the Merger. Pursuant to the exchange ratios for
Class B Stock and Class A Stock contained in the Merger Agreement, an aggregate
allocation of Merger Consideration will be made among (i) the holders of Class B
Stock, on the one hand, and (ii) the holders of Class A Stock, Series A Stock
and any Cerulean Class A Common Stock Participation Rights ("Cerulean Rights")
into which the shares of Series A Stock are converted, on the other hand. The
Series A Stock and any Cerulean Rights will be newly issued securities of
Cerulean to be held by a new Georgia charitable foundation to be formed in
connection with the litigation relating to the Conversion as described more
fully herein (the "Conversion Litigation") and the lawyers for the plaintiffs in
the Conversion Litigation (the foundation and such lawyers are collectively
referred to hereafter as the "Foundation"), pursuant to the terms of a
Stipulation and Agreement of Settlement (the "Settlement") of the Conversion
Litigation. The exchange ratios are based upon the conversion provisions of
Article IV of the Articles of Incorporation of Cerulean (as amended, the
"Cerulean Articles"). Pursuant to the Class A exchange ratio, holders of Class A
Stock, Series A Stock and Cerulean Rights will receive an aggregate amount of
approximately $389 million of cash or an equivalent value of WellPoint Stock in
the Merger assuming no adjustment to the aggregate Merger Consideration. Other
than the Foundation (which is currently expected to become a shareholder prior
to the Meeting), all holders of Class A Stock were subscribers of Georgia Blue
during the conversion period who received their Class A Stock as a part of the
Conversion. Assuming the final settlement of the Conversion Litigation is
identical to the terms of the Settlement, a cashless exercise of the warrants
for the acquisition of the Series A Stock (the "Warrants"), and no adjustment to
the aggregate Merger Consideration, the Foundation will receive approximately
$83.5 million in cash or an equivalent value of WellPoint Stock, and the
remaining approximately $305.5 million in cash or WellPoint Stock will be
distributed to all other holders of Class A Stock. This results in a value for
each share of Class A Stock in the Merger of approximately $ per share, or
$ for each five shares of Class A Stock. Pursuant to the Class B exchange
ratio, holders of Class B Stock will receive an aggregate amount of
approximately $111 million of WellPoint Stock assuming no adjustment to the
aggregate Merger Consideration. Holders of Class B Stock (other than those who
exercise and perfect their dissenters' rights under Georgia law) are not
entitled to receive cash in the Merger.
<PAGE> 10

THE CERULEAN BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF
CERULEAN'S SHAREHOLDERS, AND THAT THE PROPOSED MERGER IS FAIR TO CERULEAN'S
SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, YOUR BOARD OF
DIRECTORS HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.

With this Proxy Statement/Prospectus, all holders of Class A Stock have
also received a proxy and election card. Completion of the W-9 information and
the election is not necessary in order to vote on the Merger, but this W-9
information must be received before a holder of Class A Stock can receive any
cash or WellPoint Stock upon consummation of the Merger. You may find it
convenient, therefore, to complete this W-9 information at the same time you
complete your proxy. You will then be able to receive your cash or shares of
WellPoint Stock soon after consummation of the Merger.

Only Cerulean shareholders who complete the W-9 information, check the box
electing cash, sign the card and return it so that it is received prior to or at
the Meeting will be entitled to cash. Thereafter, like all other Cerulean
shareholders who do not make any election, they will receive WellPoint Stock
(upon receipt of properly complete W-9 information). The total amount of cash
payments is under all circumstances limited to the aggregate amount described
elsewhere in this Proxy Statement/Prospectus in order to perfect the tax-free
nature of the Merger. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Certain
Federal Income Tax Consequences of the Merger."

All shares of Class A Stock and Class B Stock outstanding immediately
before the Effective Time (excluding shares held by shareholders who perfect
their dissenters' rights under Georgia law) will, as a result of the Merger, no
longer be outstanding and will automatically be canceled and retired and will
cease to exist, and each holder of Class A Stock and Class B Stock will cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration in consideration therefor and the rights accorded to such shares
under the General Corporation Law of the State of Delaware. Pursuant to Sections
14-2-1301 through 14-2-1332, inclusive, of the Georgia Business Corporation Code
(the "GBCC"), any holder of Class A Stock or Class B Stock who properly dissents
from the Merger and desires to seek valuation of such holder's Class A Stock or
Class B Stock, respectively, and subsequent payment rather than to receive the
Merger Consideration as part of the Merger may do so if such holder complies
with the provisions of the GBCC pertaining to the exercise of dissenters'
rights. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Dissenters' Rights."
<PAGE> 11

TABLE OF CONTENTS

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PAGE
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INDEX OF DEFINED TERMS...................................... vi
AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN INFORMATION OF WELLPOINT BY
REFERENCE................................................. 1
SUMMARY..................................................... 3
Questions and Answers About the Merger.................... 3
Parties to the Merger..................................... 7
The Meeting............................................... 7
The Merger................................................ 9
Forward-Looking Statements May Prove Inaccurate........ 9
Risk Factors........................................... 9
Background of the Merger............................... 9
Cerulean's Reasons for the Merger...................... 9
WellPoint's Reasons for the Merger..................... 9
Opinion of Cerulean's Financial Advisor................ 9
Approvals of Regulatory Authorities and Blue Cross Blue
Shield Association.................................... 10
Accounting Treatment................................... 10
Non-Solicitation....................................... 10
Listing of WellPoint Stock............................. 10
Conditions to the Merger............................... 10
Termination of the Merger Agreement.................... 11
Termination Fees....................................... 12
Interests of Certain Persons in the Merger............. 12
Registration Rights Agreement.......................... 12
Settlement of the Conversion Litigation................ 12
Certain Differences in the Rights of Shareholders...... 13
Comparative Market Price and Dividend Information...... 13
Certain Federal Income Tax Consequences of the
Merger................................................ 14
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 16
RISK FACTORS................................................ 17
Risks Relating to the Merger.............................. 17
Difficulties of Integration............................ 17
Government and Regulatory Approvals.................... 17
Additional Indebtedness................................ 18
Delaware Company....................................... 18
Risks Relating to the Business of WellPoint, Cerulean and
the Combined Company................................... 18
Federal and State Health Care Regulation; Legislative
Reform; Activities as Government Contractor........... 18
Health Care Costs and Premium Pricing Pressures........ 19
Competition............................................ 20
Evolving Theories of Recovery.......................... 20
Dependence on Independent Agents and Brokers........... 21
Employee Matters....................................... 21
Effect of Year 2000 on Computer Systems and
Applications.......................................... 21
License to Use of Blue Cross and Blue Shield Name and
Risk of Termination of Such License................... 21
</TABLE>

i
<PAGE> 12

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risks Relating Particularly to the Business of
WellPoint.............................................. 22
Integration of Recent WellPoint Acquisitions;
WellPoint's Geographic Expansion Strategy; WellPoint's
Future Acquisitions................................... 22
Tax Issues Relating to the Recapitalization............ 22
Volatility of WellPoint Stock.......................... 23
Risks Relating Particularly to the Business of Cerulean... 23
CHPNs.................................................. 23
Potential Nonrenewal of Eligible Subscriber and
Provider Agreements; Concentration of Contracts....... 24
Changing Nature of Financing and Servicing Health
Care.................................................. 24
INFORMATION REGARDING THE MEETING........................... 25
General................................................... 25
The Meeting............................................... 25
Record Date; Quorum....................................... 25
Vote Required............................................. 26
Solicitation and Revocability of Proxies.................. 26
Dissenters' Rights........................................ 27
Regulatory and Other Approvals............................ 27
Method of Electing WellPoint Stock or Cash; Receipt of
WellPoint Stock and/or Cash............................ 27
Holders of Class A Stock............................... 27
Holders of Class B Stock............................... 28
Recommendations of the Board of Directors................. 28
PROPOSAL 1 -- APPROVAL OF THE MERGER........................ 28
Background of the Merger.................................. 28
Cerulean............................................... 28
WellPoint.............................................. 31
Recommendation of the Cerulean Board of Directors......... 32
Reasons for the Merger.................................... 32
Cerulean's Reasons for the Merger...................... 32
WellPoint's Reasons for the Merger..................... 33
Opinion of Cerulean's Financial Advisor................... 34
Closing; Effective Time of the Merger..................... 38
Consideration to be Received in the Merger................ 38
Merger Consideration to be Received by Holders of Class
A Stock in the Merger................................. 39
Merger Consideration to be Received by Holders of New
Stock in the Merger................................... 40
Merger Consideration to be Received by Holders of Class
B Stock in the Merger................................. 40
Cash Holdback.......................................... 40
Treatment of Fractional Shares............................ 41
Procedures for Election and Receipt of Merger
Consideration.......................................... 41
Holders of Class A Stock............................... 41
Holders of Class B Stock............................... 41
Lost, Stolen or Destroyed Certificates.................... 42
Regulatory Approvals; Approval of BCBSA................... 42
U.S. Antitrust Filing.................................. 42
Georgia Commissioner................................... 42
Other State and Federal Approvals and Notices.......... 43
Blue Cross Blue Shield Association..................... 43
Merger Sub................................................ 44
Listing of WellPoint Stock on the New York Stock
Exchange............................................... 44
</TABLE>

ii
<PAGE> 13

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interests of Certain Persons in the Merger................ 44
Payments to Management Resulting from the Merger....... 44
Interests of Cerulean Directors........................ 49
Resale of WellPoint Stock; Restrictions on Resales by
Affiliates............................................. 50
Certain Federal Income Tax Consequences of the Merger..... 50
Accounting Treatment...................................... 53
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................. 53
General................................................... 53
Articles of Incorporation and Bylaws of Surviving
Corporation............................................ 54
Directors and Officers.................................... 54
Representations and Warranties............................ 54
Covenants of the Parties.................................. 55
Conduct of Business Pending the Merger................. 55
Access; New Information................................ 55
Transfer Taxes......................................... 56
Consents, Waivers and Authorizations; Governmental and
Regulatory Approvals.................................. 56
Further Assurances..................................... 56
Public Announcements................................... 56
Dividend on Class B Stock.............................. 56
Obligations with respect to Merger Sub and Georgia
Blue.................................................. 56
Appointment of Director of WellPoint................... 57
Non-Solicitation....................................... 57
Settlement of Conversion Litigation.................... 57
Agreements with Affiliates............................. 57
Adjustments to the Merger Price........................ 58
Employee Benefits...................................... 58
Conditions to the Consummation of the Merger.............. 58
Conditions to Each Party's Obligations................. 58
Conditions to Obligations of Cerulean.................. 59
Conditions to Obligations of WellPoint and Merger
Sub................................................... 60
Termination; Termination Fees............................. 62
Termination............................................ 62
Termination Fees....................................... 62
Costs and Expenses........................................ 63
Amendment and Waiver...................................... 63
Dissenters' Rights........................................ 63
RELATED AGREEMENT........................................... 65
Registration Rights Agreement............................. 65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 66
Settlement of Cerulean Conversion Litigation.............. 66
Interests of Cerulean Management.......................... 68
Interests of Cerulean Class B Shareholders................ 68
WELLPOINT HEALTH NETWORKS, INC. UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS............................ 69
INFORMATION CONCERNING WELLPOINT............................ 75
WELLPOINT MANAGEMENT, EXECUTIVE COMPENSATION AND OTHER
MATTERS................................................... 75
INFORMATION CONCERNING CERULEAN............................. 76
Selected Consolidated Financial and Other Data............ 76
</TABLE>

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<PAGE> 14

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CERULEAN..................... 78
Overview.................................................. 78
Results of Operations..................................... 79
Six Months Ended June 30, 1998 Compared to Six Months
Ended June 30, 1997................................... 79
1997 Compared to 1996.................................. 80
1996 Compared to 1995.................................. 81
Liquidity and Capital Resources........................... 81
Liquidity.............................................. 81
Capital Resources...................................... 82
BUSINESS OF CERULEAN........................................ 84
The Conversion; Private Placement of Class B Stock........ 84
Industry Overview......................................... 84
General................................................... 85
Organizational Structure.................................. 86
Strategic Initiatives..................................... 86
CHPNs.................................................. 86
Information Technology................................. 87
Year 2000 Computer Software Modification Costs......... 87
Business Lines and Products............................... 87
Overview............................................... 87
HMO and POS............................................ 88
BlueChoice Platinum.................................... 89
PPO.................................................... 89
Indemnity.............................................. 89
Life Insurance......................................... 90
Ancillary and Specialty Network Benefits............... 90
Workers Compensation Services.......................... 90
Marketing and Sales....................................... 90
General................................................ 90
Internal Sales and Service Force....................... 91
Independent Insurance Agents and Brokers............... 91
Underwriting.............................................. 91
Customers................................................. 92
Investment Portfolio...................................... 92
Competition............................................... 93
Employees................................................. 94
Government Regulations.................................... 94
Holding Company Regulation............................. 94
Regulation of Insurance Subsidiaries................... 94
Examinations........................................... 95
Trade Names, Trade Marks, Service Marks and Licenses...... 95
Properties................................................ 95
Legal Proceedings......................................... 95
Market for the Registrant's Common Equity and Related
Stockholder Matters.................................... 95
SECURITY OWNERSHIP OF CERULEAN MANAGEMENT AND PRINCIPAL
SHAREHOLDERS.............................................. 96
MANAGEMENT OF CERULEAN...................................... 97
COMPARISON OF RIGHTS OF CERULEAN SHAREHOLDERS AND WELLPOINT
SHAREHOLDERS.............................................. 98
Board of Directors........................................ 98
</TABLE>

iv
<PAGE> 15

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Committees of the Board................................... 99
Actions by Shareholders Without a Meeting; Special
Meetings............................................... 100
Amendments to Certificate or Articles of Incorporation.... 100
Amendments to Bylaws...................................... 101
General Voting Requirements............................... 102
Vote Required for Certain Transactions.................... 102
Certain Restrictions on Ownership of Securities........... 103
Business Combinations with Interested Shareholders........ 104
Fair Price Provisions..................................... 104
Conflicting Interest Transactions......................... 105
Appraisal Rights.......................................... 106
Par Value; Dividends and Repurchases of Shares............ 106
PROPOSAL 2 -- ELECTION OF CLASS A DESIGNATED DIRECTORS...... 107
Directors................................................. 108
Nominees.................................................. 108
Information Regarding Nominees and Directors.............. 108
Meetings and Committees of the Board of Directors......... 112
Executive Compensation.................................... 113
Long-Term Incentive Compensation.......................... 114
Retirement Plan........................................... 114
Tax-Favored Savings Program............................... 116
Deferred Compensation Plans............................... 116
Directors Compensation.................................... 116
Compensation Committee; Interlocks and Insider
Participation.......................................... 117
Executive or Other Severance Agreements................... 117
Chief Executive Officer................................ 117
Other Agreements....................................... 118
Certain Relationships and Related Transactions............ 118
Compensation Committee Report on Executive Compensation... 118
Base Salaries............................................. 118
Short-Term Incentive Compensation...................... 119
Long-Term Incentive Compensation....................... 119
Chief Executive Officer Compensation...................... 120
Omnibus Budget Reconciliation Act of 1993 Implications for
Executive Compensation................................. 120
INDEPENDENT AUDITORS........................................ 120
SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................. 120
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING............... 121
EXPERTS..................................................... 121
LEGAL MATTERS............................................... 121
OTHER MATTERS............................................... 121
CERULEAN COMPANIES, INC. CONSOLIDATED FINANCIAL
STATEMENTS................................................ F-1
</TABLE>

APPENDICES:

<TABLE>
<S> <C> <C>
Appendix A -- Agreement and Plan of Merger dated as of July 9, 1998, by
and among Cerulean, WellPoint and Merger Sub
Appendix B -- Opinion of Morgan Stanley & Co. Incorporated as to the
fairness of the Merger to the Cerulean shareholders
Appendix C -- Article 13 of the Georgia Business Corporation Code Relating
to Rights of Dissenting Shareholders
Appendix D -- Certificate of Incorporation of WellPoint
Appendix E -- Bylaws of WellPoint
</TABLE>

v
<PAGE> 16

INDEX OF DEFINED TERMS

In this Proxy Statement/Prospectus, there are many terms and phrases which
have been defined in order to allow Cerulean and WellPoint to more clearly
present the information contained herein. Such defined terms have initial
capitalized letters as they appear throughout this Proxy Statement/Prospectus.
The following is an index of the defined terms frequently used herein and the
pages on which they are defined.

<TABLE>
<S> <C>
Advisory Fees............................................... 38
AD&D........................................................ 90
ASO/Cost Plus............................................... 88
Attributed Stock............................................ 52
BCBSA....................................................... 10
BCC......................................................... 22
BCC Conversion.............................................. 23
California Foundation....................................... 23
Cash Election Price......................................... 39
Cash Holdback............................................... 40
Cash Price.................................................. cover
Certificates of Merger...................................... 38
Cerulean.................................................... cover
Cerulean Articles........................................... cover
Cerulean Bylaws............................................. 49
Cerulean Certificates....................................... 41
Cerulean Dissenting Shares.................................. 41
Cerulean Financial Forecast................................. 35
Cerulean Rights............................................. cover
Cerulean Subsidiaries....................................... 54
CFO......................................................... 92
CHPNs....................................................... 23
Class A Stock............................................... cover
Class A Designated Directors................................ 99
Class A Exchange Ratio...................................... 39
Class B Stock............................................... cover
Class B Exchange Ratio...................................... 40
Closing..................................................... 3
Closing Date................................................ 38
Closing Price............................................... 39
COBRA....................................................... 7
Code........................................................ 14
Commission.................................................. 1
Commissioner................................................ 43
Committee................................................... 9
Comparable Companies........................................ 35
Comparable Transactions..................................... 36
Complaint................................................... 66
Conversion.................................................. cover
Conversion Litigation....................................... cover
CPI......................................................... 84
Demand...................................................... 65
Department.................................................. 94
DGCL........................................................ 98
Director.................................................... 43
Dissenters' Notice.......................................... 63
Dissenting Shareholders..................................... 27
</TABLE>

vi
<PAGE> 17
<TABLE>
<S> <C>
DOC......................................................... 18
DOI......................................................... 18
EBITDA...................................................... 35
Effective Time.............................................. cover
Electing Holders............................................ 41
Employment Agreement........................................ 47
Escrow Agent................................................ 103
Excess Shares............................................... 103
Exchange Act................................................ 1
Exchange Agent.............................................. 6
Excise Tax Payment.......................................... 48
Excluded Payment............................................ 58
External Portfolio.......................................... 92
First Call.................................................. 35
First Payment Demand........................................ 64
Foundation.................................................. cover
Foundation Demand........................................... 66
FTC......................................................... 10
GBCC........................................................ cover
GBG......................................................... 84
GBO Operations.............................................. 69
GDP......................................................... 84
Georgia Blue................................................ cover
Georgia Commissioner........................................ 10
GGL......................................................... 27
Gross Up Payment............................................ 48
GSH......................................................... 4
HCFA........................................................ 19
HEDIS....................................................... 87
HIPAA....................................................... 19
Historical Class A Stock.................................... 39
HMO-Ga...................................................... 23
HMOs........................................................ 7
HORBC....................................................... 19
HSR Act..................................................... 10
Internal Portfolio.......................................... 92
Judicial Review Petition.................................... 67
Justice Department.......................................... 10
Long Aldridge............................................... 28
LTIP........................................................ 114
Material Case............................................... 61
Merger...................................................... cover
Merger Agreement............................................ cover
Merger Consideration........................................ cover
Merger Proposal............................................. 57
Merger Sub.................................................. cover
Meeting..................................................... cover
Morgan Stanley.............................................. 9
Morgan Stanley Opinion...................................... 34
Motion to Dismiss........................................... 67
NAIC........................................................ 19
NCQA........................................................ 86
New Stock................................................... 40
</TABLE>

vii
<PAGE> 18
<TABLE>
<S> <C>
NYSE........................................................ cover
Old WellPoint............................................... 22
Outstanding Cerulean Shares................................. 40
Plaintiffs.................................................. 66
POS......................................................... 7
PPOs........................................................ 7
Proposed Intervenors........................................ 67
PUP......................................................... 44
Rabbi Trust Plans........................................... 58
RDS SERP.................................................... 45
Recapitalization............................................ 22
Record Date................................................. 4
Registration Rights Agreement............................... 12
Registration Statement...................................... 1
Restoration Plan............................................ 115
Retirement Plan............................................. 46
Savings Program............................................. 116
S.C. Code................................................... 43
Second Payment Demand....................................... 64
Second Request.............................................. 42
Securities Act.............................................. 1
SERP........................................................ 45
Series A Stock.............................................. cover
Service..................................................... 44
Settlement.................................................. cover
Settlement Actions.......................................... 57
Shareholders Agreement...................................... 11
Shelf Registration Statement................................ 65
SISP........................................................ 87
Special Meeting............................................. 107
Stock Price................................................. cover
Superior Proposal........................................... 57
Surviving Corporation....................................... 53
Tennessee Code.............................................. 43
Transaction Fee............................................. 38
Transition Team............................................. 55
Transmittal Letter.......................................... 6
Trust....................................................... 46
Warrants.................................................... cover
WellPoint................................................... cover
WellPoint Bylaws............................................ 98
WellPoint Certificate....................................... 98
WellPoint Financial Forecast................................ 37
WellPoint Stock............................................. cover
WellPoint Subsidiaries...................................... 54
1997 Annual Meeting......................................... 107
</TABLE>

viii
<PAGE> 19

AVAILABLE INFORMATION

WellPoint has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the WellPoint Stock to be issued pursuant to the Merger Agreement.
This Proxy Statement/Prospectus, which is a part of the Registration Statement,
does not contain all of the information set forth in, or annexed as exhibits to,
the Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission. For further information with
respect to WellPoint and the shares of WellPoint Stock to be issued pursuant to
the Merger Agreement, reference is hereby made to the Registration Statement and
the related exhibits thereto. Statements contained or incorporated by reference
in this Proxy Statement/Prospectus as to the contents of any contract or other
document are not necessarily complete. In each instance, each statement is
qualified in all respects by reference to the copy of such contract or other
document filed as an exhibit to or incorporated by reference in the Registration
Statement. Such information is available for inspection without charge at, and
copies can be obtained at prescribed rates from, the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at: 1-800-SEC-0330.

WellPoint and Cerulean are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information may be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices at: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Such material also may be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. Such reports,
proxy and information statements and other information concerning WellPoint also
can be inspected at the offices of the NYSE located at 20 Broad Street, New
York, New York 10005.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WELLPOINT
OR CERULEAN. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF WELLPOINT, CERULEAN OR ANY SUBSIDIARY THEREOF SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.

INCORPORATION OF CERTAIN INFORMATION OF WELLPOINT BY REFERENCE

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST FROM: INVESTOR RELATIONS, WELLPOINT HEALTH
NETWORKS INC., 21555 OXNARD STREET, WOODLAND HILLS, CALIFORNIA 91367.
WELLPOINT'S TELEPHONE NUMBER IS (818) 703-4321. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE RECEIVED BY WELLPOINT NO LATER
THAN FIVE BUSINESS DAYS PRIOR TO THE MEETING.

The Commission allows WellPoint to "incorporate by reference" information
into this Proxy Statement/ Prospectus, which means that WellPoint can disclose
important information to you by referring you to another document filed
separately with the Commission by WellPoint. The information incorporated by
reference is
1
<PAGE> 20

deemed to be part of this Proxy Statement/Prospectus, except for any information
superseded by information in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that WellPoint has previously filed with the Commission. These documents contain
important information about WellPoint and its finances.

The following documents filed by WellPoint with the Commission (Commission
File No. 001-13803) are incorporated by reference in and made a part of this
Proxy Statement/Prospectus:

(i) WellPoint's Annual Report on Form 10-K for the year ended December
31, 1997;

(ii) WellPoint's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;

(iii) WellPoint's Current Reports on Form 8-K filed on June 15, 1998
and September 16, 1998; and

(iv) The description of WellPoint Stock contained in the Registration
Statement on Form 8-B, filed June 12, 1997.

WellPoint is also incorporating by reference additional documents that
WellPoint files with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act between the date of this Proxy Statement/Prospectus
and the date of the Meeting.

WellPoint has supplied all information contained or incorporated by
reference in this Proxy Statement/ Prospectus relating to WellPoint, and
Cerulean has supplied all such information contained in this Proxy
Statement/Prospectus relating to Cerulean.

A Cerulean shareholder can obtain any of the documents incorporated by
reference through WellPoint or the Commission. Documents incorporated by
reference are available from WellPoint without charge, excluding all exhibits
unless WellPoint specifically incorporated by reference an exhibit in this Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from: Investor Relations, WellPoint Health Networks Inc., 21555 Oxnard
Street, Woodland Hills, California 91367, Telephone: (818) 703-4321.

If you would like to request documents from WellPoint, you should do so no
later than five business days prior to the Meeting in order to receive them
prior to the Meeting.

2
<PAGE> 21

SUMMARY

The following Summary does not contain a complete description of all
material features of the Merger Agreement or the transactions contemplated
thereby and is subject to and qualified in its entirety by reference to the more
detailed information contained or incorporated by reference in this Proxy
Statement/Prospectus, including the Appendices hereto. Shareholders of Cerulean
are urged to read carefully the entire Proxy Statement/Prospectus, including the
Appendices. Throughout this Proxy Statement/Prospectus the terms "we" and "you"
are used. On these occasions, "we" refers to WellPoint and Cerulean, and "you"
refers to all Cerulean shareholders or to holders of Class A Stock, as evidenced
by the context in which such terms appear.

QUESTIONS AND ANSWERS
ABOUT THE MERGER

WHY SHOULD CERULEAN MERGE WITH WELLPOINT?

The Merger gives Cerulean the opportunity to continue the execution of its
strategic plan (i) to expand its services in Georgia through the greater
resources of the combined entity that will result from the Merger and (ii) to
deliver cash and freely transferable securities to shareholders of Cerulean that
will have, as of the time of the closing of the Merger (the "Closing"), an
aggregate fair market value of $500 million, subject to adjustment.

WHAT DOES CERULEAN'S BOARD OF DIRECTORS RECOMMEND?

Cerulean's Board of Directors has approved and adopted the Merger Agreement
and the consummation of the transactions contemplated thereby, and recommends
that the Cerulean shareholders vote "FOR" the proposal to approve the Merger
Agreement and the transactions contemplated thereby.

WHAT WILL I RECEIVE FOR MY CLASS A STOCK?

The basic Merger Consideration is shares of WellPoint Stock. Pursuant to
the formula under the Merger Agreement, each share of Class A Stock is entitled
to a number of shares of WellPoint Stock with a value equal to approximately
$ (or $ for each five shares). In lieu of WellPoint Stock,
holders of Class A Stock are entitled to elect cash. They may not elect a
combination of WellPoint Stock and cash, although shareholders who elect
WellPoint Stock will receive cash rather than any fractional share of WellPoint
Stock. The Foundation will be permitted to elect a combination of cash and
WellPoint Stock. Holders of Class A Stock who elect cash may, however, receive
some shares of WellPoint Stock in lieu of a portion of their cash consideration
(regardless of their election to receive cash) if the number of shareholders who
elect cash is so large that the amount of cash which would otherwise be
distributed exceeds the maximum amount which is permitted to assure appropriate
tax treatment for the transaction. In that event, all shareholders who elect
cash will receive their appropriate pro rata share of the cash to be distributed
and will receive WellPoint Stock for the balance. See "PROPOSAL 1 -- APPROVAL OF
THE MERGER -- Consideration to be Received in the Merger."

WHAT MUST I DO TO ELECT CASH?

As a holder of Class A Stock, to elect cash you must indicate in the place
provided on the proxy card, complete the W-9 information on the card, sign the
card and return it so that it is received prior to or at the Meeting. You need
not vote "FOR" the Merger in order to receive cash, but you must make the cash
election on the proxy card in order to receive cash. If you wish to vote
"AGAINST" the Merger and still make the cash election, you must mark the proxy
card accordingly, because a signed card with no vote expressed will be voted
"FOR" the Merger.

WHEN WILL THE MERGER TAKE EFFECT?

The Merger will take effect as soon as possible after the shareholder
approvals are received, all other regulatory approvals have been obtained and
other conditions to the Closing have been satisfied or waived.

3
<PAGE> 22

These approvals are described in this Proxy Statement/Prospectus at "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Regulatory Approvals; Approval of BCBSA." The
consummation of the Merger is presently contemplated to be prior to December 31,
1998.

WHEN AND WHERE IS THE MEETING OF HOLDERS OF CLASS A STOCK?

The Meeting of holders of Class A Stock to vote on the Merger Agreement
will be held in Macon, Georgia, at 9:30 a.m., Eastern time, on October 27, 1998,
and at any adjournments thereof.

WHO CAN VOTE ON THE MERGER? WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?

Holders of Class A Stock at the close of business on , 1998
(the "Record Date") can vote at the Meeting. The Merger Agreement must be
approved by the holders of a majority of the shares of Class A Stock entitled to
vote at the Meeting. Holders of Class B Stock will vote on the Merger at the
meeting of holders of Class B Stock. The meeting of holders of Class B Stock is
scheduled to be held on , 1998. The holders of a majority of the
shares of Class B Stock must also approve the Merger. Georgia Strategic
Healthcare, LLC ("GSH") owns 80.16% of the outstanding Class B Stock and has
indicated its intent to vote all shares of Class B Stock owned by it in favor of
the Merger Agreement and the transactions contemplated thereby. Accordingly,
approval by the holders of Class B Stock of the Merger Agreement and the
transactions contemplated thereby is reasonably assured. On the Record Date, the
Foundation had not yet become a holder of Class A Stock and therefore will not
be eligible to vote at the Meeting. Thus, the number of shares of Class A Stock
to be issued to the Foundation will not be considered in determining the number
of shares outstanding and the requisite majority of such shares for actions to
be taken at the Meeting.

WHAT WILL OTHERS RECEIVE IN THE MERGER?

Under the terms of the Merger Agreement, the Foundation will receive the
same amount of Merger Consideration per share of Class A Stock and of Series A
Stock received from exercise of the Warrants as the other holders of Class A
Stock who will be voting at the Meeting. The Foundation may elect a combination
of cash and WellPoint Stock. The amount of the Merger Consideration received by
the Foundation will be approximately 16.7% of the total Merger Consideration.

Under the terms of the Merger Agreement, holders of Class B Stock will
receive shares of WellPoint Stock with a value equivalent to approximately
$ for each share of Class B Stock. Class B Stock is held by those
investors who invested a total of $49.9 million (or $1,000 per share) in
Cerulean at the time of the Conversion. Holders of Class B Stock cannot receive
cash in the Merger. The amount of the Merger Consideration received by the Class
B Stock will be approximately 22.1876% of the total Merger Consideration.

HOW WAS THE ALLOCATION OF THE MERGER CONSIDERATION DETERMINED?

The allocation of the Merger Consideration was based upon the provision
contained in the Cerulean Articles for the relative participation of Class A
Stock and Class B Stock in any conversion of both classes to common stock. The
amount of the Merger Consideration received by the Class B Stock will be
approximately 22.1876% of the total Merger Consideration. The terms of the
Settlement provided for the percentage of total equity of Cerulean to be
received by the Foundation. This amount is expressed as 20% in the Settlement,
although because the exercise price of $21 million on the Warrants is to be paid
by the surrender of shares of Series A Stock underlying a portion of the
Warrants and not by cash, the total percentage of equity of Cerulean to be
received by the Foundation in a transaction such as the Merger is reduced to the
approximately 16.7%. The remaining approximately 61.124% of the consideration to
be received in the Merger is to be distributed to remaining holders of Class A
Stock.

4
<PAGE> 23

WHAT SHOULD I DO NOW?

Holders of Class A Stock

Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the Meeting. If you wish to
elect cash, you must mark the proxy card appropriately, complete the W-9
information and return it so it is received prior to or at the Meeting. It is
important that the proxy card be received as soon as possible and in any event
before the Meeting.

Holders of Class B Stock

CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?

Yes. You can change your vote at any time before your proxy is voted at
the Meeting. You can do this in one of three ways:

- First, you can send a written notice stating that you would like to
revoke your proxy.

- Second, you can complete and submit a new proxy card.

- Third, you can attend the Meeting and vote in person. Simply attending
the Meeting, however, will not revoke your proxy. To revoke a prior
proxy, you must sign a new proxy at the Meeting.

If you choose either of the first or second methods, you must submit your
notice of revocation or your new proxy card to Cerulean prior to the Meeting.
Your submissions must be mailed to Cerulean at the address listed on page
. See "INFORMATION REGARDING THE MEETING -- Solicitation and
Revocability of Proxies." If you submit a later proxy card and wish to elect
cash, you must also make the cash election on the later proxy card.

DO CERULEAN'S OFFICERS OR DIRECTORS HAVE ANY OTHER INTERESTS IN THE MERGER?

Certain members of Cerulean management will receive payments under a
long-term incentive plan relating to their employment because the Merger is a
triggering event under such plan which results in a right to payment. These
interests and agreements are described in this Proxy Statement/Prospectus at
"PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of Certain Persons in the
Merger." Richard D. Shirk, the Chief Executive Officer and a director of
Cerulean, is the only director who has such an agreement. Messrs. Joe M. Young
and Frank J. Hanna, III, are directors of Cerulean and affiliates of holders of
Class B Stock, the latter as an affiliate of GSH which, as described above, is a
substantial holder of Class B Stock and will receive certain registration rights
with respect to the WellPoint Stock it receives in the Merger. In addition, one
Cerulean director will become a director of WellPoint at the time of the Merger.
See "RELATED AGREEMENT -- Registration Rights Agreement."

WILL CERULEAN SHAREHOLDERS HAVE APPRAISAL RIGHTS?

Holders of Cerulean Class A Stock and Class B Stock who do not vote in
favor of the Merger and who follow certain procedures set forth in Georgia law
will be entitled to dissenters' rights under Georgia law. The text of the
relevant statutory provisions is attached as Appendix C, and a more complete
discussion is contained in this Proxy Statement/Prospectus at "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Dissenters' Rights."

5
<PAGE> 24

HOW WILL I RECEIVE MY SHARES OF WELLPOINT STOCK OR CASH?

Holders of Class A Stock

On the proxy card that you received with this Proxy Statement/Prospectus,
you are asked to elect if you wish to receive cash. If you wish to receive
WellPoint Stock, do not make the cash election; you will automatically receive
WellPoint Stock. In addition, you must complete the W-9 information on the proxy
card before you can receive either cash or WellPoint Stock. If you do not have
the registration notification you received in connection with the Conversion, it
will not impede your ability to receive your cash or shares of WellPoint Stock.

If you wish to receive cash, you must return the proxy card, properly
marked, so it is received prior to or at the Meeting. All proxy cards received
after the Meeting will be treated as having elected WellPoint Stock. This
limitation is necessary in order to permit us to determine the total amount of
cash which will be paid in the Merger and to provide for appropriate tax-free
treatment of the Merger. In any event, no holders of Class A Stock will receive
any Merger Consideration until a proxy card, with the W-9 information properly
completed, has been received by the exchange agent appointed by WellPoint (the
"Exchange Agent").

Holders of Class B Stock

Holders of Class B Stock should sign and mail the attached proxy card in
the enclosed return envelope as soon as possible in order to have such shares of
Class B Stock represented at the meeting of holders of Class B Stock. As soon as
practicable following the Effective Time, each holder of Class B Stock will be
mailed a letter of transmittal (a "Transmittal Letter") to accompany
certificates for shares of Class B Stock. The Letter of Transmittal will set
forth instructions for delivering certificates for shares of Class B Stock to
the Exchange Agent. No holder of Class B Stock will receive any Merger
Consideration until a properly completed Letter of Transmittal has been received
by the Exchange Agent.

WHO SHOULD SHAREHOLDERS CALL WITH QUESTIONS?

If you have more questions about the Merger you should contact:

<TABLE>
<S> <C>
Shareholder Communications Investor Relations
Cerulean Companies, Inc. WellPoint Health Networks Inc.
P.O. Box 4445 21555 Oxnard Street
Atlanta, Georgia 30302 Woodland Hills, California 91367
Telephone: (800) 314-2580 Telephone (818) 703-4321
</TABLE>

6
<PAGE> 25

PARTIES TO THE MERGER

<TABLE>
<S> <C>
WellPoint Health Networks Inc............. WellPoint is one of the nation's largest publicly traded
21555 Oxnard Street managed health care companies, with approximately 6.8
Woodland Hills, California 91367 million medical members and approximately 23 million
(818) 703-4321 specialty members as of June 30, 1998. WellPoint
offers a broad spectrum of network-based managed cared
products, including preferred provider organizations
("PPOs"), health maintenance organizations ("HMOs")
and point-of-service ("POS") and other hybrid plans
and indemnity plans to the large and small employer,
individual and senior markets. In addition, WellPoint
offers managed care services for self-funded
employers, including underwriting, actuarial services,
network access, medical cost management and claims
processing. WellPoint also provides a broad array of
specialty and other products and services, including
pharmacy, dental, utilization management, life,
preventive care, disability, behavioral health, health
coverage pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and flexible
benefits account administration. WellPoint conducts
business in California under the trademark "Blue Cross
of California."
Cerulean Companies, Inc................... Cerulean, through its subsidiaries, has the largest
3350 Peachtree Road, N.E. health insurance company market share in Georgia, with
Atlanta, Georgia 30326 800,000 insurance and administrative service contracts
(800) 314-2580 covering or administering benefits for approximately
1.7 million members as of June 30, 1998. This
represents over 21% of the total Georgia population.
It is a full service provider of health benefit
programs in the Georgia marketplace. Cerulean 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 benefits. Cerulean conducts
business in Georgia under the trademark "Blue Cross
and Blue Shield of Georgia."
Water Polo Acquisition Corp............... A Delaware corporation and a wholly-owned subsidiary of
(Merger Sub) WellPoint, Merger Sub was formed exclusively for the
Merger. Cerulean will merge with and into Merger Sub,
which will change its name to Cerulean Companies, Inc.
</TABLE>

THE MEETING

Time, Date and Place.......... The Meeting will be held in Macon, Georgia, at
9:30 a.m. Eastern time, on October 27, 1998.

Record Date and Shares
Entitled to Vote............ Holders of record of Class A Stock at the close
of business on the Record Date are entitled
to notice of and to vote at the Meeting. At
such date and time there were shares of Class
A Stock outstanding. The Foundation was not a
holder of record of Class A Stock on the
Record Date, and the shares of Class A Stock
to be held by the Foundation are not included
in the total

7
<PAGE> 26

number of shares of Class A Stock outstanding
and will not be eligible to vote on any
matters to be considered at the Meeting.

Purpose of the Meeting........ The purpose of the Meeting is to consider and
vote upon (i) a proposal to approve the
Merger Agreement and the transactions
contemplated thereby and (ii) a proposal to
elect three Class A Designated Directors to
serve from the time of the Meeting until the
Cerulean annual meeting in 2001 (in the case
of two such directors) and in 1999 (in the
case of the third such director) or, in
either case, only until the earlier
consummation of the Merger. See "INFORMATION
REGARDING THE MEETING -- The Meeting,"
"PROPOSAL 1 -- APPROVAL OF THE MERGER" and
"PROPOSAL 2 -- ELECTION OF CLASS A DESIGNATED
DIRECTORS."

Vote Required................. The approval of the Merger Agreement and the
transactions contemplated thereby will
require (i) the affirmative vote of the
holders of a majority of the outstanding
shares of Class A Stock entitled to vote at
the Meeting and (ii) the affirmative vote of
the holders of a majority of the outstanding
shares of Class B Stock entitled to vote
thereon. A meeting of the holders of Class B
Stock is scheduled to be held on
, 1998. The holder of a
majority of the outstanding Class B Stock has
indicated its intent to vote all shares of
Class B Stock owned by it in favor of the
Merger Agreement and the transactions
contemplated thereby. Accordingly, approval
by the holders of Class B Stock of the Merger
Agreement and the transactions contemplated
thereby is reasonably assured.

The election of the Class A Designated
Directors requires the affirmative vote of a
plurality of shares of Class A Stock entitled
to vote at the Meeting.

Method of electing WellPoint
Stock or Cash............... On the proxy card you received with this Proxy
Statement/ Prospectus, you are asked to elect
cash if you wish to receive cash. To receive
cash, you must check the box provided, fill
in your social security number in the space
marked W-9, sign the proxy card and return it
so that it is received prior to or at the
Meeting. Otherwise, you will receive
WellPoint Stock. Because shares of Class A
Stock are not certificated (i.e., not
represented by a physical stock certificate),
holders of Class A Stock are not required to
furnish a certificate of ownership. Also, if
you no longer have the registration
notification that you received upon receipt
of your Class A Stock, it will not impede
your ability to receive your cash or shares
of WellPoint Stock. In any event, no holders
of Class A Stock will receive any Merger
Consideration until a proxy card, with the
W-9 information properly completed has been
received by the Exchange Agent. You may
complete the W-9 information without voting
"FOR" the Merger, but if you do not vote
"AGAINST" the Merger, the signed card will be
voted "FOR" the Merger.

8
<PAGE> 27

THE MERGER

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger, you should read this entire document carefully and the documents to
which we have referred you. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."

THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE ENTIRE MERGER AGREEMENT
BECAUSE IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

We have each made forward-looking statements that are subject to risks and
uncertainties in this document and in certain documents that are incorporated by
reference by WellPoint in this Proxy Statement/ Prospectus. Forward-looking
statements include the information concerning possible or assumed future results
of operations of WellPoint and Cerulean, including with respect to cost savings
and operational efficiencies expected to be realized from the Merger. In
addition, when we use words such as "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. Cerulean
shareholders should note that many factors could affect the future financial
results of the combined company following the Merger, and could cause these
results to differ materially from any expressed in our forward-looking
statements. These factors and a more in-depth explanation of the significance of
forward-looking statements are set forth at "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS".

RISK FACTORS

The success of the Merger will be influenced by many factors, including
certain risks with which each of WellPoint and Cerulean contends and other risks
which may impact their combined operations. See "RISK FACTORS" for a discussion
of these risk factors relating to the Merger and the businesses of WellPoint and
Cerulean.

BACKGROUND OF THE MERGER

The decision by WellPoint and Cerulean to merge was the result of a
strategic initiative begun by Cerulean, and thereafter of several months of
negotiations between Cerulean and WellPoint. This process is more fully
described at "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Background of the Merger."

CERULEAN'S REASONS FOR THE MERGER

There were a number of reasons why Cerulean's Board of Directors and its
Special Committee (the "Committee") decided to undertake the Merger, including,
principally, the strengthening of Cerulean's ability to realize the business
plan it undertook at the time of the Conversion and the realization of
shareholder value. The reasons are more fully described at "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Reasons for the Merger -- Cerulean's Reasons for
the Merger."

WELLPOINT'S REASONS FOR THE MERGER

There were a number of reasons that WellPoint's Board of Directors decided
to undertake the Merger, including the strategic importance of the Merger
involving two public for-profit Blue Cross Blue Shield Association licensees and
WellPoint's desired expansion into Georgia and the complementary aspects of
WellPoint's and Cerulean's businesses. The reasons are more fully described at
"PROPOSAL 1 -- APPROVAL OF THE MERGER -- Reasons for the Merger -- WellPoint's
Reasons for the Merger."

OPINION OF CERULEAN'S FINANCIAL ADVISOR

Morgan Stanley & Co. Incorporated ("Morgan Stanley") has delivered to the
Cerulean Board of Directors its written opinion, dated as of July 8, 1998, to
the effect that, as of such date and subject to the
9
<PAGE> 28

limits and qualifications therein, the Merger Consideration to be received by
the holders of Class A Stock, Class B Stock and Series A Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders. The
full text of the opinion of Morgan Stanley, which sets forth the assumptions
made, and matters considered and limitations on the review undertaken, is
attached as Appendix B to this Proxy Statement/Prospectus. Shareholders of
Cerulean are urged to, and should, read such opinion in its entirety. See
"PROPOSAL 1 -- APPROVAL OF THE MERGER -- Opinion of Cerulean's Financial
Advisor."

APPROVALS OF REGULATORY AUTHORITIES AND BLUE CROSS BLUE SHIELD ASSOCIATION

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
prohibits WellPoint and Cerulean from completing the Merger until (i) each of
WellPoint and Cerulean have furnished certain information and materials to the
United States Department of Justice (the "Justice Department") and the Federal
Trade Commission (the "FTC") and (ii) the required waiting period under the HSR
Act has been satisfied.

In addition, the Commissioner of Insurance of the State of Georgia (the
"Georgia Commissioner") must approve the Merger, and approval by the Blue Cross
and Blue Shield Association ("BCBSA") is required under the license agreement of
Georgia Blue. These approvals are more fully described at "THE
MERGER -- Governmental and Regulatory Approvals" and "PROPOSAL 1 -- APPROVAL OF
THE MERGER -- Regulatory Approvals; Approval of BCBSA."

ACCOUNTING TREATMENT

The Merger will be accounted for under the purchase method of accounting.

NON-SOLICITATION

So long as the Merger Agreement is in effect, Cerulean will not solicit any
proposal from a third party regarding a purchase of all or a material part of
the assets of Cerulean, whether by sale of capital stock, merger, consolidation,
sale, lease or other transaction. Under certain conditions, Cerulean may
terminate the Merger Agreement to accept a proposal from a third party which is
superior to that offered by WellPoint in the Merger Agreement; provided,
however, if Cerulean terminates the Merger Agreement to accept a superior
proposal, Cerulean must pay a termination fee of $10 million to WellPoint. For
further details, see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Covenants of
the Parties -- Non-Solicitation."

LISTING OF WELLPOINT STOCK

WellPoint intends to file an application to list the shares of WellPoint
Stock to be issued in the Merger on the NYSE. The listing of the shares of
WellPoint Stock to be issued in the Merger is a condition to the consummation of
the Merger.

CONDITIONS TO THE MERGER

Before we can complete the Merger, a number of conditions must be met,
including the following:

- the holders of a majority of the outstanding shares of Class A Stock
entitled to vote at the Meeting and the holders of a majority of the
outstanding shares of Class B Stock must approve the Merger;

- any waiting period under the HSR Act must expire or be granted earlier
termination;

- the consent of the Georgia Commissioner, and certain other state
regulatory consents, must be obtained;

- the consent of the BCBSA must be obtained;

- no court or governmental authority can have passed a law or entered an
injunction that prohibits the Merger;

10
<PAGE> 29

- the closing price per share of WellPoint Stock at the time of the closing
of the Merger must be greater than or equal to $30.

Additional conditions must be met for Cerulean to complete the Merger,
including the following:

- Cerulean must receive a legal opinion from its counsel regarding the tax
consequences of the Merger;

- the opinion of Morgan Stanley that the value of the consideration to be
paid to the shareholders of Cerulean in the Merger is fair must not have
been withdrawn or amended;

- WellPoint must nominate one Cerulean director for the election to the
Board of Directors of WellPoint;

- WellPoint must enter into a registration rights agreement with a
shareholder of Cerulean who, at the time of signing of the Merger
Agreement, would be subject to the resale limitations of Rule 145
promulgated under the Securities Act;

- WellPoint must not have a material adverse change in its business since
the date of the Merger Agreement which was caused by the action or
inaction of WellPoint.

Additional conditions must be met for WellPoint to complete the Merger,
including the following:

- WellPoint must receive a legal opinion from its counsel regarding the tax
consequences of the Merger;

- Cerulean must settle the case of Let's Get Together, Inc., et. al. v.
Insurance Commissioner of the State of Georgia, Blue Cross and Blue
Shield of Georgia, Inc. and Cerulean, which settlement must be approved
by the Superior Court of Fulton County in a final order which cannot be
appealed, or, if appealed, has been affirmed or the appeal has been
dismissed. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions
to the Consummation of the Merger" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Settlement of Cerulean Conversion Litigation."

- there must not be any litigation or similar proceeding which is
determined to have a significant likelihood of material liability to
either WellPoint or Cerulean relating to the Conversion or to the
distribution of consideration to be paid in connection with the Merger;

- Cerulean must not have a material adverse change in its business since
the date of the Merger Agreement which was caused by the action or
inaction of Cerulean;

- WellPoint must receive a written agreement from each shareholder of
Cerulean who is an "affiliate" of Cerulean acknowledging resale
restrictions on any WellPoint Stock received in the Merger;

- all existing warrants to purchase Series A Stock must be exercised;

- the existing shareholders agreement between Cerulean, Georgia Blue and
the holders of Class B Stock (the "Shareholders Agreement") must be
amended.

Some of the conditions to the Merger may be waived by the party entitled to
assert the condition. For further details, see "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Conditions to the Consummation of the Merger."

TERMINATION OF THE MERGER AGREEMENT

The Merger Agreement can be terminated in the following ways:

- by the written agreement of Cerulean and WellPoint;

- by either of Cerulean or WellPoint if the Merger is not completed within
one year after the date of the Merger Agreement;

- by Cerulean if either WellPoint or Merger Sub materially breaches any of
its covenants or breaches any of its representations or warranties and
such breach results in a material adverse effect to Cerulean;

11
<PAGE> 30

- by WellPoint and Merger Sub if Cerulean materially breaches any of its
covenants or breaches any of its representations or warranties and such
breach results in a material adverse effect to WellPoint;

- by Cerulean or WellPoint if any court or governmental authority prohibits
or prevents the Merger;

- by Cerulean if Cerulean enters into a written agreement with a third
party that is a superior proposal to that offered by WellPoint; or

- by Cerulean or WellPoint if any of the following do not approve the
Merger:
Cerulean's shareholders,
the Georgia Commissioner,
the FTC or the Justice Department, or
the BCBSA.

TERMINATION FEES

The Merger Agreement requires Cerulean to pay a termination fee of $10
million to WellPoint if Cerulean chooses to terminate the Merger Agreement to
accept a superior transaction proposal from a third party or if holders of Class
B Stock fail to approve the Merger. For further details, see "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT -- Termination; Termination Fees."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

As a consequence of the Merger, some 240 officers and members of management
become entitled under certain Cerulean plans and arrangements to receive
payments and/or have obligations funded under these plans which may aggregate
approximately $40 million prior to payments by Cerulean of certain applicable
taxes and related gross-up obligations relating to the foregoing payments, which
may be payable with respect to some of these amounts and which may range in the
aggregate from as little as zero to as much as $14 million. See "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Interest of Certain Persons in the Merger."

REGISTRATION RIGHTS AGREEMENT

As of the Closing, WellPoint will enter into a Registration Rights
Agreement with GSH (the "Registration Rights Agreement"), a Cerulean shareholder
that is subject to certain restrictions on the resale of the shares of WellPoint
Stock that it will receive in the Merger. Under the terms of the Registration
Rights Agreement, WellPoint will file a registration statement allowing for
sales of such shares on a delayed and continuous basis for at least 90 days
following the Closing. In addition, GSH will have certain rights to demand
registration of its shares of WellPoint Stock. Because the WellPoint Stock that
other Cerulean shareholders receive in the Merger will be freely tradeable, the
other shareholders do not need the registration rights described herein in order
to immediately resell their WellPoint Stock if they choose. For further details,
see "RELATED AGREEMENT -- Registration Rights Agreement."

SETTLEMENT OF THE CONVERSION LITIGATION

The Conversion was the subject of litigation by certain non-profit
organizations alleging that the reserves of Georgia Blue transferred to Cerulean
in connection with the Conversion pursuant to the authorizing legislation for
the Conversion should instead have been transferred to non-profit entities in
the State of Georgia. These plaintiffs argued that the equity transferred to
subscribers in the form of Class A Stock should have been transferred entirely
to non-profit corporations in Georgia. Cerulean management and directors of
Cerulean concluded that, although they did not believe the plaintiffs in the
Conversion Litigation were likely to succeed, the Conversion Litigation hampered
Cerulean's ability to move forward in execution of its business plan and/or to
enter into a strategic transaction, and consequently negotiated the Settlement.
Under the terms of the Settlement, the parties agreed to the formation of a
foundation for the purpose of enhancing health care for persons in Georgia.
Under the terms of the Settlement, Cerulean will grant to the Foundation a
number of shares of Class A Stock which will approximate 9.5% of the total
equity of Cerulean and the Warrants, which

12
<PAGE> 31

are for a number of shares of Series A Stock which will approximate 10.5% of the
total equity of Cerulean (upon payment of the exercise price), or an aggregate
of 20% of Cerulean's total equity after issuance of these securities. The
exercise price for the Series A Stock to the Foundation is $21 million. The
Series A Stock entitles holders thereof to the same economic benefits as holders
of Class A Stock, but it has no voting rights of any kind. Pursuant to the terms
of the Warrants, prior to consummation of the Merger, the Warrants must be
exercised in a so-called "cashless exercise" which will result in a reduction in
the percentage participation by the Foundation in the Merger Consideration from
the position of 20% of total equity of Cerulean to approximately 16.7% of the
total equity of Cerulean. A settlement of the Conversion Litigation, which
settlement must be approved by the Superior Court of Fulton County in a final
order which cannot be appealed, or, if appealed, has been affirmed or the appeal
has been dismissed, is a condition that must be met for WellPoint to complete
the Merger.

The hearing for the final order for the settlement of the Conversion
Litigation was held on August 20, 1998. On August 21, 1998 the judge entered the
final order approving the Settlement. In order for the Settlement to be
considered final, all appeals from the final order must have been dismissed
and/or all appeals periods must have expired. The Conversion Litigation and the
terms of its Settlement are described more fully at "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -- Settlement of Cerulean Conversion Litigation."

CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS

Upon completion of the Merger, the rights of Cerulean shareholders who
become shareholders of WellPoint in the Merger will be governed by Delaware law,
the Certificate of Incorporation of WellPoint and the Bylaws of WellPoint. You
can find a detailed discussion of the differences between the rights of Cerulean
and WellPoint shareholders under the heading entitled "COMPARISON OF RIGHTS OF
CERULEAN SHAREHOLDERS AND WELLPOINT SHAREHOLDERS."

COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

WellPoint. WellPoint Stock has been traded on the NYSE under the symbol
"WLP" since WellPoint's initial public offering on January 27, 1993. The shares
of WellPoint Stock to be issued in the Merger will be listed on the NYSE. The
following table shows the high and low sale prices for WellPoint Stock for the
periods presented. For periods prior to the Recapitalization (as defined at
"RISK FACTORS -- Risks Relating Particularly to the Business of WellPoint -- Tax
Issues Relating to the Recapitalization") on May 20, 1996, the information given
below is with respect to Old WellPoint (as defined at "RISK FACTORS -- Risks
Relating Particularly to the Business of WellPoint -- Tax Issues Relating to the
Recapitalization") Class A Common Stock, without adjustment for the
two-for-three exchange occurring as part of the Recapitalization. In connection
with the Recapitalization, Old WellPoint paid a special dividend of $10.00 per
share to its shareholders of record as of May 15, 1996.

13
<PAGE> 32

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
PRE-RECAPITALIZATION:
Year Ended December 31, 1996
First Quarter............................................. $ 36 $ 31 7/8
Second Quarter (through May 20, 1996)..................... 36 5/8 26
POST-RECAPITALIZATION:
Second Quarter (May 21, 1996 to June 30, 1996)............ $ 39 1/8 $ 31 1/8
Third Quarter............................................. 33 3/4 23 3/8
Fourth Quarter............................................ 35 1/2 28 1/4
Year Ended December 31, 1997
First Quarter............................................. $ 45 7/8 $ 32 7/8
Second Quarter............................................ 51 37 3/4
Third Quarter............................................. 60 1/2 46 1/4
Fourth Quarter............................................ 58 13/16 38 13/16
Year Ending December 31, 1998
First Quarter............................................. $ 70 3/16 $ 42 1/16
Second Quarter............................................ 74 61 3/8
Third Quarter (through August 25, 1998)................... 75 53 7/8
Fourth Quarter............................................
</TABLE>

WellPoint did not pay any dividends on its WellPoint Stock in 1996 or 1997,
other than the payment of the $995.0 million special dividend in connection with
the Recapitalization. See "RISK FACTORS -- Risks Relating Particularly to the
Business of WellPoint -- Tax Issues Relating to the Recapitalization" for a
discussion of the Recapitalization.

On July 8, 1998, the last trading day immediately preceding the public
announcement of the proposed Merger, and on , 1998, the most recent
practicable date prior to the mailing of this Proxy Statement/Prospectus, the
closing sale prices of WellPoint Stock as reported on the NYSE Composite
Transactions tape were $69 5/8 and $ , respectively. We urge you to
obtain a current market quotation for shares of WellPoint Stock.

Cerulean. As of the date of this Proxy Statement/Prospectus, there were
shares of Class A Stock outstanding, which shares were owned by
holders of record, and shares of Class B Stock
outstanding, which were owned by holders of record. Since there
has been no public market for Class A Stock and Class B Stock, there is no
information as to the market value of such Class A Stock and Class B Stock. No
cash dividends have been paid or declared on the Class A Stock.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

Consummation of the Merger is conditioned upon WellPoint and Cerulean
receiving opinions from counsel to the effect that the Merger will be treated
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). A
holder of shares of Class A Stock or Class B Stock who exchanges such shares
solely for shares of WellPoint Stock generally will not recognize any gain or
loss on such exchange. Gain, if any, realized by a holder of shares of Class A
Stock upon the exchange of such shares for a combination of shares of WellPoint
Stock and cash generally will be recognized to the extent of the lesser of the
amount of gain realized and the amount of cash received, and no loss will be
recognized by such holder on such exchange. A holder of shares of Class A Stock
who receives only cash in the Merger generally will recognize any gain realized,
and, depending on the particular circumstances, such holder should be permitted
to recognize any loss realized. In the usual case, holders of Class A Stock hold
their Class A Stock with zero basis so that the entire amount of cash received
will represent gain realized and the basis in any shares of WellPoint Stock
received will be zero. Holders of Class B Stock will receive WellPoint Stock in
exchange for Class B Stock and will, in the usual case, allocate their basis in
their Class B Stock ratably to the WellPoint Stock they receive. No gain or loss
will be recognized by WellPoint, Merger Sub or Cerulean in connection with the
Merger. For further details, see

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<PAGE> 33

"PROPOSAL 1 -- APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences
of the Merger."

TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE PARTICULAR FACTS AND CIRCUMSTANCES SURROUNDING YOUR STOCK
OWNERSHIP. YOU SHOULD CONSULT YOUR TAX ADVISOR TO UNDERSTAND FULLY THE TAX
CONSEQUENCES OF THE MERGER TO YOU.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

WellPoint and Cerulean have each made "forward-looking statements" (as that
term is defined in Section 27A of the Securities Act and in Section 20A of the
Exchange Act) in this document (and in certain documents that are incorporated
by reference by WellPoint in this Proxy Statement/Prospectus) that are subject
to risks and uncertainties. These statements are based on the current beliefs
and assumptions of each company's management, and on information currently
available to such management. Forward-looking statements include the information
concerning possible or assumed future results of operations of WellPoint and
Cerulean (including with respect to cost savings and operational efficiencies
expected to be realized from the Merger) set forth under "SUMMARY," "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Background of the Merger," "-- Recommendation of
the Cerulean Board of Directors," "-- Reasons for the Merger -- Cerulean's
Reasons for the Merger," "-- Reasons for the Merger -- WellPoint's Reasons for
the Merger," "-- Opinion of Cerulean's Financial Advisor," "WELLPOINT HEALTH
NETWORKS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENT" and
statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.

Forward-looking statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values of WellPoint and Cerulean may differ materially from
those expressed in these forward-looking statements. Many of the factors that
will determine these results and values are beyond WellPoint's and Cerulean's
ability to control or predict. Shareholders are cautioned not to put undue
reliance on any forward-looking statement. Any such statement speaks only as of
the date of this Proxy Statement/Prospectus, and WellPoint and Cerulean do not
have any intention or obligation to update forward-looking statements after they
distribute this Proxy Statement/ Prospectus, even if new information, future
events or other circumstances have made them incorrect or misleading. For those
statements, WellPoint and Cerulean claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.

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<PAGE> 35

RISK FACTORS

In addition to the other information in this Proxy Statement/Prospectus,
the following risk factors should be considered carefully in evaluating an
investment in the WellPoint Stock offered by this Proxy Statement/ Prospectus.

RISKS RELATING TO THE MERGER

Difficulties of Integration

The managements of Cerulean and WellPoint have entered into the Merger
Agreement with the expectation that the Merger will be beneficial to the
combined company. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Reasons for the
Merger -- Cerulean's Reasons for the Merger" and "-- Reasons for the
Merger -- WellPoint's Reasons for the Merger." Achieving the anticipated
benefits of the Merger will depend in part upon whether the integration of the
two companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. In particular, the
successful combination of Cerulean and WellPoint will be substantially dependent
on the integration of their respective information systems. There can be no
assurance that such integration will be accomplished smoothly or successfully.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations and addressing possible
differences in corporate cultures and management philosophies. The integration
of certain operations following the Merger will require the dedication of
significant management resources which may temporarily distract attention from
the day-to-day business of the combined company. The business of the combined
company may also be disrupted by employee uncertainty and lack of focus during
such integration. The inability of management to successfully integrate the
operations of the two companies could have a material adverse effect on the
business, results of operations and financial condition of WellPoint.

Other companies in the health care industry have recently encountered
unforeseen difficulties in integrating acquisitions. There is no assurance that
unforeseen difficulties or expenses will not arise in connection with
WellPoint's integration of Cerulean's operations following the Merger. If such
difficulties or expenses are encountered, a material adverse effect on
WellPoint's revenues and results of operations could result.

Government and Regulatory Approvals

Approvals (including consent, expiration of waiting periods, and similar
processes) from certain federal and state agencies will be necessary and are a
condition to consummate the Merger. See "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Regulatory Approvals; Approval of BCBSA." Broad latitude in
administering the governing regulations is given to the agencies from which
WellPoint and Cerulean will seek these approvals. There can be no assurances
that these approvals will be obtained. As a condition to approval of the Merger,
agencies may impose requirements or limitations or costs on the way the combined
company conducts business after the consummation of the Merger. If WellPoint or
Cerulean were to agree to any material requirements or limitations in order to
obtain any approvals required to consummate the Merger, such requirements or
limitations or additional costs associated therewith could adversely affect
WellPoint's ability to integrate the operations of Cerulean with those of
WellPoint. A material adverse effect on WellPoint's revenues and results of
operations following the Merger could result.

In addition, the Merger will be reviewed by the Justice Department and the
FTC to determine whether it complies with applicable antitrust laws. Under the
provisions of the HSR Act, the Merger may not be consummated until such time as
the specific waiting period requirements of the HSR Act have been satisfied.
Cerulean and WellPoint will file notification reports, together with requests
for early termination of the waiting period with the Justice Department and the
FTC under the HSR Act. At any time prior to the Merger, the Justice Department,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger. There can be no assurances that a challenge
to the Merger will not be made or that, if such a challenge is made, that
Cerulean or WellPoint will prevail.

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<PAGE> 36

Additional Indebtedness

WellPoint intends to incur debt to finance some or all of the cash payments
to be made to Cerulean shareholders in connection with the consummation of the
Merger. In addition, WellPoint has received authorization to, and currently
expects that it will, repurchase shares of WellPoint Stock prior to or following
the consummation of the Merger in an amount up to those shares being issued in
connection with the Merger. WellPoint currently expects to fund some, if not
all, of such repurchases of shares of WellPoint Stock with the incurrence of
additional debt. Therefore, WellPoint could incur up to approximately $500
million of additional indebtedness in connection with the Merger and any
repurchase of shares of WellPoint Stock. Such additional indebtedness may
require that a significant amount of WellPoint's cash flow be applied to the
payment of interest, and there can be no assurance that WellPoint's operations
will generate sufficient cash flow to service this indebtedness.

Any additional indebtedness may adversely affect WellPoint's ability to
finance operations and could limit its ability to pursue business opportunities
that may be in the interests of WellPoint and its shareholders. In addition,
such additional indebtedness may affect WellPoint's ability to maintain an
investment grade rating with respect to its indebtedness, which could have a
material adverse effect on WellPoint's operations. Although WellPoint believes
that cash generated from operations and borrowing capacity available to
WellPoint will be sufficient to allow WellPoint to pursue such business
opportunities and that WellPoint will be able to maintain an investment grade
rating, there can be no assurance that WellPoint will be able to obtain the
funds necessary to pursue such business opportunities or be able to maintain its
investment grade rating.

Delaware Company

If the Merger is consummated, shareholders of Cerulean, a Georgia
corporation, may become shareholders of WellPoint, a Delaware corporation. There
are significant differences between the corporate laws of Georgia and the
corporate laws of Delaware and between the charter and other corporate
governance documents of Cerulean and WellPoint. See "COMPARISON OF RIGHTS OF
CERULEAN SHAREHOLDERS AND WELLPOINT SHAREHOLDERS." These differences may
materially affect the rights of Cerulean shareholders.

RISKS RELATING TO THE BUSINESS OF WELLPOINT, CERULEAN AND THE COMBINED COMPANY

The following is a discussion of the risks which WellPoint and Cerulean
believe currently affect the business, financial condition or results of
operations of WellPoint and Cerulean, individually, and will affect the combined
company following the consummation of the Merger.

Federal and State Health Care Regulation; Legislative Reform; Activities as
Government Contractor

WellPoint's and Cerulean's operations are subject to substantial regulation
by Federal, state and local agencies. Such regulation may either relate to
business operations or to the financial condition of regulated subsidiaries.
With regard to the former, regulation typically covers prescribed benefits,
relationships with providers, marketing, advertising, quality assurance and
member grievance resolution. With regard to the latter, regulation typically
governs the amount of capital required to be retained in regulated subsidiaries
and the ability of such subsidiaries to pay dividends. There can be no assurance
that any future regulatory action by any such agencies will not have a material
adverse effect on the profitability or marketability of WellPoint's, Cerulean's
or the combined company's health plans, their ability to access capital from the
operations of regulated subsidiaries or on their financial condition or results
of operations.

WellPoint's principal California operating subsidiary, Blue Cross of
California, is subject to regulation by the California Department of
Corporations (the "DOC") and pursuant thereto is required to satisfy certain
minimum capital standards. Cerulean's principal operating subsidiary, Georgia
Blue, as well as the other insurance subsidiaries of the Cerulean group of
companies, are subject to regulation by the Georgia Department of Insurance
("DOI") and pursuant thereto are required to satisfy certain minimum capital
standards. In addition to capital requirements imposed by the DOC and DOI,
WellPoint and its BCBSA-licensed affiliates and Cerulean and its BCBSA licensed
affiliates are required to maintain certain levels of
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<PAGE> 37

capital to satisfy BCBSA requirements. The National Association of Insurance
Commissioners (the "NAIC") is currently considering adopting new capital
requirements for licensed HMOs called Health Organization Risk Based Capital
("HORBC"). When and if adopted by the NAIC, the BCBSA may adopt HORBC as the
basis for its capital requirements. There can be no assurances that such new
minimum capital requirements will not increase WellPoint's, Cerulean's or the
combined company's capital requirements in the future.

The health care industry has become the subject of greater legislative and
media scrutiny in recent years. In 1996, the President signed the Health
Insurance Portability and Accountability Act ("HIPAA") into law as well as
maternity length of stay and mental health parity measures. Various states have
passed similar legislation, some providing for more extensive benefits than
those required by HIPAA. An increasing number of proposals are being considered
by the United States Congress and state legislatures relating to health care
reform, and WellPoint and Cerulean expect that some of such proposals will be
enacted. There can be no assurance that compliance with recently enacted or
future legislation will not have a material adverse effect on claims expense,
financial condition or results of operations at WellPoint, Cerulean or the
combined company.

WellPoint provides health coverage for Medi-Cal, the California Medicaid
program, for beneficiaries pursuant to contracts with California Department of
Health Services in various California counties. WellPoint also provides
administrative services for the federal Health Care Financing Administration
("HCFA") in various capacities, including certain Medicare programs and under
its Blue Cross Senior Secure plan. Cerulean 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. There can be no assurance that acting as a government contractor in
these circumstances will not increase the risk of heightened scrutiny by such
government agencies, particularly in light of governmental concern with
increasing health care costs. Further, there can be no assurance any such
heightened scrutiny will not have a material adverse effect on WellPoint,
Cerulean or the combined company's either through negative publicity about
WellPoint, Cerulean or the combined company or through an adverse impact on
WellPoint's, Cerulean's or the combined company's results of operations.

Health Care Costs and Premium Pricing Pressures

WellPoint's and Cerulean's future results will depend in large part on
accurately predicting health care costs and on their ability to control future
health care costs through underwriting criteria, utilization management, product
design and negotiation of favorable provider and hospital contracts. Changes in
utilization rates, demographic characteristics, health care practices,
inflation, new technologies, clusters of high-cost cases, continued
consolidation of physician, hospital and other provider groups, the regulatory
environment and numerous other factors affecting health care costs may adversely
affect WellPoint's and Cerulean's ability to predict and control health care
costs as well as their financial condition or results of operations. Periodic
renegotiation of hospital contracts coupled with continued consolidation of
physician, hospital and other provider groups may result in increased health
care costs, limit WellPoint's and Cerulean's ability to control such costs or
subject WellPoint or Cerulean to increased credit risks or risks of network
stability related to provider groups. 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.

In addition to the challenge of controlling health care costs, WellPoint
and Cerulean face competitive pressure to contain premium prices. While health
plans compete on the basis of many factors, including service and the quality
and depth of provider networks, WellPoint and Cerulean expect that price will
continue to be a significant basis of competition. Fiscal concerns regarding the
continued viability of programs such as Medicare and Medicaid may cause
decreasing reimbursement rates for government-sponsored programs. Financial
condition or results of operations would be adversely affected by significant
premium decreases by any major competitors or by any limitation on either
WellPoint's or Cerulean's ability to increase or maintain premium levels.

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<PAGE> 38

Historically, competitive price pressures in the group health insurance
industry have resulted in pricing and profitability cycles, the length and
severity of which have varied. The primary causes of this cyclical pattern are
price competition among health plans, 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. More
recently, increasing consolidation of health plans and business disruptions
associated with the integration of acquired businesses have affected this
cyclical pattern. 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
WellPoint's or Cerulean's profitability in the future.

Competition

Managed health care organizations operate in a highly competitive
environment that is subject to significant changes from business consolidations,
new strategic alliances, legislative reform, aggressive marketing practices by
other managed health care organizations and other market pressures. A
significant portion of WellPoint's operations are in California, where the
managed health care industry is especially competitive. In addition, the managed
health care industry in California has undergone significant changes in recent
years, including substantial consolidation. Outside of California, WellPoint
faces competition from other regional and national companies, many of which have
significantly greater financial and other resources and market share than
WellPoint. If competition were to further increase in any of its significant
markets, WellPoint's financial condition or results of operations could be
materially adversely affected.

A substantial portion of WellPoint's California business is in the
individual and small employer group market, where the loss ratio is
significantly lower than in the larger employer group market. The individual and
small employer group business constituted approximately 34% of WellPoint's total
premium revenue for the year ended December 31, 1997. WellPoint has experienced
increasing competition in the individual and small employer group market over
the past several years, which could adversely affect WellPoint's loss ratio and
future financial condition or results of operations.

Cerulean faces competition in Georgia from other regional and national
companies, many of which have significantly greater financial and other
resources than Cerulean. If competition were to further increase in any of its
significant markets, Cerulean's financial condition or results of operation
could be materially adversely affected.

Sales of Cerulean's health care benefit products to individuals for 1997
comprised 11 % of the premium income of Cerulean where the loss ratio is lower
than in other markets. Cerulean is subject to intense competition in this market
especially in the senior segment of the market. Cerulean'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.

Evolving Theories of Recovery

WellPoint and Cerulean, like HMOs and health insurers generally, exclude
certain health care services from coverage under their HMO, PPO and other plans.
In the ordinary course of business, WellPoint and Cerulean are subject to the
claims of their members from decisions to restrict reimbursement for certain
treatments. The loss of even one such claim, if it were to result in a
significant punitive damage award, could have a material adverse effect on
WellPoint's, Cerulean's or the combined company's financial condition or
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<PAGE> 39

results of operations. The risk of potential liability under punitive damage
theories may significantly increase the difficulty of obtaining reasonable
settlements of coverage claims. In addition, new types of purported legal claims
are constantly being brought by plaintiffs in legal actions. The financial and
operational impact that such evolving theories of recovery may have on the
managed care industry generally, or WellPoint, Cerulean or the combined company
in particular, is presently unknown.

Dependence on Independent Agents and Brokers

WellPoint and Cerulean are each dependent on the services of independent
agents and brokers in the marketing of health care plans, particularly with
respect to individual and small employer group members. Such independent agents
and brokers are typically not exclusively dedicated to one company and may
frequently market health care plans of competitors. In addition, WellPoint and
Cerulean face intense competition for the services and allegiance of independent
agents and brokers.

Employee Matters

WellPoint and Cerulean are dependent on retaining existing employees and
attracting and retaining additional qualified employees to meet their future
needs. Both companies face intense competition for qualified employees,
particularly during the present economic environment of low unemployment, and
there can be no assurance that they will be able to attract and retain such
employees or that such competition among potential employers will not result in
increasing salaries. There can be no assurance that an inability to retain
existing employees or attract additional employees will not have a material
adverse effect on results of operations. WellPoint is especially dependent on
attracting and retaining qualified computer programmers.

Effect of Year 2000 on Computer Systems and Applications

The year 2000 presents a number of potential problems for computer systems
and applications, including significant processing errors or failures. In order
to address these problems for its systems and applications, WellPoint and
Cerulean have developed and are in the process of executing comprehensive action
plans designed to address the year 2000 issue.

During 1997, WellPoint completed a detailed risk assessment of its various
computer systems and applications, formulated a plan for specific remediation
efforts and began certain of such remediation efforts. During 1998 and the first
quarter of 1999, WellPoint expects to continue and complete its remediation
efforts and to undertake internal testing of its systems and applications. In
the second quarter of 1999, WellPoint expects to undergo third-party testing of
its applications and systems.

Cerulean's action plan to either modify or replace its existing programs is
expected to be completed by July 1, 1999. The impact of Cerulean's action plan
on its operating results is estimated to be in a range of $7 to $10 million over
1997 and 1998. In connection with its action plan, Cerulean will be contacting
external parties with which it interacts, including suppliers, customers,
providers and financial service organizations, to determine year 2000 compliance
issues.

The failure by WellPoint or Cerulean to successfully execute their
respective action plans or the failure of external parties to achieve their year
2000 compliance could have a material adverse effect on Cerulean's, WellPoint's
or the combined company's business, financial condition and results of
operations.

License to Use of Blue Cross and Blue Shield Name and Risk of Termination of
Such License

Pursuant to its licenses from the BCBSA, WellPoint and certain of its
subsidiaries have the exclusive right to use the Blue Cross name and mark with
respect to WellPoint's health products in California. Cerulean and certain of
its subsidiaries have the exclusive right to use the Blue Cross and Blue Shield
names and marks with respect to Cerulean's health products in Georgia. Unless
waived by the BCBSA, these licenses automatically terminate upon the occurrence
of certain events, subject to the right of Cerulean or WellPoint to prevent such
termination within the applicable cure period. The Merger is such a terminating
event under Cerulean's licenses with the BCBSA, and the BCBSA must consent to
the transfer of control of Cerulean to

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<PAGE> 40

WellPoint. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Regulatory Approvals;
Approval of BCBSA." The BCBSA may impose limitations on Cerulean or WellPoint as
a part of the approval process.

RISKS RELATING PARTICULARLY TO THE BUSINESS OF WELLPOINT

Integration of Recent WellPoint Acquisitions; WellPoint's Geographic Expansion
Strategy; WellPoint's Future Acquisitions

One component of WellPoint's business strategy has been to diversify into
new geographic markets, particularly through strategic acquisitions. WellPoint
completed significant acquisitions in March 1996 and March 1997. During 1997,
WellPoint worked extensively on the integration of these acquired businesses,
including consolidating existing operations sites and converting certain
accounts to WellPoint's information systems. WellPoint is continuing the
consolidation of these recently acquired operations into its operations, which
will require considerable expenditures and a significant amount of management
time. Due to the complex nature of the merger integration process (especially
the information systems designed to serve these businesses), WellPoint may
temporarily experience increases in claims inventory, difficulties in
determining member eligibility and other service-related issues that may
negatively affect WellPoint's relationship with its customers and contribute to
increased attrition of such customers. The success of these acquisitions will,
among other things, also require the integration of a significant number of
employees into WellPoint's existing operations and the completion of the
integration of separate information systems. No assurances can be given
regarding the ultimate success of the integration of these acquisitions into
WellPoint's business, due in part to the large size and multi-state nature of
their businesses.

WellPoint's recently acquired operations have some indemnity-based
insurance operations, with a significant number of members outside of
California. Each of these operations experienced varying profitability or losses
in recent periods. In addition, WellPoint has experienced and expects to
continue to experience material membership attrition as it pursues its strategy
of motivating traditional indemnity health insurance members to select managed
care products. There can be no assurances that a sufficient number of these
members will accept managed care health plans or that WellPoint will be able to
continue existing relationships with provider networks currently serving those
members or develop satisfactory proprietary provider networks in these
geographic areas. The development of such networks will require considerable
expenditures by WellPoint.

As WellPoint pursues its geographic expansion strategy, WellPoint's market
share in new markets will not be as significant, and its provider networks not
as extensive, as in California, and WellPoint will not in all locations have the
benefit of the Blue Cross mark, which are important components of its success in
California. There can be no assurance that the absence of one or more of these
elements will not adversely affect the success of WellPoint's geographic
expansion strategy.

WellPoint actively considers acquisition opportunities on a regular basis,
both in connection with its geographic expansion strategy and its California
operations. WellPoint currently has no existing agreements or commitments to
effect any such acquisition other than pursuant to the Merger Agreement.
Accordingly, there can be no assurance that WellPoint will be able to identify
suitable acquisition candidates available for sale at reasonable prices or
consummate any acquisition or that any discussions will result in an
acquisition. Any such acquisitions may require significant additional capital
resources and there can be no assurance that WellPoint will have access to
adequate capital resources to effect such future acquisitions. To the extent
that WellPoint consummates acquisitions, there can be no assurance that such
acquisitions will be successfully integrated into WellPoint or that such
acquisitions will not adversely affect WellPoint's results of operations and
financial condition.

Tax Issues Relating to the Recapitalization

On May 20, 1996, WellPoint concluded a series of transactions
(collectively, the "Recapitalization") to recapitalize its publicly traded,
majority-owned subsidiary, WellPoint Health Networks Inc., a California
corporation ("Old WellPoint"). As a result of the Recapitalization, among other
things, Old WellPoint merged into its former majority shareholder, Blue Cross of
California ("BCC"), a special dividend of $995.0

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<PAGE> 41

million was made to the shareholders of Old WellPoint and the California
HealthCare Foundation (the "California Foundation") became the holder of
53,360,000 shares, or approximately 80% of the surviving WellPoint entity, which
then changed its name to "WellPoint Health Networks Inc." In connection with the
Recapitalization, BCC received a ruling from the IRS that, among other things,
the conversion of BCC from a non-profit corporation to a for-profit corporation
(the "BCC Conversion") qualified as a tax-free transaction and that no gain or
loss was recognized by BCC for federal income tax purposes. If the ruling were
subsequently revoked, modified or not honored by the IRS (due to a change in law
or for any other reason), WellPoint, as the successor to BCC, could be subject
to federal income tax on the difference between the value of BCC at the time of
the BCC Conversion and BCC's tax basis in its assets at the time of the BCC
Conversion. The potential tax liability to WellPoint if the BCC Conversion is
treated as a taxable transaction is currently estimated to be approximately $696
million, plus interest (and possibly penalties). BCC and the California
Foundation entered into an indemnification agreement that provides, with certain
exceptions, that the California Foundation will indemnify WellPoint against the
net tax liability as a result of a revocation or modification, in whole or in
part, of the ruling by the IRS or a determination by the IRS that the BCC
Conversion constitutes a taxable transaction for federal income tax purposes. In
the event a tax liability should arise against which the California Foundation
has agreed to indemnify WellPoint, there can be no assurance that the California
Foundation will have sufficient assets to satisfy the liability in full, in
which case WellPoint would bear all or a portion of the cost of the liability,
which could have a material adverse effect on WellPoint's financial condition.

Volatility of WellPoint Stock

The price of WellPoint Stock is volatile. For the one year period ending
June 30, 1998, WellPoint Stock has ranged from a low sale price of $38 3/16 per
share to a high sale price of $75 per share. From time to time, stock prices of
companies in the health care industry experience periods of increased volatility
due to company specific issues and developments generally in the industry and in
the regulatory environment. In addition, companies in the health care industry
have recently experienced periods of increased volatility in the price of their
capital stock resulting from difficulties experienced in integrating two
companies' businesses following a consolidation, merger or other acquisition.

RISKS RELATING PARTICULARLY TO THE BUSINESS OF CERULEAN

After the Merger, Cerulean's operating results will have a significant
impact on the operating results of WellPoint. Cerulean's contribution to the
combined results will depend upon the extent to which Cerulean is able to
achieve its own strategic plan. The following is a discussion of the risks
Cerulean believes may inhibit its ability to achieve such plan. In addition,
these risks and those described under "-- Risks Relating to the Business of
WellPoint, Cerulean and the Combined Company" which apply to Cerulean may have a
material adverse effect on the business, financial condition or results of
operations of Cerulean if the Merger is not consummated.

CHPNs

The success of Cerulean's strategic plan is dependent upon the formation
and successful operation of its Community Health Partnership Network joint
ventures ("CHPNs"). Atlanta Healthcare Partners, Inc. was the first CHPN to
become operational. By the end of 1997, an additional four CHPNs, jointly owned
by Cerulean and health care providers, had been formed, capitalized and were
operational, including CHPNs in Augusta, Athens, Macon and Savannah, Georgia.
Cerulean also offers HMO and POS products through its subsidiary, HMO Georgia,
Inc. ("HMO-Ga"), pursuant to contracts with physicians and hospitals in Columbus
and Rome, Georgia. Due to the 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) Cerulean to continue to provide adequate
administrative support to the CHPNs, (ii) the CHPN owners to operate favorably
in a non-fee-for-service 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. CHPN relationships that were

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established in Columbus and Rome, Georgia were terminated during 1997. Due to
operational results, additional capital contributions have been made by Cerulean
to CHPNs in Augusta and Savannah, and may be required to be made to the CHPN in
Macon. Continuing execution of the CHPN strategy will require initial capital
contributions to be made by Cerulean to any new CHPN upon its establishment and
may require additional on-going capital contributions to existing CHPNs.
Accordingly, Cerulean may in the future find it necessary to incur additional
indebtedness or issue additional equity securities in order to finance its CHPN
strategy.

Potential Nonrenewal of Eligible Subscriber and Provider Agreements;
Concentration of Contracts

Cerulean's profitability is dependent upon its ability to obtain and
maintain contracts with employer groups and individual consumers. Cerulean's
agreements with employer groups are generally renewable annually. Cerulean'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 Cerulean's managed care products. Cerulean'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.

Cerulean has contracts with certain employer groups that account for a
significant portion of Cerulean's business. For 1997, two employer groups
accounted for approximately 19% and 10%, respectively, of Cerulean's total
premium revenues. Additionally, Cerulean 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 1997, claim payments for these agency programs exceeded $3.8 billion
and are not included in either revenues or benefits expense in Cerulean's
statement of income. Cerulean 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.

Cerulean'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 31% of
Cerulean's membership and plays an integral part in the development of
Cerulean's long-term provider network strategies. On June 30, 1998, the State of
Georgia renewed the contract for another year and on July 7, 1998 informed
Georgia Blue that it intended to seek competitive bids with respect to certain
programs covered by the contract. Georgia Blue expects that it will participate
in some or all of these programs as a bidder and that, in any event, its role as
a provider of administrative services will remain unchanged.

The non-renewal or termination of any of these contracts with major
employer groups could have a material adverse effect on Cerulean's business,
financial condition and results of operations. There can be no assurance that
the subscribers or providers will renew their contracts or enter into new
contracts with Cerulean, or, in the case of provider contracts, will not seek
terms that are less favorable to Cerulean in connection with any such renewal.

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. Cerulean believes that this
trend will continue over the next several years. The result of the continuation
of this trend could be that sales of indemnity products will decline and that
this block of business could be less profitable. Prior to 1995, over 90% of
total premium revenues were derived from its traditional indemnity and PPO
products, declining to 71% in 1997 and 64% for the six months ended June 30,
1998, with HMO and POS premiums growing from 8% or less prior to 1995 to 28% in
1997 and 35% for the six months ended June 30, 1998. A greater portion of
Cerulean's net income is also being derived from HMO and POS products, growing
from 5% of net income in 1994 to 28% in 1996. In 1997, the after-tax portion for
HMO and POS products was a loss for the year due to increased medical cost
trends and higher utilization in all managed care networks. HMO/POS products

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<PAGE> 43

contributed 54% of net income for the six months ended June 30, 1998. HMO/POS
products have become increasingly more significant to Cerulean's operating
results. There can be no assurance that Cerulean can sustain this growth or
continue to increase its premium revenues and profitability from HMO/POS
products.

INFORMATION REGARDING THE MEETING

GENERAL

This Proxy Statement/Prospectus is being furnished by Cerulean to its
holders of Class A Stock in connection with the solicitation of proxies by the
Board of Directors of Cerulean for use at the Meeting and at any adjournments
thereof. Each copy of this Proxy Statement/Prospectus that is being mailed or
delivered to holders of Class A Stock is accompanied by a proxy and election
card and the appropriate notice of meeting. This Proxy Statement/Prospectus and
the accompanying form of proxy and election are first being mailed to holders of
Class A Stock on or about , 1998.

This Proxy Statement/Prospectus is also being furnished by Cerulean to its
holders of Class B Stock in connection with the solicitation of proxies by the
Board of Directors of Cerulean at the meeting for the holders of the Class B
Stock. The meeting of the holders of Class B Stock is scheduled to be held at
, Eastern time, on , 1998 at , , Georgia.
Each copy of this Proxy Statement/Prospectus that is being mailed or delivered
to holders of Class B Stock is accompanied by a proxy card and the appropriate
notice of meeting. This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to holders of Class B Stock on or about ,
1998.

This Proxy Statement/Prospectus is also being furnished by WellPoint to the
shareholders of Cerulean as a Prospectus in connection with the issuance by
WellPoint of up to $500 million worth of shares of WellPoint Stock in connection
with the Merger.

THE MEETING

The Meeting is scheduled to be held in Macon, Georgia on October 27, 1998,
beginning at 9:30 a.m., Eastern time. The purpose of the Meeting is to consider
and vote upon a proposal to approve and authorize the Merger Agreement and
consummation of the transactions contemplated thereby, to elect two Class A
Designated Directors of Cerulean to serve until the Annual Meeting of Cerulean
in 2001 or until the earlier consummation of the Merger and one Class A
Designated Director to serve until the 1999 Annual Meeting or until the earlier
consummation of the Merger, and to transact such other business as may properly
come before the Meeting or any adjournments or postponements thereof. The Board
of Directors of Cerulean knows of no business that will be presented for
consideration at the Meeting other than the proposals described in this Proxy
Statement/Prospectus.

RECORD DATE; QUORUM

The Bylaws of Cerulean have fixed the close of business on ,
1998, as the Record Date for determining the holders of Class A Stock entitled
to receive notice of and to vote at the Meeting. Only holders of record of Class
A Stock as of the Record Date are entitled to notice of and to vote at the
Meeting. As of the Record Date, there were shares of Class A
Stock issued and outstanding and held by record holders. Holders
of Class A Stock are entitled to one vote on each matter considered and voted on
at the Meeting for each share of Class A Stock held of record at the close of
business on the Record Date. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of the Class A
Stock entitled to vote at the Meeting is necessary to constitute a quorum at the
Meeting. Abstentions will be counted as shares present for purposes of
determining the presence of a quorum. Because the election of Class A Designated
Directors requires the affirmative vote of a plurality of shares of Class A
Stock voting at the Meeting, abstentions will have no effect (other than to
establish a quorum) on the election of Class A Designated Directors. However,
because the approval of a majority of the outstanding shares of the Class A
Stock entitled to vote at the Meeting is required to approve and adopt the
Merger Agreement and the transactions contemplated thereby, abstentions will
have the effect of a vote
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"AGAINST" the Merger Agreement and the transactions contemplated thereby. No
directors or officers hold any shares of Class A Stock.

VOTE REQUIRED

The election of the Class A Designated Directors requires the affirmative
vote of a plurality of shares of Class A Stock voting at the Meeting.

Approval of the Merger Agreement and the consummation of the transactions
contemplated thereby requires the affirmative vote of the holders of a majority
of the outstanding shares of Class A Stock entitled to vote at the Meeting. The
Merger Agreement and the consummation of the transactions contemplated thereby
do not require the approval of the shareholders of WellPoint.

In addition to the approval of the holders of the Class A Stock, approval
of the Merger Agreement and the consummation of the transactions contemplated
thereby requires the affirmative vote of the holders of a majority of the
outstanding shares of Class B Stock entitled to vote thereon. A meeting of the
holders of Class B Stock will be held on , 1998. GSH owns 80.16% of
the outstanding Class B Stock and has agreed to vote all shares of Class B Stock
owned by it in favor of the Merger Agreement and the transactions contemplated
thereby. Accordingly, approval by the holders of Class B Stock of the Merger
Agreement and the transactions contemplated thereby is reasonably assured.

SOLICITATION AND REVOCABILITY OF PROXIES

Shares of Class A Stock and Class B Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
at the Meeting, or the meeting for holders of Class B Stock, as applicable, in
accordance with the instructions indicated on the proxies. ANY HOLDER OF CLASS A
STOCK OR CLASS B STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE
INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO BE VOTED WILL
BE DEEMED TO HAVE VOTED "FOR" APPROVAL AND ADOPTION OF THE PROPOSALS LISTED ON
THE PROXY CARD. If any other matters properly come before the Meeting, the
persons named as proxies will vote upon such matters according to their
judgment.

All proxy cards delivered pursuant to this solicitation are revocable at
any time prior to the vote at the Meeting or, for holders of Class B Stock,
prior to the meeting of holders of Class B Stock, at the option of the persons
executing them by giving written notice to the secretary of Cerulean, by
delivering a later dated proxy card or by voting in person at the Meeting. All
written notices of revocation and other communications with respect to
revocations of proxies should be addressed to: Cerulean Companies, Inc., 3350
Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Hugh J. Stedman,
Corporate Secretary. Attendance at the Meeting will not in and of itself
constitute a revocation of a proxy. Holders of Class A Stock who revoke their
proxies will also be revoking any cash election made on such proxy and must make
a new election, if they desire, on any newly executed proxy.

HOLDERS OF CLASS A STOCK AND CLASS B STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CERULEAN IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE.

The expense of soliciting proxies for the Meeting will be paid for by
Cerulean, although WellPoint and Cerulean have agreed to share the cost of
preparing and mailing this Proxy Statement/Prospectus. Proxies initially will be
solicited by Cerulean by mail, but directors, officers and selected employees of
Cerulean may solicit proxies from shareholders personally or by telephone,
telecopy or other forms of communication. Such directors, officers and employees
will not receive any additional compensation for such solicitation. Cerulean
also will request nominees, fiduciaries and other custodians to forward
soliciting materials to beneficial owners, and Cerulean will reimburse such
persons for their reasonable expenses incurred in doing so. In addition,
Cerulean may utilize the services of to solicit proxies from
Cerulean shareholders personally or by telephone, telecopy or other forms of
communication at a cost of approximately $ , plus the reimbursement of
reasonable out-of-pocket costs and expenses.

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DISSENTERS' RIGHTS

Pursuant to Sections 14-2-1301 through 14-2-1332, inclusive, of the GBCC,
any holder of Class A Stock or Class B Stock who desires to receive the fair
value of his or her Class A Stock or Class B Stock, respectively, in cash rather
than to receive the Merger Consideration as part of the Merger may do so if he
or she complies with the provisions of the GBCC pertaining to the exercise of
dissenters' rights (collectively, "Dissenting Shareholders"). See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Dissenters' Rights."

REGULATORY AND OTHER APPROVALS

A pre-merger notification has been filed by the parties pursuant to the HSR
Act, with the Justice Department and the FTC, and the Merger may not be
consummated until at least 30 days after such filing unless either the Justice
Department or the FTC grants earlier termination of the waiting period. In
connection with their respective reviews of the Merger, either the FTC or the
Justice Department may initiate action which could extend the waiting period or
prohibit consummation of the Merger. See "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Regulatory Approvals; Approval of BCBSA."

In addition, the Merger may not be consummated until it has been approved
by the Georgia Commissioner under a procedure which requires the filing by
WellPoint of a statement regarding change of control with respect to Georgia
Blue and a public hearing to be held by the Georgia Commissioner thereon, and
the issuance of an order by the Georgia Commissioner permitting the Merger.
Additionally, several state regulatory filings are required due to the change in
control of Georgia Blue's subsidiary, Greater Georgia Life Insurance Company,
Inc. ("GGL"), that will occur upon consummation of the Merger. Neither WellPoint
nor Cerulean is aware of any approval of any other state or federal regulatory
body, other than the Commission and state authorities which regulate the state
securities laws, necessary for the Merger to be consummated and the Merger
Consideration to be delivered. See "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Regulatory Approvals; Approval of BCBSA."

In addition, BCBSA must approve the change in control of Cerulean prior to
consummation of the Merger.

METHOD OF ELECTING WELLPOINT STOCK OR CASH; RECEIPT OF WELLPOINT STOCK AND/OR
CASH

Holders of Class A Stock

On the proxy card included with this Proxy Statement/Prospectus, each
holder of Class A Stock is asked to elect cash if the shareholder wishes to
receive cash and to return the proxy card in its return envelope so that it is
received prior to or at the Meeting. To receive cash, a holder of Class A Stock
must check the box provided on the proxy card, fill in his or her social
security number in the space marked "W-9," sign the proxy card and return it so
that it is received prior to or at the Meeting. Because shares of Class A Stock
are not certificated (i.e., not represented by a physical stock certificate),
holders of Class A Stock are not required to furnish a physical stock
certificate in exchange for the consideration to be received in the Merger.
Also, if you no longer have the registration notification you received upon
receipt of your Class A Stock, this will not impede your ability to receive your
cash or shares of WellPoint Stock in the Merger.

If you do not elect cash on the proxy card, you will receive WellPoint
Stock. If you wish to receive cash, you must return the proxy card properly
marked for a cash election prior to or at the Meeting. All proxy cards received
after that date will be treated as having elected WellPoint Stock. These two
limitations are necessary in order to permit us to determine the total amount of
cash which will be paid in the Merger and to provide for appropriate tax-free
treatment of the Merger. In any event, however, you must complete the W-9
information and sign and return the proxy card before you can receive the Merger
Consideration, cash or WellPoint Stock. You do not need to vote "FOR" the Merger
in order to receive Merger Consideration, although if you wish to vote "AGAINST"
the Merger, you must mark your proxy card accordingly, because signed proxy
cards without a choice indicated will be voted "FOR" the Merger.

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<PAGE> 46

Holders of Class B Stock

Holders of Class B Stock should sign and mail the attached proxy card in
the enclosed return envelope as soon as possible in order to have such shares of
Class B Stock represented at the meeting of holders of Class B Stock. As soon as
practicable following the Effective Time, each holder of Class B Stock will be
mailed a Transmittal Letter to accompany certificates for shares of Class B
Stock. The Transmittal Letter will set forth instructions for delivering
certificates for shares of Class B Stock to the Exchange Agent. No holder of
Class B Stock will receive any Merger Consideration until a properly completed
Transmittal Letter has been received by the Exchange Agent.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The Board of Directors of Cerulean has adopted and approved the Merger
Agreement and the transactions contemplated thereby and believes the Merger is
fair to and in the best interests of Cerulean and its shareholders. Accordingly,
the Board of Directors of Cerulean recommends that shareholders of Cerulean vote
"FOR" approval of the Merger Agreement and the consummation of the transactions
contemplated thereby. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Reasons for
the Merger -- Cerulean's Reasons for the Merger."

The Board of Directors has nominated the three nominees for Class A
Designated Directors and recommends that shareholders vote "FOR" their election.
See "PROPOSAL 2 -- ELECTION OF CLASS A DESIGNATED DIRECTORS."

PROPOSAL 1

APPROVAL OF THE MERGER

This section of the Proxy Statement/Prospectus as well as the sections of
the Proxy Statement/ Prospectus entitled "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT" and "RELATED AGREEMENT" describe certain aspects of the proposed
Merger. The following discussion is qualified in its entirety by reference to
the Merger Agreement, which is attached as Appendix A to this Proxy Statement/
Prospectus, and to the other agreements and documents that are discussed which
are filed as appendices or exhibits to the Registration Statement of which this
Proxy Statement/Prospectus forms a part. All shareholders are urged to read the
Merger Agreement in its entirety.

BACKGROUND OF THE MERGER

Cerulean

On or about September 20, 1997, Cerulean received a letter of inquiry from
another Blue Cross Blue Shield licensee regarding a possible combination or
alliance of the two companies. Upon discussing this letter at a meeting on
October 2, 1997, the Board of Directors of Cerulean determined to consider the
various strategic alternatives available to Cerulean to realize most effectively
its goals as a for-profit corporation. Cerulean's stated objective at the time
of the conversion of Georgia Blue to for-profit status in 1996 was to be able to
access a broader capital base in order to meet competitive pressures and to
develop and deliver new products to residents of Georgia. The Board of Directors
reaffirmed its belief that this remained a principal corporate objective and, in
view of its duty to maximize shareholder value, appointed the Committee to
examine, on behalf of the full Board of Directors, the strategic alternatives
available to Cerulean to realize its objectives. Among the alternatives to be
considered, the Board specifically identified Cerulean remaining an independent
company and pursuing its existing business plan, or Cerulean entering into a
joint venture, alliance or other strategic transaction with a potential partner.
The Committee appointed was James L. LaBoon, Jr., Chairman, Elizabeth W. Camp
and Frank J. Hanna, III. The Committee was authorized to retain a financial
advisor and to work with legal counsel in connection with fulfilling its charge.
The organizational meeting of the Committee was held on October 30, 1997, and
the Committee retained Morgan Stanley as its financial advisor and Long Aldridge
& Norman LLP ("Long Aldridge") as its legal counsel.

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From its inception, the Committee regularly consulted with certain members
of Cerulean management, specifically Richard D. Shirk, Chief Executive Officer;
John A. Harris, Executive Vice President; Hugh J. Stedman, General Counsel; and
Joseph M. Feuer, Deputy General Counsel. From its appointment on October 2, 1997
until the Merger Agreement was signed on July 9, 1998, the Committee met in
person or by telephonic meeting on 29 occasions, and, in addition, consulted
informally on numerous other occasions.

At its November 10, 1997 meeting, the Committee authorized Morgan Stanley
to contact a designated group of potential strategic partners in furtherance of
the Committee's effort to establish and explore all of the various strategic
alternatives available to Cerulean. After due consideration, the Committee chose
to include in the designated group only companies that, like Cerulean, were
licensees of BCBSA due to sensitivity regarding certain due diligence
information being available to competitors and because the Committee, after
discussions with Morgan Stanley, believed that a potential transaction or
alliance with another BCBSA licensee, if any, would achieve greater value than a
transaction with an entity that was not such a licensee. The Committee also
identified a group of non-Blue Cross Blue Shield entities who might be
considered for contact if other strategic alternatives were not available. The
Committee instructed Morgan Stanley to obtain indications of interest from the
designated group on or before November 14, 1997 and to encourage the parties
contacted to submit to Morgan Stanley initial proposals by December 8, 1997. At
its November 17, 1997 meeting, Morgan Stanley reported to the Committee that six
entities meeting the requisite criteria had expressed an interest in making a
strategic proposal within the time constraints established by the Committee.

By the Committee's December 9, 1997 meeting, four of the six entities
expressing interest had submitted initial proposals for consideration by the
Committee. At its December 9, 1997 and December 11, 1997 meetings, the Committee
established a process for due diligence to be undertaken by all parties
considering making a detailed strategic transaction proposal. At that time, the
Committee established a due diligence calendar which provided for the completion
of due diligence by January 7, 1998. To facilitate due diligence, materials were
collected and made available to the four parties at the offices of Long Aldridge
in Atlanta, Georgia. At its December 22, 1997 meeting, the Committee established
January 14, 1998 as the date for receiving revised proposals from the parties.

During the course of due diligence, the Committee became aware of each
party's concern regarding the Conversion Litigation (see "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS -- Settlement of Cerulean Conversion Litigation") and
their desire that a settlement be reached with respect to the Conversion
Litigation as a precondition to completing any strategic transaction with
Cerulean. Thereafter, the Committee sought to combine the schedule for the
Committee's work concerning strategic transactions with that of the court
calendar concerning the Conversion Litigation. At its January 12, 1998 meeting,
the Committee concluded that it should extend the deadline for the submission of
proposals to allow adequate time for Cerulean to (i) conduct due diligence with
respect to potential strategic partners, (ii) receive a definitive ruling on
Cerulean's motion for summary judgment in the Conversion Litigation or, in the
absence of such a ruling, assess the court's treatment of the motion and the
effect of such treatment on the entire case and (iii) assess the regulatory
approval process which a strategic transaction would require. The deadline for
submission of proposals was extended to January 23, 1998.

At the Committee's January 27, 1998 meeting, Morgan Stanley advised the
Committee that four parties had submitted proposals and presented a summary of
those proposals. At its February 2, 1998 meeting, the Committee considered in
depth each of the proposed strategic transactions and considered the various
advantages and disadvantages to Cerulean of each proposal. This analysis lead to
the Committee's conclusion that one of the potential transactions was not
feasible and should be eliminated and that another required further due
diligence by the Committee in order to fully analyze the potential of the
transaction. The Committee agreed to complete this due diligence and to notify
the other two parties with viable proposals that their proposals were being
actively considered, but response by the Committee was being postponed in order
to complete full consideration of another proposal.

After completion of such due diligence, and pursuant to the Committee's
instructions, Morgan Stanley indicated to each of the three remaining parties,
one of which was WellPoint, that best and final proposals should be submitted to
the Committee by February 23, 1998. After receipt of such revised proposals, the

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<PAGE> 48

Committee held a meeting on March 3, 1998 in preparation for its presentation of
a report to the full Board of Directors on March 6, 1998, and at which the
Committee reviewed its actions since its appointment. The Committee had
established a process for evaluating the strategies available to Cerulean for
best realizing its overall business plan and for realizing value to its
shareholders. As a part of the process, the Committee had previously authorized
Morgan Stanley to evaluate Cerulean on a stand-alone basis and to consider the
strategic proposals that had been elicited over the preceding four months. At
the meeting on March 3, 1998, the Committee reviewed further the three proposals
that were still under consideration and concluded that one proposal should be
eliminated for a number of reasons which, in the Committee's judgment, indicated
it was of questionable viability and, in any event, of substantially less value
to shareholders. In formulating its report for the Board, the Committee also
reviewed the possible effects on customers, management and employees of each of
the proposals and reviewed the value to shareholders of remaining independent
and of entering into a proposed transaction.

Prior to the Committee's report to the full Board on March 6, 1998,
however, the Chairman of the Committee reported to the Committee that he had
received a revised proposal from one of the parties that previously had
submitted a proposal, and the Committee, after considering the revised proposal
at a meeting on March 5, 1998, concluded that the Committee should recommend to
the Board of Directors the consideration of two proposals and that both
proposing parties should be given further access to materials concerning
Cerulean and a further opportunity to conduct due diligence and submit improved
proposals after completion thereof.

At Cerulean's Board meeting on March 6-7, 1998, the Committee presented its
report to the full Board of Directors of Cerulean. The Board of Directors
received the Committee's report and a presentation from Morgan Stanley on the
proposals submitted to the Committee as well as an analysis of Cerulean's
stand-alone value and the ability of Cerulean to achieve its business plan
operating as an independent entity. The Directors reviewed in this context their
fiduciary duties to shareholders and their ability to consider other
constituencies, and considered the proposals recommended by the Committee. The
Directors considered the proposals of the several parties, explored the
possibility of a joint venture and reviewed the limitations of that strategy,
and ultimately adopted the Committee's recommendation that Cerulean proceed with
negotiations with each of two proposing parties, one of which was WellPoint. At
this time, the Board authorized the Committee to set a deadline for the
completion of negotiations with the two parties and to select the proposal that
the Committee decided was superior considering all factors, including the best
interests of the shareholders, and thereafter to proceed with negotiations to
finalize the terms of a proposed transaction, provided that final approval of
the terms of the proposed transaction be obtained from the full Board of
Directors.

After the Cerulean Board meeting, the two remaining parties were given the
opportunity to conduct in-depth due diligence on Cerulean in Atlanta, Georgia
during the weeks of March 16 and March 23, 1998. In connection with further
discussions with each party, each party emphasized to the Committee the
importance of Cerulean negotiating a settlement of the Conversion Litigation
prior to the final negotiation and execution of a strategic transaction. In the
ensuing period, the Committee met on numerous occasions to monitor progress in
the settlement negotiations of the Conversion Litigation and to review its
status with management representatives and legal counsel conducting the
negotiations. During this period, two parties whose proposals had previously
been rejected by the Committee presented a combined proposal which the Committee
considered at length at its meetings on May 19, May 21, May 25, May 29, June 1
and June 4, but ultimately rejected.

As the settlement discussions conducted by Cerulean's management and
counsel in the Conversion Litigation appeared to be reaching a satisfactory
result, the Committee set a deadline of June 3, 1998 for submission of "best and
final" strategic transaction proposals by the two parties. The Committee
received "best and final" proposals from the two remaining parties on June 3,
1998. At its June 5, 1998 meeting, the Committee again reviewed its course of
action since its formation on October 2, 1997, specifically its directions
received from the Board of Directors on that date and at the Board of Directors
meeting on March 6-7, 1998. In addition, Morgan Stanley made a presentation to
the Committee comparing the two final proposals. Based on this presentation, and
after due consideration, the Committee unanimously voted to recommend to the
Board of Directors that the Committee proceed to final negotiations with
WellPoint alone.
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At a meeting of the full Board of Directors held on June 5, 1998, the Board of
Directors authorized the Committee to seek to conclude a strategic transaction
with WellPoint and further authorized Cerulean management to proceed to a
settlement of the Conversion Litigation in the manner presented to the Board of
Directors which was substantially, in outline form, the terms of the settlement
described herein at "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Settlement of Cerulean Conversion Litigation."

Thereafter, the Committee, members of Cerulean management, the Committee's
financial advisors and the Committee's legal counsel proceeded to the
negotiation of a final agreement with representatives of WellPoint. The
Committee met on July 1, July 6, July 7 and July 8, 1998 to address specific
issues as they emerged in the negotiations and to consider a further indication
of interest from one of the other previously proposing parties and to analyze
and compare such indication of interest to the transaction under negotiation
with WellPoint.

The process of approving the transaction also included a presentation to
the full Board of Directors by the Chairman and Chief Executive Officer of
WellPoint on June 15, 1998; a telephonic meeting of the full Board of Directors
on July 5, 1998 to authorize and approve the settlement of the Conversion
Litigation; and finally a telephonic meeting of the full Board of Directors on
July 8, 1998 at which the Board reviewed the transaction negotiated with
WellPoint (including a review of a draft Merger Agreement), as well as the
further indication of interest received from another party (as described in the
preceding paragraph) and the Committee's reasons for rejecting such indication
of interest. Following this presentation, the Board of Directors voted to
approve the Merger and the Merger Agreement and to authorize the execution and
delivery of the Merger Agreement and the related documents embodying the Merger.

WellPoint

WellPoint has an ongoing acquisition program as part of its regional
expansion strategy and regularly considers strategic acquisition opportunities.
On or about November 10, 1997, WellPoint was contacted by Morgan Stanley and
requested to submit an indication of interest regarding a potential business
combination with Cerulean. WellPoint subsequently entered into a confidentiality
agreement, dated November 13, 1997, with Morgan Stanley on behalf of Cerulean.
On December 5, 1997, WellPoint submitted a non-binding indication of interest to
Morgan Stanley.

In early December 1997, WellPoint was contacted by Morgan Stanley and
informed of the due diligence process that had been established by Cerulean. As
part of the due diligence process established by Morgan Stanley, representatives
of WellPoint met at the offices of Long Aldridge in Atlanta, Georgia on December
15, 16, 17 and 18, 1997. Various representatives of Cerulean, including members
of its senior management, were present for these meetings and various documents
were made available for review by WellPoint. As a result of this due diligence
process and subsequent conversations with Cerulean and Morgan Stanley, WellPoint
submitted a revised non-binding indication of interest on January 23, 1998.

As part of the ongoing due diligence process, members of Cerulean's senior
management met with various representatives of WellPoint at WellPoint's offices
in Woodland Hills, California on February 24, 1998. WellPoint's indication of
interest was further revised and resubmitted on February 26, 1998.

Additional due diligence materials were made available to representatives
of WellPoint at the offices of Long Aldridge on March 17, 18 and 19, 1998. At
these meetings, representatives of Cerulean were made available for discussions
with WellPoint's representatives. Over the course of its various conversations
with Cerulean, WellPoint was made aware of and provided with updates regarding
the status of the Conversion Litigation. At various points, WellPoint indicated
its concern that the pendency of the Conversion Litigation could adversely
affect the consummation of any proposed transaction with Cerulean. After the
completion of the March 1998 due diligence meetings, WellPoint and Cerulean
further discussed the status of the Conversion Litigation. Cerulean informed
WellPoint that Cerulean intended to pursue vigorously the negotiations regarding
the settlement of the Conversion Litigation and that Cerulean would reconsider
its various strategic alternatives while it continued to pursue settlement
discussions.

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WellPoint and Cerulean again initiated their discussions beginning in
mid-May 1998. At such time, Morgan Stanley requested that WellPoint submit a
further revised indication of interest, and WellPoint submitted such revised
indication on June 3, 1998. On or about June 5, 1998, WellPoint was informed
that it had been selected as the sole party with which Cerulean intended to
conduct final negotiations. Thereafter, on various dates between June 11, 1998
and July 8, 1998, members of WellPoint management and its legal counsel met with
members of Cerulean management and its legal counsel to negotiate a final
definitive agreement with respect to a merger with Cerulean.

At various times between December 1997 and June 1998, the WellPoint Board
of Directors at regularly scheduled meetings was provided with updates regarding
the discussions and negotiations with Cerulean. On July 2, 1998, the WellPoint
Board of Directors met via telephone and was presented with detailed information
regarding the proposed transaction, including comprehensive analyses by
WellPoint's financial advisors and its outside legal counsel. The WellPoint
Board of Directors met again on July 6, 1998 via telephone and was provided with
a further update regarding the negotiations. At this meeting, the Board of
Directors indicated its general approval of the transaction, pending the final
negotiation of satisfactory definitive documentation. A committee consisting of
W. Toliver Besson, Sheila Burke and Julie Hill was appointed as a special
committee of the Board of Directors and was empowered to ratify and approve the
definitive documents regarding the transaction. The special committee met via
telephone on July 8, 1998 and was presented with, among other things, an
analysis of the definitive documentation. At this meeting, the special committee
voted to authorize the execution of the Merger Agreement and the proposed
ancillary documents. On the morning of July 9, 1998, WellPoint and Cerulean
executed the Merger Agreement.

RECOMMENDATION OF THE CERULEAN BOARD OF DIRECTORS

The Board of Directors of Cerulean has adopted and approved the Merger
Agreement and the consummation of the transactions contemplated thereby and
believes the Merger is fair to and in the best interests of Cerulean and its
shareholders. Accordingly, the Board of Directors of Cerulean recommends that
shareholders of Cerulean vote "FOR" approval of the Merger Agreement and the
consummation of the transactions contemplated thereby. See "-- Reasons for the
Merger -- Cerulean's Reasons for the Merger."

REASONS FOR THE MERGER

Cerulean's Reasons for the Merger

The Board of Directors of Cerulean believes that the transaction is fair to
and in the best interests of Cerulean and its shareholders. As outlined above
under "-- Background of the Merger -- Cerulean," after consideration of relevant
business, financial, legal and market factors, the Board of Directors, on July
8, 1998, approved the Merger Agreement and the transactions contemplated thereby
by a vote of 16 for and one against and voted by the same vote to recommend that
Cerulean shareholders vote FOR the approval of the Merger Agreement and the
transactions contemplated thereby.

In deciding to approve the Merger Agreement and to recommend approval of
the Merger by Cerulean shareholders, the Board of Directors considered a number
of factors, including particularly the factors listed below. In view of the
number and wide variety of factors considered in connection with its evaluation
of the Merger, the Board of Directors did not consider it practicable to, nor
did it attempt to, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. The Board of Directors viewed
its position and recommendations as being based on the totality of the
information and factors presented to and considered by it. In addition,
individual directors may have given different weight to different information
and factors.

The financial terms of the Merger. The Board of Directors of Cerulean
believes that the consideration to be delivered to shareholders of Cerulean is
fair to the shareholders based upon Cerulean's current financial condition and
future prospects, as well as the current financial condition and future
prospects of WellPoint and the Board's perception of the future prospects of the
combined entities. In coming to this conclusion, the Board of Directors, as
outlined above under "-- Background of the Merger -- Cerulean," using the
Committee and its financial advisors and legal counsel, evaluated the strategic
alternatives available to

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Cerulean, including the option of remaining independent, the option of
undertaking a joint venture project with one or another party and the benefits
presented to Cerulean and its shareholders by the Merger.

Comparing Cerulean's value as a continuing independent entity with its
value in combination with WellPoint. Based upon the information and analysis
provided to the Committee and by the Committee to the Board of Directors, the
Board of Directors considered that the value to be received by Cerulean
shareholders in the Merger is substantially greater than that available in
Cerulean as a continuing independent entity currently and for the foreseeable
future.

Liquidity for Cerulean shareholders. The Merger provides to Cerulean
shareholders liquidity, which is not presently available to Cerulean
shareholders, in the form of WellPoint Stock and, to the extent provided in the
Merger Agreement, cash.

Availability of additional resources. The Board of Directors considered
the need for additional capital resources in order to achieve Cerulean's own
business plan and the fact that these resources were more readily available to
Cerulean in combination with WellPoint than as a continuing independent entity
and that they were more readily available to Cerulean in a transaction with
WellPoint than in a transaction with any other entity with whom a transaction
was possible or in a stand-alone case.

Changes and consolidations in the health care industry. The Board of
Directors of Cerulean considered the current environment of the health care
industry, especially the continuing shift from traditional indemnity products to
managed care products, such as HMOs and PPOs, and the trend to consolidation in
the industry in order to obtain the advantage of scale in developing and
delivering products in a cost-effective manner. The Board and the Committee
considered that the Merger afforded Cerulean and its customers and shareholders
a stronger vehicle with which to address these changes in the industry.

Tax free nature of the transaction. The Board of Directors and the
Committee considered the fact that for federal income tax purposes the Merger
will qualify as a tax free reorganization for those Cerulean shareholders who do
not elect to receive cash in the Merger. See "-- Certain Federal Income Tax
Consequences of the Merger."

Opinion of Morgan Stanley. The Board of Directors and the Committee
considered the fact that Morgan Stanley has rendered its opinion that, as of the
date of the opinion and subject to the assumptions made, matters considered and
limitations on the review undertaken, the consideration to be received by the
holders of Class A Stock, Class B Stock and Series A Stock pursuant to the
Merger Agreement, is fair from a financial point of view to such holders. The
opinion of Morgan Stanley is set forth in Appendix B and is incorporated herein
by reference. The opinion of Morgan Stanley is further described at "-- Opinion
of Cerulean's Financial Advisor."

WellPoint's Reasons for the Merger

The WellPoint Board of Directors believes that the Merger is fair to and in
the best interests of WellPoint. In reaching its decision, the Board of
Directors considered a number of factors, including the factors listed below. In
view of the number and wide variety of factors considered in connection with its
evaluation of the Merger, the Board of Directors did not consider it practicable
to, nor did it attempt to, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The Board of
Directors viewed its position and recommendations as being based on the totality
of the information and factors presented to and considered by it. In addition,
individual directors may have given different weight to different information
and factors.

In reaching its decision, the Board of Directors consulted with WellPoint
management with respect to strategic and operational matters. The Board of
Directors also consulted with legal counsel with respect to the Merger Agreement
and the Registration Rights Agreement and issues related thereto. The Board of
Directors also consulted a financial advisor with respect to the financial
aspects of the transaction.

Strategic combination. The WellPoint Board of Directors considered the
strategic importance of the Merger in that (i) it represents the first
significant merger of two public for-profit licensees of the BCBSA,

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<PAGE> 52

and (ii) it provides the combined company with an immediate material competitive
position in Georgia, a state which WellPoint had previously targeted as a key
priority for its national expansion efforts.

The financial terms of the Merger. The WellPoint Board of Directors
considered information concerning the business, earnings, operations, financial
condition and prospects of WellPoint and Cerulean, both individually and on a
combined basis, including, but not limited to, information with respect to
recent and historic stock and earnings performance. The Board of Directors also
considered the financial analyses and other information with respect to
WellPoint and Cerulean presented to the Board of Directors by WellPoint's
financial advisor, as well as the Board of Directors' own knowledge of WellPoint
and Cerulean and their respective businesses.

Complementary business. The WellPoint Board of Directors considered the
complementary aspects of the businesses of the two companies. In particular, the
Board noted that Cerulean is a BCBSA licensee, that Cerulean has a diverse
membership with significant components of large employer groups and small groups
and that Cerulean has a broad product range consisting of traditional indemnity
insurance, PPO products, HMO products and administrative services products.

Status of the health care industry. The WellPoint Board of Directors
considered the status of the managed health care industry, including increasing
competition, limited pricing flexibility, proposed regulatory initiatives and
the advantages of relative size in negotiating favorable provider agreements and
achieving favorable operating results. The Board also considered the continued
consolidation within the managed health care industry and the importance of
market position.

OPINION OF CERULEAN'S FINANCIAL ADVISOR

Cerulean retained Morgan Stanley to act as Cerulean's financial advisor in
connection with the Merger and related matters based upon Morgan Stanley's
qualifications, expertise and reputation. On July 8, 1998, Morgan Stanley
rendered an opinion (the "Morgan Stanley Opinion") to the Cerulean Board that,
as of such date, and based upon and subject to the considerations set forth in
such opinion, the consideration to be received by the holders of shares of Class
A Stock, Series A Stock and Class B Stock pursuant to the Merger Agreement is
fair from a financial point of view to such holders.

THE FULL TEXT OF THE MORGAN STANLEY OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS. THE MORGAN STANLEY OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF CLASS A STOCK,
SERIES A STOCK AND CLASS B STOCK FROM A FINANCIAL POINT OF VIEW AS OF THE DATE
OF SUCH OPINION AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR DOES IT
CONSTITUTE A RECOMMENDATION TO ANY CERULEAN SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEETING HELD IN CONNECTION WITH THE MERGER. THE
SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE MORGAN STANLEY OPINION ATTACHED AS APPENDIX B HERETO. SHAREHOLDERS OF
CERULEAN ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND
IN ITS ENTIRETY.

In arriving at the Morgan Stanley Opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of Cerulean and WellPoint; (ii) reviewed certain internal financial
statements and other financial and operating data concerning Cerulean and
WellPoint prepared by the managements of Cerulean and WellPoint, respectively;
(iii) analyzed certain financial projections prepared by the management of
Cerulean; (iv) discussed the past and current operations and financial condition
and the prospects of Cerulean with senior executives of Cerulean; (v) discussed
the past and current operations and financial condition and the prospects of
WellPoint with senior executives of WellPoint; (vi) reviewed the reported prices
and trading activity for the WellPoint Stock; (vii) compared the financial
performance of Cerulean and WellPoint and the trading activity of the WellPoint
Stock with that of
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<PAGE> 53

certain comparable publicly-traded companies and their securities; (viii)
reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; (ix) participated in discussions and
negotiations among representatives of Cerulean and WellPoint and their financial
and legal advisors; (x) reviewed the draft Merger Agreement and certain related
documents; and (xi) performed such other analyses as Morgan Stanley deemed
appropriate.

In arriving at the Morgan Stanley Opinion, Morgan Stanley assumed and
relied upon, without independent verification, the accuracy and completeness of
the information reviewed by Morgan Stanley for the purposes of its opinion. With
respect to the financial projections, Morgan Stanley assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Cerulean. In addition,
Morgan Stanley assumed that the Merger would be consummated in accordance with
the terms set forth in the Merger Agreement, including, among other things, that
the Merger would be treated as a tax-free reorganization and/or exchange, each
pursuant to the Code. Morgan Stanley assumed that in connection with the receipt
of all necessary regulatory approvals for the proposed Merger, no restrictions
would be imposed that would have a material adverse effect upon the contemplated
benefits expected to be derived from the proposed Merger. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Cerulean, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley noted that the holders of Class B Stock would not have an election to
receive cash in the Merger and, in receiving shares of WellPoint Stock in the
transaction, may assume the market risk of holding such WellPoint Stock. Morgan
Stanley also noted that the capital structure of Cerulean is comprised of three
classes of stock, the Class A Stock, the Series A Stock and the Class B Stock,
and Morgan Stanley expressed no opinion as to the relative fairness of the
consideration to be received among the various classes or series of stock. The
Morgan Stanley Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of, the date of the Morgan Stanley Opinion.

The following is a summary of certain of the financial analyses performed
by Morgan Stanley in rendering the Morgan Stanley Opinion to the Cerulean Board
of Directors on July 8, 1998.

Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Cerulean with the corresponding
publicly available financial information of 16 other managed care companies
similar to Cerulean and WellPoint (the "Comparable Companies"), including Aetna
Inc., Cigna Corp, United Healthcare Corp., Foundation Health Systems, Maxicare
Health Plans, PacifiCare Holding, Coventry Corporation, Health Power, Inc., Mid
Atlantic Medical Services, Inc., Oxford Health Plans, RightCHOICE Managed Care,
Sierra Health Services Inc., Trigon Healthcare, Inc., United American Healthcare
Corp., United Wisconsin Services and WellCare Management Group. For each of the
Comparable Companies, Morgan Stanley calculated (based on market information as
of June 9, 1998, the latest publicly available reports filed with the
Commission, and estimates of earnings per share and five-year projected growth
rates based on First Call Corporation ("First Call") estimates as of June 9,
1998), among other things: (i) price to next twelve months earnings ratio; and
(ii) price to estimated calendar year 1998 earnings ratio to similar statistics
for the Comparable Companies. Morgan Stanley then applied these multiples to
corresponding financial data for Cerulean, which were based on certain financial
projections prepared by the management of Cerulean (the "Cerulean Financial
Forecast"), resulted in a range of possible equity values of $233,000,000 to
$369,000,000 in the aggregate for Cerulean.

In addition, Morgan Stanley compared as of June 9, 1998, among other
things, Cerulean's latest twelve months and estimated fiscal 1998 margins (based
on the latest publicly available 10-Ks and 10-Qs and the Cerulean Financial
Forecast) to similar statistics for the Comparable Companies. A comparison of
margins included, among other things, margins for latest twelve months Medical
Loss Ratio, latest twelve months earnings before interest, taxes, depreciation
and amortization ("EBITDA"), and latest twelve months net income. Morgan Stanley
observed that the margins for Cerulean were slightly worse than the median of
similar statistics for the Comparable Companies.

No company utilized in the comparable companies analysis is identical to
Cerulean. In evaluating comparable companies, Morgan Stanley made judgments and
assumptions with regard to industry perform-

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ance, general business, economic, market and financial conditions and other
matters, many of which are beyond the control of Cerulean, such as the impact of
competition on the business of Cerulean and the health care industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of Cerulean or the industry or in the financial markets
in general. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data.

Precedent Transactions Analysis. Morgan Stanley reviewed certain publicly
available information regarding 21 selected change of control business
combinations in the managed care industry (the "Comparable Transactions"). The
Comparable Transactions included the acquisition of HMO America by United
Healthcare; the acquisition of Ramsay by United Healthcare; the acquisition of
TakeCare by FHP International Corp.; the acquisition of CareFlorida by
Foundation Health; the acquisition of Intergroup by Foundation Health; the
acquisition of GenCare by United Healthcare; the acquisition of Provident's
healthcare lines by Healthsource; the acquisition of MetraHealth by United
Healthcare; the acquisition of Emphesys Financial by Humana; the acquisition of
the group life and health subsidiary of Massachusetts Mutual Life Insurance
Company by WellPoint; the acquisition of HealthWise by United Healthcare; the
acquisition of U.S. Healthcare by Aetna; the acquisition of FHP International
Corp. by PacifiCare; the acquisition of Foundation Health by Health Systems
International; the acquisition of the Group Benefits operations of John Hancock
Mutual Life Insurance Company by WellPoint; the acquisition of Healthsource by
CIGNA; the acquisition of Physicians Health Services by Foundation Health
Systems; the acquisition of Physician Corporation of America by Humana; the
acquisition of ChoiceCare by Humana; the acquisition of NYLCare by Aetna and the
formerly pending acquisition of Humana by United Healthcare. For each of the
Comparable Transactions, Morgan Stanley calculated equity value paid for the
acquired company as a multiple of, among other things, (i) next twelve months
earnings; (ii) next fiscal year earnings (based on First Call estimates); and
(iii) the premium paid above the market price of each acquired company's stock
price one day prior to the announcement of the transaction. Morgan Stanley then
applied these multiples to corresponding financial data for Cerulean (based on
the Cerulean Financial Forecast and the Comparable Company Analysis) resulted in
a range of possible equity values of $295,000,000 to $456,000,000 in the
aggregate for Cerulean.

No transaction utilized in the precedent transactions analysis is identical
to the Merger. In evaluating precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Cerulean and WellPoint, such as the impact of competition
on the business of Cerulean and WellPoint and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of Cerulean or WellPoint or the industry or in the financial
markets in general. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transaction
data.

Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analyses of Cerulean to determine a range of present values for Cerulean
based on the Cerulean Financial Forecast. Unlevered free cash flow was
calculated as the after-tax operating earnings of Cerulean (excluding any
interest income and interest expense) plus depreciation and amortization, plus
(or minus) net changes in non-cash working capital, minus projected capital
expenditures. Morgan Stanley calculated terminal values by applying a range of
multiples to net income in fiscal 2003 from 12.0x to 14.0x. The unlevered free
cash flows and terminal values were then discounted to present values using a
range of discount rates from 12.5% to 14.5%. Based on this analysis and the
assumptions set forth above, Morgan Stanley calculated a range of possible
equity values of $260,000,000 to $308,000,000 in the aggregate for Cerulean.

Comparable Companies Trading Analysis. As part of its analysis, Morgan
Stanley reviewed the recent stock price performance of WellPoint and compared
such performance with that of the Morgan Stanley HMO Payor Index and the S&P
400. Morgan Stanley also reviewed selected publicly available research analysts'
reports regarding WellPoint. In addition, Morgan Stanley compared the actual
quarterly earnings for WellPoint versus the First Call median analysts'
expectations as of the day of the earnings announcement and the First Call
median analysts' expectations as of the day six months prior to the earnings
announcement.
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Morgan Stanley observed that over the period from January 31, 1997 to June 9,
1998, the market price of WellPoint appreciated approximately 97% compared with
an approximate appreciation of 31% and 41% for the Morgan Stanley HMO Payor
Index and the S&P 400, respectively. Morgan Stanley also noted that the selected
research analysts' price targets for the WellPoint Stock were all higher than
the WellPoint market price at the time of their respective research reports.
Morgan Stanley also observed that over the period from first quarter 1996 to
first quarter 1998, with the exception of the first quarter 1998 actual earnings
versus the First Call median analysts' expectations as of the day six months
prior to the earnings announcement, WellPoint's actual earnings were equal to or
higher than the First Call median analysts' expectations as of the day of the
earnings announcement and the First Call median analysts' expectations as of the
day six months prior to the earnings announcement.

No company utilized in the Comparable Companies trading analysis is
identical to WellPoint. In performing the Comparable Companies trading analysis,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of WellPoint, such as the
impact of competition on the business of WellPoint and the industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of WellPoint or the industry or in the financial markets
in general. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data.

Contribution Analysis. Morgan Stanley analyzed the pro forma contribution
of each of Cerulean and WellPoint to the combined company. Such analysis
included relative contributions of revenue, net income and membership at various
time periods, as well as the review of a publicly available research report
regarding WellPoint (the "WellPoint Financial Forecast"), which Morgan Stanley
advised the senior management of WellPoint it would be using in performing its
analysis. Such analysis showed that, based upon the WellPoint Financial Forecast
and the Cerulean Financial Forecast, Cerulean's fiscal 1998 contribution would
be approximately 21.3% of projected revenues, 5.6% of projected net income and
14.7% of projected membership. These contribution percentages did not take into
account any assumptions regarding synergies or cost savings from the Merger, nor
did they take into account any purchase accounting adjustments or changes in
capital structure as a result of the Merger. Morgan Stanley observed that the
aforementioned contribution percentages for Cerulean would compare to Cerulean's
pro forma common stock ownership of approximately 9.9% (assuming that the Merger
consideration was comprised entirely of shares of WellPoint Stock).

Pro Forma Analysis of the Merger. Morgan Stanley performed certain pro
forma analyses of the Merger on the earnings per share, capitalization and other
financial ratios of the combined company. These analyses were based on the
WellPoint Financial Forecast, the Cerulean Financial Forecast and estimates of
synergies.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley Opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Cerulean.

In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Cerulean and WellPoint.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness of the consideration to be received by the
holders of shares of Class A Stock, Series A Stock and Class B Stock pursuant to
the Merger Agreement from a financial point of view to such holders and were
provided to the Cerulean Board of Directors in connection with the delivery of
the Morgan Stanley Opinion. The analyses do not purport to be appraisals or to
reflect the prices at which Cerulean might actually be sold. In addition, as
described above, the

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Morgan Stanley Opinion was one of many factors taken into consideration by the
Cerulean Board of Directors in making its determination to approve the Merger.
The consideration to be paid pursuant to the Merger Agreement was determined
through arm's-length negotiations between Cerulean and WellPoint and was
approved by the Cerulean Board of Directors. Morgan Stanley did not recommend
any specific consideration amount to Cerulean or that any consideration amount
constituted the only appropriate consideration amount for the Merger.
Consequently, the Morgan Stanley analysis described above should not be viewed
as determinative of whether the Cerulean Board of Directors would have agreed to
a different consideration amount.

Cerulean retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. Morgan Stanley makes a
market in WellPoint Stock and may continue to provide investment banking
services to the combined entity in the future. In the course of its
market-making and other trading activities, Morgan Stanley may, from time to
time, have a long or short position in, and buy and sell the debt or equity
securities and senior loans of WellPoint. Morgan Stanley has also acted as the
co-lead underwriter and as a member of the lead group of underwriters in public
offerings of WellPoint Stock for which it received fees. Morgan Stanley and its
affiliates have, in the past, provided financial advisory services to Cerulean
and WellPoint and their affiliates and have received fees for the rendering of
such services.

Pursuant to a letter agreement dated October 31, 1997 between Cerulean and
Morgan Stanley, Cerulean has agreed to pay Morgan Stanley a fee for its
financial advisory services in connection with the business combination.
Cerulean has agreed to pay Morgan Stanley: (i) a transaction fee (the
"Transaction Fee") of $5.4 million to be paid if the Merger is successfully
completed and (ii) a quarterly advisory fee ("Advisory Fees") of $250,000
throughout the engagement. The last two quarters (prior to Closing) of any
Advisory Fees paid will be credited against the Transaction Fee. In addition,
Cerulean has agreed to reimburse Morgan Stanley for its expenses related to the
engagement and to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities, including
liabilities under federal securities laws, and expenses, related to or arising
out of Morgan Stanley's engagement and the transactions in connection therewith.

CLOSING; EFFECTIVE TIME OF THE MERGER

The Closing will take place no later than the date which is 30 days after
the satisfaction or waiver of the conditions to be fulfilled at or prior to the
Effective Time set forth in the Merger Agreement (the "Closing Date"), unless
another date is agreed to by WellPoint and Cerulean. On the Closing Date,
WellPoint and Cerulean will file Certificates of Merger (the "Certificates of
Merger") with the Secretaries of State of Delaware and Georgia. The Effective
Time will occur at the time of filing of the Certificates of Merger, or at such
subsequent date or time as WellPoint and Cerulean will agree and specify in the
Certificates of Merger. It is anticipated that, assuming all conditions are met,
the Merger will occur prior to December 31, 1998. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- Conditions to the Consummation of the Merger."

CONSIDERATION TO BE RECEIVED IN THE MERGER

The Merger Agreement provides for an aggregate amount of Merger
Consideration of $500 million, subject to certain adjustments as provided in the
Merger Agreement. Pursuant to the Merger Agreement, holders of each of the Class
B Stock and the Class A Stock receive a portion of the aggregate Merger
Consideration according to exchange ratios which, pursuant to their formulas,
make an aggregate allocation of Merger Consideration among (i) the holders of
Class B Stock, on the one hand, and (ii) the holders of Class A Stock, Series A
Stock and any Cerulean Rights into which the shares of Series A Stock are
converted, on the other hand. The Series A Stock and any Cerulean Rights will be
newly issued securities of Cerulean to be held by the Foundation pursuant to the
terms of the Settlement. The exchange ratios are based upon the
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conversion provisions of Article IV of the Articles of Incorporation of
Cerulean. Pursuant to the Class A Stock exchange ratio, holders of Class A
Stock, Series A Stock and Cerulean Rights will receive an aggregate amount of
approximately $389 million of cash or an equivalent value of WellPoint Stock in
the Merger assuming no adjustment to the aggregate Merger Consideration. Other
than the Foundation (which is currently expected to become a shareholder prior
to the Effective Time), all holders of Class A Stock were subscribers of Georgia
Blue during the conversion period who received their Class A Stock as a part of
the Conversion. Assuming the final settlement of the Conversion Litigation is
identical to the terms of the Settlement, a cashless exercise of the Warrants
and no adjustments to the aggregate Merger Consideration, the Foundation will
receive approximately $83.5 million in cash or an equivalent value of WellPoint
Stock, and the remaining $305.5 million will be distributed to all other holders
of Class A Stock. This results in a value for each share of Class A Stock in the
Merger of approximately $ per share, or $ for each five shares of
Class A Stock. Pursuant to the exchange ratios, the holders of Class B Stock
will receive an aggregate amount of approximately $111 million of WellPoint
Stock assuming no adjustment to the aggregate Merger Consideration. Holders of
Class B Stock are not entitled to receive cash in the Merger.

Merger Consideration to be Received by Holders of Class A Stock in the Merger

Merger Consideration to be Received by Holders of Historical Class A Stock
in the Merger. At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Class A Stock issued and
outstanding as of the date of the Merger Agreement (the "Historical Class A
Stock"), each share of Historical Class A Stock will be converted into the right
to receive either (i) or (ii) below. All of the Historical Class A Stock is held
by holders of Class A Stock whose shares of Class A Stock were a part of the
Conversion and were the subject of the offering by Cerulean pursuant to its
prospectus dated May 14, 1996. Each share of Historical Class A Stock will be
converted into the right to receive either:

(i) a number of shares of WellPoint Stock equal to $
(assuming no adjustment to the Merger Consideration) divided by the average
closing price per share for WellPoint Stock, as traded on the NYSE for the
20 business days immediately prior to the day that is two business days
prior to the Closing (the "Closing Price") (the "Class A Exchange Ratio"),
or

(ii) cash in an amount equal to $ (assuming no adjustment to
the Merger Consideration) (the "Cash Election Price"); provided, however,
that no more than shares of the Historical Class A Stock
will be converted into the right to receive the Cash Election Price.

A holder of Historical Class A Stock will be entitled to receive cash for
such holder's Historical Class A Stock only if the holder has elected to receive
cash for all of such holder's Historical Class A Stock. Notwithstanding this
provision, however, if holders of Historical Class A Stock, in the aggregate,
elect to convert more than shares of Historical Class A Stock into the
Cash Election Price, each such electing holder's cash election will be reduced
on a pro rata basis, and such holder's shares exceeding his or her pro rata
portion will be converted into shares of WellPoint Stock according to the Class
A Exchange Ratio.

Holders of Historical Class A Stock who want to elect cash consideration
will be able to make such an election in connection with the solicitation of
proxies to approve the Merger. If a holder of Historical Class A Stock does not
elect to receive cash, each share of Historical Class A Stock of such holder
will be converted into WellPoint Stock according to the Class A Exchange Ratio.

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Merger Consideration to be Received by Holders of New Stock in the Merger

At the Effective Time, by virtue of the Merger and without any action
on the part of the holder of any outstanding shares of Class A Stock issued
after the date of the Merger Agreement or of shares of Series A Stock, and of
each outstanding Cerulean Right (collectively, such shares of Class A Stock and
the Series A Stock and Cerulean Rights are hereinafter referred to as the "New
Stock"). Holders of New Stock are the Foundation and any transferee of shares of
New Stock received by the Foundation pursuant to the Settlement. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Settlement of Cerulean Conversion
Litigation." Each issued and outstanding share or unit of such New Stock will be
converted into the right to receive either:

(i) a number of shares of WellPoint Stock equal to the Class A
Exchange Ratio, or

(ii) cash in an amount equal to the Cash Election Price, provided,
however, that no more than shares or units of New Stock will be
converted into the right to receive the Cash Election Price; and provided
further, however, that if holders elect to convert less than
shares of Historical Class A Stock into the Cash Election Price, then the
number of shares or units of New Stock which may be converted into the
right to receive the Cash Election Price will be adjusted upward by an
equal number of shares or units.

If holders of New Stock, in the aggregate, elect to convert more than the
number of shares or units of New Stock specified above into the Cash Election
Price, each such electing holder's cash election will be reduced on a pro rata
basis, and such holder's shares or units exceeding his or her pro rata portion
will be converted into shares of WellPoint Stock equal to the Class A Exchange
Ratio.

Holders of New Stock will be entitled to elect to receive cash for all or a
portion of such New Stock expressed in whole shares of Class A Stock or Series A
Stock or whole units of Cerulean Rights.

Holders of New Stock who want to elect cash consideration should make such
an election through an election mechanism to be provided to them by Cerulean in
connection with the consummation of the Merger. If a holder of New Stock does
not elect to receive cash, each share or unit of such holder's New Stock will be
converted into WellPoint Stock according to the Class A Exchange Ratio.

Merger Consideration to be Received by Holders of Class B Stock in the Merger

At the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Class B Stock, each share of Class B
Stock will, by virtue of the Merger and without any action of the part of the
holder thereof, be converted into the right to receive a number of shares of
WellPoint Stock equal to approximately $2,230 divided by the Closing Price (the
"Class B Exchange Ratio").

Cash Holdback

Notwithstanding any other provision of the Merger Agreement, in the event
that Cerulean and its legal counsel, in consultation with counsel to WellPoint,
determine that the cash which would otherwise be paid to holders of Outstanding
Cerulean Shares (as defined below) under the Merger Agreement, when combined
with other cash payable or potentially payable in connection with a proceeding
brought by a dissenting shareholder or otherwise in connection with the Merger
or the transactions contemplated under the Merger Agreement, would jeopardize
the Merger qualifying as a reorganization under Section 368(a) of the Code,
WellPoint, at the direction of Cerulean, will reserve payment of a portion of
the cash consideration otherwise payable to such holders on a pro rata basis
(the "Cash Holdback") until such time as Cerulean reasonably determines that the
payment of the Cash Holdback would not jeopardize the Merger qualifying as a
reorganization under Section 368(a) of the Code. In the event Cerulean
ultimately determines that payment of all or a portion of the Cash Holdback
cannot be made without unduly jeopardizing the qualification of the Merger as a
reorganization under Section 368(a) of the Code, such holders will be paid in
shares of WellPoint Stock (pursuant to the Class A Exchange Ratio) in lieu of
payment of all or a portion of the Cash Holdback. "Outstanding Cerulean Shares"
means each issued and outstanding share of Class A Stock or Class B Stock,
Series A Stock and each unit of Cerulean Rights, other than shares of Class A
Stock or Class B Stock as to

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<PAGE> 59

which a demand for fair value has been validly made and perfected under the GBCC
("Cerulean Dissenting Shares").

TREATMENT OF FRACTIONAL SHARES

No certificates representing fractional shares of WellPoint Stock will be
issued in connection with the Merger. In lieu of any such fractional share, each
holder of Outstanding Cerulean Shares who would otherwise have been entitled to
a fractional share of WellPoint Stock will be paid an amount of cash equal to
such fraction multiplied by the Closing Price. Notwithstanding anything to the
contrary, in the event that Cerulean and its legal counsel, after consultation
with counsel for WellPoint, determine that the payment of cash for such
fractional share interests would jeopardize the treatment of the Merger as a
reorganization under Section 368 of the Code, Cerulean will be entitled to
require that WellPoint issue to shareholders electing to receive cash ("Electing
Holders") a whole share of WellPoint Stock in lieu of a cash payment for such
fractional share, in which case an amount equal to the difference between the
Closing Price and the cash value of the fractional share interest will be
subtracted from the cash consideration to be paid to such Electing Holders.

PROCEDURES FOR ELECTION AND RECEIPT OF MERGER CONSIDERATION

Holders of Class A Stock

Each holder of Class A Stock other than the Foundation has received a proxy
card with this Proxy Statement/Prospectus. In order to receive the Merger
Consideration, each holder of Class A Stock must complete the W-9 portion of the
proxy card and return the completed proxy card to the Exchange Agent. After
consummation of the Merger, the Exchange Agent will deliver a certificate
representing the number of whole shares of WellPoint Stock into which the shares
of Class A Stock owned by the holder have been converted and, if appropriate,
cash in the amount equal to the Cash Election Price and cash in lieu of
fractional shares pursuant to the terms of the Merger Agreement and in
accordance with the W-9 certification on the proxy card, together with any
dividends or other distributions to which such holder is entitled.

In order to receive cash, a holder of Class A Stock must complete the W-9
certification with the cash election box appropriately checked and return the
proxy card in its return envelope so that it is received prior to or at the
Meeting. If dividends or distributions are declared by WellPoint on WellPoint
Stock after the Effective Time, such dividends or distributions will be payable
on all shares of WellPoint Stock issued and outstanding, including those with
respect to which no W-9 certification has been delivered. However, no dividends
or distributions will be paid to any holder of Class A Stock who is to receive
WellPoint Stock until the W-9 certification has been received. After
consummation of the Merger, upon delivery of such W-9 certification, or as soon
as practicable thereafter, all dividends or distributions which have become
payable with respect to shares of WellPoint Stock between the Effective Time and
the date of delivery of the W-9 certification will be paid, without interest
thereon and less the amount of taxes, if any, required to be withheld or paid
thereon by WellPoint.

Holders of Class B Stock

As soon as practicable after the Effective Time, a Transmittal Letter will
be mailed by the Exchange Agent to each holder of outstanding shares of Class B
Stock, informing those holders of the procedures to follow in forwarding stock
certificates representing their shares of Class B Stock to the Exchange Agent.
Upon receipt of a certificate representing Class B Stock ("Cerulean
Certificates"), the Exchange Agent will deliver a certificate(s) representing
the number of whole shares of WellPoint Stock into which the shares represented
by the holders of Cerulean Certificates or a Transmittal Letter have been
converted and cash in lieu of fractional shares pursuant to the terms of the
Merger Agreement and in accordance with the Transmittal Letter, together with
any dividends or other distributions to which such holder is entitled.

Notwithstanding the foregoing, no holder of any Cerulean Certificate will
receive any certificates representing WellPoint Stock or a cash payment until
surrender of the holder's Cerulean Certificates (if any) to the Exchange Agent.
After the Effective Time, each Cerulean Certificate representing shares
converted

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<PAGE> 60

into the right to receive WellPoint Stock will represent ownership of the number
of shares of WellPoint Stock which the holder of the Cerulean Certificate will
be entitled to receive. Whenever a dividend or distribution is declared by
WellPoint on WellPoint Stock after the Effective Time, such dividends or
distributions will be payable on all shares of WellPoint Stock issued and
outstanding. However, no dividends or distributions will be paid to any holder
of Class B stock until the Cerulean Certificates representing such shares,
pursuant to the Transmittal Letter, have been surrendered to the Exchange Agent.
Upon delivery of such Cerulean Certificates or as soon as practicable
thereafter, all dividends or distributions which have become payable with
respect to shares of WellPoint Stock represented by such surrendered Cerulean
Certificates between the Effective Time and the date of delivery of such
Cerulean Certificates will be paid, without interest thereon and less the amount
of taxes, if any, required to be withheld or paid thereon by WellPoint.

LOST, STOLEN OR DESTROYED CERTIFICATES

Holders of Class B Stock who are unable to furnish certificates for their
shares of Class B Stock will be required to furnish an affidavit of loss in
place of the lost, stolen or destroyed Cerulean Certificate, which will be used
as the basis upon which WellPoint will deliver the WellPoint Stock to be
received by such holder of Class B Stock.

The registration notifications which were previously furnished to holders
of Class A Stock in connection with the Conversion will not be required to be
furnished as evidence of ownership and therefor no affidavit of loss will be
required in connection with Class A Stock. Instead, holders of Class A Stock
will be required by the proxy card to certify their ownership to the Exchange
Agent.

At the Effective Time, the stock transfer books of Cerulean will be closed,
and no transfers of shares of Class A Stock, Class B Stock, or Series A Stock or
units of Cerulean Rights will thereafter be made.

REGULATORY APPROVALS; APPROVAL OF BCBSA

It is a condition to the parties' respective obligations to consummate the
Merger that any waiting period applicable to the Merger under the HSR Act will
have expired or earlier termination thereof will have been granted, the consent
of the Georgia Commissioner, together with any other state regulatory consents,
will have been obtained, and the approval of the BCBSA of the consummation of
the transactions contemplated by the Merger Agreement will have been obtained.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the
Consummation of the Merger."

U.S. Antitrust Filing

Under the HSR Act and the rules and regulations promulgated thereunder,
certain transactions, including the Merger, may not be consummated unless
certain waiting period requirements have expired or been terminated. On August
25 and on August 26, 1998, respectively, each of WellPoint and Cerulean filed a
Pre-merger notification and Report Form pursuant to the HSR Act with the Justice
Department and the FTC. Under the HSR Act, the Merger may not be consummated
until 30 days after the initial filing (unless early termination of this waiting
period is granted) or, if the Justice Department or the FTC issues a Request for
Documents and Other Additional Information (a "Second Request"), 20 days after
WellPoint and Cerulean have substantially complied with such a Second Request
(unless this period is shortened pursuant to a grant of early termination). At
any time before the Effective Time, the FTC, the Justice Department or others
could take action under the antitrust laws with respect to the Merger, including
seeking to enjoin the consummation of the Merger, to rescind the Merger, or to
require the divestiture of certain assets of WellPoint or Cerulean. There can be
no assurance that a challenge to the Merger on antitrust grounds will not be
made or, if such a challenge is made, that it would not be successful.

Georgia Commissioner

Pursuant to the Georgia Insurance Code, and in order to consummate the
Merger, the Georgia Commissioner must approve the change of control of Cerulean.
To accomplish this, WellPoint must file a so-called Form A, as required by the
Georgia Insurance Code, with the Georgia Department of Insurance. Under
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the Georgia Insurance Code and regulations promulgated thereunder, Cerulean is
required to forward a copy of the Form A filing to all shareholders of Cerulean.
As permitted by the Georgia Insurance Code, this Proxy Statement/Prospectus will
be used to satisfy many of the informational requirements of the Form A filing.
The Georgia Insurance Code requires that a public hearing be held within thirty
(30) days after the Form A filing is deemed complete by the Georgia
Commissioner, with the insurer being obligated to give notice of the hearing to
its shareholders. The Georgia Commissioner is obligated to make a determination
with respect to the proposed change of control within thirty (30) days after the
conclusion of the public hearing. The Georgia Insurance Code provides that the
Georgia Commissioner shall approve the change of control unless the Georgia
Commissioner finds that (i) following the transaction, Cerulean's regulated
subsidiaries would be unable to satisfy requirements for the issuance of
insurance licenses; (ii) the Merger would substantially lessen competition or
create a monopoly; (iii) the financial condition of WellPoint might jeopardize
the financial condition of Cerulean or its subsidiaries or prejudice the
interest of policyholders or remaining securityholders who are unaffiliated with
WellPoint; (iv) the Merger is unfair and unreasonable to securityholders of
Cerulean; (v) plans of WellPoint regarding the business, assets, structure or
management of Cerulean are unfair and unreasonable to policyholders of insurance
subsidiaries of Cerulean (including Georgia Blue) and not in the public
interest; or (vi) permitting the Merger would not be in the interest of
policyholders of insurance subsidiaries of Cerulean (including Georgia Blue) and
the public because of the competence, experience and integrity of the persons
who would control the operations of Cerulean after the Merger. WellPoint and
Cerulean anticipate that the Form A will be filed on or about , 1998;
no time for the public hearing has been set and it is not possible to estimate
when such hearing will be held.

Other State and Federal Approvals and Notices

Several additional state regulatory filings are required due to the change
in control of GGL that will occur upon consummation of the Merger. Pursuant to
the Tennessee Insurance Code (the "Tennessee Code") and the South Carolina
Insurance Code (the "S.C. Code"), WellPoint must file a notification with the
Commissioner of Commerce and Insurance of the State of Tennessee (the
"Commissioner") and the Director of the Department of Insurance of the State of
South Carolina (the "Director"), respectively, prior to the consummation of the
Merger. Upon receipt of such notifications, the Commissioner and the Director
may assess the effects, if any, that the Merger will have on competition in
their respective states. If the Commissioner or the Director finds substantial
evidence that the effect of the Merger may be to lessen competition
substantially in a line of insurance or to create a monopoly in their respective
states, as determined by standards set forth in the Tennessee Code and the S.C.
Code, respectively, the Commissioner or the Director may issue an order limiting
the amount or types of business that can be conducted by GGL in Tennessee or
South Carolina, respectively.

In addition to the filings described above, Cerulean will file
notifications of the Merger with the Insurance Departments of Alabama,
Mississippi and North Carolina. Neither hearings nor approvals are required
pursuant to these filings.

In addition, HCFA must approve the transfer of control of certain Georgia
Blue programs effected by the Merger.

Blue Cross Blue Shield Association

Pursuant to the bylaws of BCBSA, a change of control of any Blue Cross Blue
Shield licensee, such as the change of control of Cerulean and Georgia Blue
which will be effected by the Merger, requires the approval of the BCBSA. The
process for obtaining approval is initiated by the entity seeking a license.
Thereafter, BCBSA considers the application and action is taken by its board of
directors within 90 days of the filing of the application. Representatives of
WellPoint and Cerulean have discussed the application with representatives of
BCBSA. At the present time, WellPoint and Cerulean anticipate that required
approvals will be obtained.

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MERGER SUB

Merger Sub, a Delaware corporation which is wholly owned by WellPoint, was
incorporated by WellPoint solely to effect the Merger and has not carried on any
activities to date other than those incident to its formation and the
transactions contemplated by the Merger Agreement. At the Effective Time,
Cerulean will merge into Merger Sub with Merger Sub continuing as the Surviving
Corporation and changing its name to "Cerulean Companies, Inc."

Because Merger Sub is an acquisition vehicle established solely to
consummate the Merger, it does not have any executive officers other than
Leonard D. Schaeffer, who has been appointed as President, and Thomas C. Geiser,
who has been appointed as Secretary and Treasurer, in order to effect the
consummation of the Merger. WellPoint expects that Messrs. Schaeffer and Geiser
will continue as officers of the Surviving Corporation (as defined herein) after
the Merger. In addition, certain other persons, to be determined prior to the
Merger, are expected to become officers of Merger Sub and will continue as
officers of the Surviving Corporation (as defined herein) after the Merger.

Messrs. Schaeffer and Geiser currently serve as the directors of Merger
Sub. Mr. Schaeffer will continue to serve as a director of the Surviving
Corporation following the Merger. It is anticipated that Mr. Geiser will resign
from his position as director of Merger Sub immediately prior to the Merger. In
addition, certain other persons, to be determined prior to the Merger, are
expected to become directors of Merger Sub and will continue as directors of the
Surviving Corporation after the Merger.

LISTING OF WELLPOINT STOCK ON THE NEW YORK STOCK EXCHANGE

WellPoint Stock is currently listed on the NYSE under the symbol "WLP".
Application is being made to list the shares of WellPoint Stock to be issued in
the Merger on the NYSE. The listing on the NYSE of the shares of WellPoint Stock
to be issued in the Merger is a condition to the consummation of the Merger. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Conditions to the Consummation of
the Merger."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Cerulean Board of Directors,
Cerulean shareholders should be aware that, as described below, certain members
of Cerulean's management and the Cerulean Board of Directors may have interests
in the Merger that are different from, or in addition to, the interests of
Cerulean shareholders generally, and that may create potential conflicts of
interest.

Payments to Management Resulting from the Merger

Consummation of the Merger triggers certain obligations of Cerulean to make
payments to some members of management of Cerulean or to make contributions to a
trust on behalf of some members of management. These payments and contributions
are attributable to plans and individual agreements that have been adopted by
Cerulean for these members of management. Each of the named executive officers
of Cerulean will participate in the payments made under these plans and
arrangements. The Merger Agreement also provides for certain adjustments to be
made to the Aggregate Merger Price (as defined in the Merger Agreement) in
connection with such benefit obligations of Cerulean. Specifically, the Merger
Agreement provides for adjustment to the Aggregate Merger Price in the event
Cerulean is successful in obtaining a favorable private letter ruling prior to
the closing from the Internal Revenue Service (the "Service") with respect to
certain excise tax obligations potentially payable in connection with such
benefits, and provides for a downward adjustment in the Aggregate Merger Price
in the event certain of such benefit obligations exceed target levels estimated
by Cerulean and WellPoint. At the present time, Cerulean is considering whether
to file a request for such ruling. These possible adjustments are more fully
described in "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Covenants of the
Parties-Adjustments to the Merger Price."

Cerulean and WellPoint estimate that, upon consummation of the proposed
Merger, (i) the total amount payable to participants of Cerulean's Performance
Unit Plan (the "PUP," as described more fully below) will

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<PAGE> 63

be approximately $27,890,000, (ii) the amount necessary to fund Georgia Blue's
Supplemental Executive Retirement Plan (the "SERP," as described more fully
below) and an agreement with Richard D. Shirk to provide him a nonqualified
retirement benefit to supplement the benefit provided to him under the
Retirement Plan (defined below) (the "RDS SERP," as described more fully below)
will be approximately $12,385,515, and (iii) the excise tax, including gross-up,
on these amounts may be as much as $13,991,290. Accordingly, the total cost of
the obligations under these arrangements payable in consequence of the
consummation of the Merger to some 240 members of Cerulean's and Georgia Blue's
management who are participants, including excise taxes and gross-up, has been
estimated to be as much as $54,266,805. The following assumptions have been used
in order to provide a conservative estimate of the total cost of these
obligations: (i) an interest rate of 4.25% for calculating present values for
purposes of the funding obligation under the SERP and the RDS SERP, (ii) a per
unit value of $50.00 for calculating the obligation under the PUP, and (iii) an
individual tax rate of 45%. This amount does not include certain annual bonuses
which may be accelerated as a result of the consummation of the Merger. Under
the Merger Agreement, Cerulean has the right to file a request with the Service
for a ruling on whether excise taxes will apply to certain payments and
contributions required upon consummation of the proposed Merger. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Covenants of the Parties -- Adjustments to
the Merger Price." No director other than Mr. Shirk, the Chief Executive Officer
of Cerulean, is a participant in these plans.

A description of the plans and agreements and the payments resulting from
the Merger follows.

Performance Unit Plan. On July 30, 1997, the Compensation Committee of the
Board of Directors of Cerulean adopted the PUP, effective February 2, 1996,
which was designed to replace the Cerulean Long-Term Incentive Plan. The
objective of the PUP was to provide a reward to management for the growth in
value of Cerulean. The PUP is administered by the Cerulean Compensation
Committee and provides that the Compensation Committee will award up to an
aggregate of one million units to designated key employees. The terms of the PUP
established a beginning value of Cerulean of $221,100,000, as determined as of
February 2, 1996, and, under the PUP, a beginning unit value of $22.11. Under
the PUP, participants become vested in their units upon the occurrence of the
earliest of a "Change in Control" of Cerulean, the participant's death,
disability or retirement under the Cerulean tax-qualified retirement plan, the
end of a Measurement Period (as defined in the PUP) or December 31, 1999. The
term "Measurement Period" is defined in the PUP as the period beginning on
February 2, 1996 and ending on the date when Cerulean's value is first
determinable, i.e., upon a market event that creates a definite value and
results in liquidity. The Cerulean Board is granted authority to determine when
such a market event has occurred, until such time as Cerulean's common stock is
listed or traded on a recognized United States exchange. Payments are to be made
at the end of the Measurement Period; provided, that if a Change in Control of
Cerulean (as defined in the PUP) occurs first, payment is to be made as soon as
practical thereafter. A "Change in Control" is defined in the PUP to include (i)
an acquisition of 50% or more of Cerulean's voting stock; (ii) the termination
of a majority of the members of the Cerulean Board of Directors within a
two-year period without certain approvals; (iii) the approval by the Cerulean
shareholders of any merger, consolidation or share exchange of the voting stock,
a liquidation of the Company or any sale of 50% of Cerulean's assets or earning
power; or (iv) the approval by the Cerulean shareholders of any merger,
consolidation or share exchange which would result in the persons who were
shareholders immediately before such transaction having beneficial ownership of
less than 50% of the voting securities. Under this definition, the shareholders'
approval of the proposed Merger will constitute a Change in Control for purposes
of the PUP.

In order for any amount to be payable under the PUP, the value of Cerulean
must have increased sufficiently from the beginning unit value to meet the
performance hurdle established under the PUP, which is the average yield of
One-Year Treasury Bills (as specified in The Wall Street Journal on the
published date nearest to the end of each quarter for the preceding year),
compounded over the Measurement Period. Assuming that the value exceeds the
performance hurdle, payment is to be made in the amount of the difference
between the beginning unit value and the unit value at the end of the
Measurement Period multiplied by the number of units awarded. Payment is to be
made in cash, Cerulean stock or any combination of the two, subject to
withholding for taxes. Payment is to be made as soon as practicable after the
end of the

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<PAGE> 64

later of (i) when vesting occurs or (ii) the end of a Measurement Period. The
Merger establishes a value that satisfies the performance hurdle.

Unit awards have been granted to 240 key employees of Cerulean. Awards to
the named executive officers of Cerulean and the amounts that become payable to
them under the PUP due to the Merger, assuming the purchase price of
$500,000,000 (and therefore an ending unit value of $50.00; $50.00-$22.11 =
$27.89 per unit), are as follows: Richard D. Shirk -- 138,000 units, $3,848,829;
Raymond J. Colleran -- 58,000 units, $1,617,620; John A. Harris -- 67,000 units,
$1,868,630; Mark Kishel -- 55,000 units, $1,533,950; and R. Neil
Vannoy -- 58,000 units, $1,617,620. The total of all payments under the PUP
(1,000,000 units) is $27,890,000. The total of all payments under the PUP to key
employees other than the named executive officers (624,000 units) is
$17,403,360.

Blue Cross and Blue Shield of Georgia, Inc. Supplemental Executive
Retirement Plan. Effective as of July 1, 1996, Georgia Blue adopted the SERP to
provide additional, nonqualified retirement benefits to a designated group of
management employees. The SERP is administered by Georgia Blue's Compensation
Committee and is designed as a supplement to the Non-Contributory Retirement
Program for Certain Employees of Georgia Blue (the "Retirement Plan").
Participants are recommended by the Chief Executive Officer of Georgia Blue and
designated by the Compensation Committee. In general, each participant in the
SERP becomes entitled to receive a retirement benefit equal to the difference
between (A) and (B) where (A) equals the benefit that the participant would be
entitled to under the Retirement Plan calculated as if the participant were
credited with two years of service for each year of actual service (up to a
maximum of 30 years) and without application of the compensation or annual
additions limitations imposed under Sections 401(a)(17) and 415 of the Code, and
(B) equals the sum of the participant's vested accrued benefit under the
Retirement Plan and his vested accrued benefit under the Blue Cross and Blue
Shield of Georgia, Inc. Executive Restoration Plan and any other nonqualified
defined benefit plan sponsored by Georgia Blue or any affiliate which pertains
to the same periods of service.

Benefits under the SERP generally become payable upon the participant's
termination of employment due to disability or retirement after reaching age 55
and completing five years of service. Payments may be made in a lump sum or any
form offered under the Retirement Plan. If payment commences before the
participant's attainment of age 65, the benefit amount will be subject to a
reduction of 0.25% for each month by which payment precedes the first day of the
month coinciding with or next following the participant's attainment of age 62.

The SERP provides that if a participant is terminated from employment
within one year following a Change in Control (as defined below) for reasons
other than death, disability, voluntary termination for "Good Reason" (as
defined below) or dismissal for "Just Cause" (as defined below) the participant
becomes vested and entitled to receive all benefits accrued under the SERP as of
the date of such termination. In this instance, payment is to be made as of the
later of the first day of the month following the termination of employment or
the first day of the month following the participant's 55th birthday.

The SERP contains a definition of "Change in Control" that is similar to
that contained in the PUP, and the approval by shareholders of the Merger will
meet the definition of a Change in Control. The term "Good Reason" is defined as
the occurrence after a Change in Control of either a reduction in the nature or
status of the participant's responsibilities or a reduction of the participant's
base salary. The term "Just Cause" is defined as (i) an act of fraud,
embezzlement, theft or other felonious criminal act; (ii) willful and continued
failure to substantially perform his duties; or (iii) willful engagement in
conduct that is demonstrably and materially injurious to Georgia Blue and its
affiliated companies.

The SERP is generally an unfunded obligation of Georgia Blue. As of January
1, 1997, Georgia Blue entered into a trust agreement with Wachovia Bank of North
Carolina, N.A., as Trustee, to establish the Blue Cross and Blue Shield of
Georgia, Inc. Nonqualified Retirement Trust (the "Trust"), to which Georgia Blue
would contribute assets for the purpose of payment of the benefits under the
SERP and other nonqualified plans, subject to the claims of Georgia Blue's
creditors in the event of its insolvency or bankruptcy. The terms of the Trust
provide that no later than 30 days following a Change in Control, Georgia Blue
will make an irrevocable contribution to the Trust in an amount sufficient to
fund more than 100% of the benefits accrued
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under the various nonqualified plans of Georgia Blue. For these purposes, the
definition of "Change in Control" is similar to that contained in the PUP and
the SERP documents. The Georgia Blue Board of Directors has the responsibility
of informing the Trustee that a Change in Control has occurred. The timing of
payment under the nonqualified plans is not accelerated due to the Change in
Control.

Eight individual key management employees participate in the SERP. The
funding obligation of the Trust will require, within 30 days following the
shareholders' approval of the proposed Merger, contributions to be made to the
Trust for those individuals. Four of the named executive officers participate in
the SERP, and the contributions attributable to their accrued benefits are
estimated as follows: Raymond J. Colleran -- $615,276; John A.
Harris -- $356,996; Mark Kishel -- $456,002; R. Neil Vannoy -- $648,611.
Contributions required for the remaining executives are estimated at $1,682,697,
of which $1,140,255 is attributable to an individual agreement with Stuart
Gardner Wright, Chief Information Officer of Cerulean, granting credit for
additional years of service for purposes of the SERP.

Agreement for Supplemental Executive Retirement Benefits between Blue Cross
and Blue Shield of Georgia, Inc. and Richard D. Shirk. On December 1, 1996,
Georgia Blue entered into the RDS SERP, as amended by that certain First
Amendment to the RDS SERP, dated March 7, 1998 with an effective date of January
1, 1998. Mr. Shirk becomes eligible for benefits under the RDS SERP upon the
termination of his employment for any reason other than his voluntary
termination without "Good Reason." The term "Good Reason" is defined in Mr.
Shirk's employment agreement with Cerulean and Georgia Blue, dated January 1,
1997, as amended by that certain First Amendment to Employment Agreement dated
March 7, 1998, with an effective date of January 1, 1998 (the "Employment
Agreement"), as (i) any assignment of duties significantly different from those
contemplated by the Employment Agreement or any material limitation in his
authority, powers or responsibilities, (ii) failure to be elected or removal as
a member of the Board of Directors of either Cerulean or Georgia Blue unless
required by a change in Georgia law, (iii) receipt of any notice limiting the
term of the Employment Agreement to two years, (iv) a material breach by either
Cerulean or Georgia Blue of any of the material provisions of the Employment
Agreement which are not cured within 30 days after notice, and (v) a Change in
Control. For purposes of the Employment Agreement and the RDS SERP, the term
"Change in Control" is defined as (i) the acquisition of ownership of stock or
securities of either Cerulean or Georgia Blue representing 5% or more of the
voting power of any class of stock or securities of either Cerulean or Georgia
Blue (except as may be acquired by institutional investors if the stock or
securities are traded on a recognized exchange or through the Nasdaq Stock
Market); (ii) the date on which a majority of the members of the board of either
Cerulean or Georgia Blue are no longer continuing directors, as defined in the
license agreement between Cerulean and the BCBSA, originally dated February 2,
1996; (iii) approval by the shareholders of Cerulean or Georgia Blue of any
merger, consolidation or share exchange as a result of which the securities of
Cerulean or Georgia Blue will be changed, converted or exchanged into the shares
of another corporation or the liquidation of Cerulean or Georgia Blue or the
sale or disposition of 50% or more of the assets or earning power of either
Cerulean or Georgia Blue; or (iv) approval by the shareholders of any plan of
consolidation, merger or share exchange which would result in the persons who
were shareholders immediately prior to such transaction retaining less than 50%
of the voting power to elect directors of the surviving corporation. The
approval by Cerulean's shareholders of the proposed Merger would constitute a
Change in Control under this definition.

The benefits payable under the RDS SERP vary, depending on Mr. Shirk's age
at the time of his termination of employment. If he is less than age 55 at the
time of his termination, his monthly benefit shall equal 2% of his "Final
Average Earnings" times his years of credited service, minus 21% (which
represents a reduction of 3% per year for each year that the benefit begins
before age 62), minus the monthly annuity amount he would receive from the
Retirement Plan, and minus the actuarial equivalent value of the monthly benefit
he would receive from Social Security at age 62. If termination occurs after age
55 but before age 60, his monthly benefit would equal 2% of his Final Average
Earnings for each of his first 25 years of credited service, minus 0.25% for
each month that his termination precedes his 62nd birthday, plus 3% of his Final
Average Earnings for each of his next five years of credited service, minus the
monthly annuity amount he would receive from the Retirement Plan, and minus the
actuarial equivalent of the monthly benefit he would receive from Social
Security at age 62. If his employment is terminated after age 60, his monthly
benefit

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would equal 65% of his Final Average Earnings, minus the monthly annuity amount
he would receive from the Retirement Plan, minus the actuarial equivalent value
of the monthly benefit he would receive from Social Security at age 62.

For purposes of the RDS SERP, Mr. Shirk is deemed to have completed 25
years of credited service at age 55. For each year after age 55, he will earn an
additional year of service, up to a maximum of 30 years. Pursuant to the First
Amendment to the RDS SERP, dated December 1, 1996, the term "Final Average
Earnings" is defined to equal one-twelfth of the final average earnings amount
determined under the Retirement Plan, with the following modifications: (i)
Final Average Earnings would not be limited to the compensation limits imposed
by Section 401(a)(17) of the Code; (ii) cash incentive payments would be
included, regardless of whether they were received or deferred by Mr. Shirk;
(iii) if his market target rate for any given calendar year exceeds his base
salary rate, the market target rate is to be used in the calculation, and market
target rate is to equal the 50th percentile market rate as determined by the
Compensation Committee on an annual basis.

The RDS SERP provides that the benefit should be continuously funded by
Georgia Blue through a grantor trust. Georgia Blue has made contributions to the
aforementioned Trust for this purpose.

If Mr. Shirk terminates employment following a Change in Control for any
reason other than voluntarily without Good Reason, the amount of his monthly
benefit is to be the greater of the normal calculation described above
(depending on his age at that time) or 60% of his Final Average Earnings,
without reduction for early commencement, but with reductions for benefits
payable under the Retirement Plan and Social Security. Benefits may be paid in a
lump sum payment or any optional form of payment permitted under the Retirement
Plan.

Because Mr. Shirk's Employment Agreement defines "Good Reason" to include a
Change in Control, he may voluntarily terminate his employment at any time
following a Change in Control of Cerulean or Georgia Blue and be entitled to
immediate payment of the benefits under the RDS SERP. In addition, due to the
continuous funding requirement of the RDS SERP and the Change in Control funding
requirement of the Trust, it is anticipated that contributions will be required
to the Trust within 30 days of a Change in Control to prefund Mr. Shirks' entire
benefit. The amount of Mr. Shirk's benefit under the RDS SERP is estimated at
$6,927,006. The Trust held assets valued at $985,450 as of June 30, 1998.

In addition, as of January 1, 1997, Cerulean amended Mr. Shirk's Employment
Agreement to state that Cerulean will provide Mr. Shirk an additional cash
payment sufficient to cover any excise tax imposed on him under Sections 280G or
4999 of the Code on the total payments (made under the PUP, the RDS SERP, the
Employment Agreement and any other plan or arrangement) he receives as a result
of a Change in Control (the "Excise Tax Payment"), and an additional payment to
cover the state and Federal income taxes and employment taxes on the Excise Tax
Payment (the "Gross Up Payment.")

Change in Control Severance Agreements. In [JANUARY 1998, EFFECTIVE MARCH
1998], Cerulean entered into individual Change in Control Severance Agreements
with [38] key employees. [TEN] executives entered into Tier I agreements, and
[28] key employees entered into Tier II agreements. These agreements each have
an initial term that ends on December 31, 2001, which is automatically extended
for an additional year absent notice from either party or upon a public
announcement of an intended Change in Control of Cerulean.

The agreements provide that if, during the term of the agreement, the
employee is terminated without "Cause," for "Good Reason" or due to disability
following a public announcement of an intended Change in Control of Cerulean, or
if Cerulean fails to renew the agreement within 90 days prior to the public
announcement of an intended Change in Control, then the employee becomes
entitled to payment of severance benefits in a lump sum no later than 30 days
following termination of employment.

The severance benefits for employees under the agreements include:

(i) all earned but unpaid base salary, earned and accrued vacation
pay, universal leave pay, unreimbursed business expenses and other amounts
owed;

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(ii) an amount equal to two times (for Tier II, one times) the sum of
(a) and (b) where (a) equals the greater of annual base salary at the time
of termination or annual base salary prior to public announcement of
intended Change in Control, and (b) equals the average of the bonuses, if
any, received by the employee under the Cerulean Annual Incentive Plan and
the Cerulean Long Term Incentive Plan during the two-year period that ended
immediately before the year in which the public announcement of the
intended Change in Control occurs;

(iii) if the employee is at least age 50 or has completed ten "years
of service" (as defined in the Retirement Plan) as of the date of
termination, for purposes of calculating his benefits under the Retirement
Plan, the SERP, the Restoration Plan or any other tax-qualified or
nonqualified defined benefit pension plan, he shall be considered to be
100% vested as of the date of his termination and he shall be considered to
have either three additional years of service or three additional years of
age, whichever produces the greater benefit payable to the employee (except
that the additional three years of service will not be eligible for the
double counting under the SERP);

(iv) an amount sufficient for the employee to purchase health and
dental insurance, life insurance and long-term disability insurance
coverage for himself and his dependents for 24 months, at the same cost and
level of coverage as the employee had at his date of termination (with the
COBRA continuation period beginning on date of termination); and

(v) up to $20,000 (for Tier II, up to $10,000) of outplacement
services from a nationally recognized outplacement firm chosen by the
employee.

The Change in Control Severance Agreements also provide that if a Change in
Control occurs during the term of the agreement, or if an intended Change in
Control is publicly announced within 90 days after the term of the agreement has
ended, certain benefits become payable regardless of whether the employee is
terminated from employment. These benefits include (i) the bonus, if any, which
would be earned under the Cerulean Annual Incentive Plan if the level of goal
achievement were annualized, then adjusted on a pro rata basis for the number of
days that the employee was actually employed during the year; and (ii) the
amount payable under the award to the employee under the PUP. These amounts are
required to be paid no later than 30 days following the Change in Control. In
addition, all stock options, restricted stock or performance shares that have
been granted to the employee during the term of the agreement become fully
vested upon a Change in Control. The definition of "Change in Control" in these
agreements is similar to that contained in the PUP, and shareholder approval of
the Merger will be a Change in Control.

Each of the Change in Control Severance Agreements contains provisions
requiring Cerulean to provide the employee an additional cash payment sufficient
to cover any Excise Tax Payment and an additional Gross Up Payment.

The four named executive officers who have entered into Tier I Change in
Control Severance Agreements are Raymond J. Colleran, John A. Harris, Mark
Kishel, and R. Neil Vannoy.

Interests of Cerulean Directors

The Merger Agreement provides that, from and after the Effective Time, the
parties will not take any action which would have the effect of eliminating or
impairing the rights of current or former officers and the directors of Cerulean
prior to the Effective Time to be indemnified in accordance with the Cerulean
Articles and Bylaws of Cerulean ("Cerulean Bylaws") and applicable law.

The Merger Agreement provides that, as of the Closing, one person who was a
member of the Board of Directors of Cerulean on the date of the Merger Agreement
will be nominated for election to the Board of Directors of WellPoint. As of the
date of this Proxy Statement/Prospectus, this WellPoint Director has not been
designated.

Mr. Shirk is also a director of Cerulean. See "-- Interest of Certain
Persons in the Merger." Mr. Young is a director of Cerulean and an affiliate of
a holder of Class B Stock. Mr. Hanna, a director of Cerulean, is an

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affiliate of GSH which holds 80.16% of the Class B Stock. WellPoint will enter
into the Registration Rights Agreement with GSH. See "RELATED
AGREEMENT -- Registration Rights Agreement."

RESALE OF WELLPOINT STOCK; RESTRICTIONS ON RESALES BY AFFILIATES

The shares of WellPoint Stock to be issued to Cerulean shareholders in the
Merger will be registered under the Securities Act. These shares may be traded
freely and without restriction by those shareholders not deemed to be
"affiliates" of Cerulean as that term is defined under the Securities Act. An
affiliate of Cerulean, as defined by the rules promulgated under the Securities
Act, is a person who directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, Cerulean. Any
subsequent transfer by an affiliate of Cerulean must be one permitted by the
resale provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act.

The Merger Agreement provides that WellPoint will enter into a registration
rights agreement with each shareholder of Cerulean as of the date of the Merger
Agreement that will be subject to the resale limitations of Sections (c) and (d)
of Rule 145 in order to afford each such shareholder approximately the ability
of all other Cerulean shareholders receiving WellPoint Stock to sell any or all
of their WellPoint Stock at any time after consummation of the Merger. These
restrictions will apply to GSH, which owns 80.16% of the outstanding Class B
Stock and of which Frank J. Hanna, III, a director of Cerulean, is an affiliate.
Accordingly, WellPoint will enter into the Registration Rights Agreement with
GSH. Under the terms of the Registration Rights Agreement, WellPoint must, at
the Effective Time, have an effective registration statement under the
Securities Act with respect to any shares of WellPoint Stock received in the
Merger by GSH allowing for sales of such shares on a delayed and continuous
basis for at least 90 days following the Merger. In addition, GSH will have
certain demand registration rights in accordance with the terms of the
Registration Rights Agreement. See "RELATED AGREEMENT -- Registration Rights
Agreement."

To the best of Cerulean's knowledge, no Cerulean shareholder, other than
GSH, will have any limitations on such shareholder's ability to sell all or any
part of the shares of WellPoint Stock received by such shareholder in the Merger
at any time after their receipt thereof.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a general summary of certain United States federal income
tax consequences of the Merger and does not purport to be a complete analysis of
all potential tax consequences. The summary is based upon current provisions of
the Code, temporary and final Treasury regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change
(possibly on a retroactive basis) and any such change could affect the
continuing validity of this summary. This summary does not address the state,
local, or foreign tax aspects of the Merger. In addition, it does not discuss
the United States federal income tax considerations that may be relevant to
certain persons, including holders of options or others receiving compensation
in connection with the Merger and the Foundation, and may not apply to certain
holders subject to special tax rules, including dealers in securities, foreign
holders and holders who acquired their shares of Class A Stock or Class B Stock
pursuant to the exercise of options or otherwise as compensation.

THE GENERAL SUMMARY SET FORTH BELOW OR ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE,
LEGAL OR TAX ADVICE TO ANY PARTICULAR CERULEAN SHAREHOLDER. BECAUSE THE
PARTICULAR TAX ATTRIBUTES OF EACH CERULEAN SHAREHOLDER WILL VARY AND THE TAX
CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON WHETHER A CERULEAN
SHAREHOLDER RECEIVES IN THE MERGER SOLELY WELLPOINT STOCK, A COMBINATION OF CASH
AND WELLPOINT STOCK, OR SOLELY CASH, EACH CERULEAN SHAREHOLDER SHOULD CONSULT
HIS, HER, OR ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, AND FOREIGN
TAX LAWS.

Tax Opinions. Under the Merger Agreement, consummation of the Merger is
conditioned upon WellPoint and Cerulean receiving opinions from Gibson, Dunn &
Crutcher LLP, counsel to WellPoint, and Long Aldridge, counsel to Cerulean,
respectively, that the Merger will be treated for federal income tax purposes as
a "reorganization" within the meaning of Section 368(a) of the Code.
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In rendering their opinions, such counsel have relied upon and assumed as
accurate and correct on the date of the signing of the Merger Agreement, and
will rely and assume as accurate and correct as of the Effective Time, the
information contained in this Proxy Statement/Prospectus and certain
representations as to factual matters made by WellPoint and Cerulean. Any
inaccuracy or change with respect to such information or representations, or any
past or future actions by WellPoint or Cerulean contrary to such
representations, could adversely affect the conclusions reached in the opinions
and the tax summary set forth below.

These opinions represent such counsels' best judgments as to the tax
treatment of the Merger, but are not binding on the Service or the courts. The
parties have not and will not request a ruling from the Service in connection
with the United States federal income tax consequences of the Merger discussed
below. The following summary of material United States federal income tax
consequences is based upon the conclusions reached in such opinions.

Recognition of Gain or Loss by Cerulean Shareholders. Except as discussed
below, a Cerulean shareholder who exchanges Class A Stock or Class B Stock
solely for shares of WellPoint Stock will not recognize any gain or loss on such
exchange. A Cerulean shareholder who exchanges Class A Stock for a combination
of cash and WellPoint Stock and realizes gain will recognize such gain in an
amount equal to the lesser of (i) the amount of gain realized by such
shareholder (i.e., the excess of the sum of cash and fair market value of
WellPoint Stock received by the shareholder over the shareholder's tax basis in
the Class A Stock surrendered) and (ii) the amount of cash received by the
shareholder. If, however, a Cerulean shareholder realizes a loss upon the
exchange of Class A Stock for a combination of cash and WellPoint Stock, such
loss cannot be recognized by the shareholder. Finally, a Cerulean shareholder
who exchanges Class A Stock solely for cash in the Merger will recognize any
gain realized and, depending on the particular circumstances of such
shareholder, should recognize any realized loss.

Character of Gain Recognized by a Holder of Class A Stock that Receives a
Combination of Cash and WellPoint Stock. The character of the gain recognized
upon the receipt of cash depends on the particular facts and circumstances
relating to each Cerulean shareholder. Assuming the Class A Stock is a capital
asset in the hands of the Cerulean shareholder, any gain recognized as a result
of the receipt of cash will be characterized as capital gain unless the receipt
of such cash is treated as having the effect of the distribution of a dividend
under Section 356 of the Code, in which case the gain will be characterized as
ordinary income to the extent of such shareholder's ratable share of the
accumulated and undistributed earnings and profits of Cerulean. To determine
whether any such gain is capital gain or ordinary income, a hypothetical
redemption is deemed to occur under which a Cerulean shareholder that receives a
combination of cash and WellPoint Stock is treated as (i) hypothetically
receiving solely shares of WellPoint Stock in exchange for all of the
shareholder's Class A Stock, and (ii) having a portion of such shares of
WellPoint Stock (equal in amount to the cash actually received in the Merger)
redeemed by WellPoint. The cash received in the hypothetical redemption will
have the effect of a distribution of a dividend unless, under the redemption
tests of Section 302 of the Code, such distribution (i) is "not essentially
equivalent to a dividend" with respect to the shareholder or (ii) results in a
"substantially disproportionate" redemption of such shareholder's equity
interest in WellPoint.

The hypothetical redemption will be "substantially disproportionate" with
respect to a Cerulean shareholder if (i) the percentage of the total combined
voting power of all classes of outstanding voting stock of WellPoint owned by
the shareholder immediately after the hypothetical redemption is less than 50%,
(ii) the percentage of the voting stock of WellPoint owned by the shareholder
immediately after the hypothetical redemption is less than 80% of the percentage
of the voting stock of WellPoint deemed to be owned by the shareholder
immediately before the hypothetical redemption, and (iii) the percentage of the
value of the WellPoint Stock owned by the shareholder immediately after the
hypothetical redemption is less than 80% of the percentage of the value of the
WellPoint Stock deemed to be owned by the shareholder immediately before the
hypothetical redemption. If the hypothetical redemption from a Cerulean
shareholder fails to satisfy the "substantially disproportionate" test, such
shareholder may nonetheless receive exchange treatment under the rules provided
in Section 302 of the Code by satisfying the "not essentially equivalent to a
dividend" test.
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A distribution to a Cerulean shareholder will satisfy the "not essentially
equivalent to a dividend" test if it results in a "meaningful reduction" in such
shareholder's proportionate stock interest in WellPoint. If a shareholder with a
relatively minimal stock interest in WellPoint and no right to exercise control
over corporate affairs suffers a reduction in his or her proportionate interest
in WellPoint as a result of the hypothetical redemption, that shareholder should
be regarded as having suffered a meaningful reduction of his or her interest in
WellPoint. For example, the Service has held in a published ruling that in the
case of a less than 1% shareholder who does not have management control over the
corporation, any reduction in proportionate interest will constitute a
"meaningful reduction."

In applying these redemption tests, the Code requires that each Cerulean
shareholder take into account not only the WellPoint Stock directly owned by the
shareholder (including the WellPoint Stock received in the Merger), but also any
WellPoint Stock owned by certain of the shareholder's family members, any
WellPoint Stock owned by partnerships, trusts, corporations, and other entities
in which the shareholder has an interest, and any WellPoint Stock that the
shareholder has a right or option to acquire (collectively, the "Attributed
Stock"). The Section 302 redemption tests described above and the application of
the stock ownership attribution rules are complex and will depend upon each
Cerulean shareholder's particular facts and circumstances. Each Cerulean
shareholder who elects to receive a portion of the Merger consideration as cash
is urged to consult its tax advisor to determine the character of any gain that
may be recognized as a result of the Merger.

If none of the redemption tests under Section 302 of the Code is satisfied,
a Cerulean shareholder who exchanges shares of Class A Stock for a combination
of shares of WellPoint Stock and cash will be treated as having received a
dividend distribution in that exchange. The amount of such distribution will
generally equal the amount of cash received by the Cerulean shareholder (but not
in excess of the gain realized on the exchange pursuant to the Merger), and such
amount will be treated as a dividend, and thus ordinary income, to the extent of
such shareholder's allocable portion of the accumulated earnings and profits (as
determined for federal income tax purposes) of Cerulean. If the amount of such
distribution exceeds such shareholder's allocable portion of Cerulean's
accumulated earnings and profits, the excess then will be treated as gain from
the sale or exchange of such stock, and thus capital gain (provided that the
stock deemed to be exchanged qualifies as a capital asset). If such distribution
is taxable as a dividend to a corporate shareholder, it may be subject to the
"extraordinary dividend" provisions of Section 1059 of the Code.

Because the typical shareholder of Class A Stock is less than a 1%
shareholder, if such a holder undergoes a reduction in his or her proportionate
stock interest in WellPoint, does not own any WellPoint Stock other than that
actually received or deemed to have been received in the Merger, is not
considered to own any Attributed Stock and holds the Class A Stock as a capital
asset, gain recognized as the result of the receipt of cash should be
characterized as capital gain.

Character of Gain Recognized by a Holder of Class A Stock that Receives
Solely Cash. It is unclear whether the hypothetical issuance and redemption of
WellPoint Stock discussed above applies to a Cerulean shareholder who receives
solely cash and no WellPoint Stock in the Merger. If those principles apply, the
character of gain recognized, as well as the ability to recognize any loss
realized, by a Cerulean shareholder who receives solely cash and no WellPoint
Stock in the Merger will apparently be determined by treating such shareholder
as hypothetically receiving solely WellPoint Stock in the Merger that WellPoint
thereafter redeems for cash. Alternatively, the Service may take the position
that the tax treatment associated with solely receiving cash is determined by
treating the Cerulean shareholder as having his Cerulean shares redeemed by
Cerulean immediately prior to the Merger. In either case, provided that the
redemption of the shareholder's shares satisfies one of the Section 302
redemption tests described above, or such redemption results in a "complete
termination" of such shareholder's interest in Cerulean or WellPoint, depending
on which analysis applies, determined by taking into account the stock
attribution rules discussed above, such shareholder will be permitted to
recognize loss, and will be required to recognize any gain realized on the
exchange. Such gain or loss will be capital gain or loss, provided that the
shares of Class A Stock were held by the Cerulean shareholder as a capital asset
as of the Effective Time.

If the redemption tests under Section 302 of the Code are not satisfied,
the cash received by a Cerulean shareholder will be treated as a dividend
distribution and thus ordinary income, to the extent of such

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shareholder's allocable portion of current and accumulated earnings and profits
of Cerulean, and any excess will be treated as gain from the sale or exchange of
such stock. Also, the Cerulean shareholder will not be permitted to recognize
any loss, and special rules will apply for purposes of allocating the tax basis
of the Class A Stock surrendered in the Merger. Cerulean shareholders who elect
to receive solely cash in the Merger are urged to consult their own tax advisors
regarding the tax consequences associated with such election. If a shareholder
of Class A Stock owns no WellPoint Stock and no Attributed Stock, and holds the
Class A Stock as a capital asset, gain recognized should be characterized as
capital gain.

Fractional Shares. Cash received by a Cerulean shareholder in lieu of any
fractional share interest in WellPoint Stock will result in the recognition of
gain or loss for federal income tax purposes, measured by the difference between
the amount of cash received and the portion of the adjusted tax basis of Class A
Stock or Class B Stock allocable to such fractional share interest. Such gain or
loss will be capital gain or loss, provided that the Class A Stock or Class B
Stock was held as a capital asset as of the Effective Time.

Tax Basis and Holding Period of WellPoint Stock Received in the
Merger. The tax basis of the shares of WellPoint Stock received by a Cerulean
shareholder upon the exchange of Class A Stock or Class B Stock for such
WellPoint Stock pursuant to the Merger will be the same as the tax basis of the
shares of Class A Stock or Class B Stock surrendered (less any portion of such
basis allocable to any fractional share interest in any share of WellPoint Stock
for which cash is received), increased by the amount of any gain recognized
(whether treated as capital gain or a dividend) and decreased by the amount of
any cash received. The holding period of such shares of WellPoint Stock will
include the holding period of the Class A Stock or Class B Stock surrendered,
provided that such shares of Class A Stock or Class B Stock were held by the
Cerulean shareholder as a capital asset as of the Effective Time. Because the
typical shareholder of Class A Stock has no tax basis in such stock prior to the
Merger, the tax basis to such shareholder in the WellPoint Stock received shall
equal zero.

Cerulean Shareholder Reporting Requirements. A Cerulean shareholder who
exchanges Class A Stock or Class B Stock for WellPoint Stock or exchanges Class
A Stock for a combination of WellPoint Stock and cash pursuant to the Merger
will be required to retain records and file with such shareholder's federal
income tax return for the taxable year in which the Merger takes place a
statement setting forth all relevant facts in respect of the nonrecognition of
gain or loss upon such exchange. The statement is required to include (i) such
shareholder's basis in the shares of Class A Stock or Class B Stock surrendered
in the Merger, and (ii) the value of WellPoint Stock received (using fair market
value as of the Effective Time) and the amount of any cash received in the
Merger.

Treatment of Cerulean, WellPoint, and Merger Sub. No gain or loss will be
recognized by Cerulean, WellPoint, or Merger Sub as a result of the Merger.

ACCOUNTING TREATMENT

It is expected that the Merger will be treated as a purchase for accounting
and financial reporting purposes.

CERTAIN PROVISIONS OF THE MERGER AGREEMENT

GENERAL

The Merger Agreement provides that Cerulean will merge into Merger Sub, a
wholly owned subsidiary of WellPoint formed to effect the Merger, with Merger
Sub continuing as the surviving corporation (the "Surviving Corporation") and
changing its name to "Cerulean Companies, Inc." This section of the Proxy
Statement/Prospectus describes material provisions of the Merger Agreement. The
description of the Merger Agreement contained in this Proxy Statement/Prospectus
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. Capitalized terms
in the section have the

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meanings assigned to them in the Merger Agreement. All shareholders of Cerulean
are urged to read the Merger Agreement in its entirety.

ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING CORPORATION

The Certificate of Incorporation and Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, until amended in
accordance with applicable law. At the Effective Time, the Certificate of
Incorporation of Merger Sub will be amended to change its name to "Cerulean
Companies, Inc."

DIRECTORS AND OFFICERS

The directors and officers of Merger Sub immediately prior to the Effective
Time will be the directors and officers of the Surviving Corporation.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains certain mutual representations and warranties
by each of WellPoint and Merger Sub, jointly and severally, and Cerulean
relating, among other things, to the following matters (which representations
and warranties are subject, in certain cases, to specified exceptions and
materiality qualifications): (i) corporate organization, standing, qualification
and similar corporate matters; (ii) capitalization; (iii) absence of claims
against capital stock or any other equity security; (iv) financial statements;
(v) absence of undisclosed liabilities; (vi) the accuracy of information
supplied by each of WellPoint and Cerulean for inclusion in the Proxy
Statement/Prospectus or the Registration Statement; (vii) documents filed by
each of WellPoint and Cerulean with the Commission and the absence of material
untrue statements in the information contained therein; (viii) the absence of
conflict of the Merger Agreement with charter documents, laws or agreements;
(ix) required filings, consents and approvals for the execution of the Merger
Agreement and the consummation of the transactions contemplated therein; (x)
absence of changes or events with respect to each of WellPoint and Cerulean
since March 31, 1998 that would have a material adverse effect on the business,
assets, or financial condition of WellPoint and every entity in which WellPoint
owns 50% or more of the outstanding equity, directly or indirectly, and which is
material to the operations or financial condition of WellPoint (the "WellPoint
Subsidiaries"), taken as a whole a "WellPoint Material Adverse Effect," or a
material adverse effect on the business, assets or financial condition of
Cerulean and every entity in which Cerulean owns, or will own prior to the
Closing, 50% or more of the outstanding equity, directly or indirectly (the
"Cerulean Subsidiaries"), taken as a whole, a "Cerulean Material Adverse
Effect", respectively; and (xi) the absence of material untrue statements in the
Merger Agreement or any certificates or other writings delivered pursuant to the
Merger Agreement.

In addition, the Merger Agreement contains certain additional
representations and warranties by Cerulean relating to: (i) compliance with
applicable laws; (ii) title to real and personal property; (iii) indebtedness;
(iv) intellectual property matters; (v) employee benefits matters; (vi) the
absence of litigation that could reasonably be expected to have a Cerulean
Material Adverse Effect; (vii) the absence of collective bargaining agreements;
(viii) absence of labor disputes that would have a Cerulean Material Adverse
Effect; (ix) environmental matters; (x) required licenses and permits; (xi)
maintenance of insurance; (xii) contracts and commitments; (xiii) tax matters;
(xiv) the absence of any broker or finder; (xv) year 2000 compliance matters;
(xvi) computation of reserves; and (xvii) financial statements filed with the
Georgia Department of Insurance and the fair presentation of the financial
condition and results of operations of Cerulean contained therein. Pursuant to
the Merger Agreement, none of the respective representations or warranties of
WellPoint, Merger Sub or Cerulean survive the consummation of the Merger.

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COVENANTS OF THE PARTIES

Conduct of Business Pending the Merger

Conduct of Business of Cerulean. Pursuant to the Merger Agreement, pending
the consummation of the Merger, Cerulean, through its own management, will
operate and conduct the business of Cerulean. Cerulean has agreed that, except
as consented to in writing by WellPoint, pending the Closing, Cerulean will
operate and conduct its business, and that of the Cerulean Subsidiaries, only in
the ordinary course in accordance with prior practices. Without limiting the
foregoing and except as otherwise contemplated by the Merger Agreement, Cerulean
(for purposes of the following, "Cerulean" will be deemed to include the
Cerulean Subsidiaries) has agreed that it:

(i) will maintain its assets in their present state of repair, will
use its reasonable best efforts to keep available the services of its
employees, and preserve the goodwill of its business and relationships with
the customers, licensors, suppliers, distributors and brokers; and

(ii) will not: (a) sell, transfer or dispose of its assets; (b) enter
into new contracts or commitments with liabilities exceeding $5 million
individually or $10 million in the aggregate; (c) mortgage or pledge its
assets; (d) purchase capital assets exceeding $2 million individually or
$10 million in the aggregate; (e) amend or terminate material agreements;
(f) amend its charter or bylaws; (g) acquire any corporation, joint venture
or other business, except for a purchase price less than $5 million
individually or $10 million in the aggregate; (h) take any action that
could cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code; (i) split, combine or reclassify its
outstanding capital stock; (j) issue, sell or pledge any additional shares;
(k) incur indebtedness; (l) adopt or amend any employment or other benefit
plan or arrangement; or (m) modify its current investment policies.

Conduct of Business of WellPoint. Pursuant to the Merger Agreement,
WellPoint agreed that, except as consented to in writing by Cerulean, pending
the Closing, WellPoint (for purposes of the following, "WellPoint" will be
deemed to include the WellPoint Subsidiaries) will:

(i) maintain its assets in their present state of repair, use its
reasonable best efforts to keep available the services of its employees,
and preserve the goodwill of its business and relationships with the
customers, licensors, suppliers, distributors and brokers with whom it has
business relations; and

(ii) not amend its charter or bylaws.

Each of WellPoint and Cerulean has appointed an equal number of members to
a transition team ("Transition Team") who will be the principal parties
interacting with each other for purposes of preparing for the consummation of
the Merger. Cerulean and WellPoint anticipate that the limitations provided in
the Merger Agreement will not unduly interfere with Cerulean's management of its
own operations during the period prior to the Effective Time.

Access; New Information

Pursuant to the Merger Agreement, each of Cerulean and WellPoint will be
obligated to disclose promptly in writing to the other any new information which
would result in a breach of their respective representations and warranties if
such representation or warranty were made at the time of the discovery of the
new information.

In addition, pursuant to the Merger Agreement, the Transition Team will be
responsible for developing an action plan for the combination of the businesses,
including an information systems action plan. The Transition Team will meet
monthly to review the financial performance of Cerulean and its affiliates, and
at such meetings Cerulean will advise the Transition Team of the status of
achieving Cerulean's then-current Operating Plan (defined under the Merger
Agreement as the Cerulean operating plan as presented to WellPoint), including
all of the material components thereof, such as sales, enrollment, revenues,
investment income, quarterly claim trends, medical loss ratio, administrative
expenses, net income, reserves and statutory

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capital. The Transition Team will be informed at each quarterly meeting of the
applicable trends and retention experience arising from Cerulean's business
planning and underwriting process.

Subject to certain restrictions and the terms of the Confidentiality
Agreement by and between Cerulean and WellPoint dated November 14, 1997, from
and after the date of the Merger Agreement, WellPoint will have access during
regular business hours to Cerulean's and any Cerulean Subsidiary's books,
records, offices, personnel, counsel, accountants and actuaries as WellPoint may
reasonably request.

Transfer Taxes

All sales or transfer taxes (including stock transfer taxes, document
recording fees, real property transfer taxes and excise taxes) in connection
with the consummation of the transactions contemplated by the Merger Agreement
will be paid by WellPoint.

Consents, Waivers and Authorizations; Governmental and
Regulatory Approvals

Under the Merger Agreement, Cerulean and WellPoint have agreed to use their
best efforts to obtain all consents, waivers, authorizations, orders or
approvals of, and make all filings and registrations with, any governmental
commission, board or other regulatory body or any nongovernmental third party
required for, or in connection with, the performance by them of the Merger
Agreement and the consummation by them of the transactions contemplated thereby,
or as may be required in order not to accelerate, violate, breach or terminate
any agreement to which either party or any of their respective subsidiaries may
be subject. Each party will cooperate fully with the other party in assisting it
to obtain such consents, authorizations, orders and approvals. WellPoint and
Cerulean will not take any action which could reasonably be anticipated to have
the effect of delaying, impairing or impeding the receipt of any required
approvals, regulatory or otherwise.

Further Assurances

Each of Cerulean and WellPoint agrees to use its best efforts to take and
to do all things reasonably necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by the
Merger Agreement, including (i) the defending of any lawsuits or other legal
proceedings challenging the Merger Agreement or the consummation of the
transactions contemplated thereby, (ii) obtaining all governmental consents
required for the consummation of the Merger and the transactions contemplated
thereby, and (iii) making and causing their shareholders, as applicable, to
timely make all necessary filings under the HSR Act.

Public Announcements

Cerulean and WellPoint have each agreed not to issue a press release or any
other announcement with respect to the Merger or the transactions contemplated
by the Merger Agreement without the prior written consent of the other, except
as required by law or the regulations of the Commission or the NYSE in which
case each of Cerulean and WellPoint will permit review by the other party of any
such press release or announcement prior to its release or filing.

Dividend on Class B Stock

Immediately prior to the Closing, Cerulean will pay the accrued dividend on
each share of Class B Stock then owing as provided in the Articles of
Incorporation of Cerulean.

Obligations with respect to Merger Sub and Georgia Blue

It is the intent of the parties that WellPoint and Merger Sub will (i)
maintain Georgia Blue as a Georgia corporation or other Georgia legal entity
separate and apart from WellPoint or Merger Sub, and (ii) fill a majority of the
seats of the Board of Directors of Georgia Blue with residents of the State of
Georgia.

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Appointment of Director of WellPoint

As of the Closing, the nominating committee of the Board of Directors of
WellPoint will nominate for election to the Board of Directors of WellPoint one
person who was a member of the Board of Directors of Cerulean on the date of the
Merger Agreement.

Non-Solicitation

So long as the Merger Agreement is in effect, neither Cerulean nor any
Cerulean Subsidiary will, and each will use its best efforts to cause its
representatives not to, directly or indirectly, solicit any proposal from a
third party regarding a purchase, affiliation or lease of all or a material part
of the assets of Cerulean, whether by sale of capital stock, merger,
consolidation, sale or lease of material assets, affiliation, joint venture or
other material transaction (a "Merger Proposal"). Neither the foregoing
prohibition, nor any other provision of the Merger Agreement will be interpreted
to prohibit Cerulean from (i) making any disclosure of information required by
law, (ii) communicating any information to the shareholders of Cerulean to the
extent necessary to comply with the fiduciary duties of the Board of Directors
of Cerulean, or (iii) providing non-public information regarding Cerulean to, or
negotiating with, any third party (provided such party is subject to an executed
confidentiality agreement) that makes an unsolicited Merger Proposal; provided,
however, that prior to any such action referred to in clause (iii), the Board of
Directors of Cerulean will have determined in good faith after consultation with
its outside legal counsel and financial advisors that such Merger Proposal, if
accepted by Cerulean on substantially the terms presented, is likely to be
consummated and would, if consummated, result in a transaction superior to the
one contemplated by the Merger Agreement after taking into account all relevant
factors, including, without limitation, the consideration to be received
pursuant to such Merger Proposal (any such superior Merger Proposal being
referred to herein as a "Superior Proposal").

In the event that Cerulean terminates the Merger Agreement in connection
with the receipt of a Superior Proposal, Cerulean will be required to pay a
termination fee of $10 million to WellPoint. See "-- Termination; Termination
Fees" below.

Settlement of Conversion Litigation

WellPoint and Cerulean have agreed that Cerulean is authorized to (i) pay
the amount of cash, (ii) authorize and issue the number of shares of Class A
Stock and the Warrant for shares of Series A Stock, and (iii) do all other acts
and pay all other expenses and fees that, in the opinion of counsel to Cerulean,
are reasonably necessary in order to effectuate the settlement of the Conversion
Litigation, all in compliance with the terms of the Settlement on July 8, 1998
(all of such actions, collectively, the "Settlement Actions"). Notwithstanding
any other provision in the Merger Agreement to the contrary, the performance of
any or all of the Settlement Actions will not violate any of the conditions to
Closing set forth in the Merger Agreement and will not be included in any amount
used in connection with the calculation of an amount constituting a Cerulean
Material Adverse Effect. For a description of the Settlement, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Settlement of Cerulean Conversion
Litigation."

Agreements with Affiliates

Cerulean will deliver to WellPoint a letter identifying all persons who, at
the Effective Time, may, in the reasonable opinion of counsel to Cerulean, be
deemed to be "affiliates" of Cerulean for purposes of Rule 145 under the
Securities Act. Cerulean will use its best efforts to cause each person who is
so identified as an "affiliate" to deliver to WellPoint on or prior to the
Effective Time a customary written agreement reasonably satisfactory to
WellPoint with respect to the shares of WellPoint Stock to be received by such
affiliate in connection with the Merger.

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Adjustments to the Merger Price

The Merger Agreement provides that the Aggregate Merger Price (as defined
in the Merger Agreement) will be adjusted in accordance with the following:

(a) Prior to the Closing, Cerulean will be entitled to request a
private letter ruling from the Service regarding (i) the application of the
provisions contained in Proposed Treasury Regulation sec. 280G-1, Q&A 24(b)
or (c) to reduce certain obligations payable in connection with the PUP,
(ii) the inapplicability of Section 280G of the Code to the funding of a
rabbi trust upon a change of control for amounts accrued under Georgia
Blue's Supplemental Executive Retirement Plan, Benefit Restoration Plan and
certain other nonqualified plans (the "Rabbi Trust Plans"), and (iii) the
inapplicability of Section 280G of the Code to certain bonus payments. If
Cerulean has obtained a private letter ruling prior to the Closing
providing that any Proposed Treasury Regulation sec. 280G-1, Q&A 24(b) or
(c) would apply to payments under the PUP, that Section 280G of the Code is
inapplicable to the funding of the rabbi trust upon the change of control
for amounts accrued under any of the Rabbi Trust Plans, or Section 280G of
the Code is inapplicable to the Annual Incentive Plan (each, an "Excluded
Payment"), the parties agree that the Aggregate Merger Price will be
increased by the amount of excise tax and related gross-up payments that
would have otherwise been payable absent the treatment of such amounts as
Excluded Payments up to a maximum increase in the Aggregate Merger Price of
$10 million. At the present time, Cerulean is considering whether to file a
request for such ruling. The Merger Agreement provides that Cerulean and
WellPoint will attempt to agree on the amount of any increase in the
Aggregate Merger Price resulting from Excluded Payments and, if no such
agreement can be reached, the matter may be submitted to binding
arbitration under the procedures set forth in the Merger Agreement.

(b) In the event the aggregate costs or liabilities resulting from a
change in control of Cerulean (excluding Excise Tax Payments and related
Gross-Up Payments to executives) under certain management plans described
above at "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of Certain
Persons in the Merger," and described in a memorandum incorporated into the
Merger Agreement exceed the aggregate estimated cost of $38.5 million as
specified in that memorandum by more than $1 million, then the Aggregate
Merger Price will be reduced on a dollar-for-dollar basis by the amount of
such excess and directly related costs (such as the Excise Tax Payments and
the Gross Up Payments under Section 280G of the Code).

(c) The Aggregate Merger Price will be reduced to the extent of
amounts paid by Cerulean to repurchase stock of Cerulean pursuant to the
Settlement. For a description of the Settlement, see "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS -- Settlement of Cerulean Conversion Litigation."

Employee Benefits

WellPoint and Merger Sub agree to provide to the retained employees of
Cerulean and the Cerulean Subsidiaries employee benefits comparable to the
employee benefits offered by WellPoint to its employees.

CONDITIONS TO THE CONSUMMATION OF THE MERGER

Conditions to Each Party's Obligations

The respective obligation of each party to effect the Merger and the other
transactions to be effected contemporaneous with or as a result of the Merger
will be subject to the fulfillment at or prior to the Effective Time of the
following conditions:

(a) Shareholder Approval; Consummation of Merger. The Merger
Agreement and the Merger will have been adopted at or prior to the
Effective Time by the requisite vote of the shareholders of Cerulean in
accordance with generally applicable law and the Articles of Incorporation
and Bylaws of Cerulean, and the Merger will have been consummated
concurrently with the Closing.

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(b) No Injunction. No order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction will have been enacted,
entered, promulgated or enforced by any court or governmental authority
which prohibits or prevents the consummation of the transactions
contemplated by the Merger Agreement, with each party agreeing to use its
best efforts to remove any such impediment to the consummation of the
Merger.

(c) HSR Act. Any waiting period applicable to the Merger under the
HSR Act will have expired, or earlier termination thereof will have been
granted.

(d) Effective Registration Statement. The Registration Statement will
have been declared effective by the Commission and no stop order suspending
the effectiveness of the Registration Statement will have been issued and
no proceeding for that purpose will have been initiated or threatened by
the Commission.

(e) NYSE Listing. The WellPoint Stock issuable in the Merger will
have been approved for listing on the NYSE upon notice of issuance.

(f) Consent of Georgia Commissioner and Other State Regulators. The
consent of the Georgia Commissioner, together with any other state
regulatory consents, will have been obtained pursuant to an order which by
its terms does not impose any Materially Burdensome Condition (as defined
below), and be in full force and effect, except for those the failure of
which to obtain or be in full force and effect would not have a "WellPoint
Material Adverse Effect". "Materially Burdensome Condition" will mean a
condition imposed upon Merger Sub, WellPoint, Cerulean or a Cerulean
Subsidiary which differs materially in character, degree or scope from
conditions commonly imposed by such consents and which would (i) materially
limit the ability of Merger Sub to operate the businesses of Cerulean and
the Cerulean Subsidiaries after the Merger or (ii) materially change the
material terms of the transaction.

(g) Approval of the BCBSA. The approval of BCBSA of the consummation
of the transactions contemplated by the Merger Agreement shall have been
obtained.

(h) Closing Price. The Closing Price will be greater than or equal to
$30 per share of WellPoint Stock, subject to appropriate adjustment in the
event of a stock split, stock dividend, recapitalization or other similar
event applicable to WellPoint Stock.

(i) Superior Proposal. In the event that Cerulean has provided
WellPoint with written notice of its intent to terminate the Merger
Agreement as a result of Cerulean's acceptance of a Superior Proposal, the
expiration of the seven (7) day period within which WellPoint may block
termination by submitting an equivalent or superior offer shall have
expired. See "-- Termination; Termination Fees" below.

Conditions to Obligations of Cerulean

The obligation of Cerulean to effect the Merger will be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions, any one or more of which may be waived in writing by Cerulean:

(a) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties of WellPoint and Merger
Sub must be true and correct in all material respects as if made on and as
of the Closing Date; provided, however, that with respect to the
representations and warranties other than those already qualified by a
WellPoint Material Adverse Effect, such representations and warranties will
be deemed true and correct in all material respects unless the failure of
such representations and warranties to be true and correct, whether
individually or in the aggregate, would result in a WellPoint Material
Adverse Effect.

(b) Certificate Delivered. WellPoint and Merger Sub will have
delivered to Cerulean a certificate executed by an authorized executive
officer to the effect that each of WellPoint and Merger Sub has performed
its obligations and that its representations and warranties are true at the
Closing Date as described in (a) above.

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(c) Opinion of Counsel to Cerulean. Cerulean will have received from
counsel to Cerulean an opinion, dated the Closing Date, that the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code.

(d) Fairness Opinion. The opinion of Morgan Stanley, dated as of the
date of the Proxy Statement, that the value of the consideration to be paid
to the shareholders of Cerulean in the Merger is fair from a financial
point of view to the shareholders of Cerulean, will not have been withdrawn
or amended or modified in any material respect.

(e) Certificate of Merger. Merger Sub will have executed and
delivered the Certificate of Merger as required by the Merger Agreement.

(f) Appointment of Cerulean Director. WellPoint will have taken all
action necessary to appoint to the Board of Directors of WellPoint the
person nominated pursuant to the terms of the Merger Agreement.

(g) Rule 145 Shares. WellPoint will have entered into a registration
rights agreement, with each person or entity which is a shareholder of
Cerulean as of the date of the Merger Agreement that will be subject to the
resale limitations of Sections (c) and (d) of Rule 145 promulgated under
the Securities Act.

(h) Required Consents. Any required material consents or approvals to
be obtained by WellPoint and Merger Sub, as contemplated hereby, will have
been obtained and be in full force and effect.

(i) No Material Adverse Change. There will have not occurred any
WellPoint Material Adverse Effect which has as its proximate cause an
action or inaction by WellPoint since the date of the Merger Agreement.

(j) Private Letter Ruling. In the event that a letter ruling from the
Service has been obtained pursuant to the terms of the Merger Agreement
concerning the several plans described above at "-- Covenants of the
Parties -- Adjustments to the Merger Price," Cerulean and WellPoint will
have agreed upon an amount of savings resulting from such ruling or, in the
event an arbitration has been instituted by either party pursuant to the
terms of the Merger Agreement, the arbitrator will have rendered a final
and binding decision regarding the amount of savings. Notwithstanding the
foregoing, obtaining such a letter ruling will not be a condition to
Closing.

(k) Officer's Certificate Regarding Certain Tax Matters. A duly
authorized officer of WellPoint shall have delivered to Cerulean's counsel
a customary officer's certificate regarding certain tax matters, in form
and substance reasonably satisfactory to Cerulean's counsel, to enable
Cerulean's counsel to render the tax opinion referenced in (c) above.

Conditions to Obligations of WellPoint and Merger Sub

In addition to the conditions to the obligations of Cerulean as described
above, the obligation of WellPoint and Merger Sub to effect the Merger will be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions, any one or more of which may be waived in writing by
WellPoint:

(a) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties of Cerulean must be true
and correct in all material respects as if made on and as of the Closing
Date; provided, however, that with respect to the representations and
warranties other than those already qualified by a Cerulean Material
Adverse Effect, such representations and warranties will be deemed true and
correct in all material respects unless the failure of such representations
and warranties to be true and correct, whether individually or in the
aggregate, would result in a Cerulean Material Adverse Effect; and provided
further, that no representation or warranty will be violated by reason of
the expiration of any Contract (as defined in the Merger Agreement) in
accordance with its terms.

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(b) Certificate Delivered. Cerulean will have delivered to WellPoint
a certificate executed by an authorized executive officer to the effect
that Cerulean has performed its obligations and that its representations
and warranties are true at the Closing Date as described in (a) above.

(c) Opinion of Counsel to WellPoint. WellPoint will have received
from counsel to WellPoint an opinion, dated the Closing Date, which will
include an opinion to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.

(d) Certificate of Merger. Cerulean will have executed and delivered
the Certificate of Merger in accordance with the terms of the Merger
Agreement.

(e) Required Consents. Any required material consents or approvals to
be obtained by Cerulean as contemplated hereby will have been obtained and
be in full force and effect.

(f) Settlement of Conversion Litigation. Cerulean will have effected
a settlement of the Conversion Litigation, and such settlement will have
been approved by the Superior Court of Fulton County in a final order (as
determined under the terms of the Settlement) that effectuates a settlement
of the Conversion Litigation and a dismissal of all claims brought by the
plaintiffs thereto, with prejudice against the plaintiffs and the class
represented thereby.

(g) No Other Litigation. There will not be pending any suit,
litigation or other similar proceeding relating to the Conversion, or to
the distribution of consideration contemplated by the Merger Agreement and
as to which there is a significant likelihood of material liability to
either WellPoint, Cerulean or any of their affiliates (a "Material Case");
provided, however, that in the event WellPoint notifies Cerulean that it
considers a matter to be a Material Case, Cerulean and WellPoint agree that
Cerulean may refer the matter to an arbitrator (under the procedures set
forth in the Merger Agreement) for a determination of whether the matter is
a Material Case.

(h) No Material Adverse Effect. There will not have occurred any
Cerulean Material Adverse Effect which has as its proximate cause an action
or inaction by Cerulean since the date of the Merger Agreement.

(i) Receipt of Agreements of Affiliates. WellPoint will have received
from each person who is identified as an "affiliate" of Cerulean for
purposes of Rule 145 under the Securities Act a customary written agreement
with respect to the shares of WellPoint Stock to be received by such
affiliate in the Merger.

(j) Conversion of Warrants. Prior to the Effective Time, all
outstanding Warrants to purchase Series A Stock will have been exercised in
the manner specified in the related warrant agreement without payment of
cash.

(k) Amendment of Shareholders' Agreement. At least 10 days prior to
the Effective Time, the Shareholders' Agreement will have been amended to
eliminate from the definition of "Registrable Stock" any shares of
WellPoint Common Stock issued in the Merger pursuant to a registration
statement on Form S-4.

(l) Officer's Certificate Regarding Certain Tax Matters. A duly
authorized officer of Cerulean shall have delivered to WellPoint an
Officer's Certificate Regarding Certain Tax Matters in substantially the
form of an exhibit to the Merger Agreement.

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TERMINATION; TERMINATION FEES

Termination

The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after approval by the
shareholders of Cerulean:

(a) By the written agreement of Cerulean and WellPoint;

(b) By either of Cerulean or WellPoint if the Merger shall not have
been consummated on or before the one year anniversary of the Merger
Agreement (or such later date as may be agreed to by Cerulean and
WellPoint); provided, however, neither Cerulean nor WellPoint may terminate
the Merger Agreement under this Section if the failure has been caused by
such party's material breach or default of its obligations under the Merger
Agreement;

(c) By Cerulean in writing, without liability, if WellPoint or Merger
Sub shall have (i) materially breached any of their respective covenants or
(ii) breached any of their respective representations or warranties which,
individually or in the aggregate, has resulted in a WellPoint Material
Adverse Effect, which breach is not cured within thirty (30) days after
Cerulean has notified WellPoint of its intent to terminate the Merger
Agreement pursuant to this subparagraph (c);

(d) By WellPoint and Merger Sub in writing, without liability, if
Cerulean shall have (i) materially breached any of its covenants or (ii)
breached any of its representations or warranties which, individually or in
the aggregate, has resulted in a Cerulean Material Adverse Effect, which
breach is not cured within thirty (30) days after WellPoint has notified
Cerulean of its intent to terminate the Merger Agreement pursuant to this
subparagraph (d);

(e) By either Cerulean or WellPoint in writing, without liability, if
any order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits or prevents
the consummation of the transactions contemplated hereby, provided that
WellPoint, Merger Sub and Cerulean will have used their respective best
efforts to have any such order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction vacated, lifted or stayed and the same
will not have been vacated, lifted or stayed within 30 days after entry, by
any such court or governmental or regulatory agency;

(f) By Cerulean in writing, without liability other than for a
termination fee (as described below), if the Board of Directors of Cerulean
authorizes Cerulean to execute a binding written agreement with respect to
a transaction that constitutes a Superior Proposal; provided, however, that
prior to any termination, (i) the Board of Directors of Cerulean shall have
determined in good faith that contemplation of such Superior Proposal and
terminating the Merger Agreement is necessary for such Board of Directors
to comply with its fiduciary duties under applicable law, (ii) Cerulean
shall have notified WellPoint in writing that it intends to enter into such
an agreement and provide WellPoint with the then-current version of the
proposed definitive documentation for such transaction and, (iii) WellPoint
has not, within seven (7) days after the receipt of such written notice,
provided a written offer that the Board of Directors of Cerulean determines
in good faith, after application of the analysis set forth in the Merger
Agreement, to be at least as favorable as the Superior Proposal; or

(g) By either of Cerulean or WellPoint in writing, without liability
other than for a termination fee payable by Cerulean to WellPoint in
connection with a failure of the holders of Class B Stock to approve the
Merger, if (i) Cerulean's shareholders decline to approve the Merger, (ii)
the Georgia Commissioner declines to approve the Merger, (iii) the FTC or
the Justice Department declines to approve the Merger under the HSR Act, or
(iv) BCBSA declines to approve the Merger.

Termination Fees

In the event of termination pursuant to subparagraphs (f) or (g) above (if,
but only if, in the case of subparagraph (g), such termination results from the
failure of the holders of Class B Stock to approve the

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<PAGE> 81

Merger), Cerulean will be obligated to pay to WellPoint within 15 days after
such termination a termination fee of $10 million, which WellPoint and Cerulean
agree will be the appropriate measure of liquidated damages of WellPoint and
which will represent complete reimbursement of expenses incurred by WellPoint up
to the date of termination and will constitute the total damages and sole remedy
of WellPoint and Merger Sub upon the termination of the Merger Agreement
pursuant to subparagraphs (f) or (g).

COSTS AND EXPENSES

If the Merger is not consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs or expenses, subject to the
rights of such party contemplated under the termination provisions of the Merger
Agreement with respect to a willful breach, violation or default by the other
party. See "-- Termination; Termination Fees" above.

AMENDMENT AND WAIVER

No amendment, modification or alteration of the terms or provisions of the
Merger Agreement will be binding unless the same will be in writing and duly
executed by the parties thereto.

Any of the terms or conditions of the Merger Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof. No
waiver of any of the provisions of the Merger Agreement will be deemed to be or
will constitute a waiver of any other provision of the Merger Agreement (whether
or not similar).

DISSENTERS' RIGHTS

Pursuant to Sections 14-2-1301 through 14-2-1332, inclusive, of the GBCC, a
Dissenting Shareholder who desires to receive the fair value of his or her Class
A Stock or Class B Stock in cash by following the procedure described below
rather than to receive the Merger Consideration as part of the Merger may do so
if he or she complies with the provisions of the GBCC pertaining to the exercise
of dissenters' rights. The right to exercise dissenters' rights was granted to
the holders of Class A Stock and holders of Class B Stock by resolution of the
Cerulean Board of Directors. The following is a summary of the provisions of the
GBCC and is qualified in its entirety by reference to such provisions, a copy of
which is attached as Appendix C hereto.

The GBCC provides that any Dissenting Shareholder desiring to object to the
Merger and receive payment in cash for the fair value of his or her Class A
Stock or Class B Stock must deliver, prior to the vote of the holders of Class A
Stock or Class B Stock, respectively, written notice of his or her intent to
demand payment of the fair value of his or her shares of Class A Stock or Class
B Stock if the Merger is effectuated. The notice must be delivered to Cerulean
Companies, Inc., 3350 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention:
Hugh J. Stedman, Corporate Secretary. Further, the Dissenting Shareholder must
not vote his or her shares in favor of the Merger Agreement.

If the Merger Agreement and the transactions contemplated thereby are
approved by the Cerulean Shareholders, Cerulean is required to send by
registered or certified mail written notice (the "Dissenters' Notice") to each
of the Dissenting Shareholders who filed a written notice of his or her intent
to dissent. The Dissenters' Notice shall (i) state where the Dissenting
Shareholders' First Payment Demand (as defined below) must be sent, (ii) inform
the holders of uncertificated shares to what extent transfer of such shares will
be restricted after payment demand is made, (iii) state the date by which
Cerulean must receive the First Payment Demand, which date shall be fixed by
Cerulean and shall not be fewer than 30 nor more than 60 days after the date the
Dissenters' Notice is delivered, and (iv) contain a copy of Article 13 of the
GBCC relating to dissenters' rights. Any Dissenting Shareholder who voted for or
consented in writing to the Merger Agreement shall not be entitled to a
Dissenters' Notice from Cerulean or to receive payment of the fair value of his
or her shares of Class A Stock or Class B Stock pursuant to the dissenters'
rights provisions of the GBCC. Cerulean is required to send the Dissenters'
Notice to each of the Dissenting Shareholders no later than ten days after the
date on which the Cerulean shareholders vote to authorize the Merger Agreement
and the transactions contemplated thereby. The Dissenters' Notice will be sent
to each Dissenting Shareholder at
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<PAGE> 82

his or her address as it appears in the stock transfer books of Cerulean or at
such address as the Dissenting Shareholder supplies by notice to Cerulean.

Each Dissenting Shareholder to whom Cerulean sends a Dissenter's Notice
must demand payment for his or her shares by written notice to Cerulean (the
"First Payment Demand") in accordance with the terms of the Dissenters' Notice.
The First Payment Demand must contain the name and address of the Dissenting
Shareholder, the number of shares as to which the Dissenting Shareholder is
demanding payment (which must be all of the shares of capital stock of Cerulean
which he or she owns) and a demand for payment to the Dissenting Shareholder of
the fair value of his or her shares. Any Dissenting Shareholder who does not
submit a First Payment Demand as set forth in the Dissenters' Notice shall lose
his or her rights to dissent and shall not be entitled to payment for his or her
shares pursuant to the dissenters' rights provisions of the GBCC.

Within ten days of the later of the Closing Date of the Merger or
Cerulean's receipt of the First Payment Demand, Cerulean shall offer to pay the
Dissenting Shareholders who have complied with the provisions of the GBCC the
amount Cerulean estimates to be the fair value of the shares plus accrued
interest. Cerulean's offer of payment shall be accompanied by (i) Cerulean's
balance sheet as of the fiscal year ended not more than 16 months before the
date of payment, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (ii) a statement of Cerulean's estimate of the fair value of
the shares; (iii) an explanation of how the interest was calculated; (iv) a
statement of the Dissenting Shareholder's right to demand payment of a different
amount if the Dissenting Shareholder is dissatisfied with the offer; and (v) a
copy of Article 13 of the GBCC.

If a Dissenting Shareholder accepts Cerulean's offer by providing written
notice to Cerulean within 30 days after the date the offer is made or is deemed
to have accepted such offer by failure to respond within said 30 days, Cerulean
shall make payment for the Dissenting Shareholder's Class A Stock within 60 days
after the date Cerulean made the offer or the date on which the Merger occurs,
whichever date is later. If a Dissenting Shareholder is dissatisfied with
Cerulean's offer, such Dissenting Shareholder may notify Cerulean in writing of,
and demand payment of, his or her own estimate of the fair value of his or her
shares and the amount of interest due (the "Second Payment Demand"). A
Dissenting Shareholder waives his or her right to demand payment of a different
amount than that offered by Cerulean unless such Dissenting Shareholder makes a
Second Payment Demand within 30 days after the date Cerulean makes its offer.

In the event a Dissenting Shareholder's Second Payment Demand remains
unsettled within 60 days after Cerulean receives the Dissenting Shareholder's
Second Payment Demand, Cerulean shall commence a nonjury equitable valuation
proceeding in the Superior Court of Fulton County, Georgia to determine the fair
value of the shares and accrued interest. Cerulean shall make all Dissenting
Shareholders whose Second Payment Demand remains unsettled parties to the court
proceeding. In the proceeding, the court will fix a value of the shares and may
appoint one or more appraisers to receive evidence and recommend a decision on
the question of fair value. If Cerulean does not commence the proceeding within
60 days after receiving the Dissenting Shareholder's Second Payment Demand,
Cerulean shall pay each Dissenting Shareholder whose Second Payment Demand
remains unsettled the amount demanded by each such Dissenting Shareholder in his
or her Second Payment Demand.

The determination of a "fair value" necessarily involves matters of
judgment upon which reasonable persons may disagree. The GBCC provides that, for
purposes of dissenters' rights, the value of the Class A Stock or Class B Stock
is determined immediately before the Effective Time and that the fair value
excludes any appreciation or depreciation in anticipation of the Merger.

At the time of the Meeting, Cerulean will calculate the total number of
shares of Class A Stock and of Class B Stock which are the subject of
appropriate notices from Dissenting Shareholders, and Cerulean and WellPoint
will determine the appropriate amount to be withheld from the cash available to
other shareholders who make the Cash Election described at "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Consideration to be Received in the Merger."

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<PAGE> 83

RELATED AGREEMENT

REGISTRATION RIGHTS AGREEMENT

Under the terms of the Merger Agreement, WellPoint agreed to enter into the
Registration Rights Agreement with GSH. As an affiliate of Cerulean, GSH's
resales of the shares of WellPoint Stock that it receives in the Merger will be
subject to the resale restrictions of Rule 145 promulgated under the Securities
Act as described at "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of
Certain Persons in the Merger." In order to partly address these restrictions,
which are not applicable to other Cerulean shareholders receiving WellPoint
Stock in the Merger, the Registration Rights Agreement grants certain rights to
GSH to cause WellPoint to register GSH's shares of WellPoint Stock under the
Securities Act as described below.

Shelf Registration Rights. The Registration Rights Agreement provides that
at the Effective Time, WellPoint will have effective a registration statement
(the "Shelf Registration Statement") under the Securities Act providing for
resales by GSH of its shares of WellPoint Stock, and this Shelf Registration
Statement will remain effective for a period ending on the 90th day after the
Effective Time. However, after 30 days from the Effective Time, upon receipt of
written notice from WellPoint, GSH must refrain from making any sales under the
Shelf Registration Statement for one period of up to ten days. The effective
period of the Shelf Registration Statement will be extended by the number of
days that GSH refrained from effecting transactions as requested by such written
notice from WellPoint.

Demand Registration Rights. GSH is entitled to make up to four demands
(each a "Demand") that WellPoint register shares of WellPoint Stock held by GSH
with an aggregate market value of at least $1 million on each occasion, provided
that WellPoint has the option to repurchase any shares that are the subject of a
Demand. If WellPoint does not exercise its repurchase option, it is obligated to
use its best efforts to effect the requested registration under the Securities
Act, provided, that:

(A) if, prior to receipt of a registration request, WellPoint has
commenced a financing plan, and a registration at the time and on the terms
requested could materially and adversely affect or interfere with such
financing plan, WellPoint will not be required to effect a registration
until the earliest of (i) the abandonment of such offering, (ii) 30 days
after the termination of such offering, (iii) the termination of any "hold
back" period obtained by the underwriters of such offering, or (iv) 30 days
after receipt by GSH of the written notice from WellPoint; or

(B) if either (i) the filing of a registration statement could
jeopardize or delay a material transaction other than a financing plan
contemplated by WellPoint or would require the disclosure of material
information that WellPoint needs to preserve as confidential, or (ii)
WellPoint then would be unable to comply with the requirements of the
Commission, then WellPoint will not be required to effect a registration
until the earlier to occur of (x) the date upon which such contemplated
transaction is completed or abandoned or such material information is
otherwise disclosed to the public or ceases to be material or WellPoint is
able to so comply with applicable Commission requirements, as the case may
be, and (y) 30 days after WellPoint makes such good-faith determination;

provided, that WellPoint will only be permitted to delay a requested
registration once during the term of the Registration Rights Agreement, whether
in reliance on subsection (A) or (B) above.

WellPoint must keep any registration statement filed pursuant to a Demand
effective for 30 days. One of GSH's Demands may be for an underwritten offering,
provided that such Demand must relate to the registration of shares of WellPoint
Stock with an aggregate market value of at least $20 million.

Piggyback Registration Rights. Subject to certain limitations set forth in
the Registration Rights Agreement, if, at any time during the term of the
Registration Rights Agreement, WellPoint proposes to register any of its
WellPoint Stock or any other of its common equity securities under the
Securities Act (other than a registration on Form S-4 or Form S-8), GSH will
have certain rights to include in such registration statement such number of its
shares of WellPoint Stock as GSH may request.

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<PAGE> 84

The California Foundation's Rights. Under the Amended and Restated
Registration Rights Agreement dated as of August 4, 1997, between WellPoint and
the California Foundation, the California Foundation holds registration rights
consisting of one demand right per year (the "Foundation Demand"), a single
additional demand registration right and unlimited piggyback registration
rights. The Registration Rights Agreement provides that WellPoint will not
effect more than one registration statement pursuant to a Foundation Demand
during the pendency of the Shelf Registration Statement. After the filing of the
registration statement that is the subject of a Foundation Demand, upon the
request of the California Foundation, GSH will not request registration of its
shares of WellPoint Stock and will suspend sales under any then-effective
registration statement for up to 45 days beginning on the date that is requested
by the California Foundation, which date will not be later than the completion
of the California Foundation's offering. The effective period of the Shelf
Registration Statement will be extended by the number of days that GSH was
unable to effect transactions pursuant to such a request by the California
Foundation.

Term. The Registration Rights Agreement will expire upon the earlier to
occur of (i) one year from the date of the Registration Rights Agreement, and
(ii) the date on which GSH no longer owns any shares of WellPoint Stock or other
securities into which shares of WellPoint Stock may be converted or changed, the
disposition of which requires registration under the Securities Act.

Expenses and Indemnification. WellPoint will pay all registration expenses
in connection with any registration made under the Registration Rights
Agreement, except any commissions or underwriting discount. WellPoint has agreed
to indemnify GSH against certain liabilities in connection with any registration
statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SETTLEMENT OF CERULEAN CONVERSION LITIGATION

On September 3, 1997, plaintiffs, Let's Get Together, Inc.; Statewide
Independent Living Council of Georgia, Inc.; Living Independence for Everybody,
Inc.; Aids Survival Project, Inc.; Women's Policy Education Fund, Inc.;
Disability Connections -- The Middle Georgia Center for Independent Living,
Inc.; Physicians for a National Health Program, Inc.; Campaign for a Prosperous
Georgia, Inc.; and Friends and Survivors Standing Together, Inc., on behalf of
themselves and others similarly situated (collectively, "Plaintiffs"), filed a
Complaint for Declaratory Judgment and Other Relief (the "Complaint") against
defendants, the Georgia Commissioner, Georgia Blue and Cerulean in the Superior
Court of Fulton County, Georgia. The Plaintiffs alleged in the Complaint that
they are non-profit charitable organizations under Section 501(c)(3) of the Code
and sought to represent a class of plaintiffs consisting of all non-profit
corporations under Section 501(c)(3) of the Code in the State of Georgia on
December 27, 1995, excluding any subsidiaries or affiliates of Georgia Blue or
Cerulean. In the complaint, Plaintiffs sought a declaratory judgment that the
statute pursuant to which Georgia Blue converted from a non-profit corporation
to a for-profit business corporation is unconstitutional under the Constitution
of the State of Georgia and the Constitution of the United States of America;
that the provisions of the statute, as applied to the conversion and acquisition
of Georgia Blue by Cerulean, unconstitutionally took the fair market value of
the assets of Georgia Blue from the public trust in violation of vested rights,
due process, the anti-gratuities doctrine, the separation of powers doctrine,
and the cy pres doctrine; that the Conversion Order issued by the Georgia
Commissioner on December 27, 1995 was null and void because it was based on
unconstitutional statutory provisions; and that the fair market value of the
assets of Georgia Blue as of December 27, 1995 is subject to a charitable trust
of which Plaintiffs and their class members are designated beneficiaries.
Plaintiffs also sought an order from the Court that the fair market value of the
assets of Georgia Blue be returned to a public charitable trust for the benefit
of Plaintiffs and their class members, and that Plaintiffs be awarded their
expenses of litigation and attorneys fees. Plaintiffs subsequently amended their
Complaint to include claims for money had and received and unjust enrichment
arising out of these same allegations.

On October 3, 1997, Georgia Blue and Cerulean filed answers to the
Complaint denying liability and asserting certain affirmative defenses and on
October 31, 1997, filed a Motion to Dismiss Or, In the

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<PAGE> 85

Alternative, Motion for Summary Judgment (the "Motion to Dismiss"), along with
supporting pleadings and evidence. The Motion to Dismiss sought an order from
the Court dismissing all of Plaintiffs' claims against Georgia Blue and Cerulean
in their entirety. The parties have conducted discovery, including depositions
and document production. The Motion to Dismiss was pending before the Court at
the time of the settlement of the Conversion Litigation.

On November 3, 1997, Plaintiffs, as Petitioners, filed a Petition for
Judicial Review (the "Judicial Review Petition") in the Superior Court of Fulton
County, Georgia seeking to have that Court set aside an order entered by the
Georgia Commissioner on October 3, 1997, in which the Georgia Commissioner
denied a petition filed by the Plaintiffs on September 3, 1997 seeking
substantially the same relief from the Georgia Commissioner as was set forth in
the Complaint. On November 21, 1997, Georgia Blue and Cerulean filed a Response
to the Judicial Review Petition, seeking its dismissal. On July 16, 1998, the
Superior Court of Fulton County entered an order affirming the Georgia
Commissioner's October 3, 1997 decision. Plaintiffs filed a Motion to Vacate
Order on July 22, 1998 and a Motion for Reconsideration on July 28, 1998 and on
August 14, 1998, the Superior Court of Fulton County entered an order vacating
the July 16, 1998 order.

On July 8, 1998, Cerulean and Georgia Blue entered into the Settlement of
the Conversion Litigation which was filed with the Court on that day. On July 9,
1998, the Court entered a preliminary order setting a final approval hearing for
the Settlement for August 20, 1998. On August 17, 1998, six individuals,
including two shareholders of Cerulean (the "Proposed Intervenors") filed a
motion to intervene in the lawsuit and an objection to the Settlement. On August
20, 1998, Georgia Blue and Cerulean filed an opposition to the motion to
intervene. On August 20, 1998, the Court conducted the final approval hearing
and heard arguments from the parties, the Proposed Intervenors and a potential
member of the Plaintiffs' class. On August 21, 1998, the judge denied the motion
to intervene filed by the Proposed Intervenors and entered a final order
approving the Settlement.

Pursuant to the terms of the Settlement, the parties have agreed to form
the Foundation, which will be a Georgia non-profit corporation named "Healthcare
Georgia, Inc. Endowed by Blue Cross and Blue Shield of Georgia," whose purpose
will be the advancement of health care for all Georgians. The Foundation will be
endowed with shares of Class A Stock amounting to approximately 9.5% of the
total equity of Cerulean outstanding after issuance of the securities to be
issued in the Settlement and Warrants for the acquisition of Series A Stock
amounting to approximately 10.5% of the total equity of Cerulean, for an
aggregate warrant exercise price of $21 million. (Together, the Class A Stock
and Series A Stock represented by the warrants will equal 20% of the total
equity after the issuance of those securities in consummation of the
Settlement.) Pursuant to the terms of the Settlement, six months after the
effective date of the Settlement and before the one year anniversary of that
effective date, a number of shares of the Class A Stock issued in the Settlement
aggregating five-tenths (.5%) percent of the total equity of Cerulean may be
tendered to Cerulean and Cerulean will be obliged to purchase such shares for an
aggregate purchase price of $l million. In addition, Georgia Blue will pay $1
million to the Foundation (net of any amount paid to the counsel for Plaintiffs)
on the effective date of the Settlement. The effective date of the Settlement
will be the date on which all appeal periods have expired after the entry of the
final order or, if an appeal is filed, the date of final affirmance of the final
order and the expiration of the time for seeking further review or, if such
further review is granted, the date of final affirmance following such review
or, in the alternative, the date of final dismissal of any appeal or of any
proceeding for further review. Pursuant to the Settlement, the Georgia
Commissioner is to be dismissed with prejudice in the judgment.

The shares of Class A Stock to be issued to the Foundation will have all of
the same terms and provisions as the other shares of Class A Stock as provided
in the Cerulean Articles, except that, as described above, the Foundation will
have the right to tender for redemption shares of Class A Stock for an aggregate
redemption price of $1 million. Under the Cerulean Articles, this redemption
right must be separately authorized by holders of a majority of the shares of
Class B Stock and is subject to be considered and acted upon at the meeting of
holders of Class B Stock.

The Warrant is exercisable for shares of Series A Stock. The Series A Stock
is a new series of preferred stock created specifically for the Settlement.
Series A Stock has all of the economic attributes of Class A

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<PAGE> 86

Stock, and each share of Series A Stock is the economic equivalent of a share of
Class A Stock. The Series A Stock, however, has no voting rights. In those
events in which there is a statutory voting right accorded to any class or
series of capital stock, the Series A Stock automatically converts into a
Cerulean Right. The Cerulean Rights are the economic equivalent of one share of
Class A Stock but have no voting rights. Consequently, the effect of the
issuance of the Warrants and the Series A Stock is that there are no
circumstances under which the equity interest represented by the Warrants has
any voting rights.

The Warrants also provide that upon the occasion of certain so-called
"Major Events," the Warrants must be exercised in a cashless exercise. The
Merger is such a Major Event. The effect of this provision is that the Warrants
will be automatically converted into shares of Series A Stock according to a
formula provided in the Warrants which pays the exercise price of the Warrants
from the appreciated value represented by the underlying Series A Stock and
therefore reduces the overall percentage participation by the Series A Stock in
the Merger Consideration. Based upon the purchase price reflected in the Merger
Agreement, the number of shares of Series A Stock issuable upon exercise of the
Warrants will represent approximately 6.2% of the total Merger Consideration.
The Series A Stock has been authorized by the Cerulean Board of Directors and,
upon its being also authorized by holders of a majority of the outstanding
shares of Series B Stock at the meeting of the holders of Class B Stock, an
amendment to the Cerulean Articles creating and authorizing the Series A Stock
will be filed with the Georgia Secretary of State.

INTERESTS OF CERULEAN MANAGEMENT

As a consequence of the Merger, certain Cerulean officers and other members
of Cerulean management become entitled to certain payments under various plans
and agreements described elsewhere at "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Interests of Certain Persons in the Merger -- Payments to Management
Resulting from the Merger."

INTERESTS OF CERULEAN CLASS B SHAREHOLDERS

Mr. Young (a Cerulean director) is an affiliate of a holder of Class B
Stock and GSH, of which Mr. Hanna (a Cerulean director) is an affiliate, is the
majority holder of Class B Stock and, as such, will receive a substantial number
of shares of WellPoint Stock which are the subject of the Registration Rights
Agreement as described elsewhere at "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Resale of WellPoint Stock; Restrictions on Resales by Affiliates" and
"PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of Certain Persons in the
Merger."

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WELLPOINT HEALTH NETWORKS INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following sets forth the unaudited pro forma combined condensed balance
sheet for WellPoint as of June 30, 1998, and the unaudited pro forma combined
condensed income statements for the six months ended June 30, 1998 and for the
year ended December 31, 1997. The Unaudited Pro Forma Combined Condensed
Financial Statements include historical amounts of WellPoint, the group benefit
operations (the "GBO Operations") of John Hancock Mutual Life Insurance Company
(which were acquired by WellPoint as of March 1, 1997) and Cerulean, adjusted to
reflect their acquisition by WellPoint. Reference is made to the Notes to the
Unaudited Pro Forma Combined Condensed Financial Statements for a discussion of
such transactions. The Cerulean balance sheet is presented on a classified basis
to be consistent with WellPoint's presentation. The WellPoint income statement
for the year ended December 31, 1997 reflects WellPoint's workers' compensation
business segment as a discontinued operation. For the purpose of presenting the
unaudited pro forma combined condensed balance sheet, the Merger is considered
to have occurred as of June 30, 1998, while the unaudited pro forma combined
condensed income statements are presented on the basis that such transactions
occurred as of the beginning of each period presented. The Unaudited Pro Forma
Combined Condensed Financial Statements also assume that WellPoint has issued a
number of new shares of WellPoint Stock with an aggregate value of $275 million.
The remainder of the Merger is assumed to be financed with the issuance of $225
million of debt, which represents the maximum cash payments to Cerulean
shareholders under the terms of the Merger Agreement.

As further discussed in the Notes to the Unaudited Pro Forma Combined
Condensed Financial Statements, the acquisition of the GBO Operations and the
pending merger with Cerulean are accounted for using the purchase method of
accounting, whereby the respective assets and liabilities of the GBO Operations
and Cerulean are recorded at their estimated fair value.

Certain data and notes normally included in financial statements in
accordance with generally accepted accounting principles have been condensed or
omitted. The unaudited pro forma combined condensed balance sheet is not
necessarily indicative of the financial condition of WellPoint had the Merger
been completed as of June 30, 1998. The unaudited pro forma combined condensed
income statements are not necessarily indicative of the results of operations of
WellPoint had the acquisition of the GBO operations and the Merger actually been
completed as of the dates indicated. In addition, the Unaudited Pro Forma
Combined Condensed Financial Statements are not necessarily indicative of the
future financial condition or results of operations of WellPoint. The pro forma
financial information should be read in conjunction with the historical
consolidated financial statements of Cerulean, which are included in this Proxy
Statement/Prospectus, and the historical financial statements of WellPoint,
which are incorporated by reference or included herein.

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WELLPOINT HEALTH NETWORKS INC.

PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
WELLPOINT CERULEAN ADJUSTMENTS TOTAL
---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and current investments......... $2,449,875 $354,447 $2,804,322
Other current assets................. 699,545 165,379 $(24,188)(1)(2) 840,736
---------- -------- -------- ----------
Total current assets....... 3,149,420 519,826 (24,188) 3,645,058
Intangible assets.................... 635,121 318,654(1) 953,775
Other non-current assets............. 318,587 74,418 393,005
---------- -------- -------- ----------
Total non-current assets... 953,708 74,418 318,654 1,346,780
---------- -------- -------- ----------
Net assets of discontinued operations
held for sale...................... 100,408 100,408
---------- -------- -------- ----------
Total assets............... $4,203,536 $594,244 $294,466 $5,092,246
========== ======== ======== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Medical claims payable, loss reserves
and reserves for future policy
benefits........................... $1,024,235 $229,111 $(28,554)(2) $1,224,792
Unearned premiums.................... 191,282 7,515 198,797
Experience rated and other refunds... 231,742 10,437 242,179
Other current liabilities............ 731,276 54,497 72,695(1)(2) 858,468
---------- -------- -------- ----------
Total current
liabilities.............. 2,178,535 301,560 44,141 2,524,236
Long-term loss reserves and reserves
for future policy benefits......... 335,675 335,675
Long-term debt....................... 298,000 225,000(3)(4) 523,000
Other non-current liabilities........ 110,057 43,009 153,066
---------- -------- -------- ----------
Total liabilities.......... 2,922,267 344,569 269,141 3,535,977
Mandatorily redeemable preferred
stock.............................. 46,645 (46,645)(1)
Total stockholders' equity........... 1,281,269 203,030 71,970(1)(3)(4) 1,556,269
---------- -------- -------- ----------
Total liabilities and
stockholders' equity..... $4,203,536 $594,244 $294,466 $5,092,246
========== ======== ======== ==========
</TABLE>

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

70
<PAGE> 89

WELLPOINT HEALTH NETWORK INC.

PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
WELLPOINT CERULEAN ADJUSTMENTS TOTAL
---------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................. $3,146,035 $ 839,723 $(83,504)(5) $ 3,902,254
Expenses.................................. 2,965,016 826,693 (78,952)(5)(6) 3,712,757
---------- --------- -------- -----------
Operating and other income................ 181,019 13,030 (4,552) 189,497
Interest expense.......................... 14,608 7,549(7) 22,157
---------- --------- -------- -----------
Income before provision (benefit) for
income taxes and minority interests..... 166,411 13,030 (12,101) 167,340
Provision (benefit) for income taxes...... 66,467 3,736 (1,446)(8) 68,757
Minority interest in earnings of joint
venture investments..................... (1,895) (1,895)
---------- --------- -------- -----------
Income from Continuing Operations......... $ 99,944 $ 7,399 $(10,655) $ 96,688
========== ========= ======== ===========
Earnings per share........................ $ 1.43 $ 1.29(9)
========== ===========
Earnings per share assuming full
dilution................................ $ 1.40 $ 1.27(9)
========== ===========
Weighted average number of shares
outstanding............................. 70,003 4,746(10) 74,749
========== ======== ===========
Weighted average number of shares
outstanding including CSE's............. 71,174 4,746(10) 75,920
========== ======== ===========
</TABLE>

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

71
<PAGE> 90

WELLPOINT HEALTH NETWORKS INC.

PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
GBO
WELLPOINT OPERATIONS CERULEAN ADJUSTMENTS TOTAL
---------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues......................... $5,642,238 $126,732 $1,543,910 $ (177,950)(5)(11) $7,134,930
Expenses......................... 5,219,226 136,729 1,543,022 (172,574)(5)(8)(12)(13) 6,726,403
---------- -------- ---------- ---------- ----------
Operating and other income....... 423,012 (9,997) 888 (5,376) 408,527
Interest expense................. 36,658 15,098(7) 51,756
---------- -------- ---------- ---------- ----------
Income before provision (benefit)
for income taxes and minority
interests...................... 386,354 (9,997) 888 (20,474) 356,771
Provision (benefit) for income
taxes 156,917 (3,495) (2,050) (2,827)(5)(14) 148,545
Minority interest in loss of
joint venture investments...... 1,460 1,460
---------- -------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations..................... $ 229,437 $ (6,502) $ 4,398 $ (17,647) $ 209,686
========== ======== ========== ========== ==========
Earning per share................ $ 3.33 $ 2.85(8)
========== ==========
Earning per share assuming full
dilution....................... $ 3.30 $ 2.83(9)
========== ==========
Weighted average number of shares
outstanding.................... 68,811 4,746(10) 73,557
========== ========== ==========
Weighted average number of shares
outstanding including CSE's.... 69,462 4,746(10) 74,208
========== ========== ==========
</TABLE>

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

72
<PAGE> 91

WELLPOINT HEALTH NETWORKS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

On March 1, 1997 WellPoint completed the acquisition of the GBO Operations.

On July 9, 1998, WellPoint executed a definitive agreement to merge with
Cerulean. This transaction is expected to close in the fourth quarter of 1998.

(1) The net increase in intangible assets is a result of the excess of cost
over the fair market value of the net assets of Cerulean (at an estimated
purchase price of $500 million) and certain estimated purchase price
adjustments related to the Merger. The purchase results in the elimination
of the preferred stock and equity of Cerulean and increases certain
liabilities for expected costs related to the Merger, net of an increase in
the deferred tax asset of $9.2 million.

(2) Reclassifications to present certain Cerulean assets and liabilities on a
basis consistent with the presentation in WellPoint's financial statements.

(3) Reflects the incurrence of indebtedness of $225 million to finance the cash
component of the Merger and the issuance of WellPoint Stock with a value of
$275 million in connection with the Merger.

(4) These pro forma financial statements assume that the Merger is financed 45%
with debt and 55% through the issuance of WellPoint Stock (see Note 3). If
the Merger were to be financed 100% through the incurrence of indebtedness,
of which $225 million is assumed to be paid to Cerulean shareholders and
the remainder is used to purchase shares of WellPoint Stock in the open
market or through privately negotiated transactions based on the stock
price at the date of closing, the effect would be to increase pro forma
debt and decrease pro forma equity by $275 million. WellPoint has received
authorization and currently expects that it will purchase shares of
WellPoint Stock prior to and following the Merger in an amount less than or
equal to the number of shares to be issued in connection with the Merger.
If the WellPoint Stock were to be repurchased at a price other than the
stock price at the date of closing, the total amount of indebtedness
incurred would be more or less than $500 million, depending upon the
relationship of the stock price at the date of repurchase to the stock
price at the date of closing.

(5) Reclassifications to present certain Cerulean revenue and expense items on
a basis consistent with the presentation in WellPoint's financial
statements.

(6) Reflects the adjustment required to amortize, from January 1, 1998 through
June 30, 1998 and for the year ended December 31, 1997, the intangible
assets of $318.7 million estimated to be created as a result of the Merger
on a straight-line basis over 35 years.

(7) The increase in interest expense reflects the cost of $225 million of
indebtedness incurred to finance the Merger (see Note 3) at an assumed rate
of 6.71% per annum, which represents an estimate of WellPoint's marginal
cost of borrowing.

(8) Reflects the tax effect of the pro forma adjustments to effect the Merger.

(9) These pro forma financial statements assume that the Merger is financed 45%
with debt and 55% through the issuance of WellPoint Stock (see Note 3). If
the Merger were to be financed 100% through the incurrence of indebtedness,
of which $225 million is assumed to be paid to Cerulean shareholders and
the remainder is used to purchase shares of WellPoint Stock in the open
market or through privately negotiated transactions based on the stock
price at the date of closing, the effect would be to increase pro forma
basic and diluted earnings per share by $0.01 for the six months ended June
30, 1998 and to increase basic earnings per share by $0.04 and diluted
earnings per share by $0.03 for the year ended December 31, 1997. WellPoint
has received authorization and currently expects that it will purchase
shares of WellPoint Stock prior to and following the Merger in an amount
less than or equal to the number of shares to be issued in connection with
the Merger. If the WellPoint Stock were to be repurchased at a price other
than the stock price at the date of closing, the total amount of
indebtedness

73
<PAGE> 92

incurred would be more or less than $500 million, depending upon the
relationship of the stock price at the date of repurchase to the stock
price at the date of closing.

(10) The increase in weighted average shares outstanding reflects the impact of
$275 million of WellPoint Stock issued in conjunction with the Merger at an
assumed price of $57 3/8, which represents WellPoint's closing stock price
on August 26, 1998.

(11) The reduction in revenue reflects the foregone interest at 5.50% per annum,
from January 1, 1997 through February 28, 1997, on $89.7 million of cash
and investments used in connection with the GBO Acquisition.

(12) Reflects the adjustment required to amortize, from January 1, 1997 through
February 28, 1997, the intangible assets of $148.8 million created as a
result of WellPoint's acquisitions of the GBO Operations on a straight-line
basis over 35 years.

(13) Reflects the elimination of one-time charges incurred by the GBO directly
related to its acquisition of $5.3 million.

(14) Reflects the tax effect of the pro forma adjustments to effect the
acquisition of the GBO Operations

74
<PAGE> 93

INFORMATION CONCERNING WELLPOINT

WellPoint is one of the nation's largest publicly traded managed care
companies with approximately 6.8 million medical members and approximately 23
million specialty members as of June 30, 1998. WellPoint offers a broad spectrum
of network-based managed care products, including PPOs, HMOs and POS and other
hybrid plans and indemnity plans to the large and small employer, individual and
senior markets. WellPoint offers a continuum of managed care products while
providing incentives to members and employers to select more intensively managed
products. Such products are typically offered at a lower cost in exchange for
additional cost-control measures, such as limited flexibility in choosing
non-network providers. WellPoint uses its risk management expertise and medical
management skills in managing the medical costs associated with its products.
WellPoint believes that it is better able to predict and control its health care
costs as its members select more intensively managed products. In addition,
WellPoint offers managed care services for self-funded employers, including
underwriting, actuarial services, network access, medical cost management and
claims processing. WellPoint also provides a broad array of specialty and other
products and services, including pharmacy, dental, utilization management, life,
preventive care, disability, behavioral health, COBRA and flexible benefits
account administration. WellPoint markets its products in California primarily
under the name Blue Cross of California and outside of California primarily
under the name UNICARE.

WellPoint's primary market for managed care products is California.
WellPoint holds the exclusive right in California to market its products under
the "Blue Cross" name and mark. WellPoint is diversified in its California
customer base, with extensive membership among small employer groups, individual
and large employer groups, and a growing presence in the Medicare and Medicaid
markets. For more information concerning WellPoint, we encourage shareholders to
consult and review information previously filed by WellPoint with the Commission
and listed at "INCORPORATION OF CERTAIN INFORMATION OF WELLPOINT BY REFERENCE."

WELLPOINT MANAGEMENT, EXECUTIVE COMPENSATION AND OTHER MATTERS

The directors and officers of WellPoint after the Merger will remain
unchanged except for the election of one of the present Cerulean directors to
the Board of Directors of WellPoint after consummation of the Merger, who will
not be compensated other than as a director. Information concerning other
directors and the executive officers of WellPoint, including compensation
information, is incorporated by reference from the information previously filed
with the Commission and incorporated by reference elsewhere in this Proxy
Statement/Prospectus. For more information concerning WellPoint, we encourage
shareholders to consult and review information previously filed by WellPoint
with the Commission and listed at "INCORPORATION OF CERTAIN INFORMATION OF
WELLPOINT BY REFERENCE."

75
<PAGE> 94

INFORMATION CONCERNING CERULEAN

The information provided in this section is provided pursuant to the
provisions of the registration requirements under the Securities Act of 1933 and
should be considered with the information provided concerning WellPoint,
including the information incorporated by reference as described at
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and the pro forma financial
information for the combined companies at "WELLPOINT HEALTH NETWORKS INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following is Selected Consolidated Financial and Operating Data of
Georgia Blue, HMO-Ga and all subsidiaries for the periods described therein
prior to the Conversion and of Cerulean for the period following the Conversion.
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."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Premiums................................ $825,495 $738,929 $1,514,076 $1,323,663 $1,159,476 $1,038,397 $939,671
Investment and other income............. 8,016 8,009 17,259 14,358 11,980 9,462 8,524
Realized gains.......................... 6,085 5,785 11,300 4,113 15,265 2,512 4,658
-------- -------- ---------- ---------- ---------- ---------- --------
Total revenues.................... 839,596 752,723 1,542,635 1,342,134 1,186,721 1,050,371 952,853
Benefits expense.......................... 723,879 669,044 1,370,962 1,175,740 1,039,095 914,277 832,908
Operating expenses........................ 102,814 82,198 172,060 146,616 126,077 111,012 89,284
-------- -------- ---------- ---------- ---------- ---------- --------
Operating (loss) income................... 12,903 1,481 (387) 19,778 21,549 25,082 30,661
Loss on building repurchase............... -- -- -- -- -- -- (7,566)
Non-operating income...................... 127 1,275 1,275 1,275 -- -- --
-------- -------- ---------- ---------- ---------- ---------- --------
Income before taxes, minority interests,
extraordinary item and cumulative effect
of a change in accounting principle..... 13,030 2,756 888 21,053 21,549 25,082 23,095
Income tax (benefit) expense(1)........... 3,736 102 (2,050) 3,159 3,857 5,621 4,796
Minority interests in (earnings) losses of
joint venture investments............... (1,895) 340 1,460 (421) (282) -- --
-------- -------- ---------- ---------- ---------- ---------- --------
Income before extraordinary item and
cumulative effect of a change in
accounting principle.................... 7,399 2,994 4,398 17,473 17,410 19,461 18,299
Extraordinary item -- endowment of
non-profit foundation................... (54,445) -- -- -- -- -- --
Cumulative effect of change in accounting
for income taxes........................ -- -- -- -- -- -- 5,449
-------- -------- ---------- ---------- ---------- ---------- --------
Net income (loss)................. $(47,046) $ 2,994 $ 4,398 $ 17,473 $ 17,410 $ 19,461 $ 23,748
======== ======== ========== ========== ========== ========== ========
</TABLE>

Earnings per share are omitted because such data is not meaningful at the
present time due to the likely dilutive events that will occur prior to or in
conjunction with the conversion of the Class A Stock or the Preferred Stock.
Currently there is no public trading market for the Company's Class A Stock or
any equity securities of the Company.

76
<PAGE> 95
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- --------
(UNAUDITED) $ IN THOUSANDS
$ IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA BY PRODUCT GROUP:
Premium Revenues by Product Group:
HMO and POS............................. $286,221 $192,451 $ 421,224 $ 254,229 $ 144,662 $ 87,532 $ 76,196
Indemnity and PPO....................... 531,098 539,321 1,077,992 1,058,650 1,006,524 944,156 857,167
Other................................... 8,176 7,156 14,860 10,784 8,290 6,709 6,308
-------- -------- ---------- ---------- ---------- ---------- --------
Total premium revenues............ $825,495 $738,928 $1,514,076 $1,323,663 $1,159,476 $1,038,397 $939,671
======== ======== ========== ========== ========== ========== ========
As a Percentage of Premium Revenues:
HMO and POS............................. 34.7% 26.0% 27.8% 19.2% 12.5% 8.4% 8.1%
Indemnity and PPO....................... 64.3 73.0 71.2 80.0 86.8 90.9 91.2
Other................................... 1.0 1.0 1.0 0.8 0.7 0.7 0.7
-------- -------- ---------- ---------- ---------- ---------- --------
Total premium revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ========== ========== ========== ========== ========
Percentage of Net Income Before
Extraordinary Item:
HMO and POS............................. 53.8% -47.6% -106.8% 28.1% 40.0% 4.9% -0.9%
Indemnity and PPO....................... 36.3 105.5 52.7 57.7 49.5 88.4 92.8
Other................................... 9.9 42.1 154.1 14.2 10.5 6.7 8.1
-------- -------- ---------- ---------- ---------- ---------- --------
Total............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ========== ========== ========== ========== ========
Loss Ratio (Benefits Expense as a
Percentage of Premium Revenues):
HMO and POS............................. 84.2% 88.1% 88.9% 85.2% 83.7% 89.2% 93.2%
Indemnity and PPO....................... 90.1 91.9 91.7 90.1 90.7 88.2 88.5
Other................................... 51.6 55.9 52.6 53.8 56.5 52.0 46.6
-------- -------- ---------- ---------- ---------- ---------- --------
Total loss ratio.................. 87.7% 90.5% 90.5% 88.8% 89.6% 88.0% 88.6%
======== ======== ========== ========== ========== ========== ========
Operating Expense Ratio (Operating
Expenses as a Percentage of Premium
Revenues)............................... 12.6% 11.1% 11.4% 11.1% 10.9% 10.7% 9.5%
======== ======== ========== ========== ========== ========== ========
Effective Income Tax Rate (1)............. 28.7% 3.7% -230.9% 15.0% 17.9% 22.4% 20.8%
======== ======== ========== ========== ========== ========== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash & investments........................ $354,447 $310,550 $ 315,323 $ 307,190 $ 223,994 $ 201,976 $177,650
Total assets.............................. 594,245 531,285 553,363 521,338 418,940 408,059 356,241
Total estimated benefit liabilities....... 229,111 189,574 206,412 181,718 175,846 167,895 153,881
Total liabilities......................... 344,569 291,872 311,681 287,123 245,901 259,389 226,502
Mandatorily redeemable preferred stock.... 46,645 46,645 46,645 46,645 -- -- --
Common stock.............................. 4 4 4 4 -- -- --
Common stock issuable..................... 32,135 -- -- -- -- -- --
Stock warrants issuable................... 21,310 -- -- -- -- -- --
Shareholders' equity...................... 203,030 192,768 195,037 187,570 173,039 148,670 129,739
</TABLE>

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

(1) Cerulean's consolidated tax expense for 1997 calculated under the regular
tax system was reduced by available net operating loss carryforwards which
subjected the Company to alternative minimum tax. Additional tax benefits
were recognized in 1997 resulting in a net tax benefit for the period. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Operations." Income tax expense for years prior to
1997 consisted primarily of federal alternative minimum tax as a 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%.

77
<PAGE> 96

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related Notes thereto contained in
this Proxy Statement/Prospectus. Cerulean's actual future results could differ
materially from its historical results, depending on, among other factors,
changing rates of utilization of medical services by its enrollees and changing
rates of medical service costs.

OVERVIEW

Cerulean was organized on February 2, 1996 to become a holding company for
Georgia Blue and its subsidiaries upon the Conversion on February 2, 1996.
During 1997, Georgia Blue made a distribution of its investments in certain
subsidiaries, including HMO-Ga and GBG to the holding company. The discussions
below relate to the historical operations of Georgia Blue, HMO-Ga and all
subsidiaries prior to February 2, 1996 and to Cerulean (including Georgia Blue,
HMO-Ga and all subsidiaries on a consolidated basis) for the period following
the Conversion.

Historically, substantially all of Cerulean's premium revenues and net
income were derived from its traditional indemnity and PPO business; however,
the growth of revenues and earnings in recent years is the result of a strategic
shift in focus that began in 1992. As a result of the new strategy, HMO and POS
premiums have grown from 6% of total premiums at the end of 1992 to 28% at the
end of 1997. HMO and POS membership has grown from 45,000 members at the end of
1992 to over 336,000 members at the end of 1997. The growth in the HMO and POS
products is attributable to new sales, in-group-growth and, to a lesser degree,
migration of business from other traditional indemnity products offered by
Cerulean. Since 1995 medical services for substantially all of Cerulean's HMO
and POS products sold were provided through its CHPNs.

Prudent management of Cerulean's investments has played a significant role
in developing and maintaining Cerulean's financial strength. Investment
earnings, including realized gains on sales of investments, have represented an
average of over 108% of pre-tax income during the period January 1, 1993 through
December 31, 1997.

Benefits expense consists primarily of health care claims and payments to
physicians, hospitals and other health care providers. Cerulean's profitability
largely depends on the ability to accurately predict and effectively manage
these health care costs. Accordingly, Cerulean continues its efforts to improve
contractual terms with providers for the delivery of medical services, and
effectively manage business mix changes from indemnity and PPO into HMO and POS
products.

Cerulean's emphasis on managed care products, and the expenses associated
with the change in its infrastructure to support managed care products, is
reflected in the increase in its operating expense ratio (the ratio of operating
expenses divided by premiums), which grew from 9.5% in 1993 to 11.4% in 1997.

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.

Cerulean's consolidated tax expense for 1997 calculated under the regular
tax system was reduced by available net operating loss carry forwards which
subjected Cerulean to alternative minimum tax. Income tax expense for years
prior to 1997 consisted primarily of federal alternative minimum tax as a result
of a special deduction available to certain Blue Cross and Blue Shield plans
under Section 833(b) of the Code. If the deduction provided under Section 833(b)
of the Code were no longer available, Cerulean would be subject to federal
income taxes at the regular corporate tax rate, which is currently 35%.

Significant health care legislation has been, and continues to be, proposed
at both the federal and state level. Any such legislation could have a material
impact on Cerulean'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.

78
<PAGE> 97

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 performance by Cerulean's physician, hospital, pharmacy and ancillary
health care services networks (and since January 1995, by Cerulean'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

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

Premium revenues increased 12% to $825.5 million for the six months ended
June 30, 1998 from $738.9 million for the six months ended June 30, 1997.
Premium revenues for Indemnity and PPO products decreased $8.2 million to $531.1
million for the six months ended June 30, 1998. Enrollment for Indemnity and PPO
products was essentially unchanged at June 30, 1998 compared to June 30, 1997.
HMO and POS premiums increased $93.8 million to $286.2 million for the six
months ended June 30, 1998 resulting from a 38% increase in membership. New
sales, in-group growth, and to a lesser extent, migrations from traditional
indemnity products into HMO and POS products, continued to drive HMO and POS
membership growth to 407,000 members at June 30, 1998 from 295,000 members at
June 30, 1997.

Investment and other income of $8.0 million for the six months ended June
30, 1998 was comparable to investment and other income of $8.0 million for the
six months ended June 30, 1997.

Realized gains of $6.1 million on the sale of marketable securities for the
six months ended June 30, 1998 were $0.3 million higher than gains realized in
the six months ended June 30, 1997. These results are not necessarily indicative
of results to be expected in the future. The magnitude of realized gains in any
quarter can fluctuate due to fixed and equity market performance, as well as
timing of individual sale transactions, which are subject to decisions made by
individual investment portfolio managers.

Cerulean's total loss ratio (benefits expense as a percentage of premium
revenues) decreased to 87.7% for the six months ended June 30, 1998 from 90.5%
for the six months ended June 30, 1997 as Cerulean recognized the benefit of
rate increases implemented in the 1998 period and medical cost improvement
actions. Accordingly, the loss ratio for indemnity and PPO products improved to
90.1% for the 1998 six month period from 91.9% for the same period in 1997 and
the loss ratio for HMO and POS products improved to 84.2% for the first six
months of 1998 from 88.1% for the 1997 period.

Operating expenses increased 25% to $102.8 million for the six months ended
June 30, 1998 from $82.2 million for the six months ended June 30, 1997,
principally due to growth in Cerulean's infrastructure necessary to support the
increased HMO and POS membership base, information technology changes, Year 2000
renovation costs and Medicare Risk product development. Additionally, during the
six months ended June 30, 1998, Cerulean recognized increased operating expenses
related to the pending settlement of the Lawsuit and the proposed merger with
WellPoint. As a result, the operating expense ratio increased to 12.5% for the
six months ended June 30, 1998, from 11.1% for the six months ended June 30,
1997.

On January 1, 1998, a hospital purchased stock warrants exercisable for
common stock of one of Cerulean's CHPN subsidiaries in exchange for a note
receivable. On January 1, 1997, a hospital purchased a 5% interest in one of
Cerulean's CHPN subsidiaries. These transactions were recorded as non-operating
income for the six months ending June 30, 1998 and 1997.

Cerulean's income tax expense for both periods consisted primarily of
federal alternative minimum tax. The effective tax rate of 28.7% for the 1998
period was impacted by CHPN subsidiaries which do not join in the filing of
Cerulean's consolidated tax return. Additionally, contributing to the higher
rate were state income taxes and other permanent book to tax differences,
including non-deductible expenses. In 1997, Cerulean increased the net value of
certain long-lived assets which provided an additional tax benefit of
approximately $2.1 million for 1997 of which $1.0 million was recognized during
the six months ended June 30, 1997. Lower earnings in the 1997 period and this
additional tax benefit for 1997 resulted in tax expense of $0.1 million for the
six months ended June 30, 1997.

79
<PAGE> 98

On July 8, 1998, Cerulean entered into the Settlement subject to the
approval of the Superior Court of Fulton County, Georgia. Cerulean will endow
the Foundation with cash and Class A Stock and Warrants to purchase Series A
Stock pursuant to the Settlement. Cerulean recognized $54.4 million as an
extraordinary item for the six months ended June 30, 1998 related to the
endowment of the Foundation.

As a result of the foregoing factors, income before extraordinary item
increased to $7.4 million for the six months ended June 30, 1998 from $3.0
million for the six months ended June 30, 1997. After the extraordinary item
Cerulean recognized a net loss of $47.0 million for the six months ended June
30, 1998 compared to net income of $3.0 million for the six months ended June
30, 1997.

1997 Compared to 1996

Premium revenues for 1997 were $1,514.1 million, an increase of 14% over
the premium revenues of $1,323.7 million for 1996. Premium revenues for
indemnity and PPO products increased $19.3 million to $1,078.0 million for 1997
from $1,058.7 million for 1996, while enrollment for indemnity and PPO products
remained flat. HMO and POS premiums increased to $421.2 million for 1997, up
from $254.2 million for 1996, as a result of a 50% increase in membership. New
sales, in-group growth, and to a lesser extent, migration of business from
traditional indemnity products offered by Cerulean into HMO and POS products,
continued to drive HMO and POS membership growth to over 336,000 members at
December 31, 1997 from 224,000 members at December 31, 1996. HMO and POS
products accounted for 28% of total premiums in 1997, compared to 19% of total
premiums in 1996.

Investment and other income increased 20% to $17.3 million in 1997 from
$14.4 million in 1996 principally due to growth in Cerulean's investment
portfolio.

Realized gains of $11.3 million on the sale of marketable securities for
1997 were $7.2 million higher than gains realized for 1996. These results are
not necessarily indicative of results to be expected in the future. The
magnitude of realized gains in any period can fluctuate due to fixed income and
equity market performance, as well as timing of individual sale transactions,
which are subject to decisions made by the Finance Committee of Cerulean's Board
of Directors or by individual investment portfolio managers.

Cerulean's total loss ratio (benefits expense as a percentage of premium
revenues) increased to 90.5% for 1997 from 88.8% for 1996 as Cerulean
experienced increasing medical cost trends and higher utilization in its
indemnity and PPO products in all markets and higher cost trends and utilization
in all of its managed care networks. Accordingly, the loss ratio for indemnity
and PPO products increased to 91.7% for 1997 from 90.1% for 1996 and the loss
ratio for HMO and POS products increased to 88.9% for 1997 from 85.2% for 1996.

Operating expenses increased 17% to $172.1 million for 1997 from $146.6
million for 1996, principally due to growth in Cerulean's infrastructure
necessary to support its Medicare Risk product development, information
technology development costs and the increased HMO and POS membership base.
Information technology costs for 1997 included approximately $2.0 million
incurred for Year 2000 software modification. As a result, the operating expense
ratio increased to 11.4% for 1997, from 11.1% for 1996.

On May 23, 1996, a hospital purchased a 5% interest in one of Georgia
Blue's CHPN subsidiaries. On January 1, 1997, another hospital purchased a 5%
interest in the same CHPN subsidiary. These transactions were recorded as
non-operating income for 1997 and 1996, respectively.

Cerulean recorded a tax benefit of $2.1 million for 1997 compared to tax
expense of $3.2 million in 1996. The net benefit primarily resulted from (1) an
increase of $2.1 million in the net value of Cerulean's long-lived tax assets
and a refinement of the related valuation allowance; (2) a $2.1 million net
benefit from the difference in book and tax basis for its CHPN investments; (3)
utilization of $2.4 million in carryforwards; (4) offset by $4.2 million in CHPN
losses that are not expected to generate benefit currently or in the foreseeable
future.

As a result of the foregoing factors, net income decreased to $4.4 million
for 1997 compared to net income of $17.5 million in 1996.

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1996 Compared to 1995

Premium revenues for 1996 were $1,323.7 million, an increase of 14% over
the premium revenues of $1,159.5 million for 1995. Premium revenues for
indemnity and PPO products increased $52.1 million to $1,058.7 million for 1996
from $1,006.5 million for 1995, principally due to growth in PPO products. The
number of indemnity contracts declined 9% in 1995; while PPO contracts grew 18%.
HMO and POS premiums increased to $254.2 million for 1996, up from $144.7
million for 1995, as a result of a 70% increase in membership.

New sales, in-group-growth, and to a lesser extent migrations from
traditional indemnity products offered by Cerulean into HMO and POS products
continued to drive HMO and POS membership growth to 224,000 members at December
31, 1996 from 132,000 members at December 31, 1995. HMO and POS products
accounted for 19% of total premiums in 1996, compared to 13% of total premiums
in 1995.

Investment and other income increased 20% to $14.4 million in 1996 from
$12.0 million in 1995 principally due to an increase in Cerulean's cash and
investment portfolio from proceeds relating to the issuance of the Class B
Stock.

Realized gains on the sale of marketable securities of $4.1 million in 1996
were $11.2 million less than realized gains of $15.3 million in 1995. In 1995
Cerulean took advantage of the strong market performance and realized gains of
$9.9 million on the sale of marketable securities in November 1995.

The loss ratio for HMO and POS products was 85.2% for 1996 compared to
83.7% for 1995. The loss ratio for HMO and POS products was unfavorably impacted
by higher levels of utilization in non-CHPN markets of 1996 and start-up in CHPN
markets with small risk pools of less than 10,000 members. As an offset, risk
sharing settlements favorably impacted loss ratios in both years. Excluding the
impact of these favorable settlements, the loss ratio for 1996 would be 85.7%
compared to 85.0% for 1995. The loss ratio for indemnity and PPO products
decreased to 90.1% in 1996 compared to 90.7% in 1995 as Cerulean realized more
favorable loss ratio experience in its traditional indemnity products in the
1996 period. During 1995 Cerulean had experienced increasing medical cost trends
in all markets for its indemnity products which related to the third and fourth
quarters of 1994. As a result, an additional $6.2 million was recorded in
benefit expenses during 1995, for the prior period. The combination of these
factors resulted in a more favorable overall loss ratio of 88.8% in 1996
compared to 89.6% in 1995.

The operating expense ratio of 11.1% in 1996 increased from the 1995
operating expense ratio of 10.9% principally due to costs related to product
development and enhanced managed care information and administrative
capabilities.

Non-operating income of $1.3 million for 1996 related to a gain on the sale
of a 5% interest in one of Cerulean's CHPN subsidiaries to a third party.

The effective income tax rate of 15% in 1996 decreased from the effective
income tax rate of 18% in 1995, principally due to an increase in the valuation
of certain long-lived tax assets for which tax deductions will occur in the
future.

As a result of the foregoing factors, net income of $17.5 million for 1996
was comparable to net income of $17.4 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Cerulean has both short-term and long-term liquidity needs and has
structured its investment portfolios accordingly. Of Cerulean's total investment
portfolio at June 30, 1998, $284.5 million is held at its insurance subsidiaries
and is invested subject to limitations prescribed by Georgia insurance statutes.
Short-term liquidity needs to fund Cerulean's operating costs, as well as
payment obligations to its customers, are met from funds invested primarily in
institutional money market accounts. Assets not required for short-term
liquidity needs are transferred to a portfolio of investments in the fixed
income and equity markets. This

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portfolio, which provides reserves for future payment obligations and funds for
long-term liquidity needs, is managed by several independent advisory firms.
Cerulean's investment policies are designed to provide liquidity to meet
anticipated payment obligations, to preserve capital and to maximize yield in
conformance with all regulatory requirements.

Cash and investments were $315.3 million or 57% of total assets at December
31, 1997, and $354.4 million or 60% of total assets at June 30, 1998. The
allocation of Cerulean's external investment portfolio has been consistently
maintained with over 67% 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. Cerulean'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 Cerulean's conservative investment portfolio contributes to its
financial stability.

Cerulean's balance sheet has improved steadily since 1993, with total
assets growing to $553.4 million at December 31, 1997, and $594.2 million at
June 30, 1998, up from $356.2 million at December 31, 1993. A substantial
portion of the increase was a result of growth in Cerulean's cash and investment
portfolio as it invested excess cash generated from operating activities and
investment earnings.

Cerulean has historically satisfied its ordinary cash requirements from
operations. Net cash provided by operating activities amounted to $2.2 million
for 1997 compared to net cash provided by operating activities of $38.1 million
for 1996. This decrease was primarily the result of lower operating earnings in
1997 and the payment in 1997 of certain obligations incurred in 1996. Net cash
provided by operating activities amounted to $39.8 million for the six months
ended June 30, 1998 compared to net cash used by operating activities of $4.9
million for the same period in 1997 due primarily to increased estimated benefit
liabilities in 1998 related to Cerulean's expanded membership base. Because of
the nature of Cerulean's business, current cash flows from operations are not
necessarily expected to be indicative of future results; however, Cerulean does
believe 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 any insolvency of Georgia Blue to pay authorized
insurance policy claims. The insolvency line of credit is designed to satisfy
certain membership standards of the BCBSA from which Cerulean and certain of its
subsidiaries have the exclusive license 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 Cerulean's indemnity, PPO, HMO,
POS and life insurance products. Cerulean does not anticipate making draws on
the insolvency line of credit.

Georgia Blue, HMO-Ga and GGL are domiciled in the state of Georgia and
prepare their statutory statements in accordance with accounting principles and
practices prescribed by the Georgia Insurance Department. These entities may
distribute dividends only out of realized profits (undistributed accumulated net
earnings since organization). The amount of dividends distributable each year is
limited to the greater of the prior year's net income determined on a statutory
basis or 10% of prior year statutory surplus. In addition, dividends
distributable by Georgia Blue are further limited by the Conversion order
(approved by the Georgia Commissioner on December 27, 1995 related to Georgia
Blue's conversion to a for-profit corporation). Dividend distributions by
Georgia Blue, HMO-Ga and GGL above these defined limits require a filing with,
and in some cases special approval by, the Georgia Commissioner.

Capital Resources

Cerulean anticipates that the principal elements of its future capital
requirements are information technology needs, product development, development
of potential medical access points, equity contributions to its CHPN joint
ventures and other subsidiaries and strategic acquisitions.

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

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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. Cerulean
anticipates that the development of a single medical access point could cost in
the range of $0.5 million to $2.0 million. To date, no CHPN has produced an
access need that has translated into additional capital requirements.

In 1994, Georgia Blue 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, Georgia Blue could borrow up to
$25.0 million. In December 1996, Georgia Blue reduced the total amount available
under the revolving credit agreement to $9.0 million and the margin on LIBOR
loans from 0.7% to 0.5%. Interest accrues on amounts advanced at the variable
LIBOR rate plus the margin mentioned previously. Borrowings outstanding totaled
$3.5 million at December 31, 1997 and 1996. During January 1998, Cerulean
terminated its $9.0 million revolving credit agreement and paid in full the $3.5
million note payable outstanding at December 31, 1997.

Cerulean believes that future capital requirements can be met with a
combination of (i) Cerulean's current resources, including proceeds from the
sale of the Class B Stock, (ii) cash flows from operations, (iii) additional
borrowings and (iv) potential debt or equity offerings. Management believes that
the consummation of the Merger will provide Cerulean with additional capital
alternatives.

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BUSINESS OF CERULEAN

Cerulean was incorporated under the laws of the State of Georgia on
February 2, 1996 to act as the holding company for Georgia Blue and its
subsidiaries and for other lawful purposes. 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. During 1997,
Georgia Blue made a distribution of its investments in certain subsidiaries,
including HMO-Ga and Group Benefits of Georgia, Inc. ("GBG") to the holding
company. As of December 31, 1997, Georgia Blue and HMO-Ga had 762,000 insurance
and administrative service contracts covering or administering benefits for
approximately 1.6 million members. This represents more than 21% of the total
Georgia population and includes approximately 22% of the over 3.0 million
residents of the metropolitan Atlanta area.

THE CONVERSION; PRIVATE PLACEMENT OF CLASS B STOCK

On February 2, 1996, Cerulean acquired all of the outstanding capital stock
of Georgia Blue, following the Conversion. The Conversion was accomplished
pursuant to a Plan of Conversion approved by the Georgia Commissioner on
December 27, 1995. As a part of the Conversion, Cerulean agreed to offer to each
of Georgia Blue's eligible subscribers five shares of its Class A Stock at no
cost.

Following the Conversion, Cerulean issued 49,900 shares of Class B Stock to
raise $49.9 million in capital. After deducting offering costs, the net proceeds
to Cerulean were $46.6 million. Effective May 14, 1996, Cerulean's registration
under the Securities Act of 1933 of the public offering of its Class A Stock
with the Commission became effective. The registration of the Class A Stock
under Section 12(g) of the Securities Exchange Act of 1934 became effective on
June 30, 1997. As of July 31, 1998, a total of 70,322 eligible subscribers held
351,570 shares of Class A Stock. Currently, the Class A Stock is not publicly
traded.

INDUSTRY OVERVIEW

According to the Health Care Financing Administration, health care spending
in the U.S. rose from $699.5 billion in 1990 to $1,035.1 billion in 1996, an
average annual increase of approximately 6.8%. This rate was considerably more
than the average annual increase of the Consumer Price Index ("CPI") of
approximately 3.1% for the same period. Health care spending accounted for 13.6%
of the Gross Domestic Product ("GDP") in 1996, versus approximately 12% in 1990.
On an absolute dollar basis, as well as on a percentage of GDP basis, the United
States spends more on health care than any other country in the world. 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
discounted 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 access to appropriate 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 while participating in quality
initiatives together with 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 monitor the type, quantity and
setting of services obtained. Utilization management programs are designed to
provide incentives to encourage providers to deliver disciplined and
cost-effective care. According to a compilation of industry sources, in 1996 the
total number of HMO members nationwide grew by an estimated 8.4 million

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people, to 67.5 million. Since 1990, HMO enrollment has increased by 85%. In
1996, the total number of PPO members grew by an estimated 6 million, to 97.8
million and, since 1990, PPO enrollment has increased by 154%.

Different types of health care utilization management and cost control
methods differentiate managed health care plans. HMOs generally require members
to use network providers exclusively, except in emergency 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. A
POS provides members with an HMO service option for network coverage and also
permits the member, at the time medical service is required, to choose a
provider that is not a member of the HMO network at additional cost. POS plans
generally require the use of a primary care physician within the network to
coordinate health care services for the members while PPO plans often do not.
PPO and POS plans also provide members with the option of using non-network
providers under indemnity-type coverage terms which require higher coinsurance
payments by members and higher 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 the network care by members, thereby reducing costs. See
"-- Business Lines and Products" below.

GENERAL

Cerulean, through its subsidiaries, has the largest health insurance
company market share in Georgia, with 762,000 insurance and administrative
service contracts covering or administering benefits for approximately 1.6
million members as of December 31, 1997 (including HMO, PPO and POS members).
This represents over 21% of the total Georgia population. Georgia Blue has one
of the State's largest PPO memberships, serving approximately 360,000 members as
of December 31, 1997. HMO-Ga, a health maintenance organization which also
offers POS products, serves an additional 336,000 members. GGL, a subsidiary of
Georgia Blue and GBG, a subsidiary of Cerulean, are also part of the
consolidated group. GGL offers group life, accident and disability insurance
products that are sold in conjunction with Cerulean's health products. GGL has
an "A-" rating from A.M. Best and is licensed to offer its products in Alabama,
Georgia, Mississippi, North Carolina, South Carolina and Tennessee. GBG is a
general insurance agency that principally sells life, accidental death and
dismemberment and disability coverage to complement health insurance products.
Additionally, GBG recently developed a managed care workers compensation service
to provide medical management services to customers.

Cerulean's core business products are its traditional indemnity products
and its HMO, POS and PPO products. Cerulean'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 current marketplace
demands. In areas where there is no managed care, Cerulean's strategy is to
solidify market presence through PPO network expansion, favorable changes in
provider reimbursement and benefit design alterations that meet employers'
needs.

Cerulean offers its traditional indemnity products and its HMO, POS and PPO
products exclusively within the boundaries of the State of Georgia. Cerulean 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. While
there are only limited BCBSA restrictions on the conduct of business by Cerulean
or its subsidiaries outside the State of Georgia under a different name, none of
Cerulean's revenue is currently associated with non-Georgia business.

Georgia Blue and HMO-Ga have a comprehensive quality management program
which focuses on assessment, management and methodology for monitoring 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. Cerulean has a
disciplined credentialing function which monitors the recruitment and retention
of its provider panels throughout the state. Georgia Blue's PPO was the first

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preferred provider organization in Georgia to receive full accreditation from
The Utilization Review Accreditation Commission. Additionally, in 1997, HMO-Ga
was awarded a full, three year accreditation by the National Committee for
Quality Assurance ("NCQA"). The NCQA is 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 1997 population in excess of 3.0 million,
to several mid-sized cities, including Augusta, Columbus, Macon and Savannah, to
smaller cities, including Athens, Cartersville, Gainesville and Rome, to very
rural areas. The southern half of the State of Georgia is primarily rural and
dominated by an agrarian economy.

The metropolitan Atlanta area has an HMO market penetration of
approximately 40%; however, Georgia as a whole currently has penetration of 16%.
Based on industry sources, the five states with the highest HMO penetration in
the country have market shares ranging from 39% to 47%.

At present, HMO-Ga is licensed and operational as an HMO in eight markets
in Georgia representing more than 5.0 million residents, including Atlanta.
HMO-Ga's HMO and POS products are serviced through networks of primary care
physicians, specialist physicians and hospitals. Beginning in January 1995,
HMO-Ga also began supporting its products through CHPNs.

ORGANIZATIONAL STRUCTURE

Cerulean's primary operating subsidiary, Georgia Blue, is organized in a
Business Unit, Support Unit and 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 offer a full line of health
insurance products for employer groups of less than 500 employees. 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 through 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, Cerulean determined to develop its own integrated
delivery systems for managed health care products. Cerulean's CHPNs are the
cornerstone of this strategy. Cerulean 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 Cerulean and a local
physician group and/or hospital, which owns the remaining equity interests in
the CHPN. Cerulean owns at least 51% of the equity interests in each CHPN that
has been organized and the local physician group and/or hospital owns the
remaining equity interest. 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 retains a flat percentage for administration and as
a contribution to surplus. After deduction for premium taxes, the remaining
premium revenue is used for payment of medical expenses and for contribution to
the CHPN's retained earnings.

Cerulean has taken several actions to support the CHPNs, including (i)
providing initial and additional capital, (ii) hiring experienced managers to
oversee sales, medical network management and financial performance in the local
markets, (iii) providing dedicated claims processing and membership services,

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(iv) developing a strategic information systems plan that addresses the
information requirements, applications needs and systems architecture necessary
to support the CHPNs and (v) enhancing medical management activities and
continued development of NCQA processes and Health Plan Employer Data and
Information Set ("HEDIS") reporting. Atlanta Health Care Partners, Inc. (which
operates in the Atlanta metropolitan area and surrounding counties) was the
first CHPN to become operational. By the end of 1997 an additional four CHPNs,
jointly owned by Cerulean and health care providers, were operational, including
CHPNs in Augusta, Athens, Macon and Savannah.

Information Technology

In 1995 Cerulean completed a Strategic Information Systems Plan ("SISP")
which addresses specific information systems and network requirements for the
future. In 1996 Cerulean began implementing the SISP and expects to complete its
implementation in the 1998-1999 time frame. The SISP is comprehensive and
provides an assessment of the extent and cost of its development and
implementation over a three to four year period. It identifies the capital,
equipment, software and intellectual property necessary to employ and support
traditional kinds of systems effectively in an evolving managed care and
customer service environment. It also details new technologies that will support
and enable Cerulean to enhance its strategic business initiatives, such as
CHPNs.

Cerulean believes that 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 use of networks to
deploy solutions Company-wide.

Currently, Cerulean 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 Cerulean. The primary modules have been
completed and installed. Cerulean 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. When complete, Cerulean hopes to have established a technical
infrastructure that will provide readily available, reliable and responsive
business and clinical systems that will position Cerulean to excel in the
dynamic health care marketplace.

Cerulean 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
on-line access by groups to their eligibility and claims information, has
strengthened Cerulean's position for participation in health care electronic
commerce.

Year 2000 Computer Software Modification Costs

All companies that operate on mature computer software programs face the
difficult task of how to reprogram or replace their existing systems, which have
protocols that address dates in terms of the 20th century (19xx) only. Cerulean
has analyzed its systems and has formulated an action plan to either modify or
replace its existing programs. Cerulean plans to have all corrective action
necessary completed by July 1, 1999. The project's impact on the operating
results of Cerulean is estimated to be in a range of $7 to $10 million over 1997
and 1998 and will be funded through operating cash flows. Modification costs are
expensed as incurred. Costs of new software are capitalized and amortized over
five years. Cerulean also conducts business electronically with certain external
parties, including suppliers, customers, providers, and financial service
organizations. Cerulean will be contacting external parties with which it
interacts to determine Year 2000 compliance issues.

BUSINESS LINES AND PRODUCTS

Overview

Cerulean is a full service provider of health benefit programs in the
Georgia marketplace. Cerulean 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

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insurance products and ancillary products including dental insurance, a vision
affinity product, vision insurance and specialty products for mental health and
pharmacy benefits.

Various funding arrangements are available for each health benefit product.
These arrangements range from fully insured to administrative services only
("ASO/Cost Plus"). For example, under a fully insured indemnity 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 indemnity 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 ASO/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 enrollees. Some employers may choose
individual member or aggregate reinsurance to protect against catastrophic
losses.

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

PERFORMANCE BY PRODUCT

<TABLE>
<CAPTION>
YEAR ENDED
AT DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------- -----------------------
PRODUCT CONTRACTS MEMBERS(2) REVENUES LOSS RATIO
- ------- --------- ---------- ---------- ----------
($000)
<S> <C> <C> <C> <C>
Indemnity........................................... 204,463 381,112 $ 550,170 91.2%
PPO................................................. 163,535 359,777 527,822 92.3
HMO................................................. 116,608 243,989 310,894 88.7
POS................................................. 43,956 92,018 110,330 88.8
Other............................................... -- -- 14,860 52.6
Other Enrollment(1)................................. 233,243 513,134 -- --
------- --------- ---------- ----
All Products........................................ 761,805 1,590,030 $1,514,076 90.5%
======= ========= ========== ====
</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

Cerulean's HMO product has been offered by HMO-Ga since 1986. From 1986
through 1993, the product did not experience substantial growth. However, in
1993 new management and an increased emphasis on sales of managed care products
dramatically increased the market acceptance of HMO-Ga's products. HMO-Ga's HMO
and POS products are now Cerulean's fastest growing products, due, in part, to
Cerulean's CHPN initiatives. At present, HMO-Ga is licensed and operational as
an HMO in eight separate markets in Georgia, including Athens, Atlanta, Augusta,
Columbus, Gainesville, Macon, Rome and Savannah, representing more than 7.4
million residents. HMO-Ga's HMO and POS products are offered to group
subscribers as "Blue Choice Healthcare Plan," which is an HMO product offering
prepaid coverage and preventive care product and as "Blue Choice Option," 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. Some employers allow members to elect, at annual
enrollment, whether they wish to be in the "Blue Choice Healthcare Plan" or the
"Blue Choice Option."

Under Cerulean'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 Cerulean to maintain physician network standards. The primary
care physician coordinates with the member and Cerulean

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<PAGE> 107

to promote the delivery of appropriate care in a cost-effective manner. HMO
benefit plans require varying copayments for health care services. Coverage for
non-emergency hospitalization services requires prior approval by the member's
primary care physician and must be provided in network facilities, except for
certain specified services and 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 Option 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. Network hospitalization is fully
covered. Non-network services and services obtained without primary care
physician approval are subject to deductibles and significant coinsurance
requirements.

BlueChoice Platinum

HMO-Ga's application to offer a Medicare risk HMO product in nine counties
within the Atlanta metropolitan area was approved by the Health Care Financing
Administration in December 1996. This product, "BlueChoice Platinum," became
operational in April, 1997 and had 3,900 members as of December 31, 1997 and
7,000 members at June 30, 1998. The individual BlueChoice Platinum product has
no member premium and includes all traditional Medicare benefits plus preventive
services, immunizations, annual vision screening, annual hearing screening and
limited outpatient prescription coverage. The core benefits of the group
BlueChoice Platinum benefits are those of the BlueChoice Platinum individual
product with additional benefits defined by each employer.

PPO

Cerulean's PPO was first introduced in Georgia in the mid-1980's and began
being offered as "Blue Choice PPO" in 1995. Cerulean's PPO is one of the three
largest statewide provider networks in Georgia, serving approximately 360,000
members as of December 31, 1997 and as of June 30, 1998.

Cerulean's PPO products are intended to deliver health care benefits at
lower premium 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, 80% to
90% of the cost of covered health care services received by a subscriber through
the PPO network is covered by Cerulean's PPO benefit plans. Non-network services
are generally covered at 60% to 70%, subject to higher deductible requirements.
Currently, the Atlanta, Athens, Augusta, Columbus and Savannah PPO networks are
utilizing a fee schedule for providers rather than the traditional discount from
the providers customary charge. Cerulean anticipates that its other PPO networks
will also convert to utilizing a fee schedule rather than a traditional discount
from charge, which will further enhance the cost effectiveness of this product.

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

Indemnity

Cerulean's traditional indemnity product line includes benefit options for
both the individual and group markets through products that reimburse for
covered health care services on a fee-for-service basis. Premiums for this
product are set annually and collected on a monthly basis. Traditional indemnity
products may utilize the statewide networks that Cerulean has established for
physicians, hospitals and pharmacies. The majority of new business opportunities
for traditional indemnity group business are in the rural markets where,
Cerulean believes, the flexibility of its indemnity products, in terms of
provider access, is an advantage.

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<PAGE> 108

Cerulean'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 a full range of benefits related to hospital, surgical, pharmacy and
other associated medical expenses with varying deductible and coinsurance
options, (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 inpatient hospital stay and
which is also offered to people under 65 and (iii) "65 PLUS," a guaranteed
issuer 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 although 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

Cerulean offers a variety of ancillary and specialty network benefits to
enhance Cerulean's competitive position and is developing other such products.
Offering an array of ancillary products and specialty networks permits Cerulean
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 Cerulean's
medical benefit plan designs.

Cerulean has offered dental insurance since 1982. 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 products, although Georgia Blue does not
currently offer such a product.

Cerulean 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 Services

Cerulean recently developed a managed care workers compensation service to
provide medical management services to customers. The managed care organization
is certified in 137 counties in Georgia. Cerulean 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 fees to TPAs, self-administered companies and a
limited number of full service insurers as its distribution channel.

MARKETING AND SALES

General

Cerulean'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). Cerulean's marketing efforts are
coordinated by Vice Presidents who serve as 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 supervised by the Executive Vice-President of Market Operations.

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From a competitive perspective, Cerulean's market is segmented generally by
geography, product and customer group size. Significant competition exists in
the Atlanta and Augusta markets for managed care products. In other metropolitan
areas, the majority of competition is generally for indemnity or PPO products,
although new market entrants with managed care capabilities are beginning to
penetrate these areas.

Cerulean believes that a large percentage of profitable marketing
opportunities exist in the small group market and it has become more active and
competitive in this area. Cerulean has pioneered cooperative buying programs as
an enhancement to its existing distribution channels. These programs are
developed with a "market sponsor" and offer an exclusive endorsement of
Cerulean's products and the opportunity for a reduction in sales costs. Cerulean
believes that these cooperative programs provide enhanced product access to
small group customers. Cooperative programs are currently active in Albany,
Athens, Cartersville, Gainesville and Rome, Georgia.

Cerulean has also been highly successful in developing Major and National
account business, especially for its HMO and POS products, because of its unique
position regarding statewide capabilities.

Internal Sales and Service Force

Cerulean employs an internal sales staff of account executives and group
sales representatives to sell and service all of Cerulean's group product lines.
The sales force works with other members of the distribution channel, including
independent agents and brokers. They also make direct calls on selected target
accounts and work with nationally recognized consulting firms. 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 potential distribution of products. Service representatives are
assigned specific accounts and work directly with the internal sales force and
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
potential service issues.

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

Independent Insurance Agents and Brokers

Cerulean's group sales representatives market health insurance and managed
care products through independent agents, brokers and consultants who are paid
commissions from the premiums received by Cerulean. 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 Cerulean's enrollment growth over the past two years. Any
future growth in ensuing calendar years will also be dependent on Cerulean's
ability to continue productive relationships with these independent agents and
brokers. 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 Cerulean. The distribution channel for the majority of sales
opportunities 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, Cerulean uses specific underwriting criteria based on its
accumulated actuarial data, with adjustments for factors such as claims
experience, member mix and risk characteristic differences, to evaluate
anticipated health care costs. The risk selection criteria utilized by Cerulean
employ generally accepted risk characteristics and a flexible underwriting
formula to generate new business and renewal rates. Rates and the rating process
are monitored
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monthly with appropriate adjustments made at least quarterly. New business
ratings for all groups are applied through the use of an automated proposal
system, with rates and risk selection criteria being implemented by field sales
personnel. For employer groups with 100 or more employees, all rates are
determined by home office underwriting personnel, who utilize the same screening
of risk characteristics that is conducted for employer groups of smaller size,
but who attempt to blend actual claim experience (utilizing a flexible
credibility formula and underwriting intervention) in order to establish an
appropriate rate based on Cerulean's desired competitive position. Rates for
groups smaller than 50 are regulated by Georgia law.

CUSTOMERS

Cerulean has contracts with certain employer groups that account for a
significant portion of Cerulean's business. For 1997, two employer groups
accounted for approximately 19% and 10%, respectively, of Cerulean's total
premium revenues. Additionally, Cerulean 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 for BCBSA's Out-of-Area
Program. In 1997, claim payments for these agency programs exceeded $3.8 billion
dollars which are not included in either revenues or benefits expense in
Cerulean's statement of income. Cerulean 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 non-renewal or termination of any of the contracts with
these employer groups could have a material adverse effect on Cerulean's
business, financial condition and results of operations.

INVESTMENT PORTFOLIO

Cerulean's conservative management of the investment process has played an
integral role in developing and maintaining its financial strength. Earnings
from the investment portfolio have contributed significantly to the profits of
Cerulean. Over the five-year period from January 1, 1993 to December 31, 1997,
investment income plus gains realized on sales of investments represented 108%
of consolidated pre-tax income. In 1997, such income and gains were $28.6
million compared to consolidated pre-tax income of $0.9 million. The increase in
investment income and realized gains on sales of investments in relation to
pre-tax income for 1997 is primarily the result of lower earnings due to
increased medical expenses during 1997 and increased realized gains on sales of
marketable securities.

Investment discretion of Cerulean's insurance subsidiaries is limited by
the Georgia Insurance Code. Cerulean has established a two-tiered investment
portfolio. Liquidity needs are met through an internally managed investment
portfolio (the "Internal Portfolio") which is invested primarily in
institutional money market accounts. Those assets not required for liquidity are
transferred to external money managers for long term investment in the fixed
income and equity markets (the "External Portfolio"). The assets in the External
Portfolio are held in custody by banks in Georgia. All bonds in the investment
portfolios must have quality ratings of "A" or higher by Moody's Investors
Service and Standard & Poor's Ratings Group. The equity investments in
Cerulean's investment portfolios are highly diversified and limited to high
quality domestic equity securities. There are no derivative securities or
instruments in Cerulean's investment portfolios. The Board of Directors of each
subsidiary reviews and approves investment related activities at least
quarterly.

Georgia Blue's investment portfolio represented 68% of Cerulean's
consolidated investment portfolio at December 31, 1997. Georgia Blue's Internal
Portfolio is managed by management staff, who report to the Treasurer and Chief
Financial Officer ("CFO") of Georgia Blue who in turn reports to the Treasurer
of Cerulean. Georgia Blue's External Portfolio is managed by independent
advisory firms and is subject to the review of Georgia Blue's CFO. 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 Cerulean formally reviews performance of
each investment manager on a quarterly basis. Performance is also calculated
quarterly by an outside consultant, Furman Selz LLC, including benchmarking to
an extensive group of other professionally managed investment portfolios. The
investment process is dynamic and continually reviewed for improvements and
refinements.

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Shown below are Cerulean's consolidated invested assets by category. The
following tables should be read in conjunction with the accompanying
Consolidated Financial Statements and the related Notes thereto.

INVESTMENTS BY CATEGORY

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
% OF % OF
CARRYING CARRYING CARRYING CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities............................................ $187.7 66.9% $157.6 72.2%
Equity securities........................................... 73.1 26.1 60.1 27.6
Short-term investments...................................... 19.5 7.0 0.4 0.2
------ ----- ------ -----
Total investments................................. $280.3 100.0% $218.1 100.0%
====== ===== ====== =====
</TABLE>

Cerulean's consolidated portfolio is comprised primarily of highly liquid
investment securities. Cerulean's fixed maturities consist of United States
Government securities and corporate securities. At December 31, 1997, all of
Cerulean's fixed maturities consisted of instruments bearing fixed, rather than
variable, rates of interest. The following summarizes Cerulean's fixed
maturities by category.

FIXED MATURITIES BY CATEGORY

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-------------------
% OF
CARRYING CARRYING
VALUE VALUE
-------- --------
($ IN MILLIONS)
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government
agencies.................................................. $134.4 71.6%
Corporate securities........................................ 28.4 15.1
Mortgage-backed securities.................................. 24.9 13.3
------ -----
Total fixed maturities............................ $187.7 100.0%
====== =====
</TABLE>

The following table summarizes Cerulean'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 prepayment premium.

FIXED MATURITIES BY MATURITY CATEGORY

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-------------------
% OF
CARRYING CARRYING
VALUE VALUE
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $ 23.8 12.7%
Due after one year through five years....................... 66.1 35.2
Due after five years through ten years...................... 71.0 37.8
Due after ten years......................................... 1.9 1.0
Mortgage-backed securities.................................. 24.9 13.3
------ -----
Total fixed maturities............................ $187.7 100.0%
====== =====
</TABLE>

COMPETITION

The market for each of Cerulean'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

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in the metropolitan Atlanta market for managed care products, while outside of
this 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 this area. Cerulean has many competitors
in its indemnity, PPO and HMO operations, many of which have substantially
greater financial and other resources than Cerulean. However, based upon current
data available in publications circulated generally and within the health care
industry, no single competitor is dominant in any one of Cerulean's eight
geographic markets in the state.

Price competition among benefit plans in Cerulean's markets, particularly
the Atlanta metropolitan area, has intensified. As of October 1997, 85% of the
Georgia HMO and POS market was held by Cerulean and four national competitors,
according to public information, of which Cerulean's share was 22% and the
largest competitor's share was 18%. Because Cerulean's existing business
operations are confined to markets within the State of Georgia, Cerulean
currently is unable to subsidize losses in these markets with profits from other
markets as national companies can. Cerulean 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 could pursue such a
strategy in Cerulean'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 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 Cerulean's markets. Competition may also be affected
by independent agents and brokers who sell Cerulean's health care benefit plans
as well as the benefit plans of Cerulean'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
market segments. No assurance can be given that Cerulean will be able to compete
effectively with such competition in the future.

EMPLOYEES

Cerulean had 2,325 employees at December 31, 1997 and 2,427 employees at
June 30, 1998. No Company employees are represented by any union, and Cerulean
believes that its relations with its employees are satisfactory.

GOVERNMENT REGULATIONS

Holding Company Regulation

Cerulean is an insurance holding company and as such is 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. Certain of these agreements must be submitted to the
Department for approval, based on concepts of fair and reasonable terms,
reasonable charges and fees, and the condition 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
meet its financial needs.

Regulation of Insurance Subsidiaries

Georgia Blue, HMO-Ga and GGL are 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
reserve adequacy and solvency. Georgia Blue, HMO-Ga and GGL are required to file
detailed annual reports with the Department. Georgia Blue, HMO-Ga and GGL's
accounts are subject to periodic examination by the Department. The regulation
of insurance holding company systems includes the acquisition and sales of
licensed entities, payment of dividends by regulated

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entities, the terms of affiliate transactions and other related matters. HMO-Ga
is a licensed HMO 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 that apply with respect to Georgia Blue and
GGL.

Examinations

Georgia Blue, HMO-Ga and GGL are each subject to examination of their
affairs by the Department. The Department conducts triennial examinations of
insurance companies 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. In May 1998, the Department began its
triennial examination covering the years January 1, 1995 through December 31,
1997. The examination is not complete as of the date of this filing. Management
expects there will be no findings that would have a material impact on the
statutory financial statements of either Georgia Blue, HMO-Ga or GGL.

TRADE NAMES, TRADE MARKS, SERVICE MARKS AND LICENSES

Pursuant to licenses from BCBSA, Cerulean has the exclusive right to
conduct 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. Cerulean 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.
Cerulean cannot do business using the Blue Cross and Blue Shield names,
trademarks and service marks outside of its licensed service area.

PROPERTIES

Cerulean's corporate headquarters occupies approximately 264,000 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 desirable and accessible locations. Cerulean leases space in
25 other buildings in communities throughout Georgia for a variety of corporate
purposes. If the current rate of Cerulean's business growth can be sustained,
additional space may be required.

LEGAL PROCEEDINGS

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

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of July 31, 1998 Cerulean had 70,332 holders of Class A Stock of record.
There is no established public trading market for the Class A Stock. Further,
because of restrictions on transfer of the Class A Stock until December 1, 1998,
it is not anticipated that a trading market will develop prior to that time.
Thereafter, during the period December 1, 1998 through December 2001, any sale
of Class A Stock will be subject to Cerulean's first right of refusal. Cerulean
does not anticipate that any dividends will be paid on Class A Stock.

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SECURITY OWNERSHIP OF CERULEAN MANAGEMENT AND PRINCIPAL SHAREHOLDERS

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.

As of July 31, 1998, a total of 70,322 holders held 351,570 shares of Class
A Stock, all of which were outstanding. No directors or officers of Cerulean or
of Georgia Blue beneficially own any shares of capital stock of Cerulean except
Frank J. Hanna, III. GSH owns 40,000 shares (approximately 80%) of the Class B
Stock outstanding. Frank J. Hanna, III, Frank J. Hanna, Jr. and David Hanna
share voting and dispositive power with regard to all of the shares of Class B
Stock owned by GSH. Frank J. Hanna, III, is, therefore, deemed to be the
indirect beneficial owner of the 40,000 shares held by GSH. The address of GSH
is Suite 1750, Two Ravinia Drive, Atlanta, Georgia 30346.

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MANAGEMENT OF CERULEAN

The following table sets forth certain information as of June 30, 1998
regarding each of the executive officers of Cerulean or Georgia Blue who is not
also a Director of Cerulean.

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
John A. Harris............ 47 Treasurer of Cerulean, Executive Vice President of
Finance & Strategic Planning of Georgia Blue
Hugh J. Stedman........... 50 Secretary of Cerulean, Senior Vice President and General
Counsel of Georgia Blue
Raymond J. Colleran....... 55 Executive Vice President, Market Operations of Georgia
Blue
Mark Kishel, M.D. ........ 51 Executive Vice President, Chief Medical Officer of
Georgia Blue
Richard F. Rivers......... 44 Executive Vice President, Chief Operating Officer of
Georgia Blue
Richard A. Steinhausen.... 54 Executive Vice President, Service Operations and
Information Systems of Georgia Blue
R. Neil Vannoy............ 51 Executive Vice President, Community Operations of Georgia
Blue
</TABLE>

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
Cerulean 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.

Hugh J. Stedman currently serves as Secretary of Cerulean and Senior Vice
President and General Counsel to Georgia Blue. Mr. Stedman has been Counsel to
Georgia Blue since 1985. Mr. Stedman obtained his J.D. from Rutgers University
and is admitted to practice law in Georgia and Pennsylvania. Prior to joining
Georgia Blue, Mr. Stedman was Associate Counsel and Director of Investor and
Public Relations for Healthdyne, Inc., a manufacturer of medical devices and
supplier of home-health services. His entire legal career has been specialized
within the health care service, equipment and financing industry. Mr. Stedman is
a member of the American, Georgia and Cobb County Bar Associations, the Cobb
County Chamber of Commerce and the National Health Lawyers' Association.

Raymond J. Colleran joined Georgia Blue in February 1993 as Georgia Blue's
Executive Vice President, Market Operations. Prior to February 1993, Mr.
Colleran held a number of key management positions with Equitable Life, Equicor
and CIGNA. These positions 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.

Mark Kishel, M.D., has been Executive Vice President and Chief Medical
Officer of Georgia Blue since October 1993. Prior to joining Georgia Blue, 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 health 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.

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Richard F. Rivers joined Georgia Blue as Executive Vice President and Chief
Operating Officer in September 1997. Prior to joining Georgia Blue, Mr. Rivers
worked for Prudential Insurance Company for 22 years. Most recently, he was
Senior Vice President of Health Plan Operations with Prudential Healthcare and
was responsible for the operations of 32 local health plans nationwide. Prior to
this, he was President of South Central Operations and had full responsibility
for operations in ten states.

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 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, government
programs and corporate marketing 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 the Georgia Business Forum on Health, the
Georgia Caring Program for Children Foundation and the CHPNs in Atlanta, Athens,
Augusta, Macon, Rome and Savannah. 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 committees 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 holds a Chartered Life Underwriter
delegation.

COMPARISON OF RIGHTS OF
CERULEAN SHAREHOLDERS AND WELLPOINT SHAREHOLDERS

The rights of Cerulean shareholders are presently governed by the GBCC, the
Cerulean Articles, the Cerulean Bylaws and, in the case of holders of Class B
Stock, the Shareholders' Agreement. Upon completion of the Merger, the rights of
Cerulean shareholders who become shareholders of WellPoint in the Merger will be
governed by the Delaware General Corporation Law ("DGCL"), the Restated
Certificate of Incorporation of WellPoint (the "WellPoint Certificate"), and the
Bylaws of WellPoint (the "WellPoint Bylaws"). The following is a summary of the
principal differences between the current rights of Cerulean shareholders and
those of WellPoint shareholders following the Merger.

The following is not intended to be a complete discussion of the
differences in the rights of Cerulean and WellPoint shareholders, and is
qualified by reference to Delaware law, Georgia law, the WellPoint Certificate,
the Cerulean Articles, the WellPoint Bylaws and the Cerulean Bylaws. Copies of
the WellPoint Certificate and the WellPoint Bylaws are attached hereto as
Appendix D and Appendix E, respectively. The Cerulean Articles and the Cerulean
Bylaws which are presently available from Cerulean, as well as from the
Commission, will be sent to shareholders of Cerulean upon request. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS OF WELLPOINT BY
REFERENCE."

BOARD OF DIRECTORS

Cerulean. The Cerulean Articles provide that, for all matters other than
election of Directors, the holders of Class A Stock and Class B Stock vote as
separate classes. Directors are elected by a plurality of the votes cast by the
shares entitled to vote unless the Cerulean Articles provide otherwise.

The GBCC provides and permits the articles of incorporation or bylaws of a
corporation to provide, for a Board of Directors divided into two or three
classes, with the size of the classes to be as even as possible. The

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Cerulean Articles provide for a Board which is divided into three classes, each
of which is elected for a staggered three-year term.

The Cerulean Articles further provide that as long as both shares of Class
B Stock and Class A Stock are issued and outstanding, the holders of Class A
Stock, voting separately as a single class, are entitled to elect two members of
each class of the Board of Directors of Cerulean (the "Class A Designated
Directors"). Under the Cerulean Articles the first two Class A Designated
Directors were previously elected by the holders of Class A Shares at the annual
meeting of Cerulean held on December 18, 1996; two more were elected at the
annual meeting of Cerulean held on April 25, 1997 and upon election of the Class
A Designated Directors described herein at the Meeting all six Class A
Designated Directors will have been elected. So long as any shares of Class B
Stock are issued and outstanding, the holders of Class B Stock, voting
separately and as a single class, are entitled to elect all remaining directors
of the Cerulean Board of Directors other than the Class A Designated Directors;
two are nominated by the holders of Class B Stock and are known as Preferred
Designated Directors; the remainder are nominated by the Nominating Committee
and approved by the Board.

WellPoint. The DGCL permits a classified board of directors, divided into
as many as three classes, but with no requirement that the classes be as even in
size as possible. The WellPoint Certificate provides for the WellPoint Board of
Directors to be divided into three classes with any change in the number of
directors to be apportioned among the classes so the number of directors in each
class is as nearly equal as possible. The Board of Directors of WellPoint is
elected by a plurality of the votes cast by shareholders, up to the number of
directors to be elected in such election, without cumulative voting.

COMMITTEES OF THE BOARD

Cerulean. The Cerulean Bylaws provide that Cerulean shall have a Finance
Committee which shall consist of up to seven (7) directors, which, in addition
to such duties as the Board shall delegate, shall prepare and approve an annual
Business Plan of Cerulean, its subsidiaries and affiliates, which, upon approval
of the Finance Committee and the Board of Directors, shall serve as the Business
Plan for Cerulean, its subsidiaries and affiliates. The Cerulean Bylaws and the
Shareholders' Agreement provide that two Preferred Designated Directors shall
serve on the Finance Committee. The Cerulean Bylaws further provide that in the
discretion of the Class B Stock, one or two Preferred Designated Directors shall
serve on the Compensation Committee, the Strategic Planning Committee, and the
Audit Committee of Cerulean.

WellPoint. The WellPoint Bylaws provide that any executive committee
established by the Board of Directors shall, during the "Initial Period," have
at least one member who is a BCC Designee (as defined below) and a majority of
members who are WellPoint Designees (as defined below). "Initial Period" is
defined in the WellPoint Bylaws to be the period commencing on May 20, 1996 and
ending on the date on which the California Foundation and its affiliates, when
taken together, cease to "Beneficially Own" Capital Stock in excess of the
"Ownership Limit" (as such terms are defined in the WellPoint Certificate). See
"--Certain Restrictions on Ownership of Securities." As of June 30, 1998, the
California Foundation owned 17,910,000 shares, or approximately 25.5% of the
outstanding WellPoint Stock. The WellPoint Bylaws define "BCC Designee" as each
of W. Toliver Besson, Stephen L. Davenport and Sheila P. Burke, or a direct or
indirect replacement thereof. "WellPoint Designee" is defined as each of Leonard
D. Schaeffer, David R. Banks, Roger E. Birk, Julie A. Hill and Elizabeth E.
Sanders, or a direct or indirect replacement thereof.

The WellPoint Bylaws further provide that there will be a Nominating
Committee of the Board of Directors of WellPoint, which will consist of three
directors, at least one of whom will be a BCC Designee and a majority of whom
are non-BCC Designees. The Nominating Committee will continue in existence at
least until the end of the Initial Period. So long as it remains in existence,
the Nominating Committee has power, acting by majority vote, to nominate persons
to serve as directors of WellPoint, subject (i) to any rights of shareholders
under law to nominate persons to serve as directors, (ii) in the case of a
person nominated as a replacement for a BCC Designee, the BCC Designee members
of the Nominating Committee will have a veto vote, (iii) in the case of a person
nominated as a replacement for any WellPoint Designee on the Board, the
Nominating Committee will not nominate such a person if a majority of the
WellPoint Designee members of

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the Nominating Committee oppose such nomination and (iv) to any contractual
obligations of WellPoint. So long as the Nominating Committee remains in
existence, if the Nominating Committee is unable to nominate a candidate for
WellPoint's Board of Directors as set forth above, nominations will be made by
the Board of Directors, in the case of replacing a BCC Designee, by vote of a
majority of the remaining BCC Designees or, in the case of replacing a WellPoint
Designee, by vote of a majority of the remaining WellPoint Designees.

ACTIONS BY SHAREHOLDERS WITHOUT A MEETING; SPECIAL MEETINGS

Cerulean. Under the GBCC, any action which may be taken at a meeting of
the shareholders of a corporation may be taken without a meeting by written
consent if such action is taken by all of the shareholders entitled to vote on
such action, or, if so provided in the articles of incorporation, by written
consent of persons who would be entitled to vote at a meeting holding shares
having voting power to cast not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting. The Cerulean Bylaws
provide that any action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting if the action is taken by all the
shareholders entitled to vote on the action.

The Cerulean Bylaws further provide that special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by the
GBCC: (i) may be called by the Chairman of the Board of Directors; (ii) shall be
called by the Chairman of the Board of Directors or the Secretary of Cerulean
when so directed by the Board of Directors; (iii) at any time at which Cerulean
has more than 100 shareholders of record, shall be called by the Chairman of the
Board of Directors or the Secretary of Cerulean at the request in writing of
shareholders owning not less than 70% of all of the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting of Cerulean;
(iv) at any time at which Cerulean has 100 or fewer shareholders of record,
shall be called by the Chairman of the Board of Directors or the Secretary of
Cerulean at the request in writing of shareholders owning not less than 25% of
all of the votes entitled to be cast on any issue proposed to be considered at
the proposed special meeting; and (v) shall be called at the request in writing
of shareholders owning not less than a majority of the shares of Class B Stock
then issued, outstanding and entitled to vote.

WellPoint. Under the DGCL, unless a corporation's certificate of
incorporation provides otherwise, any action which may be taken at a meeting of
the shareholders of a corporation may be taken without a meeting by the
execution of a written consent by the holders of outstanding stock having not
less than the minimum amount of votes necessary to take such action at a meeting
where all shareholders entitled to vote on such action are present.

The WellPoint Certificate and the WellPoint Bylaws prohibit the taking of
shareholder action by written consent without a meeting. The WellPoint
Certificate provides that a special meeting of the shareholders of WellPoint may
be called at any time only by the Chairman of the Board, the President, a
majority of the members of the Board of Directors or holders of shares entitled
to cast not less than 10% of the votes at the meeting.

AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION

Cerulean. Under the GBCC, the board of directors may amend the articles of
incorporation to take the following actions without obtaining shareholder
approval: (i) delete the names and addresses of the initial directors, initial
registered agent or registered office, the initial principal office, and each
incorporator, (ii) change each issued or each issued and unissued authorized
share of an outstanding class of stock into a greater number of whole shares if
the corporation has only shares of that class outstanding, (iii) change the
corporate name, (iv) extend the corporation's duration if it was incorporated at
a time the law required limited duration, (v) change or eliminate the par value
of each issued and unissued share of an outstanding class if the corporation has
only shares of that class outstanding, or (vi) make any other change permitted
by the GBCC without shareholder action. Other amendments must be approved by the
board of directors and by the shareholders by a majority of the votes entitled
to be cast on the amendment by each voting group entitled to vote on the
amendment unless the articles of incorporation, the bylaws or another provision
of the GBCC require a higher vote. In general, class or series voting on an
amendment will be permitted if the amendment

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would change the number of authorized shares of a class (unless the articles of
incorporation provide otherwise) or adversely affect the rights, powers or
preferences of the shares of a class or series in a manner specified by the
statute.

The Cerulean Articles and Cerulean Bylaws further restrict the ability of
the Cerulean shareholders to amend the Cerulean Articles. The Cerulean Articles
and Bylaws provide that the Cerulean Articles may be altered, amended or
repealed by the shareholders only upon the affirmative vote of (i) a majority of
the members of the Board of Directors and (ii) a majority (or in the case of
amendment of provisions which require a greater percentage, such greater
percentage) of the shares of each class of shares then outstanding and entitled
to vote thereon. Notwithstanding the foregoing, the Cerulean Articles and
Cerulean Bylaws provide that the provision governing amendment of the Cerulean
Articles described herein, together with the provisions of the Cerulean Articles
dealing with classification of the Cerulean Board of Directors and restrictions
upon the acquisition of securities of Cerulean in the event that Cerulean Common
Stock (which is different from Class A Stock and none of which is presently
outstanding) is outstanding and no shares of Class B Stock remain outstanding
may be altered, amended or repealed by the shareholders only upon the
affirmative vote of (i) a majority of the members of the Board of Directors and
(ii) three-fourths of the shares of each class of shares then outstanding and
entitled to vote thereon.

WellPoint. Pursuant to the DGCL, amendment of a corporation's certificate
of incorporation may be adopted if approved by the board of directors and the
majority of the outstanding shares entitled to vote. The WellPoint Certificate
requires the greater of two-thirds or seven of the directors then in office for
the Board of Directors to approve any amendment of the WellPoint Certificate.
The WellPoint Certificate further requires the affirmative vote of the holders
of at least 75% of each class of the shares of voting stock represented and
voting at a duly held meeting of shareholders at which a quorum is present,
voting by class, to amend certain provisions of the WellPoint Certificate,
including the provisions concerning (i) the number of directors; (ii) certain
provisions of the WellPoint Certificate dealing with WellPoint's classified
Board of Directors; (iii) the filling of vacancies on the Board of Directors;
(iv) the power of directors to amend the WellPoint Certificate; (v) the
prohibition on shareholder action by written consent; (vi) the ownership and
transfer restrictions; (vii) the prohibition on cumulative voting by
shareholders; and (viii) the requirement for supermajority shareholder approval
to amend such provisions. However, no amendment of the WellPoint Certificate
will be effective unless approved by the affirmative vote of a majority of the
outstanding shares of voting stock entitled to vote. In addition, the
requirement for supermajority shareholder approval will not apply to any
amendment to the Ownership and Transfer Restrictions to conform such provision
to a change to the terms of the WellPoint License Agreement or to any amendment
to the Ownership and Transfer Restrictions required or permitted by the BCBSA.
Furthermore, the provisions of the WellPoint Certificate described in the last
two sentences of this paragraph will become ineffective and of no further force
and effect in the event that the WellPoint License Agreement is terminated and
WellPoint and the BCBSA do not enter into a replacement license agreement.

AMENDMENTS TO BYLAWS

Cerulean. The GBCC permits a corporation's board of directors to amend,
repeal or adopt bylaws, unless (i) the articles of incorporation reserve this
power exclusively to the shareholders in whole or in part, or (ii) the
shareholders, in amending or repealing a particular bylaw, expressly reserve the
power to amend or repeal that particular bylaw. The corporation's shareholders
may also amend, repeal or adopt bylaws even though the bylaws may be amended or
repealed by the board. The shareholders alone may amend, repeal or adopt bylaws
limiting the authority of the board of directors or establishing staggered terms
for directors; the shareholders alone may adopt bylaws extending a greater
quorum or voting requirement for shareholders. In addition, the board of
directors may not amend, repeal or adopt a bylaw fixing a greater shareholder
quorum or voting requirement unless the bylaw relates to the GBCC's business
combination or fair practice provisions. Unless provided otherwise in a
corporation's articles of incorporation or bylaws, a bylaw fixing a greater
quorum or voting requirement for the board of directors may be adopted, amended
or repealed by the affirmative vote of a majority of the votes entitled to be
cast by the shareholders or by a majority of the

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directors, and if such a bylaw is adopted or amended by shareholders, such bylaw
or amendment may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the board of directors.

The Cerulean Articles and Cerulean Bylaws restrict the ability of Cerulean
shareholders and directors to amend the Cerulean Bylaws. The Cerulean Articles
and Cerulean Bylaws provide that the Cerulean Bylaws may be altered, amended or
repealed by the shareholders only upon the affirmative vote of (i) a majority of
the members of the Board of Directors, and (ii) a majority (or in the case of
amendment provisions which require a greater percentage, such greater
percentage) of the shares of each class of shares then outstanding and entitled
to vote thereon.

WellPoint. Pursuant to the DGCL, bylaws may generally be adopted, amended
or repealed either by approval of the majority of the outstanding shares
entitled to vote or, if provided in a corporation's certificate of
incorporation, by approval of the board of directors. The WellPoint Certificate
further requires approval of the greater of at least two-thirds or seven of the
directors then in office for the Board of Directors to approve and authorize (i)
the amendment of certain bylaws, including the bylaws concerning (a) the number,
qualification and election of directors, (b) the filling of vacancies on the
Board of Directors, and (c) the committees of the Board of Directors, including
the Nominating Committee, and; (ii) the amendment of a bylaw concerning the
adoption by the Board of rules and regulations not inconsistent with the
WellPoint Certificate.

GENERAL VOTING REQUIREMENTS

Cerulean. The GBCC provides that unless the articles of incorporation, a
bylaw adopted by the shareholders or the GBCC requires a greater number of
affirmative votes, action by a voting group on a matter (other than the election
of directors) will be approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action at a meeting where
a quorum is present.

WellPoint. The DGCL provides that unless the DGCL, the certificate of
incorporation or bylaws provide otherwise, the affirmative vote of a majority of
the shares present in person or represented by proxy at a meeting at which a
quorum is present will constitute approval by such voting group, except that
directors will be elected by a plurality of the votes of the shares entitled to
vote. Because WellPoint presently has only one class of shares outstanding,
votes on all matters other than the election of directors will be by vote of a
majority of a single voting group present in person or represented by proxy at a
meeting unless a different vote is required by the DGCL.

VOTE REQUIRED FOR CERTAIN TRANSACTIONS

Cerulean. In connection with the approval of proposed mergers and share
exchanges, and unless a greater vote or vote by voting group is required by the
GBCC, the articles of incorporation, bylaws or board resolutions, the GBCC
generally requires the affirmative vote of a majority of all votes entitled to
be cast on the plan for such transaction, voting as a single group, and the
affirmative vote of a majority of the votes entitled to be cast by holders of
shares of each voting group entitled to vote as a group under the corporation's
articles of incorporation. Unless a greater vote or a vote by voting group is
required by the articles of incorporation, bylaws or board resolutions, the GBCC
provides that the sale of all or substantially all of the assets of a
corporation must be approved by the affirmative vote of a majority of all the
votes entitled to be cast on the matter, regardless of voting groups.
Shareholders of the surviving corporation generally need not approve a merger if
(i) the articles of incorporation of the surviving corporation will not differ,
(ii) each share of stock of the surviving or acquiring corporation outstanding
immediately before the effective date of the merger or share exchange is to be
an identical outstanding or reacquired share immediately after the merger or
share exchange, and (iii) the number and kind of shares outstanding immediately
after the merger or share exchange, plus the number and kind of shares issuable
as a result of the merger or share exchange, do not exceed the total number and
kind of shares of the surviving corporation authorized by its articles of
incorporation immediately before the merger or share exchange.

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Under the Cerulean Articles, the holders of Class A Stock and the holders
of Class B Stock are each entitled to vote as a separate voting group in
connection with a merger, share exchange or sale of all or substantially all of
Cerulean's assets.

WellPoint. Under the DGCL, a merger, consolidation or sale of all or
substantially all of a corporation's assets generally must be approved by the
shareholders of each constituent corporation by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote on the
transaction. The DGCL does not recognize share exchanges. Shareholders of the
surviving corporation need not approve a merger if: (i) the corporation's
certificate of incorporation will not be amended as a result of the merger; (ii)
each share of the corporation's stock outstanding immediately prior to the
effective date of the merger will be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger; and (iii)
either no shares of the surviving corporation's common stock and no securities
convertible into such stock will be issued pursuant to the merger or the
authorized unissued shares or treasury shares of the surviving corporation's
common stock to be issued pursuant to the merger plus those initially issuable
upon conversion of any other securities to be issued pursuant to the merger do
not exceed 20% of the shares of the surviving corporation's common stock
outstanding immediately prior to the effective date of the merger.

CERTAIN RESTRICTIONS ON OWNERSHIP OF SECURITIES

Cerulean. The Cerulean Articles provide for certain restrictions on the
ownership of securities of Cerulean in the event that Common Stock of Cerulean
was ever issued. These provisions were put in place to comply with the licensing
requirement imposed on Georgia Blue by BCBSA in connection with the issuance of
licenses to Cerulean and Georgia Blue to use the Blue Cross and Blue Shield
tradenames and trademarks in the State of Georgia. There is no Common Stock
presently outstanding.

WellPoint. The WellPoint Certificate also has an ownership limit to
accommodate BCBSA licensing restrictions. Generally, the ownership limitations
provide that no person may "Beneficially Own" (as defined in the WellPoint
Certificate) more than the number of shares of voting stock which is one share
lower than the number of shares of voting stock representing the "Ownership
Limit." The "Ownership Limit" is the following: (i) for any "Institutional
Investor," one share less than 10% of WellPoint's outstanding voting securities;
and (ii) for any "Noninstitutional Investor," other than the California
Foundation, one share less than 5% of WellPoint's outstanding voting securities.
For these purposes, "Institutional Investor" means any person if (but only if)
such person is (1) a broker or dealer registered under Section 15 of the
Exchange Act, (2) a bank as defined in Section 3(a)(6) of the Exchange Act, (3)
an insurance company as defined in Section 3(a)(19) of the Exchange Act, (4) an
investment company registered under Section 8 of the Investment Company Act of
1940, (5) an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, (6) an employee benefit plan, or pension fund which is
subject to the provisions of the Employee Retirement Income Security Act of 1974
or an endowment fund, (7) a parent holding company, provided the aggregate
amount held directly by the parent and directly and indirectly by its
subsidiaries which are not persons specified in paragraphs (1) through (6), does
not exceed one percent of the securities of the subject class, or (8) a group
provided that all the members are persons specified in paragraphs (1) through
(7). In addition, every filing made by such person with the SEC under
Regulations 13 D-G (or any successor Regulations) under the Exchange Act with
respect to such person's beneficial ownership must contain a certification (or a
substantially similar one) that the WellPoint Stock acquired by such person was
acquired in the ordinary course of business and was not acquired for the purpose
of and does not have the effect of changing or influencing the control of
WellPoint and was not acquired in connection with or as a participant in any
transaction having such purpose or effect. For such purposes, "Noninstitutional
Investor" means any person that is not an Institutional Investor.

The WellPoint Certificate provides that any "Transfer" (as defined in the
WellPoint Certificate) that, if effective, would result in a person
"Beneficially Owning" more than the Ownership Limit will be void with respect to
any shares in excess of the Ownership Limit (the "Excess Shares"), and that any
Transfer or event resulting in a person purporting to hold Excess Shares will
result in such Excess Shares being automatically deemed transferred to an escrow
agent (the "Escrow Agent"). The Escrow Agent would have the power to vote the
Excess Shares at the direction of WellPoint, and would be obligated to sell the
Excess Shares for the
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benefit of the purported owner (net of costs and expenses of the Escrow Agent
and WellPoint) at a time that the Escrow Agent deems appropriate so as not to
negatively impact the market price of WellPoint Stock.

Pursuant to the WellPoint Certificate, WellPoint has the power to interpret
the provisions of the WellPoint Certificate described above and, in the absence
of manifest error, any interpretation of the Board of Directors of WellPoint
will be binding. In making any such interpretation, the Board of Directors of
WellPoint is required to consider its obligations to BCBSA, wherever relevant.
The ownership limitations are more fully described in the WellPoint Certificate,
a copy of which is set forth in Appendix D and which is incorporated in its
entirety by this reference.

To the knowledge of WellPoint, the California Foundation is presently the
only shareholder of WellPoint which would "Beneficially Own" shares of WellPoint
Stock in excess of the Ownership Limit, but the California Foundation is subject
to specific restrictions on its ability to vote its shares pursuant to certain
voting and voting trust agreements entered into in connection with the
Recapitalization. Based upon Cerulean's and WellPoint's existing knowledge of
relationships between Cerulean's shareholders and their existing ownership of
WellPoint Stock, no Cerulean shareholder is expected to "Beneficially Own"
voting stock of WellPoint representing five percent or more of WellPoint's
outstanding voting securities as a result of the Merger, and therefore no
Cerulean shareholder should be subject to the transfer and ownership limitations
described above in connection with the shares received by it in the Merger.

BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS

Cerulean. The GBCC contains provisions regarding "business combinations"
with "interested shareholders." These provisions are designed to encourage any
person, before acquiring 10% of the outstanding voting stock of a corporation,
to seek approval of its Board of Directors regarding the terms of any
contemplated business combination by prohibiting such business combination for a
period of five years subject to certain exceptions in the statute.

The provisions of the GBCC regarding "business combinations" do not apply
to a Georgia corporation unless it has affirmatively elected in its bylaws to be
governed by them. Cerulean has adopted the Business Combination Provisions of
the GBCC through election in the Cerulean Bylaws. These provisions, however, are
not applicable to the Merger.

WellPoint. Unlike the Georgia provisions, Section 203 of the DGCL
prohibits a corporation that does not opt out of its provisions from entering
into certain business combination transactions with any interested shareholder
for a period of three years from the time such shareholder becomes an interested
shareholder unless certain super-majority votes are obtained. The prohibition
will not apply if (i) the board of directors has approved either the proposed
business combination or the transaction resulting in interested shareholder
status prior to the date that the shareholder became an interested shareholder;
(ii) upon consummation of the transaction in which the shareholder became an
interested shareholder, the interested shareholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced; or (iii) after the date that the shareholder became an interested
shareholder, the interested shareholder obtains the approval of the Board of
Directors and the approval at an annual or special meeting (and not by written
consent) of two-thirds of the shares outstanding that are not held by the
interested shareholder.

A Delaware corporation may "opt out" of the requirements of Section 203 of
the DGCL if a majority of the outstanding shares entitled to vote adopt an
amendment to the corporation's certificate of incorporation or bylaws expressly
electing not to be governed by Section 203. WellPoint has not "opted out" of
Section 203.

FAIR PRICE PROVISIONS

Cerulean. The GBCC also contains provisions designed to protect
shareholders of Georgia corporations against certain tactics which have been
utilized in hostile takeover attempts. Specifically, the fair price provisions
are designed to provide protection from so-called two-tier transactions, in
which the acquiring party usually tenders at a substantial premium for a major
stock interest in a target corporation and after having acquired such interest,
the acquiring party acquires total ownership of the corporation by effecting a
freeze-out

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merger which forces minority shareholders to receive cash or other consideration
for their common stock in the acquired corporation.

Through a provision in the Cerulean Bylaws, Cerulean has elected to be
governed by the "fair price provisions" of the GBCC.

WellPoint. Other than Section 203 of the DGCL (described in the
immediately preceding section) neither the DGCL nor the WellPoint Certificate
contains a provision similar to the one described above.

CONFLICTING INTEREST TRANSACTIONS

Cerulean. The GBCC states that a director has a "conflicting interest"
with respect to a transaction effected or proposed by the corporation (or any
other entity in which the corporation has a controlling interest) if (i) whether
or not the transaction is brought before the board for action, to the knowledge
of the director at the "time of commitment" (as defined in the GBCC) the
director or a related person is a party to the transaction or has a beneficial
financial interest in or is so closely linked to the transaction and of such
financial significance to the director or a related person that it would
reasonably be expected to exert an influence on the director's judgment if he or
she were called upon to vote on the transaction, or (ii) the transaction is
brought (or is of such character and significance to the corporation that it
would in the normal course be brought) before the Board for action, and to the
knowledge of the director at the time of the commitment any of the following
persons is either a party to the transaction or has a beneficial financial
interest so closely linked to the transaction and of such financial significance
to such person that it would reasonably be expected to exert an influence on the
director's judgment if he or she were called upon to vote on the transaction:
(a) an entity (other than the corporation) of which the director is a director,
general partner, agent or employee; (b) a person that controls one or more of
the entities specified in subparagraph (a) above or an entity that is controlled
by, or is under common control with, one or more of the entities specified in
subparagraph (a) above; or (c) an individual who is a general partner, principal
or employer of the director.

Generally, a director's conflicting interest transaction may not be
enjoined, set aside or give rise to an award of damages or other sanctions, in
an action by a shareholder or by or in the right of the corporation, on the
ground of an interest in the transaction of such director or any person with
whom such director has a personal, economic or other association, if (i) the
transaction receives the affirmative vote of a majority (but not less than two)
of the disinterested directors or a committee thereof who voted on the
transaction after required disclosure to them to the extent the information is
not known by them; (ii) a majority of the votes entitled to be cast by
disinterested shareholders were cast in favor of the transaction after (a)
notice to the shareholders describing the conflicting interest transactions, (b)
disclosure by such director, prior to the shareholders' vote, to the Secretary
of the Company of the number, and identity of the persons holding or controlling
the vote, of all shares that to the knowledge of the director are beneficially
owned (or the voting of which is controlled) by such director or by a related
person of the director, or both, and (c) required disclosure to the shareholders
who voted on the transaction to the extent the required information was not
known by them; or (iii) the transaction, judged in the circumstances at the time
of commitment, is established to have been fair to the corporation. The
provisions of the GBCC that are applicable to directors also generally apply to
officers, and provide that with respect to an officer who is not also a director
of the corporation, a conflicting interest transaction may not be enjoined, set
aside, or give rise to an award of damages or other sanctions if the transaction
was approved by the Board of Directors after required disclosure, the
transaction was approved by the shareholders after required disclosure, or the
transaction, judged in the circumstances at the time of commitment, is
established to have been fair to the corporation.

WellPoint. The DGCL states that contracts and transactions between a
Delaware corporation and one or more of its directors or officers, or
organizations in which they serve in such capacities or have a financial
interest, will not be void or voidable solely for such reason or solely because
such director or officer acts or participates in a board or committee meeting
authorizing the contract or transaction if: (i) the material facts of the
relationship or interest and as to the contract or transaction are disclosed or
known to the Board or committee and the board or committee in good faith
authorizes the contract or transaction by the affirmative

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vote of a majority of the disinterested directors (even if the disinterested
directors are less than a quorum); or (ii) the material facts as to the
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by the shareholders; or (iii)
the contract or transaction is fair to the corporation as of the time that it is
authorized by the Board, a committee thereof or the shareholders.

APPRAISAL RIGHTS

Cerulean. The GBCC grants shareholders the right to dissent and receive
payment of the fair value of their shares in the event of: (i) certain specified
amendments to the articles of incorporation which materially and adversely
affect the rights or interests of shareholders in their capacity as
shareholders; (ii) sales of all or substantially all of the corporation's assets
(unless the sale is pursuant to a court order and the proceeds are distributed
to the shareholders within one year after the sale); or (iii) mergers or share
exchanges on which the shareholders are entitled to vote or certain mergers of
subsidiaries into parent corporations not requiring a shareholder vote. The
right of appraisal is not available when the affected shares are listed on a
national securities exchange or held of record by more than 2,000 shareholders
unless (i) the articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise or (ii) in a plan of
merger or share exchange, the holders of such shares are required to accept
anything other than shares of the surviving corporation or another publicly-held
corporation listed on a national securities exchange or held of record by more
than 2,000 shareholders, except for cash in lieu of fractional shares.
Shareholders who are entitled to and who perfect their appraisal rights
subsequently receive cash from the corporation equal to the fair value of their
shares as established by agreement of the parties or judicial appraisal.

WellPoint. Under the DGCL, shareholders entitled to vote on a merger or
consolidation have the right to serve upon the corporation a written demand for
appraisal of their shares when the shareholders receive any form of
consideration for their shares other than (i) shares of the surviving
corporation, (ii) shares of any other corporation listed on a national
securities exchange or held of record by more than 2,000 shareholders, or (iii)
cash (or stock and cash) in lieu of fractional shares or any combination
thereof. The DGCL provides that a corporation may provide in its certificate of
incorporation for appraisal rights in connection with an amendment to the
corporation's certificate of incorporation, any merger or consolidation
regardless of the shareholder's right to vote on such transaction, or the sale
of all or substantially all of the assets of the corporation. WellPoint has not
made provision for such rights in the WellPoint Certificate.

PAR VALUE; DIVIDENDS AND REPURCHASES OF SHARES

Cerulean. The GBCC dispenses with the concept of par value of shares, as
well as with statutory definitions of capital and surplus, except to state that
solely for the purpose of any statute or regulation imposing any tax or fee
based upon capitalization of the Corporation, shares shall be deemed to have a
nominal or par value of $.01 per share or, where any federal or other statute or
regulation requires that shares have par value, a deemed par value shall be
determined by the Board of Directors solely for the purpose of satisfaction
under the requirements of the statute or regulation.

Under the GBCC, Cerulean is prohibited from making a distribution to its
shareholders, if, after giving such distribution effect, (i) Cerulean would not
be able to pay its debts as they become due in the usual course of business, or
(ii) Cerulean's total assets would be less than the sum of its total liabilities
plus (unless the Cerulean Articles permit otherwise) the amount that would be
needed, if Cerulean were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. Included
in the concept of distribution to shareholders are any share repurchases by
Cerulean.

WellPoint. The concepts of par value, capital and surplus are retained
under the DGCL. The DGCL permits a corporation to declare and pay dividends out
of statutory surplus (defined as the excess of paid in par value of shares or
stated capital) or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital

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<PAGE> 125

represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, the DGCL generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.

The WellPoint Certificate provides that shares of WellPoint Stock carry a
par value per share of $.01.

PROPOSAL 2
ELECTION OF CLASS A DESIGNATED DIRECTORS

In voting to elect two Class A Designated Directors to serve as Class Three
Directors until the 2001 Annual Meeting (Proposal 2(A)) and to elect one Class A
Designated Director to serve as a Class One Director until the 1999 Annual
Meeting (Proposal 2(B)), holders of Class A Stock may vote in favor of all
nominees, withhold their votes as to all nominees or withhold their votes as to
specific nominees. The vote required to approve the election of the nominees is
governed by Georgia law and is a plurality of the votes cast by the owners of
shares entitled to vote in the election, provided a quorum is present at the
Meeting. As a result, in accordance with the GBCC, votes that are withheld will
not be counted and will have no effect.

Under the Cerulean Articles, 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 Cerulean, are entitled to elect the Class A Designated Directors, for a total
of six of the total members of the Board of Directors following the third
election of Class A Designated Directors.

Prior to the Special Meeting of holders of Class A Stock held on December
18, 1996 (the "Special Meeting"), a special nominating committee composed of two
Continuing Directors (as defined below) and two Preferred Designated Directors
(as defined below) nominated the two Class A Designated Directors to be voted on
by all of the holders of the Class A Stock at the Special Meeting. At the
Special Meeting, Joseph D. Greene was elected as a Class A Designated Director
to serve as a Class Two Director until the 1997 Annual Meeting, and Elizabeth W.
Camp was elected as a Class A Designated Director to serve as a Class One
Director until the 1999 Annual Meeting.

Prior to the Annual Meeting of holders of Class A Stock held on April 25,
1997 (the "1997 Annual Meeting"), a special nominating committee composed of two
Continuing Directors and Mr. Greene and Ms. Camp, the Class A Designated
Directors, nominated Mr. Greene and James R. Lientz, Jr. as Class A Designated
Directors to serve as Class Two Directors until the 2000 Annual Meeting and
Arnold Tenenbaum as a Class A Designated Director to serve as a Class Three
Director until the 1998 Annual Meeting to be voted on by all of the holders of
the Class A Stock at the 1997 Annual Meeting. The three nominees were elected as
Class A Designated Directors at the 1997 Annual Meeting.

On , 1998, a special committee composed of two Continuing
Directors and the then current Class A Designated Directors nominated Arnold
Tenenbaum and as Class A Designated Directors to serve as Class
Three Directors until the 2001 Annual Meeting and as a Class A
Designated Director to serve as a Class One Director until the 1999 Annual
Meeting, to be voted on by all of the holders of the Class A Stock at the
Meeting.

It is presently anticipated that the Merger will be consummated prior to
there being another annual meeting of Cerulean. In the event this is not the
case, however, at each annual meeting hereafter until the Class A Stock is
converted to Common Stock as provided in the Cerulean Articles, a special
nominating committee composed of the six Class A Designated Directors will
nominate, and the holders of the Class A Stock will be entitled to elect two
Class A Designated Directors each year to replace the Class A Designated
Directors whose terms expire at that annual meeting.

Notwithstanding any nomination by the special nominating committee, the
holders of the Class A Stock are entitled to nominate and elect any eligible
individual to fill the Class A Designated Director positions subject to election
each year.

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DIRECTORS

The Cerulean Articles 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 Articles of Incorporation further provide
for the classification of Cerulean'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,
or until their successors are elected and qualified, except as may be provided
with respect to the terms of Class A Designated Directors elected prior to the
1999 annual meeting. The Board of Directors currently consists of 17 members.
Each Director of Cerulean also serves as a Director of Georgia Blue.

Prior to the 1998 Annual Meeting, it is anticipated that the holders of the
Class B Stock will re-elect the Class Two Directors (other than the Class A
Designated Directors) whose terms currently expire in 1998 to a new term
expiring at the 2001 annual shareholders' meeting, or upon the election and
qualification of their successors.

NOMINEES FOR CLASS A DESIGNATED DIRECTOR

NOMINEES

The special nominating committee of Cerulean, consisting of James L.
LaBoon, Jr. and W. Jerry Vereen (who are Continuing Directors) and Elizabeth W.
Camp, Joseph D. Greene, James R. Lientz, and Arnold Tenenbaum (who are Class A
Designated Directors), has nominated Arnold Tenenbaum and to
serve as Class A Designated Directors in Class Three to serve until the 2001
Annual Meeting or until their successors are duly elected and qualified and
to serve as a Class A Designated Director in Class One to serve
until the 1999 Annual Meeting or until his successor is duly elected and
qualified. Mr. Tenenbaum is presently a member of the Board of Directors whose
term is scheduled to expire at the 1998 Annual Meeting.

Each of the nominees has consented to serve if elected. If any of the
nominees should become unavailable to serve for any reason (which is not
anticipated), the Board of Directors (or the special nominating committee), in
its discretion, may designate a substitute nominee or nominees (in which case
the persons named as proxies on the enclosed card will vote all valid proxy
cards for the election of such substitute nominee or nominees) or allow the
vacancy or vacancies to remain open until a suitable candidate or candidates are
located.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO (A) ELECT ARNOLD TENENBAUM AND AS CLASS A
DESIGNATED DIRECTORS TO SERVE AS CLASS THREE DIRECTORS UNTIL THE 2001 ANNUAL
MEETING AND (B) ELECT AS A CLASS A DESIGNATED DIRECTOR TO SERVE
AS A CLASS ONE DIRECTOR UNTIL THE 1999 ANNUAL MEETING.

INFORMATION REGARDING NOMINEES AND DIRECTORS

PERSONS NOMINATED TO SERVE AS CLASS A DESIGNATED
DIRECTORS UNTIL THE 2001 ANNUAL MEETING

ARNOLD TENENBAUM

Mr. Tenenbaum is President of Chatham Steel Corporation. He is a member of
the Boards of Directors of the Georgia Lottery Commission, First Union National
Bank of Savannah, First Union Bank of Georgia and Savannah Electric & Power
Company. Mr. Tenenbaum is a past President of the Telfair Academy of Arts &
Sciences and the Chair-elect of Steel Service Center Institute. He is a past
Chairman of the Georgia Chamber of Commerce. He is also a director of HMO-Ga.
Mr. Tenenbaum is 62 years old.

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[SECOND NOMINEE BE SUPPLIED]

PERSON NOMINATED TO SERVE AS CLASS A DESIGNATED
DIRECTOR UNTIL THE 1999 ANNUAL MEETING

[TO BE SUPPLIED]

DIRECTORS TO SERVE UNTIL THE 1999 ANNUAL MEETING OF SHAREHOLDERS

JAMES R. ALBRIGHT

Mr. 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., Albrights, 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. Mr. Albright is 61.

ELIZABETH W. CAMP(1)

Ms. 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 46.

MEL H. GREGORY, JR.

Mr. Gregory 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. He is a member of the Board
of Directors of Stetson University School of Business. Mr. Gregory has been a
Director of Cerulean since its organization in February 1996 and a Director of
Georgia Blue since 1996. Mr. Gregory is also a director of GGL. Mr. Gregory is
[ ].

JAMES L. LABOON, JR.

Mr. LaBoon is the 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 as 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 Cerulean 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. Mr. LaBoon is 62.

JAMES H. LEIGH, JR., M.D.

Dr. Leigh 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

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(1) Ms. Camp is a Class A Designated Director.
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<PAGE> 128

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 Cerulean since its organization in
February 1996. He is also a director of HMO-Ga. Dr. Leigh is 55.

JULIA L. MITCHELL-IVEY

Ms. 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 Cerulean since its
organization in February 1996. She is Chairman of the Board of Directors of
HMO-Ga. Ms. Mitchell-Ivey is 65.

DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING OF SHAREHOLDERS

JOSEPH D. GREENE(2)

Mr. Greene is a professor of Business Administration for the College of
Business at Augusta State University 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 Board of Directors of McDuffie Bank & Trust of Thomson,
the Georgia Academy for Children, the Greater Augusta Community Foundation,
Southeastern Technology Center, 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 Cerulean since its organization in February 1996. He is also
Vice Chairman of the Board of Directors of HMO-Ga. Mr. Greene is 57.

JAMES R. LIENTZ, JR.

Mr. Lientz is President of NationsBank Mid-South Banking Group. Prior to
joining NationsBank, he was President and CEO of C&S National Bank of South
Carolina, a predecessor of NationsBank. Mr. Lientz is a member of the Board of
Directors of Georgia Power Company. He is a trustee of Rhodes College, The
Lovett School, the Georgia Research Alliance, Georgia State University
Foundation and the Community Foundation of Metropolitan Atlanta and is serving
as Chairman of the Georgia Chamber of Commerce and the Georgia Council on
Economic Education. He is a member of the Executive Committee of the
Metropolitan Atlanta Chamber of Commerce. Mr. Lientz has been a director of
Cerulean and Georgia Blue since 1997. Mr. Lientz is 55.

EDWARD M. GILLESPIE

Mr. 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 advisory board of South Trust
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 Cerulean since its organization in
February 1996. Mr. Gillespie is 62.

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

(2) Mr. Greene is a Class A Designated Director in Class Two.
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W. JERRY VEREEN

Mr. 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 Governor's Development Council.
He has been a Director of Georgia Blue since 1993 and a Director of Cerulean
since its organization in February 1996. Mr. Vereen is 57.

JOE M. YOUNG(3)

Mr. 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 Cerulean and Georgia Blue in February 1996. Mr. Young is 69.

CLASS THREE -- TERM EXPIRES AT 2001 ANNUAL MEETING OF SHAREHOLDERS

WILLIAM A. ALIAS, JR.

Mr. Alias is an entrepreneur holding various private investments. Formerly,
Mr. Alias was President of Rollins Protective Services, a residential security
company. Prior to joining Rollins, he was Executive Vice President and Chief
Operating Officer of Across the Street Restaurants of America, Inc. He also held
positions at Royal Crown Cola Company and the National Icee Corporation. Mr.
Alias is a former member of the Board of Trustees of the Lovett School and is a
Board Member of Security Check. He has been a member of the Boards of Directors
of Cerulean and Georgia Blue since December 1996. He is a member of the Board of
HMO-Ga. Mr. Alias is 56.

FRANK J. HANNA III(4)

Mr. Hanna is, and has been since 1993, the Chief Executive Officer of HBR
Capital, Ltd., an investment firm based in Atlanta, Georgia. 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 Donnellan School in Atlanta and as a
director of Pinecrest Academy. Mr. Hanna is a graduate of the University of
Georgia and the University of Georgia School of Law. Mr. Hanna became a Director
of Cerulean and Georgia Blue in February 1996. Mr. Hanna is 36.

RICHARD D. SHIRK

Mr. 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 Cerulean 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

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

(3) Mr. Young is one of two Preferred Designated Directors.

(4) Mr. Hanna is one of two Preferred Designated Directors.
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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 director of the Buckhead Coalition and Metropolitan
Atlanta Chapter of the American Red Cross. Mr. Shirk has also been a member of
the Board of Directors of HMO-Ga since 1992. Mr. Shirk is 52.

FRED L. TOLBERT, JR.

Mr. Tolbert 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 Cerulean since its organization in February 1996, and its Vice Chairman since
March 22, 1996. He also serves as Chairman of the Board of GBG. Mr. Tolbert is
68.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors conducts its business through meetings of the full
Board of Directors and through committees consisting of a Governance Committee,
a Compensation Committee, a Finance Committee, and an Audit Committee. During
the fiscal year ended December 31, 1997, the Board of Directors held five
meetings. Each director attended 75% or more of the aggregate of all meetings of
the Board of Directors and all committees of the Board of Directors of which he
was a member held during the period in the Company's 1997 fiscal year during
which he served.

The Governance Committee, composed of Messrs. LaBoon (Chairman), Gillespie,
Greene, Gregory and Vereen, recommends policies to be followed by the Board of
Directors, including criteria for Board of Director membership, nominations for
election to the Board of Directors, Board of Directors officers and committees
and ongoing credentialing of the directors. In addition, it monitors compliance
with and recommends changes to the Cerulean Bylaws and the Cerulean Articles and
monitors compliance with the laws and regulations to which Cerulean is subject.
During the fiscal year ended December 31, 1997, the Governance Committee held
four meetings.

The Compensation Committee, composed of Messrs. Vereen (Chairman),
Gillespie, Gregory, Hanna and Tolbert, ensures the integrity of Cerulean's
compensation and benefit programs, including directors' compensation and benefit
levels, executive compensation, retirement plans and group health care benefits.
It periodically reviews Cerulean's compensation programs to ensure that
compensation is tied to performance and that an appropriate structure is in
place to attract and retain key management talent. During the fiscal year ended
December 31, 1997, the Compensation Committee held five meetings.

The Finance Committee, composed of Directors Tolbert (Chairman), Albright,
Camp, Hanna, Lientz, Mitchell-Ivey and Young, oversees the handling of monies
and investments of Cerulean and monitors the financial performance of Cerulean
and its subsidiaries. This includes a review and recommendation to the Board of
Directors regarding payment of annual dividends and periodic reviews and
monitoring of progress against the business plans of Cerulean and its
subsidiaries. During the fiscal year ended December 31, 1997, the Finance
committee held four meetings.

The Audit Committee, composed of Ms. Camp (Chair), and Messrs. Albright,
Alias, Head, Leigh and Young, recommends Cerulean's independent auditors to the
Board of Directors, reviews and approves the scope and approach of the
independent auditors and reviews the opinion and recommendations from Cerulean's
independent auditors and reports the results to the Board of Directors. It also
makes periodic reports to the Board of Directors pertaining to the internal
controls of Cerulean. During the fiscal year ended December 31, 1997, the Audit
Committee held three meetings.

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EXECUTIVE COMPENSATION

Table 1 summarizes by various categories, for the fiscal years ended
December 31, 1997, 1996 and 1995, the total compensation earned by (i) the Chief
Executive Officer of Cerulean, and (ii) each of the four most highly compensated
executive officers of Cerulean who were serving as executive officers at
December 31, 1997 and whose salary and bonus for the fiscal year ended December
31, 1997 exceeded $100,000 (collectively referred to as the "named executive
officers"). For information regarding the various factors considered by the
Compensation Committee in recommending the compensation of the Chief Executive
Officer of Cerulean and, generally, the other executive officers of Cerulean,
see "Compensation Committee Report" below. In addition to the compensation
described in the following tables and explanatory paragraphs, certain members of
management are entitled to receive, as a result of the Merger, payments under
certain of the plans described in this "Executive Compensation" section as well
as under other plans. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of
Certain Persons in the Merger".

TABLE 1: SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- OTHER ANNUAL --------------- ALL OTHER
SALARY($) BONUS($) COMPENSATION($) LTIP PAYOUTS($) COMPENSATION($)
NAME AND PRINCIPAL POSITION YEAR (1) (2) (3) (4) (5)
--------------------------- ---- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Shirk......................... 1997 $481,250 $ -- $ -- $281,437 $ 4,030
Chief Executive 1996 425,000 278,000 -- 432,225 5,878
Officer, President and 1995 425,000 -- 54,002 -- 5,087
Director of the Company and Georgia
Blue
John A. Harris........................... 1997 225,750 -- -- 89,967 3,202
Treasurer of the 1996 195,000 88,081 -- 67,392 3,285
Company; Executive 1995 187,500 -- -- 53,625 2,803
Vice President, Finance and Strategic
Planning of Georgia Blue
Raymond J. Colleran...................... 1997 207,750 -- -- 82,883 3,202
Executive Vice 1996 195,000 81,011 -- 67,392 3,836
President, Market 1995 194,250 -- -- 87,360 4,909
Operations of Georgia Blue
Mark Kishel, M.D......................... 1997 208,750 -- -- 89,967 3,238
Executive Vice 1996 205,000 88,100 -- 70,848 3,507
President and Chief 1995 203,750 -- -- 91,000 3,130
Medical Officer of Georgia Blue
R. Neil Vannoy........................... 1997 204,750 -- -- 82,883 1,612
Executive Vice 1996 195,000 81,081 -- 67,392 1,181
President, Community 1995 192,750 -- -- 84,630 801
Operations of Georgia
Blue
</TABLE>

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

(1) Includes amounts deferred at the election of the officers pursuant to the
Tax-Favored Savings Program and other deferred compensation plans.
(2) Threshold financial performance criteria pursuant to the Annual Incentive
Program was not achieved for 1997 and 1995; no bonuses were earned for those
periods.
(3) Perquisites for named executive officers were less than 10% of their total
salary for all periods presented. Perquisites paid to Mr. Shirk in 1995
includes $26,054 paid for vacation earned in prior years as part of a 1995
change in vacation policy for all employees.
(4) Includes payments in 1997 to the named executive officers for long-term
incentive payments for the 1994-1996 performance period, in 1996 for
long-term incentive payments for the 1993-1995 performance period and in
1995 for long-term incentive payments for the 1992-1994 performance period,
except for Mr. Shirk whose payment for the 1992-1994 performance period was
deferred by the Compensation Committee until 1996.
(5) Reflects contributions to the Tax-Favored Savings Program in 1997 and 1996,
respectively of $2,500 and $2,375 for Mr. Shirk, Mr. Harris, Mr. Colleran
and Dr. Kishel and $910 in 1997 for Mr. Vannoy and premium payments on group
term life insurance in 1997 and 1996, respectively: Mr. Shirk, $1,530 and

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$3,503; Mr. Harris, $702 and $810; Mr. Colleran, $702 and $1,461; Dr.
Kishel, $738 and $810 and Mr. Vannoy, $701 and $1,181.

LONG-TERM INCENTIVE COMPENSATION

Prior to fiscal year 1997, Georgia Blue maintained a Long-Term Incentive
Plan ("LTIP"). The LTIP was designed to reward participants for their
contributions to the successful achievement of specific financial (60%), market
share (20%) and customer service (20%) goals based on Cerulean's long-term
business strategy. Goals were established for three-year performance periods.
The LTIP had minimum threshold, target and maximum performance levels.
Participants were required to be employed by one of Cerulean's subsidiaries on
the last day of the performance period. Prior to 1997, long-term incentive award
opportunities had been established for two performance cycles, 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. Named executive officers received
payout for the 1994-1996 performance cycle which are reflected in the Summary
Compensation Table. Minimum threshold levels for financial performance were not
exceeded for the 1995-1997 cycle. No payouts to named executive officers were
due for this performance period.

Additionally, the named executive officers also participated in a
supplemental salary make-up plan for the 1996-1997 performance period. Under
this plan adopted in 1996, the named executive officers did not receive salary
increases for 1996 (three years for the Chief Executive Officer beginning in
1995) to recover from the financial performance criteria not achieved in 1995
and to accelerate pay progress of non-executive associates. No cash awards were
due to the named executive officers under this plan since target financial
performance was not achieved for the 1997 period.

In July 1997, Cerulean adopted the PUP that is designed to reward key
executives for creating and increasing the value of Cerulean. The Compensation
Committee of the Board of Directors of Cerulean is responsible for the
administration of the PUP including designation of participants and granting of
units. The PUP is described above at "PROPOSAL 1 -- APPROVAL OF THE
MERGER -- Interests of Certain Persons in the Merger."

RETIREMENT PLAN

The Non-Contributory Retirement Plan is a tax-qualified defined benefit
pension plan that covers all employees of Georgia Blue and its participating
affiliated 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 any BCBS employer, 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. The benefit is 60% of the participant's Final Average Earnings (i.e.,
the average of the highest five consecutive years of annual salaries and annual
incentive payments out of the last ten years of credited service) reduced by 50%
of the participant's anticipated Social Security benefit. If the participant has
less than 30 years of service, the result is multiplied by a service fraction.
The fraction is the number of the participant's years of credited service up to
30 divided by 30. For purposes of the Retirement Plan, a participant's earnings
that may be considered may be limited by provisions of Code Section 401(a)(17)
and the annual additions to his benefit may be limited by Code Section 415. A
participant becomes fully vested after five years of service. Generally, upon
retirement, participants may elect to receive their benefits in the form of a
lump sum payment, lifetime annuity, lifetime annuity with a guaranteed payout
period (ten or 20 years), or a joint and survivor annuity with 50%, 66 2/3% or
100% survivor benefits. 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.

The amount of contributions required by Georgia Blue to fund benefits for
its employees is determined each year by actuaries. Participant contributions
are not permitted. Benefits under the Retirement Plan are insured by the Pension
Benefit Guaranty Corporation. The Retirement Plan is administered by the BCBSA.
All contributions are held in a tax-qualified trust, and Bankers Trust Company
serves as Trustee to the

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Retirement Plan. Georgia Blue made a contribution of $3.4 million to the
Retirement Plan for the plan year ended December 31, 1997. 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.

In order to provide benefits to certain of its highly compensated or
management employees whose benefits under the Retirement Plan will be limited
due to requirements of the Code, Georgia Blue maintains the Blue Cross and Blue
Shield of Georgia, Inc. Executive Benefit Restoration Plan (the "Restoration
Plan"), in which all of the named executive officers participate. Generally,
participants are recommended by the Chief Executive Officer. The Restoration
Plan provides benefits to participants whose benefits under the Retirement Plan
are restricted by the compensation and annual addition limitations described in
Code Sections 401(a)(17) and 415. A participant becomes vested in his benefit
under the Restoration Plan upon retirement or disability after attainment of age
55 and completion of five years of service (as defined in the Retirement Plan).
A participant whose employment is terminated within one year following a change
in control (as defined in the Restoration Plan) for reasons other than death or
disability will have a fully vested right to receive all benefits accrued under
the Restoration Plan as of the date of termination if his employment is
terminated without just cause (as defined in the Restoration Plan) or if the
participant terminates with good reason (as defined in the Restoration Plan).
The benefit payable under the Restoration Plan is equal to the difference
between (a) the benefit the participant would be entitled to under the
Retirement Plan, calculated without regard to the compensation and annual
addition limits in effect under the Code, and (b) the sum of the benefit payable
under the Retirement Plan and any nonqualified defined benefit plan sponsored by
another Blue Cross/Blue Shield employer that relates to a period of service for
which credit is given under the Restoration Plan. The benefits provided by the
Restoration Plan are generally an unfunded obligation of Georgia Blue.

In addition to the Retirement Plan and the Restoration Plan, Georgia Blue
maintains the SERP, which is more fully described in "PROPOSAL 1 -- APPROVAL OF
THE MERGER -- Interests of Certain Persons in the Merger -- Payments to
Management Resulting from the Merger -- Blue Cross and Blue Shield of Georgia,
Inc. Supplemental Executive Retirement Plan," to provide supplemental retirement
benefits to its highly compensated and management employees. Mr. Shirk is not a
participant in the SERP. Therefore, through a separate individual plan, Georgia
Blue has agreed to provide Mr. Shirk the RDS SERP. The RDS SERP is more fully
described in "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of Certain
Persons in the Merger -- Payments to Management Resulting from the
Merger-Agreement for Supplemental Executive Retirement Benefits between Blue
Cross and Blue Shield of Georgia, Inc. and Richard D. Shirk."

Benefits under the Restoration Plan, the SERP and the RDS SERP described in
this section accrued at the end of 1997 were $245,410 for Mr. Shirk; $28,042 for
Mr. Harris; $26,580 for Mr. Colleran; $28,050 for Dr. Kishel; and $35,176 for
Mr. Vannoy.

The following Table 2 -- Pension Plan Table indicates an estimated annual
benefit payable to participants in the Retirement Plan, the Restoration Plan,
the SERP and the RDS SERP, assuming continued employment until retirement at age
65. The table indicates the estimated annual benefit calculated on a
straight-line annuity basis in persons in specified Final Average Earnings and
completed years of service categories. As of December 31, 1997, years of
credited service for the named executive officers were: Mr. Shirk -- 5 3/4
years; Mr. Harris -- 5 years; Mr. Colleran -- 4 11/12 years; Dr. Kishel -- 4 1/4
years; and Mr. Vannoy -- 5 5/12 years.

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TABLE 2: PENSION PLAN TABLE

<TABLE>
<CAPTION>
FINAL 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 55,008 68,772 82,512
200,000..........................................
250,000..........................................
300,000..........................................
400,000..........................................
500,000..........................................
600,000..........................................
700,000..........................................
800,000..........................................
900,000..........................................
1,000,000..........................................
1,500,000..........................................
</TABLE>

TAX-FAVORED SAVINGS PROGRAM

The Blue Cross and Blue Shield of Georgia, Inc. Tax-Favored Savings Program
is a tax-qualified profit sharing plan with a cash or deferred arrangement under
Code Section 401(k) (the "Savings Program"). The Savings Program is 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 ($10,000 in 1998). The employer will match $0.50 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 up to $2,125 for a total employer match of $2,375. 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
59 1/2. Participants also may obtain a hardship withdrawal or borrow 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 Blue Cross and Blue Shield Association
National 401(k) Master Trust for the Tax-Favored Savings Program. The trustee is
INVESCO Trust Company. Company contributions to the Savings Program for the
named executive officers for 1996 and 1997 are included in "All Other
Compensation" in the Summary Compensation Table.

DEFERRED COMPENSATION PLANS

Cerulean offers certain Directors and certain highly compensated or
management employees the opportunity to defer income pursuant to Cerulean'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 five to 20
years. Approximately 51 Directors and employees participate in these
arrangements. Cerulean's total obligation to these participants, which is
unsecured, was less than $3.7 million as of December 31, 1997.

DIRECTORS COMPENSATION

Non-employee Directors each receive aggregate annual retainers of $20,000
for service on the Board of Directors of Cerulean and Georgia Blue plus meeting
fees for attendance at Board of Directors and Committee meetings of Cerulean and
of Georgia Blue. The Chairman, the Vice Chairman and each

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Committee Chairman receive additional aggregate retainers of $10,000, $5,000 and
$3,000, respectively. Each non-employee Director receives $500 for attendance at
Board of Directors meetings, $500 for attendance at Committee meetings and $250
for participation in telephone meetings for each of the two companies. Each
non-employee Director may defer his or her Director fees pursuant to certain of
Cerulean's non-qualified, deferred compensation plans. Directors also are
reimbursed for reasonable expenses incurred in connection with the performance
of their duties.

COMPENSATION COMMITTEE; INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is comprised of Directors Vereen (Chair),
Gillespie, Gregory, Hanna and Tolbert (Messrs. Gillespie and Gregory were new
members of the Committee in 1997.). Mr. LaBoon sits with the Compensation
Committee ex officio. The Compensation 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
Compensation 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. None of the members of the Compensation
Committee is or has ever been an officer or employee of Cerulean. There were no
interlocking relationships between any executive officers of Cerulean and any
entity whose Directors or executive officers served on Cerulean's Compensation
Committee. None of the members of the Compensation Committee engaged in
transactions or had relationships requiring disclosure under Item 404 of
Regulation S-K in the fiscal year ended December 31, 1997.

EXECUTIVE OR OTHER SEVERANCE AGREEMENTS

Chief Executive Officer

Pursuant to the Employment Agreement, each of Cerulean and Georgia Blue
employs Mr. Shirk as President and Chief Executive Officer. The Employment
Agreement has a term of two years commencing on January 1, 1997, provided that
the term of the Agreement automatically extends for an additional month on the
first day of each month so that the Employment Agreement always has an unexpired
term of two years unless the Board of Directors of either Cerulean or Blue Cross
affirmatively notifies Mr. Shirk to the contrary in writing, in which event the
monthly term extension ceases and the two year term becomes fixed. The
Employment Agreement provides Mr. Shirk with an annual base salary of $425,000,
which may be adjusted upward by the Boards of Directors or the Compensation
Committees of Cerulean and Georgia Blue. The Employment Agreement entitles Mr.
Shirk to participate in all incentive compensation plans of Cerulean and Georgia
Blue on a basis consistent with his position, but in no event less than on an
equal basis with any other executives of Cerulean and Georgia Blue.

The Employment Agreement provides that if Mr. Shirk is terminated for any
reason other than "For Cause" or by Mr. Shirk for "Good Reason," then "all
payments" (broadly defined to include salary and certain other benefits under
the Employment Agreement) shall continue at the same rate for a period of two
years. If Mr. Shirk's employment is terminated "For Cause," or Mr. Shirk
voluntarily terminates his employment without "Good Reason," Mr. Shirk will not
be entitled to any compensation whatsoever after the effective date of
termination other than benefits as may be vested at such time. The Employment
Agreement defines "For Cause" as (i) the willful engagement by Mr. Shirk in
conduct, or the taking by him of any action, which is materially injurious to
Cerulean or Georgia Blue, (ii) the willful and repeated failure by Mr. Shirk to
substantially perform his duties; or (iii) gross misconduct or conduct involving
moral turpitude. The Employment Agreement provides that "For Cause" shall first
be determined by the Governance Committees of the Boards of Directors of
Cerulean and Georgia Blue and then approved by an absolute majority of the
members of the Boards of Directors of Cerulean and Georgia Blue. The Employment
Agreement affirmatively provides that differences in management philosophy or
the structure of operations of Cerulean or Georgia Blue shall not be deemed to
be "For Cause." See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of
Certain Persons in the Merger -- Payments to Management Resulting from the
Merger --

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Agreement for Supplemental Executive Retirement Benefits between Blue Cross and
Blue Shield of Georgia, Inc. and Richard D. Shirk."

The Employment Agreement provides that in the event Mr. Shirk dies while
employed, he is entitled to three months of salary and all other compensation
benefits, and thereafter all benefits shall terminate except benefits which are
vested on or prior to the date of death. In the event that Mr. Shirk becomes
physically or mentally disabled, he would become entitled to a continuation of
his salary for two years and his benefit under the RDS SERP would immediately
become vested. The Employment Agreement entitles Mr. Shirk to six weeks of
vacation each year, an automobile allowance, and the right to reimbursement for
the cost of membership in luncheon and civic clubs, the cost of having Mr.
Shirk's spouse accompany him on out-of-town business trips, and for any costs
and expenses incurred in connection with the negotiation or renegotiation of the
Employment Agreement or the enforcement of any provision thereof.

The Employment Agreement provides Mr. Shirk with the RDS SERP which is
described at "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of Certain
Persons in the Merger -- Agreement for Supplemental Executive Retirement
Benefits between Blue Cross and Blue Shield of Georgia, Inc. and Richard D.
Shirk." The Employment Agreement also provides that if any portion of payments
under the Employment Agreement or any other agreement or plan of Cerulean or
Georgia Blue qualifies as an "excess parachute payment" under Section 280(G) of
the Code and is thereby subject to excise tax as described in Section 4999 of
the Code, Cerulean and Georgia Blue will provide Mr. Shirk with a cash gross-up
payment equal to Mr. Shirk's excise tax liability plus an additional amount to
cover other executives' state and federal income taxes on the additional
payment.

Other Agreements

Dr. Kishel is a party to a letter agreement which, under certain limited
termination circumstances, provides for a twelve-month salary continuation. For
a further description, see "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Interests of
Certain Persons in the Merger."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There were no transactions or relationships requiring disclosure under Item
404 of Regulation S-K for the fiscal year ended December 31, 1997. See "PROPOSAL
1 -- APPROVAL OF THE MERGER -- Interests of Certain Persons in the Merger."

COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

This report by the Compensation Committee of the Board of Directors
discusses the Compensation Committee's compensation objectives and policies
applicable to Cerulean's executive officers. The report specifically reviews the
Compensation Committee's guidelines in establishing the compensation of
Cerulean's Chief Executive Officer, as reported in the Summary Compensation
Table, and generally with respect to all executive officers. The Compensation
Committee is composed entirely of independent, nonemployee directors, whose main
focus is always the enhancement of shareholder value. In designing its
compensation guidelines, the Compensation Committee desires to attract, retain
and appropriately reward executives of exceptional talent and seek to align the
interests of those executives with Cerulean's shareholders and policyholders.
Both individual and corporate performance are considered. Generally, an
executive's compensation package contains three components: base salary,
short-term incentive compensation and long-term incentive compensation.

BASE SALARIES

Base salary is intended to provide a fixed level of compensation reflecting
the scope and nature of basic job responsibilities. In setting base salaries for
executive officers, the Compensation Committee considers the level of
compensation paid by other bonus-paying companies in the insurance industry that
are similar in size to Cerulean.

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Generally, the performance of the executive officers (other than the Chief
Executive Officer) is determined by the Chief Executive Officer's evaluation of
how well each executive officer has fulfilled his or her responsibilities,
taking into account actual performance as compared to the financial goals
established for Cerulean and other goals established for his or her area of
responsibility. The Compensation Committee annually reviews the survey
methodology and, after considering the recommendations of the Chief Executive
Officer, approves the base salaries for the executive officers.

Short-Term Incentive Compensation

Under Cerulean's Annual Incentive Plan, Cerulean's executive officers and
other key employees have the opportunity to earn annual performance bonuses. At
the beginning of each year under the Annual Incentive Plan, performance goals
are established and each participant is assigned a target award opportunity
based on his or her anticipated contribution to Cerulean's business performance.
The award opportunity is expressed as a percentage of base salary. At the end of
the calendar year, team and individual performance is measured by comparing
actual results achieved to the goals previously established to determine how
much of the target award each participant will receive. Each of the performance
measurements is weighted, based on the anticipated contribution to Cerulean's
performance. Awards are paid in cash. Ten percent of the overall incentive pool
is allocated for discretionary awards to be determined by the Chief Executive
Officer for superior performance achievement. The objectives of the Annual
Incentive Plan are (i) to encourage team work, (ii) to reward significant
contributions to annual business performance, and (iii) to closely align
compensation to individual and company performance. The target award percentages
for 1997 range from 15% to 45% of base salary of the executive. The threshold
financial performance criteria pursuant to the Annual Incentive Plan was not
achieved for 1997.

Long-Term Incentive Compensation

Prior to fiscal year of 1997, Georgia Blue maintained a LTIP. The LTIP was
designed to reward participants for their contributions to the successful
achievement of specific financial, market share, and customer service goals
based on Cerulean's long-term business strategy period. Goals were established
for three-year performance periods. The LTIP had minimum threshold target and
maximum performance levels. Participants were required to be employed by one of
Cerulean's subsidiaries on the last day of performance. Prior to 1997, long-term
incentive award opportunities had been established for two performance cycles,
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. Eligible executive
officers received payout for the 1994-1996 performance cycle which are reflected
in the Summary Compensation Table. Minimum threshold levels for financial
performance were not exceeded for the 1995-1997 cycle. No payouts to executive
officers were due for this performance.

In addition, certain eligible executive officers also participated in a
supplemental salary make-up plan for the 1996-1997 performance period. Under
this plan adopted in 1996, the executive officers did not receive salary
increases for 1996 (three years for the Chief Executive Officer beginning in
1995) to recover from the financial performance criteria not achieved in 1995
and to accelerate pay progress of non-executive associates. No cash awards were
due to the executive officers under this plan since target financial performance
was not achieved for the 1997 period.

In July 1997, Cerulean adopted the PUP which is designed to reward the key
executives for creating and increasing the value of Cerulean. The award payable
to a participant under the PUP will be equal to the increase in unit value
(calculated as of the end of the measurement period) multiplied by the number of
units granted. However, performance hurdles must be surpassed before any award
is payable under the PUP. If the growth in Cerulean's value over the measurement
period is less than the performance hurdle, the award will be zero. Payouts
under the PUP will be calculated on the occurrence of a market/liquidity event
defined in the plan. Prior to the time Cerulean's Common Stock is listed or
traded on a recognized U.S. exchange, the Board of Directors will determine when
a market/liquidity event occurs and creates a definite value of Cerulean and
results in liquidity. The initial measurement period began on February 2, 1996.
At the end of 1997, the growth in Cerulean did not exceed the specified
performance hurdle for the period, therefore, units granted under the
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<PAGE> 138

PUP did not have any assigned value. The Compensation Committee believes that
the awards granted under the PUP to executive officers provide a long-term
incentive to such persons to contribute to the growth of Cerulean and establish
a direct link between compensation and shareholder return. See "PROPOSAL 1 --
APPROVAL OF THE MERGER -- Interests of Certain Persons in the
Merger -- Performance Unit Plan."

The LTIP and the PUP were established by the Compensation Committee to
focus management on long-term results, to retain key executives, and to provide
the executives with long-term incentive compensation in line with that of
executives at comparable companies and to enhance the link with shareholder
interests.

CHIEF EXECUTIVE OFFICER COMPENSATION

Approximately 49.5% of the total compensation opportunity target for Mr.
Shirk is salary and approximately 50.5% is variable compensation that is at risk
and tied to competitive corporate business results. Of Mr. Shirk's total
compensation opportunity, 28.2% is based on annual business performance and
22.3% is tied to long-term, sustained corporate-wide results. In determining the
size of the base salary component of Mr. Shirk's compensation, the Compensation
Committee generally considers the competitive industry pay practices, Cerulean's
performance, and whether Mr. Shirk's total compensation opportunity is
consistent with the compensation for chief executive officers in comparable
companies. Mr. Shirk's annual incentive bonus award for fiscal 1997 was earned
under the same plan applicable to all other executive officers of Cerulean.
Since the threshold financial performance criteria for the Annual Incentive Plan
was not achieved for 1997, Mr. Shirk did not receive an annual incentive bonus
award for 1997. Mr. Shirk has been granted 138,000 units under the PUP.

OMNIBUS BUDGET RECONCILIATION ACT OF 1993 IMPLICATIONS FOR EXECUTIVE
COMPENSATION

It is the responsibility of the Compensation Committee to address the
issues raised by the recent change in the tax laws which made certain
non-performance-based compensation in excess of $1,000,000 to executives of
public companies nondeductible to these companies beginning in 1995. Depending
on the incentives awarded during any particular year, certain payments could be
nondeductible for Cerulean. If the proposed Merger between Cerulean and
WellPoint is consummated, certain payments triggered as a result of the Merger
may be nondeductible to the extent they exceed the $1,000,000 limit. The
Compensation Committee will continue to monitor this situation and will take
appropriate action if it is warranted in the future. In order to attract, retain
and reward executives of exceptional talent the policy of the Compensation
Committee related to this issue is to establish and maintain a compensation
program that is competitive with that of comparable companies in the insurance
industry while maximizing the creation of long-term shareholder value.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP served as Cerulean's independent auditors for
the fiscal year ended December 31, 1997 and the Board of Directors has
reappointed this firm to continue as independent auditors of the Company for the
fiscal year ending December 31, 1998.

A representative of Ernst & Young LLP is expected to attend the Meeting and
will have an opportunity to make a statement if he or she desires and will be
available to respond to questions from shareholders.

SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act and regulations of the Commission
thereunder require Cerulean's executive officers and directors and persons who
own more than ten percent of the Class A Stock, as well as certain affiliates of
such persons, to file initial reports of ownership and changes in ownership with
the Commission. Executive officers, directors and persons owning more than ten
percent of the Class A Stock are required by Commission regulation to furnish
Cerulean with copies of all Section 16(a) forms they file. Based
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solely on its review of the written representations from the reporting persons
that no other reports were required for those persons, to Cerulean's knowledge,
there were no filing requirements applicable to its executive officers and
directors during and with respect to the fiscal year ended December 31, 1997. To
Cerulean's knowledge, there is no person who owns more than 10% of the Class A
Stock.

SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING

Should there be an Annual Meeting in 1999, shareholder proposals and
Director nominations intended to be presented at the 1999 Annual Meeting of
Shareholders of the Company must be submitted to Cerulean in accordance with the
procedures set forth in Article I, Section 1.12 of the Bylaws of Cerulean. The
effect of these provisions is that shareholders must submit such proposals and
nominations in writing to the Company on or before , 1998 in order for
such matters to be included in Cerulean's proxy materials for, and voted upon
at, the 1999 Annual Meeting. All such proposals and nominations should be
submitted on or before such date by certified mail, return receipt requested, to
Hugh J. Stedman, Secretary.

EXPERTS

The consolidated financial statements of WellPoint as of December 31, 1996
and 1997 and for the three years in the period ended December 31, 1997
incorporated by reference in this Proxy Statement/Prospectus and Registration
Statement have been audited by PricewaterhouseCoopers LLP, independent auditors,
as set forth in their report thereon, and are incorporated by reference herein
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. The consolidated financial statements of Cerulean
Companies, Inc. at December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997 included in this Proxy
Statement/Prospectus, which are referred to and made a part of this Registration
Statement, have been audited by Ernst & Young, LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

LEGAL MATTERS

The legality of the shares of WellPoint Stock to be issued in the Merger
will be passed upon for WellPoint by Gibson, Dunn & Crutcher LLP. Gibson, Dunn &
Crutcher LLP and Long Aldridge & Norman LLP will deliver their opinions to
WellPoint and Cerulean, respectively, as to certain federal income tax
consequences of the Merger. See "PROPOSAL 1 -- APPROVAL OF THE MERGER -- Certain
Federal Income Tax Consequences of the Merger."

OTHER MATTERS

As of the date of this Proxy Statement/Prospectus, the Board of Directors
of Cerulean knows of no matters that will be presented for consideration at the
Meeting other than as described in this Proxy Statement/Prospectus. However, if
any other matter shall come before the Meeting or any adjournments or
postponements thereof and shall be voted upon, the proxy will be deemed to
confer authority to the individuals named as authorized therein to vote the
shares represented by such proxy as to any such matters that fall within the
purposes set forth in the Notice of Meeting.

121
<PAGE> 140

CERULEAN COMPANIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<S> <C>
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and December
31, 1997.................................................. F-2
Consolidated Statements of Income for the Six Months Ended
June 30, 1998 and 1997.................................... F-3
Consolidated Statements of Comprehensive Income for the Six
Months Ended June 30, 1998 and 1997....................... F-4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997.............................. F-5
Notes to Consolidated Financial Statements.................. F-6

Report of Independent Auditors.............................. F-9
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-10
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-11
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-13
Notes to Consolidated Financial Statements.................. F-14
</TABLE>

F-1
<PAGE> 141

CERULEAN COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available-for-sale, at fair value (amortized cost:
$225,164,985; $185,037,630)............................ $228,617,478 $187,662,551
Equity securities, at fair value (cost: $59,217,122;
$58,348,840)........................................... 76,985,549 73,102,814
Short-term investments, at fair value (cost: $2,834,750;
$19,555,875)........................................... 2,834,750 19,555,875
------------ ------------
Total investments.................................. 308,437,777 280,321,240
Cash and cash equivalents................................... 46,008,726 35,001,855
Reimbursable portion of estimated benefit liabilities....... 102,288,036 100,109,036
Accounts receivable......................................... 55,185,408 59,624,899
FEP assets held by agent.................................... 25,553,200 25,553,200
Property and equipment...................................... 35,609,442 33,735,541
Other assets................................................ 21,161,720 19,017,199
------------ ------------
Total assets....................................... $594,244,309 $553,362,970
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Estimated benefit liabilities............................. $229,110,560 $206,412,040
Unearned premiums......................................... 7,515,212 8,301,197
FEP stabilization reserve................................. 25,553,200 25,553,200
Accounts payable and accrued expenses..................... 39,629,716 31,210,088
Payables to other plans................................... 392,051 1,068,051
Other liabilities......................................... 42,368,686 35,636,564
Note payable.............................................. -- 3,500,000
------------ ------------
Total liabilities.................................. 344,569,425 311,681,140
------------ ------------
Mandatorily redeemable preferred stock:
Class B Convertible Preferred Stock, no par value.
Authorized, issued and outstanding, 49,900 shares;
aggregate liquidation preference, $49,900,000;
aggregate mandatory redemption, $44,910,000............ 46,645,042 46,645,042
------------ ------------
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 and outstanding
351,570 and 351,545 shares, respectively............... 3,516 3,515
Common stock issuable (Note 6).......................... 32,135,000 --
Stock warrants issuable (Note 6)........................ 21,310,000 --
Common Stock, no par value.
Authorized and unissued 100,000,000 shares.............. -- --
Accumulated other comprehensive income -- (unrealized
appreciation on securities, net of taxes)............... 17,041,126 13,949,895
Retained earnings......................................... 132,540,200 181,083,378
------------ ------------
Total shareholders' equity......................... 203,029,842 195,036,788
Commitments and contingencies (Note 5)...................... -- --
------------ ------------
Total liabilities and shareholders' equity......... $594,244,309 $553,362,970
============ ============
</TABLE>

See accompanying notes.

F-2
<PAGE> 142

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Premiums.................................................. $825,495,586 $738,928,596
Investment and other income............................... 8,015,859 8,008,872
Realized gains............................................ 6,084,367 5,787,022
------------ ------------
Total revenues.................................... 839,595,812 752,724,490
Benefits expense............................................ 723,878,864 669,044,208
Operating expenses, net of expense reimbursements of
$33,317,522 and $29,249,686, respectively................. 102,814,251 82,198,438
------------ ------------
Operating income (loss)..................................... 12,902,697 1,481,844
Non-operating income (Note 3)............................... 127,500 1,275,000
------------ ------------
Income (loss) before income taxes, minority interests and
extraordinary item........................................ 13,030,197 2,756,844
Income tax expense (benefit) (Note 4)....................... 3,736,000 102,000
Minority interest in (earnings) losses of joint venture
investments............................................... (1,895,374) 339,580
------------ ------------
Income (loss) before extraordinary item..................... 7,398,823 2,994,424
Extraordinary item -- endowment of a non-profit foundation
(Note 6).................................................. 54,445,000 --
------------ ------------
Net income (loss)................................. $(47,046,177) $ 2,994,424
============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 143

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
------------ ----------
(UNAUDITED)
<S> <C> <C>
Net income (loss)........................................... $(47,046,177) $2,994,424
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period
net of reclassification adjustment for gains included
in net income of $4,867,494 and $4,629,618,
respectively........................................... 3,091,231 3,700,564
------------ ----------
Comprehensive income (loss)................................. $(43,954,946) $6,694,988
============ ==========
</TABLE>

See accompanying notes.

F-4
<PAGE> 144

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (47,046,177) $ 2,994,424
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Non-cash and non-operating items:
Extraordinary item -- endowment of a non-profit
foundation........................................... 54,445,000 --
Depreciation........................................... 5,325,521 4,752,745
Amortization........................................... 135,007 151,022
Uncollectible receivables.............................. 1,237,249 (310,528)
Gain on sale of investments............................ (6,084,367) (5,787,022)
Loss (gain) on sale of property and equipment.......... 34,972 (58,166)
Non-operating income................................... (127,500) (1,275,000)
Decrease (increase) in certain assets:
Reimbursable portion of estimated benefit liabilities..... (2,179,000) 2,119,000
Accounts receivable....................................... 3,202,242 (5,822,132)
Other assets.............................................. (2,895,315) (2,958,087)
Increase (decrease) in certain liabilities:
Estimated benefit liabilities............................. 22,698,520 7,856,195
Unearned premiums......................................... (785,985) 2,144,241
Accounts payable and accrued expenses..................... 7,419,628 (5,561,154)
Payables to other plans................................... (676,000) (1,190,255)
Other liabilities......................................... 5,235,122 (717,520)
Minority interest in sale of stock and stock warrants by a
subsidiary............................................. (122,500) (1,225,000)
------------- ------------
Net cash provided by (used in) operating
activities...................................... 39,816,417 (4,887,237)
INVESTING ACTIVITIES
Investments purchased....................................... (141,372,364) (88,209,546)
Investments sold or matured................................. 123,047,212 63,074,449
Property and equipment purchased............................ (7,288,532) (4,568,409)
Property and equipment sold................................. 54,138 95,751
------------- ------------
Net cash used in investing activities............. (25,559,546) (29,607,755)
FINANCING ACTIVITIES
Repayment of notes payable.................................. (3,500,000) --
Sale of stock warrants by a subsidiary...................... 250,000 --
Sale of stock by a subsidiary............................... -- 2,500,000
------------- ------------
Net cash (used in) provided by financing
activities...................................... (3,250,000) 2,500,000
------------- ------------
Increase (decrease) in cash and cash equivalents............ 11,006,871 (31,994,992)
Cash and cash equivalents at beginning of period............ 35,001,855 89,024,410
------------- ------------
Cash and cash equivalents at end of period.................. $ 46,008,726 $ 57,029,418
============= ============
</TABLE>

See accompanying notes.

F-5
<PAGE> 145

CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

BASIS OF PRESENTATION

The Company's accompanying unaudited consolidated financial statements 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's health care plan subsidiary, its health
maintenance organization and a life insurance subsidiary are subject to
regulation by the Georgia Insurance Department, including minimum capital and
surplus requirements and restrictions on payment of dividends. Because of the
nature of the Company's operations, the results for interim periods are not
necessarily indicative of results expected for the entire year. In the opinion
of management, all material adjustments necessary for a fair presentation of the
financial position and results of operations for the interim periods have been
made. Such adjustments are of a normal recurring nature.

PRINCIPLES OF CONSOLIDATION

The Company's accompanying consolidated financial statements include the
accounts of the Company, BCBSGA and its wholly-owned life insurance subsidiary,
a health maintenance organization subsidiary, 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.

ACCOUNTING FOR A SALE OF STOCK OR STOCK WARRANTS BY A SUBSIDIARY

Gains arising from a subsidiary issuing its own stock or stock warrants to
a third party are recorded as non-operating income and are presented as a
separate line item in the consolidated statements of income.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. Management of the Company is presently
assessing the effect that SFAS No. 131 will have on the Company's current
consolidated financial statements and footnote disclosures; however, the
application of the new rules will not have an impact on the Company's financial
position or results from operations.

F-6
<PAGE> 146
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132 revises
disclosure requirements for pensions and other postretirement plans. This
statement is effective for year-end financial statements for the year ending
December 31, 1998. The Company is currently assessing the effect that SFAS No.
132 will have on the Company's consolidated financial statements and footnote
disclosures; however, the application of the new rules will not have an impact
on the Company's financial position or results from operations.

In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued. This statement standardizes the accounting and
reporting for hedging activities, and is effective for all fiscal quarters
beginning after June 15, 1999. The Company does not participate in hedging
activities. Therefore, the adoption of SFAS No. 133 will have no impact on the
Company's financial position or results from operations.

RECLASSIFICATIONS

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

2. EARNINGS PER SHARE

Earnings per share are omitted because such data are not meaningful at the
present time due to the likely dilutive events that will occur prior to the
conversion of the Class A Convertible Common Stock or the Class B Convertible
Preferred Stock. Presently there is no market for the Class A Stock or any
equity securities of the Company.

3. NON-OPERATING INCOME

CHPNs are locally based equity ventures between the Company, which owns a
51% or greater interest, and local physician and/or hospital groups who own the
remaining equity interest. Clinical services are provided by the physician or
hospital partners as well as other providers with which the CHPNs maintain
contracts, and BCBSGA provides management and administrative services, including
information systems and data management services through service contracts with
the CHPNs.

On January 1, 1998, a hospital purchased stock warrants exerciseable for
common stock of one of the Company's CHPN subsidiaries in exchange for a $1.0
million note receivable. The $1.0 million note will be paid ratably over two
years. As of June 30, 1998, $250,000 has been received. In accordance with the
CHPN formation agreement, the Company's 51% equity interest was not diluted as a
result of this transaction. The Company recorded non-operating income of
$127,500 for its portion of this transaction and increased the minority interest
liability for this CHPN by $122,500. After deducting income taxes, net income
was favorably impacted by $102,000.

4. INCOME TAXES

The Company's income tax expense consisted primarily of federal alternative
minimum tax. The effective tax rate for the 1998 period was impacted by CHPN
subsidiaries which incurred taxes at a 34% rate and which do not join in the
filing of the Company's consolidated tax return. Additionally, contributing to
the higher rate were state income taxes and other permanent book to tax
differences, including non-deductible expenses.

5. COMMITMENTS AND CONTINGENCIES

On September 3, 1997, a lawsuit (the "Lawsuit") was filed in the Superior
Court of Fulton County by Plaintiffs, Let's Get Together, Inc.; Statewide
Independent Living Council of Georgia, Inc.; Living Indepen-

F-7
<PAGE> 147
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
dence for Everybody, Inc.; Aids Survival Project, Inc.; Women's Policy Education
Fund, Inc.; Disability Connections -- The Middle Georgia Center for Independent
Living, Inc.; Physicians for a National Health Program, Inc.; Campaign for a
Prosperous Georgia, Inc.; and Friends and Survivors Standing Together, Inc.
(collectively, the "Plaintiffs"), on behalf of themselves and a class putatively
composed of all other 501(c)(3) organizations in Georgia seeking, among other
things, to invalidate a Georgia statute upon which certain aspects of the
conversion of Blue Cross and Blue Shield of Georgia, Inc. from a not for profit
corporation to a business corporation was based. The complaint named BCBSGA, the
Company and the Commissioner of Insurance of the State of Georgia as defendants.
An additional, similar request for declaratory ruling was filed with the Georgia
Insurance Department on September 3, 1997.

The Plaintiffs' claims related to the conversion of BCBSGA from a nonprofit
entity to a for-profit entity which occurred as part of a Plan of Conversion
submitted to a public hearing November 21, 1995, and approved by the Georgia
Commissioner of Insurance in an order dated December 27, 1995. The complaint
sought to have the fair market value of the assets of BCBSGA as of December 27,
1995, plus interest from December 27, 1995, placed in a public trust for the use
and benefit of a class of nonprofit charitable organizations. On October 2,
1997, the Georgia Insurance Department denied the Plaintiffs' request for
declaratory ruling, which decision the Plaintiffs appealed. On October 13, 1997,
the Company and BCBSGA filed a motion to dismiss the Lawsuit. Oral argument was
held on January 12, 1998.

6. SUBSEQUENT EVENTS

SETTLEMENT OF LAWSUIT AND ENDOWMENT OF A NON-PROFIT FOUNDATION

On July 8, 1998, the Company entered into a stipulation and agreement of
settlement of the Lawsuit (the "Stipulation") subject to the approval of the
Superior Court of Fulton County, Georgia (the "Court"). Under the terms of the
Stipulation, the Company will endow a new non-profit foundation for the
advancement of health care for all Georgians with $1.0 million in cash and
common stock and warrants in the Company (the "Endowment"). A settlement hearing
before the Court is scheduled for August 20, 1998 to determine, among other
things, if the terms and conditions of the Stipulation are fair and reasonable
and should be approved by the Court. Additionally, the Stipulation is
conditioned upon the approval of the Blue Cross and Blue Shield Association as
to certain matters including the transfer of the stock and warrants in the
Company. The Blue Cross and Blue Shield Association licenses the brand name and
trademarks to the Company. Management expects the requisite approvals to be
received.

During June 1998, the Company recorded an extraordinary charge of $54.4
million for the Endowment which, in management's judgment, represented fair
value as of the date of the Stipulation. The Company recorded a full valuation
allowance against the related expected tax benefit.

PROPOSED MERGER

On July 9, 1998, the Company entered into an agreement and plan of merger
(the "Merger Agreement") with WellPoint Health Networks Inc. ("WellPoint") and a
subsidiary of WellPoint. Pursuant to the Merger Agreement, the Company will
become a wholly owned subsidiary of WellPoint. Finalization of the transaction
is subject to, among other things, the approval of the shareholders of the
Company, the approval of the Commissioner of Insurance of the State of Georgia,
the approval of the Blue Cross and Blue Shield Association, the expiration of
any required waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and certain approvals of the Health Care Financing Administration.
Upon closing the transaction, shareholders of the Company will exchange their
shares for WellPoint shares or cash in a transaction valued at $500 million.

F-8
<PAGE> 148

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Cerulean Companies, Inc.

We have audited the accompanying consolidated balance sheets of Cerulean
Companies, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. 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 Cerulean
Companies, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ ERNST & YOUNG LLP
February 6, 1998
Atlanta, Georgia

F-9
<PAGE> 149

CERULEAN COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities:
Available-for-sale, at fair value (amortized cost:
$185,037,630; $156,949,004)............................ $187,662,551 $157,637,412
Equity securities, at fair value (cost: $58,348,840;
$50,969,299).......................................... 73,102,814 60,104,421
Short-term investments, at fair value (cost:
$19,555,875; $475,000)................................ 19,555,875 423,788
------------ ------------
Total investments................................. 280,321,240 218,165,621
Cash and cash equivalents................................... 35,001,855 89,024,410
Reimbursable portion of estimated benefit liabilities....... 100,109,036 101,645,300
Accounts receivable (Note 4)................................ 59,624,899 46,679,498
FEP assets held by agent.................................... 25,553,200 22,715,241
Property and equipment (Note 5)............................. 33,735,541 31,264,521
Other assets................................................ 19,017,199 11,808,667
------------ ------------
Total assets...................................... $553,362,970 $521,303,258
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Estimated benefit liabilities (Note 8).................... $206,412,040 $181,718,093
Unearned premiums......................................... 8,301,197 8,983,956
FEP stabilization reserve................................. 25,553,200 22,715,241
Accounts payable and accrued expenses..................... 31,210,088 31,519,728
Payables to other plans................................... 1,068,051 2,633,307
Other liabilities......................................... 35,636,564 36,018,363
Note payable (Note 6)..................................... 3,500,000 3,500,000
------------ ------------
Total liabilities................................. 311,681,140 287,088,688
------------ ------------
Mandatorily redeemable preferred stock:
Class B Convertible Preferred Stock, no par value.
Authorized, issued and outstanding, 49,900 shares at
December 31, 1997 and 1996; aggregate liquidation
preference $49,900,000; aggregate mandatory
redemption, $44,910,000 (Note 9)...................... 46,645,042 46,645,042
------------ ------------
Shareholders' equity:
Blank Preferred Stock, no par value.
Authorized and unissued 100,000,000 shares (Note 9).... -- --
Class A Convertible Common Stock, no par value, $0.01
stated value.
Authorized 50,000,000 shares; issued and outstanding
351,545 and 350,615 shares at December 31, 1997 and
1996, respectively (Note 9)........................... 3,515 3,506
Common Stock, no par value.
Authorized and unissued 100,000,000 shares (Note 9).... -- --
Net unrealized appreciation on securities......... 13,949,895 7,886,318
Retained earnings........................................... 181,083,378 179,679,704
------------ ------------
Total shareholders' equity........................ 195,036,788 187,569,528
Commitments and contingencies (Note 14)................... -- --
------------ ------------
Total liabilities and shareholders' equity........ $553,362,970 $521,303,258
============ ============
</TABLE>

See accompanying notes.

F-10
<PAGE> 150

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues (Note 2):
Premiums...................................... $1,514,076,163 $1,323,662,988 $1,159,475,955
Investment and other income................... 17,258,952 14,358,273 11,980,241
Realized gains................................ 11,299,757 4,112,863 15,265,396
-------------- -------------- --------------
Total revenues........................ 1,542,634,872 1,342,134,124 1,186,721,592
Benefits expense (Note 8)....................... 1,370,961,608 1,175,740,173 1,039,095,566
Operating expenses, net of expense
reimbursements of $63,691,448, $57,491,950 and
$52,583,581, respectively (Note 10)........... 172,059,986 146,615,452 126,076,519
-------------- -------------- --------------
Operating (loss) income......................... (386,722) 19,778,499 21,549,507
Non-operating income (Note 13).................. 1,275,000 1,275,000 --
-------------- -------------- --------------
Income before income taxes and minority
interests..................................... 888,278 21,053,499 21,549,507
Income tax (benefit) expense (Note 7)........... (2,050,000) 3,159,000 3,857,000
Minority interests in (earnings) losses of joint
venture investments........................... 1,459,405 (421,099) (282,061)
-------------- -------------- --------------
Net income............................ $ 4,397,683 $ 17,473,400 $ 17,410,446
============== ============== ==============
</TABLE>

See accompanying notes.

F-11
<PAGE> 151

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A
CONVERTIBLE UNREALIZED RETAINED
COMMON STOCK GAINS/(LOSSES) EARNINGS TOTAL
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............ $ -- $ (529,242) $149,199,605 $148,670,363
Net income............................ -- -- 17,410,446 17,410,446
Unrealized gain on available-for-sale
securities, net of income taxes of
$1,688,000......................... -- 6,958,617 -- 6,958,617
------ ----------- ------------ ------------
Balance at December 31, 1995............ -- 6,429,375 166,610,051 173,039,426
Issuance of Class A Common Stock to
eligible subscribers............... 3,506 -- (3,506) --
Net income............................ -- -- 17,473,400 17,473,400
Dividends paid and accrued............ -- -- (2,727,867) (2,727,867)
S-1 registration costs................ -- -- (1,672,374) (1,672,374)
Unrealized gain on available-for-sale
securities, net of income taxes of
$331,000........................... -- 1,456,943 -- 1,456,943
------ ----------- ------------ ------------
Balance at December 31, 1996............ 3,506 7,886,318 179,679,704 187,569,528
Issuance of Class A Common Stock to
eligible subscribers............... 9 -- (9) --
Net income............................ -- -- 4,397,683 4,397,683
Dividends paid and accrued............ -- -- (2,994,000) (2,994,000)
Unrealized gain on available-for-sales
securities, net of income taxes of
$1,543,000......................... -- 6,063,577 -- 6,063,577
------ ----------- ------------ ------------
Balance at December 31, 1997............ $3,515 $13,949,895 $181,083,378 $195,036,788
====== =========== ============ ============
</TABLE>

See accompanying notes.

F-12
<PAGE> 152

CERULEAN COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 4,397,683 $ 17,473,400 $ 17,410,446
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash and non-operating items:
Depreciation................................. 9,765,395 9,350,458 8,451,468
Amortization................................. 277,183 319,673 424,299
Uncollectible receivables.................... 1,356,180 1,128,796 659,361
Gain on sale of investments.................. (11,299,757) (4,112,863) (15,265,396)
(Gain) loss on sale of property and
equipment.................................. (13,419) 21,304 33,183
Non-operating income......................... (1,275,000) (1,275,000) --
Decrease (increase) in certain assets:
Reimbursable portion of estimated benefit
liabilities................................ 1,536,264 487,000 (2,871,000)
Accounts receivable.......................... (14,301,581) (9,883,655) (7,334,638)
Other assets................................. (8,751,532) (3,341,080) 1,990,503
Increase (decrease) in certain liabilities:
Estimated benefit liabilities................ 24,693,947 5,871,843 7,950,774
Unearned premiums............................ (682,759) 1,694,830 2,249,459
Accounts payable and accrued expenses........ (309,640) 14,884,194 (3,781,088)
Payables to other plans...................... (1,565,256) 190,559 (1,433,209)
Other liabilities............................ (381,799) 6,469,229 97,081
Minority interest in sale of stock by a
subsidiary................................. (1,225,000) (1,225,000) --
------------- ------------- -------------
Net cash provided by operating
activities............................ 2,220,909 38,053,688 8,581,243
INVESTING ACTIVITIES
Investments available-for-sale:
Investments purchased........................... (211,187,305) (134,652,892) (197,280,599)
Investments sold or matured..................... 167,660,837 96,757,972 210,596,136
Investments held-to-maturity:
Investments purchased........................... -- -- (149,844)
Investments matured............................. -- -- 12,123,761
Property and equipment purchased.................. (12,434,970) (7,773,300) (10,068,720)
Property and equipment sold....................... 211,974 1,089,453 18,151
------------- ------------- -------------
Net cash (used in) provided by investing
activities............................ (55,749,464) (44,578,767) 15,238,885
FINANCING ACTIVITIES
Proceeds from note payable........................ -- 1,500,000 --
Proceeds from the issuance of preferred stock..... -- 46,645,042 --
Dividends paid and accrued........................ (2,994,000) (2,727,867) --
S-1 registration costs............................ -- (1,672,374) --
Sale of stock by a subsidiary..................... 2,500,000 2,500,000 --
------------- ------------- -------------
Net cash (used in) provided by financing
activities...................................... (494,000) 46,244,801 --
------------- ------------- -------------
(Decrease) increase in cash and cash
equivalents..................................... (54,022,555) 39,719,722 23,820,128
Cash and cash equivalents at beginning of year.... 89,024,410 49,304,688 25,484,560
------------- ------------- -------------
Cash and cash equivalents at end of year.......... $ 35,001,855 $ 89,024,410 $ 49,304,688
============= ============= =============
</TABLE>

See accompanying notes.

F-13
<PAGE> 153

CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION

Cerulean Companies, Inc. (the "Company") was incorporated under the laws of
the State of Georgia on February 2, 1996 to act as the holding company for Blue
Cross and Blue Shield of Georgia, Inc. ("BCBSGA") and its subsidiaries, and for
other lawful purposes. On February 2, 1996, the Company acquired all of the
outstanding capital stock of BCBSGA, following BCBSGA's conversion from a
not-for-profit corporation to a for-profit corporation pursuant to a Plan of
Conversion approved by the Georgia Commissioner of Insurance on December 27,
1995 (the "Conversion"). In connection with the Conversion, the Company issued
49,900 shares of Class B Convertible Preferred Stock ("Preferred Stock") to
raise $49,900,000 in capital. After deducting offering costs, the net proceeds
to the Company were $46,645,042.

Although the Company did not become a holding company for BCBSGA until the
Conversion on February 2, 1996, the consolidated results of operations include
the historical operations of BCBSGA and its subsidiaries prior to February 2,
1996 and the Company (including its subsidiaries on a consolidated basis) from
the period February 2, 1996 through December 31, 1996 and thereafter.

Effective May 14, 1996, the Company's registration under the Securities Act
of 1933 of the public offering of its Class A Convertible Common Stock, no par
value (the "Class A Stock") with the Securities and Exchange Commission became
effective. As part of the Conversion, the Company agreed to offer to each of
BCBSGA's approximately 160,000 eligible subscribers five shares of Class A Stock
at no cost. Upon completion of the offering eligible subscribers accepted
351,545 shares of no par value Class A Stock. The registration of the Class A
Stock under section 12(g) of the Securities Exchange Act of 1934 became
effective on June 30, 1997. Currently, the Class A Stock is not publicly traded.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Company's accompanying consolidated financial statements 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's health care plan subsidiary, 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. In the opinion of management, all
material adjustments necessary for a fair presentation of the financial position
and results of operations for the periods presented have been made. All such
adjustments are of a normal recurring nature.

PRINCIPLES OF CONSOLIDATION

The Company's accompanying consolidated financial statements include the
accounts of the Company, BCBSGA and its wholly-owned life insurance subsidiary,
a health maintenance subsidiary, 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.

ACCOUNTING FOR A SALE OF STOCK BY A SUBSIDIARY

Gains arising from a subsidiary issuing its own stock to third parties are
recorded as non-operating income and are presented as a separate line item in
the consolidated statements of income.

F-14
<PAGE> 154
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

Earnings per share are omitted because such data is not meaningful at the
present time due to the likely dilutive events that will occur prior to the
conversion of the Class A Stock or the Class B Convertible Preferred Stock.
Presently there is no market for Class A Stock or any equity securities of the
Company.

INVESTMENTS

The Company accounts for its investments in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("Statement No. 115"). Statement No.
115 requires that fixed maturity securities are to be classified as either
"held-to-maturity", "available-for-sale", or "trading".

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 and other
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 shareholders' equity. 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 and other income. The cost of securities sold is based on
the specific identification method. At December 31, 1997 and 1996, 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.
The costs of developing software for internal use are capitalized when
technological feasibility has been established. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets, which are 15 years for buildings and 3-7 years for software, furniture
and equipment. Amortization of software developed for internal use begins when
the asset is placed in service.

ESTIMATED BENEFIT LIABILITIES

The Company provides for claims reported but unpaid and 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-

F-15
<PAGE> 155
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
funded and rate stabilization reserve programs. Offsetting receivables have been
recorded in the consolidated balance sheets.

PREMIUM REVENUES

The Company's revenues consist primarily of premiums for traditional
indemnity health insurance and services, managed care products and services and
group life insurance products.

All of the Company's individual and certain employer group contracts
provide for the individual or the group to be fully insured. Premiums for these
contracts are billed in advance of the respective coverage periods and are
initially recorded as premium receivables and as unearned premiums. Unearned
premiums are recognized as earned in the period of coverage.

Certain other employer groups have contracts that provide for the group to
be at risk for all or a portion of their claims experience. Most of these
self-funded groups purchase aggregate and/or specific stop-loss coverage. In
exchange for a premium, the group's aggregate liability is capped for the year
or the group's liability on any one participant is capped for the year. The
Company charges self-funded groups an administrative fee which is based on the
number of members in a group or a percentage of the group's claims experience.
Under the Company's self-funded arrangements, amounts due are recognized based
on claims experience plus administrative and other fees and any stop-loss
premiums.

RATE STABILIZATION RESERVES

The Company has entered into agreements with certain groups whose premium
revenues 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 premium
revenues 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 premium revenues 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 asset held by agent) have been recorded in the
consolidated balance sheets, and premium revenues, investment income and
operating expenses, including FEP operations center expenses, have been recorded
in the consolidated statements of income to recognize the Company's portion of
the FEP's reserves.
F-16
<PAGE> 156
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AGENCY CONTRACTS

The Company acts as fiscal intermediary and administrative agent for
Medicare and certain other plans. Operating expenses are allocated to these
lines of business to determine reimbursement for services rendered under these
arrangements. The reimbursement of operating expenses is recorded as a reduction
of the Company's operating expenses. The claims processed for these plans are
not included in the accompanying consolidated statements of income.

ADVERTISING AND PROMOTION

All costs associated with advertising and promoting products are expensed
in the year incurred. Advertising and promotion expense was $5,012,557 in 1997,
$1,651,610 in 1996 and $3,107,389 in 1995.

MAJOR CUSTOMERS AND MARKET CONCENTRATION

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 largest customer represented 19% of premium revenues in 1997, 20%
in 1996 and 23% in 1995; and the second largest customer represented 10% of
premium revenues in 1997 and 1996 and 11% of premium revenues in 1995.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During 1997, the FASB issued Statement No. 129, Disclosure of Information
about Capital Structure, Statement No. 130, Reporting Comprehensive Income and
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. Statement No. 129 establishes standards for disclosing information
about an entity's capital structure and is effective for periods ending after
December 15, 1997. The disclosures required under Statement No. 129 are included
in these consolidated financial statements.

Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. Statement No. 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement is
effective for financial statements for periods beginning after December 15,
1997. Management of the Company is presently assessing the effect that Statement
No. 130 and 131 will have on the Company's current consolidated financial
statements and footnote disclosures; however, the application of the new rules
will not have an impact on the Company's financial position or results from
operations.

RECLASSIFICATIONS

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

F-17
<PAGE> 157
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS

Investments at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
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........ $132,452,239 $ 2,006,357 $ (97,877) $134,360,719 $134,360,719
Corporate securities......... 27,994,540 419,864 (59,242) 28,355,162 28,355,162
Mortgage-backed securities... 24,590,851 376,052 (20,233) 24,946,670 24,946,670
------------ ----------- ----------- ------------ ------------
Total fixed
maturities.......... 185,037,630 2,802,273 (177,352) 187,662,551 187,662,551
Equity Securities:
Preferred stocks............. 745,000 -- -- 745,000 745,000
Common stocks................ 57,603,840 15,793,174 (1,039,200) 72,357,814 72,357,814
------------ ----------- ----------- ------------ ------------
Total equity securities...... 58,348,840 15,793,174 (1,039,200) 73,102,814 73,102,814
Short-term investments....... 19,555,875 -- -- 19,555,875 19,555,875
------------ ----------- ----------- ------------ ------------
Total
available-for-sale
securities.......... $262,942,345 $18,595,447 $(1,216,552) $280,321,240 $280,321,240
============ =========== =========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
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........ $121,074,259 $ 1,212,880 $ (532,159) $121,754,980 $121,754,980
Corporate securities......... 17,703,054 202,073 (211,705) 17,693,422 17,693,422
Mortgage-backed securities... 18,171,691 127,930 (110,611) 18,189,010 18,189,010
------------ ----------- ----------- ------------ ------------
Total fixed
maturities.......... 156,949,004 1,542,883 (854,475) 157,637,412 157,637,412
Equity Securities:
Preferred stocks............. 1,000,000 -- -- 1,000,000 1,000,000
Common stocks................ 49,969,299 9,956,759 (821,637) 59,104,421 59,104,421
------------ ----------- ----------- ------------ ------------
Total equity securities...... 50,969,299 9,956,759 (821,637) 60,104,421 60,104,421
Short-term investments....... 475,000 -- (51,212) 423,788 423,788
------------ ----------- ----------- ------------ ------------
Total
available-for-sale
securities.......... $208,393,303 $11,499,642 $(1,727,324) $218,165,621 $218,165,621
============ =========== =========== ============ ============
</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.

Substantially all of the Company's investments in equity securities at
December 31, 1997 and 1996 are comprised of stocks in industrial companies.

F-18
<PAGE> 158
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS (CONTINUED)
The amortized cost and fair values of fixed maturities at December 31,
1997, 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, 1997
AVAILABLE-FOR-SALE SECURITIES
-----------------------------
AMORTIZED FAIR
COST VALUE
------------- -------------
<S> <C> <C>
Due in one year or less..................................... $ 23,812,261 $ 23,818,894
Due after one year through five years....................... 64,929,533 66,109,032
Due after five years through ten years...................... 69,929,565 71,012,535
Due after ten years......................................... 1,775,420 1,775,420
Mortgage-backed securities.................................. 24,590,851 24,946,670
------------ ------------
Total fixed maturity securities................... $185,037,630 $187,662,551
============ ============
</TABLE>

Bonds, certificates of deposit and money market funds carried at a value of
$755,423 were on deposit with insurance regulatory authorities at December 31,
1997 and 1996 in accordance with statutory requirements.

Investment and other income for the years ended December 31, 1997, 1996 and
1995 is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities................................ $11,464,768 $ 9,618,411 $ 8,231,507
Equity securities............................... 1,302,477 1,057,287 1,711,034
Short-term investments and cash equivalents..... 5,165,927 4,803,801 1,827,176
----------- ----------- -----------
Interest and dividend income.................... 17,933,172 15,479,499 11,769,717
Less investment expenses........................ (947,913) (834,828) (785,327)
----------- ----------- -----------
Net investment income........................... 16,985,259 14,644,671 10,984,390
Other income (loss)............................. 273,693 (286,398) 995,851
----------- ----------- -----------
Investment and other income..................... $17,258,952 $14,358,273 $11,980,241
=========== =========== ===========
</TABLE>

The other income (loss) amount for the years ended December 31, 1997 and
1995 includes the receipts of $579,000 and $2,000,000, respectively related to
the settlement of a lease dispute. Some terms in the Company's primary lease for
its headquarters building were modified to the benefit of the landlord, and the
Company was paid for giving up its right to those terms.

F-19
<PAGE> 159
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS (CONTINUED)
Realized and unrealized investment gains and losses for the years ended
December 31, 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains:
Fixed maturities.............................. $ 248,942 $ 686,260 $ 1,487,683
Equity securities............................. 11,910,540 4,473,669 15,406,816
----------- ----------- -----------
Total gains........................... 12,159,482 5,159,929 16,894,499
Realized losses:
Fixed maturities.............................. (127,366) (244,172) (529,914)
Equity securities............................. (732,359) (802,894) (1,099,189)
----------- ----------- -----------
Total losses.......................... (859,725) (1,047,066) (1,629,103)
----------- ----------- -----------
Net realized investment gains................... 11,299,757 4,112,863 15,265,396
Changes in unrealized gains (losses):
Fixed maturities.............................. 1,936,513 (4,251,603) 9,939,912
Equity securities............................. 5,618,852 6,063,183 (1,261,656)
Short-term investments........................ 51,212 (23,637) (27,576)
----------- ----------- -----------
Net unrealized gains.................. 7,606,577 1,787,943 8,650,680
----------- ----------- -----------
Total realized and unrealized gains... $18,906,334 $ 5,900,806 $23,916,076
=========== =========== ===========
</TABLE>

4. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Groups and subscribers...................................... $37,350,669 $25,933,318
Other Blue Cross and Blue Shield plans...................... 2,971,988 5,757,577
Federal Employee Program.................................... 3,312,909 1,636,883
Other....................................................... 20,998,784 17,004,991
Less: Allowance for doubtful accounts....................... (5,009,451) (3,653,271)
----------- -----------
$59,624,899 $46,679,498
=========== ===========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land...................................................... $ 1,046,773 $ 1,131,528
Building & improvements................................... 14,742,097 14,173,091
Furniture & equipment..................................... 73,988,271 63,784,066
------------ ------------
89,777,141 79,088,685
Less accumulated depreciation............................. (56,041,600) (47,824,164)
------------ ------------
$ 33,735,541 $ 31,264,521
============ ============
</TABLE>

F-20
<PAGE> 160
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT (CONTINUED)
At December 31, 1997, furniture and equipment includes $1,701,673 of
capitalized costs related to the development of internal use software. No costs
related to the development of internal use software were capitalized during
1996. As of December 31, 1997, the software developed for internal use has not
been placed in service; accordingly, no amortization was recognized during the
year.

Depreciation expense was $9,765,395, $9,350,458 and $8,451,468 for 1997,
1996 and 1995, respectively, including $1,063,318 in 1997, $965,196 in 1996 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 1997 or 1996.

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 could borrow up to
$25,000,000. In December 1996, the Company reduced the total amount available
under the revolving credit agreement to $9,000,000. Interest accrued on amounts
advanced at 0.5% over the LIBOR rate in 1997 and 1996 and 0.7% over the LIBOR
rate in 1995. Borrowings outstanding under the revolving credit agreement were
$3,500,000 at December 31, 1997 and 1996. The weighted average interest rate on
amounts outstanding for 1997 and 1996 was 6.3%.

In April 1996, the Company obtained a $55,000,000 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 BCBSGA to pay authorized insurance policy claims.
The insolvency line of credit is designed to satisfy certain membership
standards of the Blue Cross and Blue Shield Association, from which 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.

7. INCOME TAXES

Income tax expense (benefit) attributable to income before income taxes and
minority interests, substantially all of which is federal, consists of:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Current tax expense............................... $ 3,330,000 $6,671,000 $3,895,000
Deferred tax benefit.............................. (5,380,000) (3,512,000) (38,000)
----------- ---------- ----------
Total tax (benefit) expense............. $(2,050,000) $3,159,000 $3,857,000
=========== ========== ==========
</TABLE>

F-21
<PAGE> 161
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES (CONTINUED)
The provision for income taxes is different than the amount computed using
the statutory federal income tax rate of 35% as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Tax expense at statutory rates.................... $ 311,000 $7,368,000 $7,543,000
Utilization of carryforwards...................... (2,356,000) -- --
Alternative minimum tax........................... -- (3,162,000) (3,030,000)
Difference related to long-lived tax assets....... (2,119,000) (1,590,000) --
Difference between book and tax basis of CHPN
investments..................................... (2,132,000) -- --
CHPN losses with no benefit....................... 4,231,000 781,000 --
Changes in valuation allowance related to other
temporary differences........................... (375,000) (320,000) (379,000)
Other............................................. 390,000 82,000 (277,000)
----------- ---------- ----------
$(2,050,000) $3,159,000 $3,857,000
=========== ========== ==========
</TABLE>

In 1997 the Company increased the net value of its long-lived tax assets
and refined the related valuation allowance, recognizing a benefit of
$2,119,000. Additionally, the Company recorded a $3,731,000 benefit from the
difference in book and tax basis for its CHPN investments, reduced to its
expected realizable value of $2,132,000. CHPN subsidiaries which do not join in
the filing of the consolidated tax return with the Company generated tax losses
in 1997 that are not expected to generate benefit currently or in the
foreseeable future. Other includes state taxes, net of federal tax benefit, and
other permanent book to tax differences, including non deductible expenses.

The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. The Company's consolidated tax expense in 1997 calculated
under the regular tax system was reduced by available net operating loss
carryforwards, which subjected the Company to alternative minimum tax. Income
tax expense in 1997, 1996 and 1995 consisted primarily of federal alternative
minimum tax. Federal income taxes paid during 1997, 1996 and 1995 were
$2,800,000, $5,400,000 and $3,300,000, respectively.

F-22
<PAGE> 162
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES (CONTINUED)
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,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax asset:
Regular tax operating loss carryforwards for the
consolidated tax group................................. $19,590,000 $22,390,000
Regular tax operating loss carryforwards for CHPNs........ 6,050,000 781,000
Long-lived tax assets..................................... 24,590,000 23,390,000
Other temporary differences............................... 8,629,000 8,850,000
Alternative minimum tax credit............................ 10,750,000 8,410,000
Difference between book and tax basis of CHPN
investments............................................ 3,731,000 --
----------- -----------
Total deferred tax asset.......................... 73,340,000 63,821,000
Valuation allowance for deferred tax asset................ (62,150,000) (58,011,000)
----------- -----------
Deferred tax asset, net of valuation allowance............ 11,190,000 5,810,000
----------- -----------
Deferred tax liability:
Unrealized investments gains.............................. 3,429,000 1,886,000
----------- -----------
Total deferred tax liability.............................. 3,429,000 1,886,000
----------- -----------
Net deferred tax asset............................ $ 7,761,000 $ 3,924,000
=========== ===========
</TABLE>

The Company recorded a valuation allowance of $20,882,000 and $21,800,000
as of December 31, 1997 and 1996 for certain long-lived tax assets which will be
deductible in the future. 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, 1997, the Company's consolidated tax group has net
operating loss carryforwards of $55,969,000 for regular income tax purposes that
expire in the years 2001 through 2003. Certain of the CHPN subsidiaries which
file separate tax returns have net operating loss carryforwards of $15,937,000
that expire in 2011 through 2012. The Company recognized a benefit in 1997 from
consolidated tax group carryforwards of $2,356,000. The Company qualifies for a
special deduction under the regular tax system available to certain Blue Cross
and Blue Shield plans under Section 833(b) of the Internal Revenue Code. The
effect of this deduction is to significantly reduce regular taxable income and
subjects the Company to alternative minimum tax. The Company expects to be taxed
under the alternative minimum tax system into the foreseeable future and
therefore the regular tax net operating loss carryforwards of the consolidated
tax group and the alternative minimum tax credit will most likely not be
utilized. For financial reporting purposes, a valuation allowance has been
recorded to reduce the deferred tax assets related to the amount expected to be
realized. The Company continually reviews the adequacy of the deferred tax
valuation allowance and recognizes benefits only as reassessment indicates that
it is more likely than not that benefits will be realized.

F-23
<PAGE> 163
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 1997, 1996 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1......................... $181,718,093 $175,846,250 $167,895,476
Less: Reimbursable reserves and life
reserves................................... 106,870,527 107,059,898 105,931,261
------------ ------------ ------------
Net balance at January 1..................... 74,847,566 68,786,352 61,964,215
Plus incurred related to:
Current year............................... 576,250,933 424,307,017 340,152,289
Prior year................................. 901,109 (2,201,775) 4,669,051
------------ ------------ ------------
Total incurred............................. 577,152,042 422,105,242 344,821,340
Less paid related to:
Current year............................... 478,159,277 352,344,803 275,188,109
Prior year................................. 73,958,646 63,699,225 62,811,094
------------ ------------ ------------
Total paid................................. 552,117,923 416,044,028 337,999,203
------------ ------------ ------------
Net balance at December 31................... 99,881,685 74,847,566 68,786,352
Plus: Reimbursable reserves and life
reserves................................... 106,530,355 106,870,527 107,059,898
------------ ------------ ------------
Balance at December 31....................... $206,412,040 $181,718,093 $175,846,250
============ ============ ============
</TABLE>

The Company uses paid claims and completion factors based on historical
payment patterns to estimate incurred claims. Changes in payment patterns and
claims trends can result in changes to prior year's claims estimates.

A reconciliation of the Company's incurred expense to total benefits
expense as shown in the consolidated statements of income is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Incurred related to current and prior
year.................................. $ 577,152,042 $ 422,105,242 $ 344,821,340
Benefits expense related to life
insurance claims and claims reimbursed
by employer groups.................... 793,809,566 753,634,931 694,274,226
-------------- -------------- --------------
Total benefits expense........ $1,370,961,608 $1,175,740,173 $1,039,095,566
============== ============== ==============
</TABLE>

9. CAPITAL STOCK

Mandatorily Redeemable Preferred Stock

The Preferred Stock has a liquidation preference of $1,000 per share and a
mandatory redemption value of $900 per share. Dividends on the Preferred Stock
are currently paid at the rate of $60.00 per annum per share, are fully
cumulative and accrue without interest. The preferred shares are mandatorily
redeemable on December 1, 2001 or may be redeemed prior to this date upon the
occurrence of certain events. Upon completion of a Stock Conversion, each share
of Preferred Stock shall convert into the number of fully paid and nonassessable
shares of Common Stock equal to .0004446420631%. This rate may be adjusted
periodically upon the occurrence of certain events. The holders of the Preferred
Stock vote separately as a single class with each share being entitled to one
vote.

F-24
<PAGE> 164
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. CAPITAL STOCK (CONTINUED)
Blank Preferred Stock

The Board of Directors (the "Board") of the Company may from time to time
issue shares of Blank Preferred Stock in such series or classes with such terms,
preferences and other provisions as the Board shall determine, provided that
such issuance is approved by the majority of the holders of the Preferred Stock
then issued, outstanding and entitled to vote. Presently, there is no Blank
Preferred Stock issued or outstanding.

Class A Convertible Common Stock

Shares of Class A Convertible Stock ("Class A Stock") may not be sold,
transferred, encumbered, pledged or otherwise disposed of prior to December 1,
1998 except upon the occurrence of certain events. In the event of a Stock
Conversion, each share of Class A Stock will be converted into one share of
Common Stock. So long as any shares of the Company's Preferred Stock are issued,
outstanding and entitled to vote, no dividends may be paid on the Class A Stock
without the approval of the Board and the holders of a majority of the shares of
Preferred Stock. As long as no Common Stock is outstanding, the holders of the
Class A Stock vote separately as a single class with each share being entitled
to one vote. The Company's Articles of Incorporation do not contain any
provisions protecting holders of Class A Stock against dilution. 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.

Common Stock

Unless approved by two-thirds of the Directors, no person may directly or
indirectly acquire or hold more than the permissible ownership amount which is
currently 20% of the total shares of Common Stock outstanding. So long as any
shares of the Company's Preferred Stock are issued, outstanding and entitled to
vote, no dividends may be paid on the Common Stock without the approval of the
Board and the holders of a majority of the shares of Preferred Stock. In the
event no Class A Stock or Preferred Stock is issued or 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. Each outstanding
share of Common Stock is entitled to one vote. Presently, there is no Common
Stock issued or outstanding.

10. 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
national Blue Cross Blue Shield interplan system. Claims processed for these
programs, which are excluded from the accompanying consolidated statements of
income, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Claims processed for:
Medicare.............................. $2,888,499,047 $2,610,855,633 $2,431,829,705
State of Georgia...................... 841,545,396 805,281,401 757,743,385
Interplan System...................... 151,133,076 94,907,790 56,311,783
-------------- -------------- --------------
$3,881,177,519 $3,511,044,824 $3,245,884,873
============== ============== ==============
</TABLE>

F-25
<PAGE> 165
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. AGENCY CONTRACTS (CONTINUED)
The Company receives reimbursement for administrative expenses incurred in
performing these services. These expense reimbursements have been deducted from
operating expenses in the accompanying consolidated statements of income.

The operating expense reimbursements in connection with processing Medicare
claims have been audited through 1994 by government representatives. Management
is of the opinion that no significant adjustments will be made affecting cost
reimbursement through December 31, 1997.

11. 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 non-cancelable operating leases are as
follows:

<TABLE>
<S> <C>
1998........................................................ $16,985,764
1999........................................................ 15,250,929
2000........................................................ 5,231,731
2001........................................................ 2,666,090
2002........................................................ 1,446,383
Thereafter.................................................. 1,387,549
-----------
$42,968,446
===========
</TABLE>

Rent expense amounted to approximately $14,235,000 in 1997, $12,249,000 in
1996 and $9,933,000 in 1995.

12. EMPLOYEE BENEFITS

Pension Plan

The Company and its subsidiaries participate in a multi-employer
non-contributory 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-26
<PAGE> 166
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EMPLOYEE BENEFITS (CONTINUED)
The following table presents the funded status and amounts recognized in
the consolidated financial statements at the respective dates:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $36,424,955 in 1997 and $28,836,520 in 1996......... $43,991,079 $34,961,900
=========== ===========
Actuarial present value of projected benefit obligation for
service rendered to date.................................. $63,341,053 $52,051,955
Plan assets at fair value, primarily short-term investments,
listed stocks, corporate bonds and U.S. government
securities................................................ 56,731,183 46,515,060
----------- -----------
Plan assets (less than) projected benefit obligation........ (6,609,870) (5,536,895)
Unrecognized net loss....................................... 1,800,191 981,857
Unrecognized transition asset............................... (799,526) (933,899)
Unrecognized prior service cost............................. 2,880,716 3,129,666
----------- -----------
Accrued pension liability................................... $(2,728,489) $(2,359,271)
=========== ===========
</TABLE>

The net pension cost includes the following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the period..... $3,397,936 $3,336,777 $2,367,130
Interest cost on projected benefit obligation...... 4,027,434 3,847,048 3,296,580
Actual return on plan assets....................... (9,492,285) (6,660,548) (7,348,111)
Net amortization and deferral...................... 5,856,949 3,659,355 4,626,964
---------- ---------- ----------
Net pension cost................................... $3,790,034 $4,182,632 $2,942,563
========== ========== ==========
</TABLE>

The following assumptions were used in the pension calculations:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted-average discount rate...................... 7.25% 7.75% 8.5%
Rate of increase in future compensation............. 3.5%-7% 3.5%-7% 3.5%-7%
Expected long-term rate of return on assets......... 9% 9% 9%
</TABLE>

Supplemental Executive Retirement Plan

During 1996, the Company and its subsidiaries established three defined
benefit pension plans (the "Plans") covering certain executives. The benefits
are based on years of service and the employee's compensation during those
years. The Plans are non-qualified and unfunded. The Projected Unit Credit
Method is used to determine pension expense. The Company will pay benefits to
eligible participants when due under terms of the individual plans.

F-27
<PAGE> 167
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EMPLOYEE BENEFITS (CONTINUED)
The following table presents the funded status and amounts recognized in
the consolidated financial statements at the respective dates:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, no vested benefits in 1997
or 1996................................................ $ 1,849,543 $ 1,340,435
=========== ===========
Actuarial present value of projected benefit obligation
for service rendered to date........................... $ 3,328,666 $ 2,513,008
Plan assets at fair value................................. -- --
----------- -----------
Projected benefit obligation in excess of plan assets..... (3,328,666) (2,513,008)
Unrecognized net loss..................................... 284,032 --
Unrecognized prior service cost........................... 1,631,787 1,845,625
Adjustment required to recognize minimum liability........ (436,696) (673,052)
----------- -----------
Accrued pension liability................................. $(1,849,543) $(1,340,435)
=========== ===========
</TABLE>

The net pension cost includes the following components:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Service cost-benefits earned during the period.............. $333,973 $293,938
Interest cost on projected benefit obligation............... 197,653 159,608
Net amortization and deferral............................... 213,838 213,837
-------- --------
Net pension cost.................................. $745,464 $667,383
======== ========
</TABLE>

The following assumptions were used in the pension calculations:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
----- -----
<S> <C> <C>
Weighted-average discount rate.............................. 7.25% 7.75%
Rate of increase in future compensation..................... 5% 5%
</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 employee's first $500 contributed and 25% thereafter, up to a
maximum of 6% of the employee's 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
$1,031,000 to this 401(k) plan during 1997, $799,000 during 1996 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 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.

F-28
<PAGE> 168
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EMPLOYEE BENEFITS (CONTINUED)
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. 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.

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

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $ (9,624,100) $ (9,787,900)
Fully eligible active plan participants................. (110,400) (116,300)
Other active plan participants.......................... (8,067,700) (6,845,800)
------------ ------------
(17,802,200) (16,750,000)
Fair value of plan assets................................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess of
plan assets............................................. (17,802,200) (16,750,000)
Unrecognized transition obligation........................ 13,685,600 14,490,700
Unrecognized gain......................................... (1,723,500) (1,602,300)
------------ ------------
Accrued postretirement benefit cost....................... $ (5,840,100) $ (3,861,600)
============ ============
</TABLE>

The net periodic postretirement benefit cost includes the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Service cost................................................ $ 475,900 $ 442,900
Interest cost............................................... 1,264,200 1,231,800
Amortization of transition obligation over 20 years......... 805,100 805,100
Amortization of unrecognized net gain....................... (23,400) --
---------- ----------
Net periodic postretirement benefit cost.......... $2,521,800 $2,479,800
========== ==========
</TABLE>

The valuation is based on census information as of January 1, 1997 and
claims development based on the benefits provided. The discount rate assumed is
7.25% and the salary increase rate assumed varies by age. The health care cost
trend rate is assumed to be 8.5% in 1997, decreasing 0.5% each year to an
ultimate rate of 5.25%. The health care cost trend rate was assumed to be 9.0%
in 1996, decreasing 0.5% each year to an ultimate rate of 6.0%. The health care
cost trend rate assumption has a significant effect on the amounts

F-29
<PAGE> 169
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EMPLOYEE BENEFITS (CONTINUED)
reported. For example, increasing the assumed health care cost trend rates by
one percentage point each year would increase the accumulated postretirement
benefit obligation by $1,112,000 and $1,307,000 as of December 31, 1997 and
1996, respectively, and the aggregate of the estimated service and interest cost
components of net periodic postretirement benefit cost by $84,000 and $110,000
for 1997 and 1996, respectively.

13. NON-OPERATING INCOME

Community health partnership networks ("CHPNs") are locally based equity
ventures between the Company, which owns a 51% interest, and local physician
and/or hospital groups, which own the remaining equity interests in the CHPNs.
Clinical services are provided by the physician or hospital partners as well as
other providers with which the CHPNs maintain contracts, and BCBSGA provides
sales, management and administrative services, including information systems and
data management services through service contracts with the CHPNs.

In 1996, a hospital purchased a 5% interest in one of the Company's CHPN
subsidiaries. In 1997, another hospital purchased a 5% interest in the same
subsidiary. In accordance with the CHPN formation agreement, the Company's 51%
equity interest was not diluted as a result of these transactions. The Company
recorded non-operating income of $1,275,000 in 1997 and 1996 for its portion of
these transactions and increased the minority interest liability for this CHPN
by $1,225,000 in each year. After deducting deferred income taxes of $255,000,
net income was favorably impacted by $1,020,000 in 1997 and 1996.

14. COMMITMENTS AND CONTINGENCIES

Legal Actions

On September 3, 1997, a lawsuit was filed in the Superior Court of Fulton
County by nine groups on behalf of themselves and a class putatively composed of
all other 501(c)(3) organizations in Georgia seeking, among other things, to
invalidate a Georgia statute upon which certain aspects of Cerulean Companies,
Inc.'s formation was based. The complaint names Blue Cross and Blue Shield of
Georgia, Inc., Cerulean Companies, Inc. and the Commissioner of Insurance of the
State of Georgia as defendants.

The plaintiffs' claims relate to the conversion of BCBSGA from a nonprofit
entity to a for-profit entity which occurred as part of a Plan of Conversion
submitted to a public hearing November 21, 1995, and approved by the Georgia
Commissioner of Insurance in an order dated December 27, 1995. The complaint
seeks to have the fair market value of the assets of BCBSGA as of December 27,
1995, including but not limited to the surplus, plus interest from December 27,
1995, placed in a public trust for the use and benefit of a class of nonprofit
charitable organizations.

The Company believes that the plaintiffs' claims are without substantive
merit and intends to vigorously defend the lawsuit.

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 of these 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.

15. STATUTORY FINANCIAL INFORMATION AND ACCOUNTING PRACTICES

BCBSGA, Greater Georgia Life Insurance Company, a life insurance
subsidiary, and HMO Georgia, Inc., a health maintenance organization are
domiciled in the state of Georgia and prepare their statutory

F-30
<PAGE> 170
CERULEAN COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. STATUTORY FINANCIAL INFORMATION AND ACCOUNTING PRACTICES (CONTINUED)
financial statements in accordance with accounting principles and practices
prescribed by the Georgia Insurance Department. Prescribed statutory accounting
practices are interspersed throughout state insurance laws and regulations and 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 codifying statutory accounting
practices ("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company's subsidiaries use to prepare their
statutory financial statements. Codification, which is expected to be approved
by the NAIC in 1998, will require adoption by the various states before it
becomes the prescribed basis of accounting on which domestic insurers must
report their statutory-basis results to the Insurance Department. At this time
it is unclear whether Georgia will adopt codification. However, based on current
draft guidance, management believes that the impact of codification will not be
material to its subsidiaries' statutory-basis financial statements. The
Company's 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's insurance subsidiaries:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Blue Cross and Blue Shield of Georgia, Inc................ $142,475,727 $158,554,152
HMO Georgia, Inc.......................................... 14,136,223 16,078,811
Greater Georgia Life Insurance Company.................... 21,804,868 19,256,302
</TABLE>

The following table presents the amount of statutory net income for the
Company's insurance subsidiaries:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Blue Cross and Blue Shield of Georgia, Inc......... $2,214,036 $7,079,305 $9,533,254
HMO Georgia, Inc................................... 8,250,726 6,295,782 6,174,947
Greater Georgia Life Insurance Company............. 3,173,716 1,801,326 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
BCBSGA and $3,000,000 each for HMO Georgia, Inc. and Greater Georgia Life
Insurance Company. The Company's insurance subsidiaries may distribute dividends
only out of realized profits (undistributed, accumulated, net earnings since
organization). The amount of dividends distributable each year is limited to the
greater of the prior year's net income determined on a statutory basis or 10% of
prior year statutory surplus. In addition, dividends distributable by BCBSGA are
further limited by the Conversion order (approved by the Georgia Commissioner of
Insurance on December 27, 1995 related to BCBSGA's conversion to a for-profit
corporation). Dividend distributions by BCBSGA, HMO Georgia, Inc. and Greater
Georgia Life Insurance Company above these defined limits require special
approval by the State of Georgia Insurance Commissioner.

16. SUBSEQUENT EVENT

During January 1998, the Company terminated its $9,000,000 revolving credit
agreement and paid in full the $3,500,000 note payable outstanding at December
31, 1997.

F-31
<PAGE> 171

APPENDIX A

AGREEMENT AND PLAN OF MERGER

AMONG

CERULEAN COMPANIES, INC.,

WELLPOINT HEALTH NETWORKS INC.

AND

WATER POLO ACQUISITION CORP.

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 9,
1998, by and among Cerulean Companies, Inc., a Georgia corporation ("Cerulean"),
WellPoint Health Networks Inc., a Delaware corporation ("WellPoint"), and Water
Polo Acquisition Corp., a Delaware corporation ("WPAC").

W I T N E S S E T H:

WHEREAS, WellPoint directly owns all of the issued and outstanding stock of
WPAC;

WHEREAS, the Boards of Directors of each of Cerulean, WellPoint, and WPAC
(i) have approved the merger of Cerulean with and into WPAC upon the terms and
conditions set forth herein and (ii) deem such merger to be in the best
interests of their respective shareholders;

WHEREAS, Cerulean, WellPoint, and WPAC desire to make certain
representations, warranties and agreements in connection with such merger; and

WHEREAS, it is the express intention of Cerulean, WellPoint, and WPAC that
the merger constitute a reorganization for federal income tax purposes under
Section 368 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code").

NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and upon and subject to the terms and
the conditions hereinafter set forth, the parties do hereby agree as follows:
18.

ARTICLE I.

THE MERGER

1.01 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.02), Cerulean shall be merged with
and into WPAC in accordance with this Agreement and the separate corporate
existence of Cerulean shall thereupon cease (the "Merger"). WPAC shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The Merger shall have the effects specified in Section
259 of the Delaware General Corporation Law (the "DGCL") and Section 14-2-1106
of the Georgia Business Corporation Code (the "GBCC").

1.02 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article VII, the
consummation of the Merger (the "Closing") shall take place at the offices of
Long Aldridge & Norman LLP, One Peachtree Center, 303 Peachtree Street, Suite
5300, Atlanta, Georgia 30308 on the date which is 30 days after the last to
occur of the conditions to Closing which are to occur prior to, but not on, the
Closing Date, or on such other date as the parties shall agree (the "Closing
Date"). The parties hereto shall cause Certificates of Merger substantially in
the forms of Exhibits 1.02(a) and (b) hereto (the "Certificates of Merger") to
be properly executed and filed with the Secretaries of State of Delaware and
Georgia, on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").

1.03 Certificate of Incorporation. The Certificate of Incorporation of
WPAC in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable law.

1.04 Bylaws. The Bylaws of WPAC in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.

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1.05 Directors, Officers and Name of WPAC. The directors and officers of
WPAC immediately prior to the Effective Time shall be the directors and officers
of the surviving corporation in the Merger, and the name of WPAC at the
Effective Time shall be Cerulean Companies, Inc.

1.06 Proxy Statement; Form S-4; Listing on NYSE. As soon as practicable,
Cerulean shall file with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and shall
use its best efforts to have cleared by the SEC, a proxy statement with respect
to the meeting of Cerulean's shareholders referred to in Section 5.05 (the
"Proxy Statement"). In connection therewith, as soon as practicable after the
date hereof, WellPoint shall file with the SEC, and shall use its best efforts
to have cleared by the SEC, a Registration Statement on Form S-4 (the "Form
S-4") to register under the Securities Act of 1933, as amended (the "Securities
Act"), the shares of $.01 par value WellPoint common stock ("WellPoint Common
Stock") to be issued in the Merger, which Form S-4 shall incorporate the Proxy
Statement. Each of the parties hereto shall use its best efforts promptly to
provide in writing all information related to such party which is required for
inclusion in the Proxy Statement and Form S-4 in order to have the Form S-4
declared effective by the SEC as promptly as practicable. WellPoint shall use
its best efforts to comply, prior to the Effective Time, with all applicable
requirements of "Blue Sky" and federal and state securities laws in connection
with the Merger and the issuance of WellPoint Common Stock in connection
therewith. In addition, WellPoint shall promptly file all appropriate
applications with the New York Stock Exchange to have the WellPoint Common Stock
to be issued in the Merger approved for listing on the New York Stock Exchange
upon notice of issuance.

ARTICLE II.

THE CONVERSION

2.01 Conversion of Shares. (a) At the Effective Time, each issued and
outstanding share of Cerulean Class A Convertible Common Stock ("Cerulean Class
A Stock"), Class B Convertible Preferred Stock ("Cerulean Class B Stock") and
Series A Preferred Stock ("Cerulean Series A Stock"), and each outstanding Class
A Common Stock Participation Right into which the shares of Cerulean Series A
Stock have been converted ("Cerulean Rights"), other than shares of Cerulean
Class A Stock, Cerulean Class B Stock, or Cerulean Series A Stock or units of
Cerulean Rights as to which a demand for fair value has been validly made and
perfected under the GBCC ("Cerulean Dissenting Shares"), (collectively, the
"Outstanding Cerulean Shares") shall, by virtue of the Merger and without any
action on the part of the holder thereof (but subject to the provisions for
fractional shares set forth below and other applicable provisions of this
Agreement), be converted into the right to receive (i) in the case of Cerulean
Class A Stock, Cerulean Series A Stock and Cerulean Rights (collectively, "Cash
Eligible Shares"), either a number of shares of WellPoint Common Stock equal to
the Class A Exchange Ratio (as hereinafter defined), or cash in an amount equal
to the Cash Election Price (as hereinafter defined), and (ii) in the case of
Cerulean Class B Stock, a number of shares of WellPoint Common Stock equal to
the Class B Exchange Ratio (as hereinafter defined); provided, however, that no
more than X shares of Cerulean Class A Stock issued and outstanding as of the
date of this Agreement (the "Historical Stock") shall be converted into the
right to receive the Cash Election Price, with X being calculated by solving the
following equation:

X = (AGGREGATE MERGER PRICE LESS THE SUM OF THE AGGREGATE VALUE OF ALL
CONSIDERATION TO BE PAID BY WELLPOINT IN EXCHANGE FOR SHARES OF CERULEAN
CLASS A STOCK ISSUED AFTER THE DATE OF THIS AGREEMENT, SHARES OF CERULEAN
SERIES A STOCK, OR UNITS OF CERULEAN RIGHTS (THE "NEW STOCK") IN CONNECTION
WITH THE MERGER) X 45% ) / THE CASH ELECTION PRICE (ALL AS HEREINAFTER
DEFINED)

and provided further, that no more than Y shares or units of New Stock shall be
converted into the right to receive the Cash Election Price, with Y being
calculated by solving the following equation:

Y = ((THE SUM OF THE AGGREGATE VALUE OF ALL CONSIDERATION TO BE PAID BY
WELLPOINT FOR THE NEW STOCK IN CONNECTION WITH THE MERGER) X 45% ) / THE
CASH ELECTION PRICE (ALL AS HEREINAFTER DEFINED).

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and provided further, however, that if holders elect to convert less than X
shares of Historical Stock into the Cash Election Price, then instead of
calculating Y as provided above, Y shall be calculated as follows:

Y = ((AGGREGATE MERGER PRICE X 45%) -- CASH TO BE PAID BY WELLPOINT IN
EXCHANGE FOR HISTORICAL STOCK IN CONNECTION WITH THE MERGER) / CASH
ELECTION PRICE

Holders shall only be entitled to receive cash for their Historical Stock
in accordance with the provisions above if the holder has elected to receive
cash for all of such holder's Historical Stock. Holders of New Stock shall be
entitled to elect to receive cash for all or a portion of such New Stock
expressed in whole shares of Cerulean Class A Stock or Cerulean Series A Stock,
or units of Cerulean Rights. Holders of Cash Eligible Shares who desire to
effect elections for cash consideration shall effect such election
(individually, an "Electing Holder" and collectively, the "Electing Holders")
through an election mechanism to be provided to holders of Cerulean Class A
Stock in connection with the solicitation of proxies to approve the transaction,
or in the case of holders of Cerulean Series A Stock or Cerulean Rights, through
an election mechanism to be provided to such holder in the form of a notice from
Cerulean. In the event that a holder of Cash Eligible Shares does not elect to
receive cash as provided above, the Cash Eligible Shares of such holder shall be
converted into WellPoint Common Stock pursuant to the applicable exchange ratio
as provided under this Agreement.

In the event that holders of Historical Stock, in the aggregate, elect to
convert more than X shares of Historical Stock, in the aggregate, into the Cash
Election Price, each such holder shall be deemed to have elected to convert only
that number of shares of Historical Stock equal to the number of shares of
Historical Stock actually elected by such holder to be converted into the Cash
Election Price multiplied by a fraction, the numerator of which shall be X and
the denominator of which shall be the total number of shares of Historical
Stock, in the aggregate, which all holders elected to be converted into the Cash
Election Price. Each remaining share of such electing holder's Historical Stock
(i.e. the shares of Historical Stock not subject to the deemed election above)
shall be converted into that number of shares of WellPoint Common Stock equal to
the Class A Exchange Ratio. In the event that holders of New Stock elect to
convert more than Y shares or units of New Stock, in the aggregate, into the
Cash Election Price, each such holder shall be deemed to have elected to convert
only that number of shares or units of New Stock equal to the number of shares
or units of New Stock actually elected by such holder to be converted into the
Cash Election Price multiplied by a fraction, the numerator of which shall be Y
and the denominator of which shall be the total number of shares or units of New
Stock, in the aggregate, which all holders have elected to be converted into the
Cash Election Price. Each remaining share or unit of such electing holder's New
Stock (i.e. the shares or units of New Stock not subject to the deemed election
above) shall be converted into that number of shares of WellPoint Common Stock
equal to the Class A Exchange Ratio.

At the Effective Time, the stock transfer books of Cerulean shall be
closed, and no transfers of shares of Cerulean Class A Stock, Cerulean Class B
Stock, or Cerulean Series A Stock or units of Cerulean Rights shall thereafter
be made.

(b) Determination of Exchange Ratios. (i) Class A Exchange Ratio. The
Class A Exchange Ratio shall equal the solution (carried to two decimal places)
to the following equation: Aggregate Merger Price (as hereinafter defined)
divided by the Closing Price (as hereinafter defined), multiplied by the Class A
Percentage (as hereinafter defined), and further multiplied by a fraction, the
numerator of which is the number 1 and the denominator of which is the total
number of shares of Cerulean Class A Stock and shares of Cerulean Series A
Stock, and units of Cerulean Rights outstanding as of the Effective Time.

As used herein, the term "Aggregate Merger Price" shall mean Five Hundred
Million and No/100 Dollars ($500,000,000), subject to certain adjustments as
expressly provided or referred to herein.

As used herein, the term "Closing Price" shall mean the average closing
price per share for WellPoint Common Stock for the 20 business days immediately
prior to the day that is two business days prior to the Closing on which
WellPoint Common Stock is traded on the New York Stock Exchange, as reported by
the Wall Street Journal (Southeastern Edition), or if not reported therein, by
another authoritative source.

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As used herein, the term "Class A Percentage" shall mean the number 1 minus
the "Class B Percentage."

(ii) Class B Exchange Ratio. The Class B Exchange Ratio shall equal the
solution (carried to two decimal places) to the following equation: Aggregate
Merger Price divided by the Closing Price, multiplied by the Class B Percentage
(as hereinafter defined), and further multiplied by a fraction, the numerator of
which is the number 1 and the denominator of which is the total number of shares
of Cerulean Class B Stock outstanding as of the Effective Time.

As used herein, the term "Class B Percentage" shall mean .221876389486.

(iii) Cash Election Price. The Cash Election Price shall equal the
solution (carried to two decimal places) to the following equation: Aggregate
Merger Price multiplied by the Class A Percentage, and further multiplied by a
fraction, the numerator of which is the number 1 and the denominator of which is
the total number of shares of Cerulean Class A Stock, shares of Cerulean Series
A Stock, and units of Cerulean Rights outstanding as of the Effective Time.

(c) Notwithstanding any other provision of this Agreement, in the event
that Cerulean and its legal counsel, in consultation with counsel to WellPoint,
determine that the cash which would otherwise be paid to holders of Outstanding
Cerulean Shares hereunder, when combined with other cash payable or potentially
payable in connection with a proceeding described in Section 2.04 or otherwise
in connection with the Merger or the transactions contemplated hereunder, would
jeopardize the Merger qualifying as reorganization under Section 368(a) of the
Code, WellPoint, at the direction of Cerulean, shall reserve payment of a
portion of the cash consideration otherwise payable to such holders on a
pro-rata basis (the "Cash Holdback") until such time as Cerulean reasonably
determines that the payment of the Cash Holdback would not jeopardize the Merger
qualifying as a reorganization under Section 368(a) of the Code. In the event
Cerulean determines that payment of all or a portion of the Cash Holdback cannot
be made without unduly jeopardizing the qualification of the Merger as a
reorganization under Section 368(a) of the Code, then in lieu of payment of all
or a portion of the Cash Holdback, such holders shall be paid in shares of
WellPoint Common Stock pursuant to the exchange ratios provided under this
Agreement.

2.02 Surrender of Certificates. After the Effective Time, each holder of a
certificate or certificates previously representing Outstanding Cerulean Shares
("Cerulean Certificates"), or in the case of Outstanding Cerulean Shares which
are not represented by Cerulean Certificates, each holder of Outstanding
Cerulean Shares as shown on the books and records of Cerulean, shall (except as
otherwise provided in this Agreement) receive a certificate or certificates
representing the number of whole shares of WellPoint Common Stock into which the
shares represented by the holder's Cerulean Certificate(s) (or as shown on the
books and records of Cerulean) shall have been converted and, if appropriate, a
cash payment as provided for in Section 2.01 and Section 2.03. Notwithstanding
the foregoing, no holder of any Cerulean Certificate(s) shall receive any
certificates representing WellPoint Common Stock or a cash payment until
surrender of the holder's Cerulean Certificate(s) (if any) to the exchange agent
appointed by WellPoint (the "Exchange Agent"). After the Effective Time, each
Cerulean Certificate representing shares converted into the right to receive
WellPoint Common Stock pursuant to Section 2.01 shall represent ownership of the
number of shares of WellPoint Common Stock which the holder of the Cerulean
Certificate shall be entitled to receive. Whenever a dividend or distribution is
declared by WellPoint on WellPoint Common Stock after the Effective Time, the
declaration shall include dividends or distributions on all shares issued and
outstanding, including those with respect to which no certificates have been
delivered hereunder; provided, however, no dividends or distributions shall be
required to be made to any holder of Cerulean Certificates until the Cerulean
Certificate(s) representing such shares shall have been delivered to the
Exchange Agent by the person, firm, trust, estate, corporation, or business
organization ("Person") entitled to such dividend or distribution. Upon delivery
of such Cerulean Certificate(s), or as soon as practicable thereafter, such
Person shall receive from WellPoint an amount equal to all dividends and
distributions (without interest thereon and less the amount of taxes, if any,
required to be withheld or paid thereon by WellPoint) on the shares of WellPoint
Common Stock formerly represented by the surrendered Cerulean Certificate(s),
which shall have been declared and paid between the Effective Time and the date
of delivery of such Cerulean Certificate(s).

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2.03 No Fractional Shares. All fractional shares of WellPoint Common Stock
to which a holder of Outstanding Cerulean Shares would otherwise be entitled at
the Effective Time shall be aggregated. If a fractional share shall result from
such aggregation, no certificate or scrip of any kind shall be issued by
WellPoint in respect of such fractional interest, but such holder of Outstanding
Cerulean Shares shall be entitled to receive a cash payment equal to such
fraction multiplied by the Closing Price. No implication is intended that the
Closing Price would be the value of shares of WellPoint Common Stock for any
other purpose, or would indicate the value of shares of Cerulean Class A Stock,
Cerulean Series A Stock, or Cerulean Class B Stock, or units of Cerulean Rights
for any purpose, including determination of the amount which any holder of
Cerulean shares or Rights dissenting from the Merger would receive.
Notwithstanding any provision in this Section 2.03 to the contrary, in the event
that Cerulean and its legal counsel, after consultation with counsel for
WellPoint, determine that the payment of cash for such fractional share
interests would jeopardize the treatment of the Merger as a reorganization under
Section 368 of the Code, then Cerulean shall be entitled to require that
WellPoint issue to Electing Holders a whole share of WellPoint Common Stock in
lieu of a cash payment under this Section 2.03, in which case an amount equal to
the difference between the Closing Price and the cash value of the fractional
share interest shall be subtracted from the cash consideration to be paid to
such Electing Holder.

2.04 Dissenting Shares. Cerulean Dissenting Shares held by any holder
entitled to and seeking relief as a dissenting shareholder under Section
14-2-1302 of the GBCC shall not be converted into the right to receive WellPoint
Common Stock or cash as provided in Section 2.01, but shall be converted into
such consideration as may be due with respect to such Cerulean Dissenting Shares
pursuant to the applicable provisions of the GBCC unless and until the right of
such holder to receive payment of fair value for such Cerulean Dissenting Shares
terminates in accordance with Section 14-2-1323 of the GBCC. If such right is
terminated other than by the purchase of such shares by WellPoint, then such
shares shall cease to be Cerulean Dissenting Shares and shall be converted into
and represent the right to receive WellPoint Common Stock as provided in Section
2.01.

2.05 Title to Assets and Responsibility for Liabilities. At the Effective
Time, the title to all real estate and other property owned by Cerulean shall be
vested in WPAC, as the corporation surviving the Merger, without any further act
or deed, and WPAC shall be responsible and liable for all the liabilities of
Cerulean.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF CERULEAN

Cerulean hereby represents and warrants as of the date hereof to WPAC as
follows:

3.01 Organization and Authorization. (a) Cerulean and each of the Cerulean
Subsidiaries (as hereinafter defined) is a corporation duly organized, validly
existing and in good standing under the laws of the state of Georgia, and has
all requisite power and authority, corporate or otherwise, to carry on and
conduct its business as it is now being conducted and to own or lease its
properties and assets. Cerulean and each Cerulean Subsidiary is duly qualified
and in good standing in every state of the United States in which the conduct of
its business or the ownership of its properties and assets requires it to be so
qualified, except where the failure to be so qualified and in good standing
would not have a "Cerulean Material Adverse Effect," as defined below. As used
in this Agreement, "Cerulean Material Adverse Effect" shall mean a material
adverse effect on the business, assets, or financial condition of Cerulean and
the Cerulean Subsidiaries, taken as a whole. Cerulean has heretofore delivered
or made available to WPAC accurate and complete copies of the Articles of
Incorporation and Bylaws, or equivalent governing instruments, as currently in
effect, of Cerulean and each of the Cerulean Subsidiaries.

(b) Schedule 3.01(b) sets forth every entity in which Cerulean owns, or
will own prior to the Closing, fifty percent (50%) or more of the outstanding
equity, directly or indirectly, (the "Cerulean Subsidiaries"), and the equity
interest that is owned by Cerulean. Except as noted on Schedule 3.01(b),
Cerulean's ownership interest in the Cerulean Subsidiaries (the "Cerulean
Subsidiary Shares") are owned by Cerulean, directly or indirectly, free and
clear of all liens, restrictions, claims, equities, charges, options, rights of
first refusal,

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encumbrances or other restrictions of any kind, with no defects of title
whatsoever. Cerulean has full power, right and authority to vote all of the
Cerulean Subsidiary Shares. Cerulean is not a party to or bound by any voting
trust, proxy, or other agreement affecting or relating to its right to transfer
or vote the Cerulean Subsidiary Shares.

(c) Cerulean has the corporate right, power and capacity to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and adoption of this Agreement by
the shareholders of Cerulean in accordance with the GBCC and the Articles of
Incorporation and Bylaws of Cerulean. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by Cerulean's Board of Directors. This
Agreement has been duly and validly executed and delivered by Cerulean and
constitutes Cerulean's legal, valid and binding obligation, enforceable in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) general
equitable principles.

3.02 Capitalization. The authorized capital stock of Cerulean consists of
50,000,000 shares of Cerulean Class A Stock, 49,901 shares of Cerulean Class B
Stock, 100,000,000 shares of Cerulean Common Stock, and 100,000,000 shares of
Blank Preferred Stock ("Cerulean Blank Preferred Stock"). As of the date hereof,
351,570 shares of Cerulean Class A Stock and 49,900 shares of Cerulean Class B
Stock were issued and outstanding, and no shares of Cerulean Common Stock, and
Cerulean Blank Preferred Stock are issued and outstanding. No other capital
stock of Cerulean is authorized or issued. All of such issued and outstanding
shares of capital stock of Cerulean are validly issued, fully paid and
nonassessable. There are no shares of capital stock held in the treasury of
Cerulean. Except as set forth on Schedule 3.02, there are no outstanding or
authorized stock appreciation rights, phantom stock, profit participation or
similar rights with respect to Cerulean or any Cerulean Subsidiary.

3.03 Absence of Other Claims. Except as set forth on Schedule 3.03, there
is not outstanding, nor is Cerulean or any Cerulean Subsidiary bound by, any
subscriptions, options, preemptive rights, warrants, calls, commitments or
agreements or rights of any character requiring Cerulean or any Cerulean
Subsidiary to issue or entitling any person or entity to acquire any additional
shares of capital stock or any other equity security of Cerulean or any Cerulean
Subsidiary, including any right of conversion or exchange under any outstanding
security or other instrument, and Cerulean or any Cerulean Subsidiary is not
obligated to issue or transfer any shares of its capital stock for any purpose.
Except as set forth on Schedule 3.03, there are no outstanding obligations of
Cerulean or any Cerulean Subsidiary to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock of Cerulean or any Cerulean Subsidiary.

3.04 Financial Statements. The audited consolidated balance sheets of
Cerulean as of December 31, 1997 and 1996 and the related audited consolidated
statements of income, retained earnings and cash flows for the years then ended,
including the footnotes thereto, certified by Ernst & Young LLP, Cerulean's
independent certified public accountants, as set forth in Cerulean's Annual
Reports on Form 10-K, as amended, for the years ended December 31, 1997 and
1996, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
and present fairly the financial position in all material respects of Cerulean
and its consolidated Cerulean Subsidiaries as of the dates thereof and the
results of their operations for the periods then ended. The unaudited
consolidated balance sheet of Cerulean as of March 31, 1998 and the related
unaudited consolidated statements of income, retained earnings and cash flows
for the three-month period then ended (the "Interim Financial Statements") have
been prepared in accordance with GAAP for interim financial statements applied
on a basis consistent with prior periods and present fairly the financial
position in all material respects of Cerulean and its consolidated Cerulean
Subsidiaries as of the dates thereof and the results of their operations for the
period then ended.

3.05 No Undisclosed Liabilities. Except (i) as set forth in the Cerulean
SEC Filings (as hereinafter defined), (ii) as shown in the Interim Financial
Statements, or (iii) as shown on Schedule 3.05, as of March 31, 1998, neither
Cerulean nor any Cerulean Subsidiary had any liability or obligation whatsoever,
whether accrued, absolute, contingent or otherwise, except for any such
liability or obligation that would not

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have a Cerulean Material Adverse Effect, either individually or in the
aggregate. Since March 31, 1998, neither Cerulean nor any Cerulean Subsidiary
has incurred any liability or obligation, except for liabilities and obligations
(x) incurred by Cerulean in the ordinary course of its business consistent with
past practice, (y) as reflected on Schedule 3.05, or (z) that would not,
individually or in the aggregate, have a Cerulean Material Adverse Effect.

3.06 No Violation of Law. Except as set forth on Schedule 3.06 or for any
of the following which would not have a Cerulean Material Adverse Effect,
neither Cerulean nor any Cerulean Subsidiary is nor has been nor will be (by
virtue of any past or present action, omission to act, contract to which it is a
party or any occurrence or state of facts whatsoever) in violation of any
applicable local, state or federal law (including any Health Benefit Law (as
defined hereafter)), ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency or authority or court binding
on it, or relating to its property or business. For purposes of this Agreement,
the term "Health Benefit Law" shall mean any local, state or federal law,
ordinance, regulation or order relating to the license, certification,
qualification or authority to transact business relating to the provision of or
payment for health benefits and insurance and any such laws relating to the
regulation of health maintenance organizations, workers' compensation, managed
care organizations, insurance, preferred provider organizations,
point-of-service plans, third party administrators, utilization review, hospital
reimbursement, Medicare and Medicaid participation, fraud and abuse and patient
referrals.

3.07 Real and Personal Property. (a) Schedule 3.07(a) sets forth a true,
correct and complete schedule of all real property owned by Cerulean or any of
the Cerulean Subsidiaries (the "Cerulean Real Property"). Cerulean or one of the
Cerulean Subsidiaries is the owner of the title to the real property described
on Schedule 3.07(a) and to all of the buildings, structures, and other
improvements located thereon free and clear of any mortgage, deed of trust,
lien, pledge, security interest, claim, lease, charge, option, right of first
refusal, easement, restrictive covenant, encroachment or other survey defect,
encumbrance or other restriction or limitation except for matters on Schedule
3.07(a) and any exceptions or restrictions which, individually or in the
aggregate, would not have a Cerulean Material Adverse Effect (the "Cerulean
Permitted Liens").

(b) Schedule 3.07(b) sets forth a true, correct and complete schedule of
all material leases, subleases, licenses or other agreements under which
Cerulean or any of the Cerulean Subsidiaries uses or occupies, or has the right
to use or occupy, now or in the future, any real property or improvements
thereon (the "Cerulean Real Property Leases"). Except for matters listed on
Schedule 3.07(b), Cerulean or one of the Cerulean Subsidiaries holds the
leasehold estate under an interest in each Cerulean Real Property Lease free and
clear of all material liens, encumbrances and other rights of occupancy, except
(i) liens for current taxes not yet due and payable, (ii) such imperfections of
title, liens or easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby, or
otherwise materially impair the business operations involving such properties,
or (iii) those material liens, encumbrances and other rights of occupancy which
would not have a Cerulean Material Adverse Affect. Except as set forth on
Schedule 3.07(b), all Cerulean Real Property Leases have been delivered to
WellPoint and are valid and binding on Cerulean or the Cerulean Subsidiary party
thereto and are valid and binding on the lessors thereunder in accordance with
their respective terms and to Cerulean's knowledge, there is not under any such
Cerulean Real Property Lease any existing default, or any condition, event, or
act which with notice or lapse of time, or both, would constitute such a
default, which in either case, considered individually or in the aggregate with
all such other Cerulean's Real Property Leases under which there is such a
default, condition, event or act, would have a Cerulean Material Adverse Effect.

(c) Cerulean and each Cerulean Subsidiary has good and marketable title to,
or a valid leasehold interest in, all personal property which is material to the
business of Cerulean or such Cerulean Subsidiary, respectively. All such
personal property is suitable for the purpose for which it is presently used,
and is adequate and sufficient for the current operations of Cerulean and the
Cerulean Subsidiaries.

3.08 Indebtedness. Schedule 3.08 sets forth a complete and accurate list
and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed money of

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Cerulean or a Cerulean Subsidiary (and the amounts owed thereunder as of the
date of this Agreement), as well as other material indebtedness by way of
lease-purchase arrangements, guarantees, undertakings on which others rely in
extending credit, and all conditional sales contracts, chattel mortgages and
other security arrangements with respect to personal property used or owned by
Cerulean or a Cerulean Subsidiary. Cerulean has made available to WPAC a true,
correct and complete copy of each of the items listed on Schedule 3.08.

3.09 Proxy Statement; Form S-4. None of the information relating to
Cerulean and the Cerulean Subsidiaries included in the Proxy Statement or
furnished by Cerulean in writing for inclusion in the Form S-4 contains or will
contain (in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
shareholders of Cerulean to be held in connection with the transactions
contemplated by this Agreement or, in the case of the Form S-4, as amended or
supplemented, at the time it becomes effective) any untrue statement of material
fact or omits or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except for information
supplied or to be supplied by WellPoint or WellPoint Subsidiaries in writing for
inclusion therein, as to which no representation is made, the Proxy Statement,
and any supplements or amendments thereto, will comply in all material respects
with the Exchange Act and the rules and regulations thereunder.

3.10 SEC Filings. Cerulean has made available to WPAC true and complete
copies of (i) its Annual Reports on Form 10-K, as amended, for the years ended
December 31, 1996 and December 31, 1997, as filed with the SEC, (ii) its proxy
statements relating to all of Cerulean's meetings of shareholders (whether
annual or special) since January 1, 1997, as filed with the SEC, and (iii) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
Cerulean with the SEC since January 1, 1997 (the reports and statements set
forth in clauses (i), (ii) and (iii) are referred to collectively as the
"Cerulean SEC Filings"). As of their filing date, none of the Cerulean SEC
Filings contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Cerulean SEC Filings at the time of filing complied in all
material respects with the Exchange Act or the Securities Act, as the case may
be, and the rules and regulations thereunder.

3.11 Intellectual Property. Schedule 3.11 sets forth a complete and
accurate list of all of Cerulean's and Cerulean's Subsidiaries registered
trademarks, service marks, and patents, and trademark service mark copyrights
and patent registration applications, and all permits, grants and licenses or
other rights running to or from Cerulean and any Cerulean Subsidiaries relating
to any of the foregoing that are material to the business of Cerulean and
Cerulean Subsidiaries taken as a whole. Except where the following would not
have a Cerulean Material Adverse Effect, (i) Cerulean or one of the Cerulean
Subsidiaries owns, is licensed to use, or otherwise has the right to use all
registered patents, trademarks, service marks, tradenames, copyrights and
franchises set forth on Schedule 3.11; (ii) Cerulean's rights in the property
set forth on such list are free and clear of any liens or other encumbrances and
Cerulean and the Cerulean Subsidiaries have not received written notice of any
adversely-held patent, invention, trademark, service mark or tradename of any
other person, or notice of any charge or claim of any person, relating to such
intellectual property, and to Cerulean's knowledge there is no basis for any
such charge or claim; and (iii) Cerulean, the Cerulean Subsidiaries, and their
respective predecessors, if any, have not conducted business at any time during
the period beginning five years prior to the date hereof under any corporate,
trade or fictitious names other than their current corporate names.

3.12 Employee Benefits. Except as described on Schedule 3.12, no employee
of Cerulean or any Cerulean Subsidiary (collectively, the "Cerulean Employees")
participates in or is entitled to benefits under any employee benefit plan, as
defined in Section 3(3) of Employee Retirement Income Security Act of 1974, as
amended ("ERISA") nor any other type of retirement, deferred compensation,
insurance, bonus, medical, stock option or other plan or arrangement (the
"Cerulean Employee Benefit Plans"). Cerulean has provided a true and accurate
copy of each Cerulean Employee Benefit Plan to WellPoint. None of the Cerulean
Employees participate in, and neither Cerulean nor any Cerulean Subsidiary has
any obligation to contribute to, a multiemployer plan (as defined in Section
3(37) of ERISA) which is subject to Title IV of ERISA. To
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the knowledge of Cerulean, except as otherwise described on Schedule 3.12, the
Cerulean Employee Benefit Plans, both in form and operation, are in material
compliance with any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree or any other requirement of any
governmental body, agency or authority or court binding on them (including ERISA
and the Internal Revenue Code of 1986, as amended). To the knowledge of
Cerulean, no officer, director or employee of Cerulean or any Cerulean
Subsidiary has committed a material breach of any responsibility or obligation
imposed upon fiduciaries by Title I of ERISA with respect to any Cerulean
Employee Benefit Plan. Except as described on Schedule 3.12, neither Cerulean
nor any Cerulean Subsidiary has received written notice that any of their
respective assets are currently subject to a lien or other process under Title
IV of ERISA, and neither has received written notice of any threatened or
pending action related to the Cerulean Employee Benefit Plans by an employee or
former employee, a plan participant, the Department of Labor, Internal Revenue
Service or Pension Benefit Guaranty Corporation or any other party. Cerulean has
made full and timely payment of all amounts required to be contributed under the
terms of each Cerulean Employee Benefit Plan and applicable law or required to
be paid as expenses or benefits under each Cerulean Employee Benefit Plan which
is intended to be qualified under Code Section 401(a). Any group health plan
maintained by Cerulean or any Cerulean Subsidiary covering any employee or
former employee has, to Cerulean's knowledge, been administered in all material
respects in compliance with the health care continuation coverage provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 and the Health
Insurance Portability and Accountability Act of 1996. To the best of Cerulean's
knowledge, neither Cerulean nor any Cerulean Subsidiary is obligated to provide
health care or welfare benefits of any kind to its current or former employees
or dependents or to any other person actively employed by Cerulean or any
Cerulean Subsidiary, pursuant to any agreement or understanding, except as set
forth in Schedule 3.12. Except for the triggering of payments, liabilities,
funding events, or other obligations under the plans denoted with an asterisk on
Schedule 3.12, the execution and delivery of this Agreement by Cerulean, the
consummation of the transactions contemplated herein, and the performance of the
covenants and agreements of Cerulean hereto will not result in a breach or
violation of, a default under, or the triggering of any payment, liability,
funding event or other obligation pursuant to any Cerulean Employee Benefit Plan
or any grant, award or other agreement thereunder.

3.13 Litigation. Schedule 3.13(a) (i) sets forth all litigation, claims,
suits, actions, known investigations, indictments, informations, proceedings,
arbitrations, grievances or other procedures (including known grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) (collectively, "Cerulean Claims")
pending, or to the knowledge of Cerulean, threatened, before any court,
commission, arbitration tribunal, or judicial, governmental or administrative
department, body, agency, administrator or official, grand jury, or any other
forum for the resolution of grievances, against Cerulean or any Cerulean
Subsidiary or involving any of its property or business, the outcome of which,
individually or in the aggregate, could reasonably be expected to have a
Cerulean Material Adverse Effect, and (ii) indicates which of such matters are
being defended by an insurance carrier, and which of the matters being so
defended are being defended under a reservation of rights. Further, except as
set forth on Schedule 3.13(b), there are no material judgments, orders, writs,
injunctions, decrees, plea agreements, stipulations or awards (whether rendered
by a court, commission, arbitration tribunal, or judicial, governmental or
administrative department, body, agency, administrator or official, grand jury
or any other forum for the resolution of grievances) against or relating to
Cerulean or involving any of its property or business. Neither Cerulean nor any
Cerulean Subsidiary is in default with respect to any judgment, order, writ,
injunction, decree, plea agreement, stipulation or award listed in Schedule
3.13(b). Cerulean has made available to WellPoint true, correct and complete
copies of pleadings, briefs and other documents filed in each Cerulean Claim
listed on Schedule 3.13(a), and the material judgments, orders, writs,
injunctions, decrees, plea agreements, stipulations and awards listed in said
Schedule.

3.14 Collective Bargaining. Except as set forth on Schedule 3.14, there
are no labor contracts, collective bargaining agreements, letters of
understanding or other arrangements, formal or informal, with any union or labor
organization covering any of Cerulean's or Cerulean's Subsidiaries' employees
and none of said employees are represented by any union or labor organization.
Cerulean has made available to WPAC a true, correct and complete copy of each
agreement listed on Schedule 3.14.

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3.15 Labor Disputes. Except for any of the following which would not have
a Cerulean Material Adverse Effect, neither Cerulean nor any Cerulean Subsidiary
is nor has been nor will be (by virtue of any past or present action, omission
to act, contract to which it is a party or any occurrence or state of facts
whatsoever) in violation of any federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours.
Neither Cerulean nor any Cerulean Subsidiary is nor has been engaged in any
unfair labor practice, and no unfair labor practice complaint against Cerulean
or a Cerulean Subsidiary is pending before the National Labor Relations Board,
the result of which would have a Cerulean Material Adverse Effect. There is no
labor strike or other labor action actually pending against Cerulean or a
Cerulean Subsidiary, or to the knowledge of Cerulean being threatened against or
affecting Cerulean or a Cerulean Subsidiary. To Cerulean's knowledge, there have
not been, nor are there presently, any attempts to organize non-union employees,
nor are there plans for any such attempts.

3.16 Environmental Requirements. (a) Definitions. For purposes of this
Agreement, the following definitions apply:

(i) The term "Environmental Claims" means any and all administrative,
regulatory or judicial actions or proceedings relating to the Release (as
defined in (iv) below) or alleged Release into the environment of any
Hazardous Material (as defined in (iii) below) on or at the Cerulean Real
Property ("Claims"), including, without limitation, Claims by any
governmental or regulatory authority or by any third party or other person
for enforcement, mitigation, cleanup, removal, response, remediation or
other actions for damages, fines, penalties, contribution, indemnification,
cost recovery, compensation or injunctive or declaratory relief pursuant to
any Environmental Law (as defined in (ii) below).

(ii) The term "Environmental Laws" means all federal and state laws,
rules and regulations relating to the regulation or protection of human
health, safety, natural resources or the environment and applicable to the
business of Cerulean, including but not limited to the Resource
Conservation and Recovery Act, 42 U.S.C. sec.6901, et seq., as amended; the
Comprehensive Environmental Response, Compensation & Liability Act of 1980,
42 U.S.C. sec.9601, et seq., as amended; the Clean Water Act, 33 U.S.C.
sec.1251, et seq., as amended; the Clean Air Act, 42 U.S.C. sec.7401, et
seq., as amended; the Toxic Substances Control Act, 15 U.S.C. sec.2601, et
seq., as amended; and the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. sec.136, et seq., as amended.

(iii) The term "Hazardous Materials" means any substance or material
that is included within the definition of a "hazardous substance,"
"hazardous waste," "hazardous constituent," "hazardous material,"
"hazardous chemical" or "extremely hazardous substance" contained in the
Environmental Laws.

(iv) The term "Release" means spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including the abandonment or discarding of
barrels, containers, and other closed receptacles containing any Hazardous
Materials).

(b) Cerulean's Premises. Except as disclosed in Schedule 3.16, during
Cerulean's ownership and operation of its business, there have been no Releases
of Hazardous Materials on the Cerulean Real Property that would have a Cerulean
Material Adverse Effect, nor are there any pending Environmental Claims against
or relating to the business of Cerulean or any Cerulean Subsidiary that would
have a Cerulean Material Adverse Effect.

(c) Permits. Except as disclosed in Schedule 3.16, each of Cerulean and
the Cerulean Subsidiaries has obtained and is in material compliance with all
approvals, certificates, consents, licenses, orders and other similar
authorizations of all governmental authorities that relate to the conduct of
their respective businesses and are required under any Environmental Law.

(d) Compliance. Except as disclosed in Schedule 3.16, to Cerulean's
knowledge, each of Cerulean and any Cerulean Subsidiary is in material
compliance with all other material limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under all
Environmental Laws.

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(e) Known Conditions. Except as set forth on Schedule 3.16, to the
knowledge of Cerulean, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
relating to the Cerulean Real Property or the operations of the business of
Cerulean or any Cerulean Subsidiary that will interfere with or prevent
continued material compliance with any material Environmental Law by Cerulean or
any Cerulean Subsidiary, or that will likely give rise to any Environmental
Claims.

3.17 Required Licenses and Permits. Cerulean and each Cerulean Subsidiary
has all licenses, permits or other authorizations of governmental authorities
necessary for the conduct of its business, including those applicable to health
maintenance organizations, preferred provider organizations or insurance
business, except where the failure to have such would not result in a Cerulean
Material Adverse Effect. A correct and complete list of all such licenses,
permits and other authorizations is set forth on Schedule 3.17. Cerulean has
made available to WPAC true, correct and complete copies of all written licenses
and permits listed on Schedule 3.17.

3.18 Insurance Policies. Except to the extent that there would be no
Cerulean Material Adverse Effect, all of Cerulean's and its Subsidiaries'
insurance, surety bonds and umbrella policies insuring Cerulean and its
subsidiaries and their directors, officers, agents, properties and business, are
valid and in full force and effect and without any premium past due, and there
are no claims, singly or in the aggregate, under such policies which are in
excess of the limitations of coverage set forth in such policies. Except as set
forth on Schedule 3.18 or where any of the following would not have a Cerulean
Material Adverse Effect, neither Cerulean nor any Cerulean Subsidiary has
received notice of default under, or intended cancellation or non-renewal of,
any material policies of insurance which insure the properties, business or
liability of Cerulean or any Cerulean Subsidiary.

3.19 Contracts and Commitments. (a) For the purposes of this Agreement,
the term "Contract" shall mean: (i) any contract or other agreement filed as an
exhibit to any Cerulean SEC filing, (ii) any contract or other agreement listed
on Schedule 3.19(a) hereof, (iii) any contract or other agreement limiting in
any material respect the ability of Cerulean or any Cerulean Subsidiary to sell
any products or services, engage in any line of business or compete with any
person or entity, or (iv) any customer contract that involves annual premiums or
premium equivalents in excess of $10,000,000 and contains a fee, rate or
performance guarantee applicable to any period longer than 12 months. All such
Contracts (other than Contracts within the meaning of (iii) above) are valid and
binding and are in full force and effect and enforceable in accordance with
their respective terms. Except as set forth in Schedule 3.19(a), 3.20 or 3.21,
(x) no approval or consent of, or notice to any person is needed in order to
ensure that such Contracts shall continue in full force and effect in accordance
with their respective terms without penalty, acceleration or rights of early
termination following the consummation of the transactions contemplated by this
Agreement, and (y) neither Cerulean nor any Cerulean Subsidiary is in violation
or breach of or default under any such Contract, nor to Cerulean's knowledge is
any other party to any such Contract in violation or breach or default under any
such Contract, except in the case of clauses (x) and (y) above, where any of the
foregoing would not result in a Cerulean Material Adverse Effect.

(b) Schedule 3.19(b) sets forth a list of all material contracts between
Cerulean and any of the Cerulean Subsidiaries and any of the following: (i) any
officers, directors or employees of Cerulean or any Cerulean Subsidiary, and
(ii) any person or entity which would be considered an "Affiliate" of Cerulean
or any Cerulean Subsidiary. For the purpose of the foregoing sentence,
"Affiliate" shall mean, with respect to such person or entity, a person or
entity that, directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such person or
entity.

3.20 No Conflict. Subject to obtaining the consents and approvals and
making the filings described in Section 3.21 or as otherwise expressly set forth
in this Agreement, the execution and delivery of this Agreement by Cerulean, the
consummation of the transactions contemplated herein by Cerulean, and the
performance of the covenants and agreements of Cerulean will not (i) violate or
conflict with any of the provisions of the Articles of Incorporation or Bylaws
of Cerulean or any Cerulean Subsidiary; (ii) except as set forth on Schedule
3.19(a) or Schedule 3.20 and except as would not have a Cerulean Material
Adverse Effect, violate, conflict with or result in a breach or default under or
cause termination of any term or condition of any

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mortgage, indenture, contract, license, permit, instrument or any Cerulean
Subsidiary, trust document, will, or other agreement, document or instrument to
which Cerulean is a party or by which Cerulean or any Cerulean Subsidiary or any
of its properties may be bound; (iii) violate any provision of law, statute,
rule, regulation, court order, judgment or decree, or ruling of any governmental
authority, to which Cerulean or any Cerulean Subsidiary is a party or by which
it or any of its properties may be bound; or (iv) result in the creation or
imposition of any lien or encumbrance of any kind whatsoever upon any asset of
Cerulean or any of the Cerulean Subsidiaries, other than any such lien or
encumbrance which would not have a Cerulean Material Adverse Effect.

3.21 Required Filings, Consents and Approvals. Except as set forth on
Schedule 3.21, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is required or necessary by virtue of the execution hereof by Cerulean
or the consummation of any of the transactions contemplated herein by Cerulean
to avoid the violation or breach of, or the default under, or the creation of a
lien on assets of Cerulean or a Cerulean Subsidiary pursuant to the terms of,
any law, regulation, order, decree or award of any court or governmental agency
or any lease, agreement, contract, mortgage, note, license, or any other
instrument to which Cerulean or a Cerulean Subsidiary is a party or to which it
or any of its property is subject, except for any such declaration, filing,
registration, notice, authorization, consent or approval, the failure of which
to obtain would not have a Cerulean Material Adverse Effect or could prevent or
materially delay the Merger.

3.22 Absence of Certain Changes and Events. Except as set forth on
Schedule 3.22, since March 31, 1998 through the date hereof, Cerulean and each
Cerulean Subsidiary has conducted its businesses only in the ordinary course in
all material respects, and specifically has not:

(a) experienced any event or occurrence which would result in a Cerulean
Material Adverse Effect or suffered any damage or destruction which would have a
Cerulean Material Adverse Effect;

(b) made any declaration, setting aside or payment of any dividend or other
distribution of assets (whether in cash, stock or property) with respect to the
capital stock of Cerulean, or any direct or indirect redemption, purchase or
other acquisition of such stock;

(c) incurred, assumed or guaranteed any material liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary course
of business consistent with past practice;

(d) permitted any of its assets to be subjected to any mortgage, lien,
security interest, restriction, charge or other encumbrance of any kind except
for Cerulean Permitted Liens;

(e) waived any claims or rights except any waiver which did not have a
Cerulean Material Adverse Effect;

(f) sold, transferred or otherwise disposed of any of its material assets,
except in the ordinary course of business consistent with past practice;

(g) made any material change in any method, practice or principle of
financial or tax accounting, except such changes required by changes in GAAP or
statutory accounting principles;

(h) made or suffered to exist any material changes in the customary methods
of underwriting, investment or actuarial practices and policies;

(i) suffered any material adverse development in the claims or other loss
experience of Cerulean or any Cerulean Subsidiaries;

(j) granted or announced any increase in the wages, salaries,
compensations, bonuses, incentives, pension or other benefits payable by
Cerulean or any Cerulean Subsidiary to any of their respective employees,
including without limitation, any increase or change pursuant to any Cerulean
Employee Benefit Plan, except for regular salary or bonus or benefit increases
in the ordinary course of business consistent with past practices, or
established or increased or promised to increase any benefits under, any
Cerulean Employee Benefit Plan;

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(k) made any material change in the methodology used in the determination
of the liability for reserves of Cerulean or any Cerulean Subsidiary;

(l) made any material changes in the investment policies of Cerulean or any
Cerulean Subsidiary except as required by law; or

(m) agreed in writing, or otherwise, to take any action described in this
Section.

3.23 Tax Matters. (a) Definitions. For purposes of this Agreement, the
following definitions shall apply:

(i) The term "Taxes" shall mean all (A) taxes, fees, assessments or
charges, however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or profits
taxes (including federal income taxes and state income taxes), payroll and
employee withholding taxes, unemployment insurance, social security taxes,
sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, business license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which are required to be paid, withheld or
collected by the relevant party or (B) any liability for payment of amounts
described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined, unitary or other
similar group for any period, or otherwise through operation of law and
(C) any liability for the payment of amounts described in clauses (A) or
(B) as a result of any tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify or pay any
other person or entity; and the term "Tax" means any one of the foregoing
Taxes.

(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating
to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties.

(b) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 3.23(b): (i) all Returns required to be filed by or on behalf of
Cerulean and each Cerulean Subsidiary have been duly filed on a timely basis and
such Returns are true, complete and correct in all material respects; (ii) all
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto have been paid in full on a timely basis, and no other Taxes are
payable by Cerulean or any Cerulean Subsidiary with respect to items or periods
covered by such Returns (whether or not shown on or reportable on such Returns)
or with respect to any period prior to the date of this Agreement; (iii)
Cerulean and each Cerulean Subsidiary has withheld and paid over all Taxes
required to have been withheld and paid over, and complied in all material
respects with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party; (iv) neither Cerulean nor any Cerulean Subsidiary has
incurred any liability for Taxes since the latest date covered by such Returns
other than in the ordinary course of business; (v) neither Cerulean nor any
Cerulean Subsidiary has any liability, contingent or otherwise, for Taxes of any
other person or entity; (vi) no person having responsibility for Taxes of or
with respect to Cerulean or any Cerulean Subsidiary has knowledge of any basis
upon which a Tax authority could impose a material liability for Taxes against
Cerulean or any Cerulean Subsidiary in excess of those shown on the Returns
previously filed and Taxes incurred in the ordinary course of business since the
latest date covered by such Returns; (vii) none of the transactions contemplated
by this Agreement will give rise to any material liability for Taxes or to any
payments within the meaning of Section 280G of the Code; (viii) there are no
deferred intercompany gains, losses or other intercompany items, or excess loss
accounts, within the meaning of the Treasury Regulation Sections 1.1502-13 or
1.1502-19 (or any predecessor regulations or any comparable items for state,
local or foreign Tax purposes) with respect to Cerulean or any Cerulean
Subsidiary, (ix) neither Cerulean, any Cerulean Subsidiary nor any shareholder
of Cerulean or any Cerulean Subsidiary has taken any action that could
reasonably be expected to cause the Merger to fail to qualify as a
reorganization within the meaning of
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Section 368 of the Code; (x) the representations set forth in the Officer's
Certificate Regarding Certain Tax Matters, attached as Exhibit 3.23(b) hereto,
are true, correct and complete; and (xi) there are no liens on any of the assets
of Cerulean or any Cerulean Subsidiary with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that Cerulean or any Cerulean
Subsidiary is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established, which contested Taxes are
disclosed on Schedule 3.23(b).

(c) Tax Deficiencies; Audits; Statutes of Limitations. Except as otherwise
disclosed on Schedule 3.23(c): (i) the Returns of Cerulean and each Cerulean
Subsidiary have never been audited by a government or taxing authority, nor is
any such audit in process, pending or, to Cerulean's knowledge, threatened
(either in writing or verbally, formally or informally); (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of Cerulean or
any Cerulean Subsidiary, and Cerulean or any Cerulean Subsidiary has not
received notice (either in writing or verbally, formally or informally) or
expects to receive notice that it has not filed a Return or paid Taxes required
to be filed or paid by it; (iii) neither Cerulean nor any Cerulean Subsidiary is
a party to any action or proceeding for assessment or collection of Taxes, nor
has such event been asserted or to Cerulean's knowledge, threatened (either in
writing or verbally, formally or informally) against Cerulean or any Cerulean
Subsidiary or any of their respective assets; (iv) no waiver or extension of any
statute of limitations is in effect with respect to Taxes or Returns of Cerulean
or any Cerulean Subsidiary; and (v) each of Cerulean and each Cerulean
Subsidiary has disclosed on its federal income tax returns all positions taken
therein that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.

(d) Tax Sharing Agreements. Except as otherwise disclosed on Schedule
3.23(d), neither Cerulean nor any Cerulean Subsidiary is (nor has it ever been)
a party to any tax sharing agreement. All such agreements disclosed on Schedule
3.23(d) shall be terminated prior to the Merger with no amount due with respect
thereto on or after the date hereof.

(e) No Transfer Tax. There shall not be any Georgia sales or transfer
taxes, including stock transfer taxes, arising out of the consummation of
Merger.

3.24 Brokerage. Except as disclosed on Schedule 3.24, neither Cerulean nor
any of its officers or directors has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated under this Agreement.

3.25 Year 2000 Compliance. To the knowledge of Cerulean, the ongoing
management information system upgrading program undertaken by Cerulean and the
Cerulean Subsidiaries will result in each system comprised of software,
hardware, databases or embedded control systems that constitutes any material
part of, or is used in connection with the use, operation or enjoyment of any
material tangible or intangible asset or real property of Cerulean or any
Cerulean Subsidiary (each, a "System"), except any System or Systems as to which
Cerulean does not intend to continue usage and the absence of which would not
constitute a Cerulean Material Adverse Effect, not being materially adversely
affected by the transition from the twentieth century through the year 2000 and
into the twenty-first century and, except as set forth in Schedule 3.25 hereto,
neither Cerulean nor any Cerulean Subsidiary will incur any material expense
arising from or relating to the failure of any of its Systems as a result of the
transition from the twentieth century through the year 2000 and into the
twenty-first century. To the knowledge of Cerulean, year 2000 issues affecting
Cerulean's or any Cerulean Subsidiary's suppliers, customers, contracting
providers and others with which it conducts business will not have a Cerulean
Material Adverse Effect.

3.26 Reserves. The reserves established by Cerulean and its subsidiaries
in the Cerulean SEC Filings or in any financial statement or balance sheet
contained in any document filed with the SEC after the date hereof, for
statutorily required reserves and for incurred but not yet paid claims for, or
relating to health care, life insurance or other claims (i) have been computed
in accordance with presently accepted actuarial standards consistently applied
and are fairly stated in all material respects in accordance with sound
actuarial principles, (ii) meet the requirements of any law, rule or regulation
applicable to such reserves, (iii) have been computed on the basis of
methodologies consistent with those used in computing the corresponding reserves
in
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the prior fiscal year, and (iv) include provisions for all actuarial reserves
and related items which ought to be established in accordance with applicable
laws and regulations and prudent insurance practices. Cerulean is not aware of
any facts or circumstances which would necessitate, in the good faith
application of prudent reserving practices and policies, any material adverse
change in the statutorily required reserves or reserves for such incurred but
not yet paid claims above those reflected in the most recent balance sheet
included in the Cerulean SEC Filings (other than increases consistent with past
experience resulting from increases in enrollment with respect to services
provided by Cerulean or any Cerulean Subsidiary).

3.27 Statutory Financial Statements. Except as otherwise set forth
therein, the annual statements and the quarterly statements filed by any
Cerulean Subsidiary with the Georgia Department of Insurance for the years ended
December 31, 1996 and 1997 and for the quarterly period ended March 31, 1998
(the "DOI Filings") and the statutory balance sheets and income statements
included in such DOI Filings fairly present the statutory financial condition
and results of operations of such Cerulean Subsidiary as of the dates and for
the periods indicated therein and have been prepared in accordance with
applicable statutory accounting principles consistently applied throughout the
periods indicated.

3.28 Disclosure. No representations, warranties, assurances or statements
by Cerulean in this Agreement and no statement contained in any certificates or
other writings to be delivered by Cerulean (or caused to be delivered by
Cerulean) to WPAC or any of their respective representatives pursuant to the
provisions hereof contains or will contain any untrue statement of material
fact, or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was made, to make the statements herein or
therein not misleading.

ARTICLE IV.

Representations and Warranties of Wellpoint & WPAC

WellPoint and WPAC hereby jointly and severally represent and warrant as of
the date hereof to Cerulean as follows:

4.01 Organization and Authorization. (a) WellPoint and each of the
WellPoint Subsidiaries (as hereinafter defined) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, and has all requisite power and authority,
corporate or otherwise, to carry on and conduct its business as it is now being
conducted and to own or lease its properties and assets. WellPoint and each
WellPoint Subsidiary is duly qualified and in good standing in every state of
the United States in which the conduct of its business or the ownership of its
properties and assets requires it to be so qualified, except where the failure
to be so qualified and in good standing would not have a "WellPoint Material
Adverse Effect," as defined below. As used in this Agreement, "WellPoint
Material Adverse Effect" shall mean a material adverse effect on the business,
assets, or financial condition of WellPoint and the WellPoint Subsidiaries,
taken as a whole. WellPoint has heretofore delivered or made available to
Cerulean accurate and complete copies of the Certificate of Incorporation and
Bylaws, or equivalent governing instruments, as currently in effect, of
WellPoint and each of the WellPoint Subsidiaries as of the date hereof.

(b) The term "WellPoint Subsidiary" shall mean every entity in which
WellPoint owns 50% or more of the outstanding equity, directly and indirectly,
and which is material to the operations or financial condition of WellPoint.
Schedule 4.01(b) sets forth every entity as of the date hereof which is a
WellPoint Subsidiary, and the equity interest in such entities that is owned by
WellPoint. WellPoint owns all of the issued and outstanding shares of WPAC. For
the purpose of all the representations and warranties made in this Article IV,
WPAC shall be considered a "WellPoint Subsidiary." Except as noted on Schedule
4.01(b), WellPoint's ownership interest in the WellPoint Subsidiaries (the
"WellPoint Subsidiary Shares") are owned by WellPoint, directly or indirectly,
free and clear of all liens, restrictions, claims, equities, charges, options,
rights of first refusal, encumbrances or other restrictions of any kind, with no
defects of title whatsoever. WellPoint has full power, right and authority to
vote all of the WellPoint Subsidiary Shares. WellPoint is not a party to or
bound by any agreement affecting or relating to its right to transfer or vote
the WellPoint Subsidiary Shares.

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(c) WellPoint and WPAC, respectively, have the corporate right, power and
capacity to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by WellPoint's and WPAC's respective
Boards of Directors. This Agreement has been duly and validly executed and
delivered by WellPoint and WPAC, and constitutes WellPoint's and WPAC's legal,
valid and binding obligation, enforceable in accordance with its terms except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting or relating to the
enforcement of creditors' rights generally and (ii) general equitable
principles.

4.02 Capitalization. (a) The authorized capital stock of WellPoint
consists of 300,000,000 shares of Common Stock and 50,000,000 shares of
Preferred Stock. As of March 31, 1998, 70,041,458 shares of Common Stock and no
shares of Preferred Stock were issued and outstanding. All of such issued and
outstanding shares of capital stock of WellPoint are validly issued, fully paid
and nonassessable. As of March 31, 1998, there were 5,927 shares of capital
stock held in the treasury of WellPoint. As of the date hereof, there are no
shares of Preferred Stock outstanding.

(b) The authorized capital stock of WPAC consists of 1,000 shares of $.01
par value common stock. One thousand shares of $.01 par value common stock are
issued and outstanding, and all of such shares are owned by WellPoint. All of
such issued and outstanding shares of capital stock of WPAC are validly issued,
fully paid and nonassessable. All issuances, transfers or purchases of the
capital stock of WPAC have been in compliance with all applicable agreements and
all applicable laws, including federal and state securities laws, and all taxes
thereon have been paid. There are no shares of capital stock held in the
treasury of WPAC.

4.03 Absence of Other Claims. Except as set forth on Schedule 4.03, there
is not outstanding nor is WellPoint or WPAC bound by, any subscriptions,
options, preemptive rights, warrants, calls, commitments or agreements or rights
of any character requiring WellPoint or WPAC to issue or entitling any person or
entity to acquire any additional shares of capital stock or any other equity
security of WellPoint or WPAC, including any right of conversion or exchange
under any outstanding security or other instrument, and neither WellPoint nor
WPAC is obligated to issue or transfer any shares of its capital stock for any
purpose. There are no outstanding obligations of WellPoint or WPAC to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
of WellPoint or WPAC.

4.04 Financial Statements. The consolidated balance sheets of WellPoint as
of December 31, 1997, 1996, and 1995 and the related consolidated statements of
income, retained earnings and cash flows for the years then ended, including the
footnotes thereto, certified by Coopers & Lybrand, LLC, WellPoint's independent
certified public accountants, as set forth in WellPoint's Annual Reports on Form
10-K, as amended, for the years ended December 31, 1997, 1996 and 1995, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved and present fairly the financial position in all material
respects of WellPoint and its consolidated subsidiaries as of the dates thereof
and the results of their operations for the periods then ended.

4.05 No Undisclosed Liabilities. Except (i) as set forth in the WellPoint
SEC Filings (as hereinafter defined) or (ii) as shown on Schedule 4.05, as of
March 31, 1998, WellPoint had no liability or obligation whatsoever, whether
accrued, absolute, contingent or otherwise, except for any such liabilities or
obligation that would not have a WellPoint Material Adverse Effect. Since March
31, 1998, WellPoint has not incurred any liability or obligation, except for
liabilities and obligations (x) incurred by WellPoint in the ordinary course of
its business consistent with past practice or as reflected on Schedule 4.05 or
(y) that, individually or in the aggregate, would not have a WellPoint Material
Adverse Effect.

4.06 Proxy Statement; Form S-4. None of the information relating to
WellPoint and the WellPoint Subsidiaries furnished by WellPoint in writing for
inclusion in the Proxy Statement or included in the Form S-4 contains or will
contain (in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
shareholders of Cerulean to be held in connection with the transactions
contemplated by this Agreement or, in the case of the Form S-4, as amended or
supplemented, at the time it becomes effective) any untrue statement of material
fact or omits or will omit to state any material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except for information supplied or to be supplied by Cerulean in
writing for inclusion therein, as to which no representation is made, the Form
S-4, and any supplements or amendments thereto, will comply in all material
respects with the Securities Act and the rules and regulations thereunder.

4.07 SEC Filings. WellPoint has made available to Cerulean true and
complete copies of (i) its Annual Reports on Form 10-K, as amended, for the
years ended December 31, 1997, 1996, as filed with the SEC, (ii) its proxy
statements relating to all of WellPoint's meetings of shareholders (whether
annual or special) since January 1, 1997, as filed with the SEC, and (iii) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
WellPoint with the SEC since January 1, 1997 (the reports and statements set
forth in clauses (i), (ii) and (iii) are referred to collectively as the
"WellPoint SEC Filings"). As of their filing date, none of the WellPoint SEC
Filings contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The WellPoint SEC Filings at the time of filing complied in all
material respects with the Exchange Act or the Securities Act, as the case may
be, and the rules and regulations thereunder.

4.08 No Conflict. Subject to obtaining the consents and approvals and
making the filings described in Section 4.09 or as otherwise expressly set forth
in this Agreement, the execution and delivery of this Agreement by WellPoint and
WPAC, the consummation of the transactions contemplated herein by WellPoint and
WPAC, and the performance of the covenants and agreements of WellPoint and WPAC
will not (i) violate or conflict with any of the provisions of the Certificate
of Incorporation or Bylaws of each of WellPoint and WPAC; (ii) except as set
forth on Schedule 4.08 and except for any of the following which does not and
will not have a WellPoint Material Adverse Effect, violate, conflict
respectively, with or result in a breach or default under or cause termination
of any term or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, will, or other agreement, document or instrument to
which WellPoint or WPAC is a party or by which WellPoint or WPAC or any of its
properties may be bound; (iii) violate any provision of any material law,
statute, rule, regulation, court order, judgment or decree, or ruling of any
governmental authority, to which WellPoint or WPAC is a party or by which it or
any of its properties may be bound; or (iv) result in the creation or imposition
of any lien, claim, charge, restriction, security interest or encumbrance of any
kind whatsoever upon any asset of WellPoint or WPAC or any of the WellPoint
Subsidiaries other than any such lien or encumbrance which would not have a
WellPoint Material Adverse Effect.

4.09 Required Filings, Consents and Approvals. Except as set forth on
Schedule 4.09, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is required or necessary by virtue of the execution hereof by
WellPoint and WPAC or the consummation of any of the transactions contemplated
herein by WellPoint or WPAC to avoid the violation or breach of, or the default
under, or the creation of a lien on assets of WellPoint or a WellPoint
Subsidiary pursuant to the terms of, any law, regulation, order, decree or award
of any court or governmental agency or any lease, agreement, contract, mortgage,
note, license, or any other instrument to which WellPoint or a WellPoint
Subsidiary is a party or to which it or any of its property is subject, except
for any such declaration, filing, registration, notice, authorization, consent
or approval, the failure of which to obtain would not have a WellPoint Material
Adverse Effect.

4.10 Absence of Certain Changes and Events. Except as set forth on
Schedule 4.10, from March 31, 1998 through the date hereof , neither WellPoint
nor any WellPoint Subsidiary has experienced any event or occurrence or suffered
any damage or destruction which, individually or in the aggregate, would have a
WellPoint Material Adverse Effect.

4.11 Disclosure. No representations, warranties, assurances or statements
by WellPoint or WPAC in this Agreement and no statement contained in any
certificates or other writings to be delivered by WellPoint or WPAC (or caused
to be delivered by WellPoint or WPAC) to Cerulean or any of its representatives
pursuant to the provisions hereof contains or will contain any untrue statement
of material fact, or omits or will

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omit to state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.

ARTICLE V.

Covenants of The Parties

The parties covenant as provided in this Article V and as expressly set
forth in the Schedules and ancillary documents delivered in connection herewith
(with the term "WellPoint" being deemed to include "WPAC" for the purposes of
this Article V):

5.01 Pre-Closing Operations. (a) Cerulean. Cerulean hereby covenants and
agrees that, except as consented to in writing by WellPoint, pending the
Closing, Cerulean will operate and conduct its business, and that of the
Cerulean Subsidiaries, only in the ordinary course in accordance with prior
practices. Pursuant to this section and not in limitation of the foregoing (for
purposes of the following, "Cerulean" shall be deemed to include the Cerulean
Subsidiaries):

(i) Cerulean shall maintain its assets in their present state of repair
(ordinary wear and tear excepted), shall use its reasonable best efforts to keep
available the services of its employees, and preserve the good will of its
business and relationships with the customers, licensors, suppliers,
distributors and brokers with whom it has business relations.

(ii) Cerulean shall not:

(a) sell, transfer or otherwise dispose of any assets other than in
the ordinary course of business consistent with past practice, except for
sales, transfers or disposals which would not have a Cerulean Material
Adverse Effect;

(b) enter into any new material contract or commitment relating to its
business, with "material contract or commitment" being defined for the
purpose of this subsection as a contract or commitment which involves
Cerulean incurring a liability in excess of $5 million individually or $10
million in the aggregate, or which is not terminable by Cerulean without
penalty upon less than 180 days notice;

(c) mortgage, pledge or subject to liens or other encumbrances or
charges any material assets, except by incurring Cerulean Permitted Liens;

(d) purchase or commit to purchase any capital asset outside of the
relevant Cerulean business plan for a price exceeding $2 million
individually, or $10 million in the aggregate;

(e) amend or terminate in any material respect any material agreement,
including any Cerulean employee benefit plan (except for certain programs
intended to retain members of information systems and financial management
on terms conforming to standard industry practices and as to which
Cerulean's Chief Executive Officer has consulted with WellPoint's Chief
Executive Officer), or any insurance policy, in force on the date hereof,
without the approval of the Transition Team (as defined in Section
5.02(b));

(f) amend its charter or bylaws in any manner which would adversely
affect the ability of Cerulean to consummate the transactions contemplated
by this Agreement (provided, however, the foregoing will in no way limit
the actions which may be taken by Cerulean pursuant to Section 5.18);

(g) acquire (whether by merger, consolidation, share exchange,
acquisition of stock, or acquisition of assets) any corporation,
partnership, joint venture, or other business (or any part thereof), except
where the consideration paid by Cerulean in connection with such
acquisition (including any debt assumed as a result thereof) is less than
$5 million individually, or $10 million in the aggregate;

(h) take, refrain from taking, agree to take or refrain from taking,
or enter into any formal or informal arrangement or understanding to take
or refrain from taking any action that could have the effect of causing the
Merger to fail to qualify as a reorganization within the meaning of Section
368 of the Code;

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(i) split, combine or reclassify its outstanding capital stock or,
except for dividends regularly due and payable upon shares of Cerulean
Class B Stock, declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, except for the payments or
distributions by a wholly owned subsidiary of Cerulean; provided, however,
that with respect to certain dividends from Cerulean Subsidiaries currently
under consideration, WellPoint upon being duly informed of the terms and
rationale therefor, will not unreasonably withhold its consent to the
payment of such dividends;

(j) except for the issuance of the Settlement Consideration (as
defined in Section 5.18), issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of or otherwise cause to become outstanding
any additional shares of or any options, warrants or rights of any kind to
acquire any shares of its capital stock of any class or any debt or equity
securities convertible into or exchangeable for such capital stock;

(k) (A) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (1) borrowings in the ordinary
course of business or (2) commercially reasonable borrowings to refinance
existing indebtedness or (B) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible into
or exchangeable for its capital stock (provided, however, that Cerulean may
enter into guaranty, with appropriate security, on commercially reasonable
terms with respect to a physician office building which has been identified
to WellPoint by Cerulean);

(l) adopt, enter into or materially amend any employment, severance,
special pay arrangement, bonus plan or other benefit plan or arrangement
for the benefit or welfare of any employee or retiree, including those
relating to the termination of employment or other similar arrangements or
agreements with any directors, officers or key employees, except (i) in
accordance with standard industry practice and following consultation with
the Transition Team described in Section 5.02(b) or (ii) to enter into
retention agreements with Cerulean personnel, which arrangements may only
be entered into with persons and on terms approved by the Transition Team
described in Section 5.02(b); or

(m) modify or change its current written investment policies except to
accommodate changes in applicable law.

Notwithstanding any provision above to the contrary, no action which is (x)
reasonably taken by Cerulean in furtherance of obtaining the private letter
ruling referenced in Section 5.20 and (y) does not result in Cerulean or any
Cerulean Subsidiary incurring any additional liabilities other than out of
pocket expenses in connection therewith, shall be deemed to violate any of the
foregoing provisions of Section 5.01.

(b) WellPoint. WellPoint hereby covenants and agrees that, except as
consented to in writing by Cerulean, pending the Closing, WellPoint will (for
purposes of the following, "WellPoint" shall be deemed to include the WellPoint
Subsidiaries):

(i) maintain its assets in their present state of repair (ordinary
wear and tear excepted), shall use its reasonable best efforts to keep
available the services of its employees, and preserve the good will of its
business and relationships with the customers, licensors, suppliers,
distributors and brokers with whom it has business relations; or

(ii) not amend its charter or bylaws in any manner which would
adversely affect the ability of WellPoint to consummate the transactions
contemplated by this Agreement.

5.02 Access; New Information. (a) Each of Cerulean and WellPoint shall be
obligated to promptly disclose in writing to the other any new information which
would result in a breach of their respective representations and warranties in
Articles III and IV of this Agreement if such representation or warranty were
made at the time of the discovery of the new information.

(b) Promptly following execution of this Agreement, the parties shall
establish a transition planning team (the "Transition Team") comprised of an
equal number of representatives of Cerulean and WellPoint. The Transition Team
shall be responsible for facilitating a transition and integration planning
process to ensure the successful combination of the operations of Cerulean with
those of WellPoint. The Transition Team shall be responsible for developing, and
monitoring the development of, and deliverables due under, an
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action plan for the combination of the businesses which, among other things,
shall include an information systems action plan intended to facilitate the most
effective combination of the information systems resources of Cerulean and
WellPoint. The Transition Team, or designated representatives thereof, shall
meet monthly to review the financial performance of Cerulean and its affiliates
and at such meetings Cerulean shall advise the Transition Team of the status of
achieving Cerulean's then current Operating Plan (as has been presented to
WellPoint), including all of the material components thereof, such as sales,
enrollment, revenues, investment income, quarterly claim trends, medical loss
ratio, administrative expenses, net income, reserves and statutory capital (as
indicated on the quarterly balance sheet). The Transition Team shall be informed
at each quarterly meeting of the applicable trends and retention experience
arising from Cerulean's business planning and underwriting process.

(c) From and after the date hereof and subject to the terms of that certain
Confidentiality Agreement by and between the parties hereto, dated November 14,
1997, and to facilitate the activities of the Transition Team, WellPoint,
through its General Counsel, Chief Financial Officer or Alice Rosenblatt, or
duly authorized designees identified by such persons, shall have access during
regular business hours to Cerulean's and any Cerulean Subsidiary's books,
records, offices, personnel, counsel, accountants and actuaries as WellPoint or
its designees may from time to time reasonably request; provided, however, that
(i) no on-site investigation by WellPoint shall be made unless WellPoint shall
have provided at least two business days prior notice to Cerulean, (ii) no
investigation made pursuant to this section shall unreasonably interfere with
the operation or conduct of the business of Cerulean or any Cerulean Subsidiary,
(iii) any requests by WellPoint for investigation or access pursuant to this
Section shall be made to Cerulean's Executive Vice President, Finance and
Strategic Planning, General Counsel or any designee of such persons, and (iv)
Cerulean shall not be compelled to provide any customer-specific information
pursuant to this Section.

5.03 Transfer Taxes. All sales or transfer taxes, including stock transfer
taxes, document recording fees, real property transfer taxes, and excise taxes,
arising out of or in connection with the consummation of the transactions
contemplated hereby shall be paid by WellPoint.

5.04 Preparation of Supporting Documents. In addition to such actions as
the parties may otherwise be required to take under this Agreement or applicable
law in order to consummate this Agreement and the transactions contemplated
hereby, the parties shall take such action, shall furnish such information, and
shall prepare, or cooperate in preparing, and execute and deliver such
certificates, agreements and other instruments as the other party may reasonably
request from time to time, before, at or after the Closing, with respect to
compliance with the obligations of Cerulean, WPAC, or WellPoint in connection
with the Merger. Any information so furnished by the parties shall be true,
correct and complete in all material respects and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.

5.05 Shareholders Meeting. As soon as practicable, Cerulean will take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders (including filing with the SEC and mailing to its shareholders the
Proxy Statement) for the purpose of adopting and approving this Agreement and
the Merger and for such other purposes as may be necessary or desirable in
connection with effectuating the transactions contemplated hereby and thereby.
Subject to applicable law, the fiduciary duties of the directors (including the
duties of loyalty and care), and compliance by WellPoint and WPAC with the
material terms and conditions of this Agreement, the Board of Directors of
Cerulean shall recommend that its shareholders vote in favor of the Merger, the
adoption of this Agreement, and the approval of the transactions contemplated
hereby, and shall use its best efforts to obtain any necessary approval by the
shareholders of Cerulean of the foregoing.

5.06 Dissenting Shareholders. Cerulean shall give WellPoint prompt notice
of any demands received by Cerulean for appraisal of shares pursuant to Article
13 of the GBCC, and WellPoint shall have the right to direct all negotiations
and proceedings with respect to such demands. WellPoint shall not make any
payment with respect to, or settle or offer to settle, any such demands, without
the written consent of Cerulean, which consent shall not be unreasonably
withheld or delayed.

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5.07 SEC and Shareholder Filings. Each of Cerulean and WellPoint shall
send to the other party copies of all public reports and materials as and when
they send the same to their shareholders or the SEC.

5.08 Labor Matters. Cerulean shall provide any notice to affected
employees before the Effective Time as may be required by the Workers Adjustment
and Retraining Notification Act of 1988, as amended ("WARN Act"). WellPoint
agrees to indemnify Cerulean and its directors, officers, employees, consultants
and agents for, and to hold Cerulean and its directors, officers, employees,
consultants and agents harmless from and against, any and all losses arising or
resulting, or alleged to arise or result from the notification or other
requirements of the WARN Act as a result of the Merger, including without
limitation any failure to meet the full notice period required by the WARN Act.
The indemnifications contained in this Section will survive the Closing and
remain effective concurrent with the statute of limitations period applicable to
WARN Act liability.

5.09 Consents, Waivers, Authorizations, etc. Each of Cerulean and
WellPoint will use its best efforts to obtain all consents, waivers,
authorizations, orders and approvals of and make all filings and registrations
with, any governmental commission, board or other regulatory body or any
nongovernmental third party, required for, or in connection with, the
performance by them of this Agreement and the consummation by them of the
transactions contemplated hereby, or as may be required in order not to
accelerate, violate, breach or terminate any agreement to which either party or
any of their respective Subsidiaries may be subject. Each party will cooperate
fully with each other party in assisting it to obtain such consents,
authorizations, orders and approvals. The parties will not take any action which
could reasonably be anticipated to have the effect of delaying, impairing or
impeding the receipt of any required approvals, regulatory or otherwise. Without
limiting the generality of the foregoing, the parties agree that Cerulean shall
on behalf of WellPoint prepare and, with the consent of WellPoint (which consent
shall not be unreasonably withheld), file the "Form A" regulatory filing to be
made pursuant to O.C.G.A. sec.33-13-3 in connection with this Agreement and the
transactions contemplated hereby, and shall coordinate the conduct of the
hearing before the Department of Insurance in connection with such filing.
Cerulean and WellPoint will reasonably cooperate with regard to the content of
such filing. Cerulean shall submit all such filings and hearing testimony,
witness lists and other similar materials relating to the hearing to WellPoint
for its review and approval, which approval shall not be unreasonably withheld.
At the request and direction of Cerulean, WellPoint agrees to appeal any adverse
finding in connection with any order issued as a result of such hearing and to
use its best efforts in pursuing such appeal. Cerulean and WellPoint will
reasonably cooperate with regard to such appeal.

5.10 Indemnification. From and after the Effective Time, the parties shall
not take any action nor permit any action to be taken which would have the
effect of eliminating or impairing the rights prior to the Effective Time of
current or former officers and the directors of Cerulean to be indemnified for
any actions taken by such officers or directors in such capacities so long as
such indemnification would have been available to such parties at such time in
accordance with the respective Bylaws and Articles of Incorporation of Cerulean,
as the case may be, and applicable law.

5.11 Hart-Scott-Rodino Notification. Each of Cerulean and WellPoint shall
promptly prepare and file as soon as practicable after the date hereof a
notification with the United States Justice Department (the "Justice
Department") and the Federal Trade Commission (the "FTC") as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act").
Each party shall cooperate with each other party in connection with the
preparation of such notification, including sharing information concerning sales
and ownership and such other information as may be needed to complete such
notification, and providing a copy of such notification to the other prior to
filing. Each party shall keep all information about the other party obtained in
connection with the preparation of such notification confidential.

5.12 Further Assurances. Subject to the terms and conditions herein
provided, each of Cerulean and WellPoint agrees to use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including (i) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Agreement or the consummation of the
transactions contemplated hereby, (ii) obtaining all governmental consents
required for the consumma-

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tion of the Merger and the transactions contemplated thereby, and (iii) making
and causing their shareholders, as applicable, to timely make all necessary
filings under the HSR Act. Upon the terms and subject to the conditions hereof,
each of the parties agree to use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things reasonably necessary to
satisfy the other conditions of the Closing set forth herein. Each party will
consult with counsel for the other party as to, and will permit such counsel to
participate in, at such other party's expense, any lawsuits or proceedings
referred to in clause (i) above brought against any party. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the officers and directors of WPAC shall
take all such necessary action to the extent not inconsistent with their other
duties and obligations or applicable law.

5.13 Public Announcements. So long as this Agreement is in effect, each of
Cerulean and WellPoint shall not and shall cause their affiliates not to issue
or cause the publication of any press release or any other announcement with
respect to the Merger or the transactions contemplated by this Agreement without
the prior written consent of the other party, except where such release or
announcement is required by applicable law or pursuant to any listing agreement
with, or the rules or regulations of the SEC or the New York Stock Exchange, in
which case each of Cerulean and WellPoint will permit review by the other of any
such press release or announcement prior to its release or filing and shall
deliver simultaneously a final copy of such release or announcement to the other
upon its release or filing.

5.14 Dividend on Cerulean Class B Stock. Immediately prior to the Closing,
Cerulean shall pay the accrued dividend on each share of Cerulean Class B Stock
then owing as provided in Section 4.3 of the Articles of Incorporation of
Cerulean.

5.15 Obligations with Respect to WPAC and Blue Cross Blue Shield of
Georgia, Inc. It is the intent of the parties that WellPoint and WPAC (i)
maintain Blue Cross Blue Shield of Georgia, Inc. ("Insurance Sub") as a Georgia
corporation or other Georgia legal entity separate and apart from WellPoint or
WPAC and (ii) fill a majority of the seats of the Board of Directors of
Insurance Sub with residents of the State of Georgia.

5.16 Appointment of Director of WellPoint. As of the Closing, the
nominating committee of the Board of Directors of WellPoint shall nominate for
election to the Board of Directors of WellPoint a person who is a member of the
Board of Directors of Cerulean on the date hereof.

5.17 Non-Solicitation. So long as this Agreement is in effect, neither
Cerulean nor any Cerulean Subsidiary shall, and each shall use its best efforts
to cause its representatives not to, directly or indirectly, solicit any
proposal from a third party regarding a purchase, affiliation, or lease of all
or a material part of the assets of Cerulean, whether by sale of capital stock,
merger, consolidation, sale or lease of material assets, affiliation, joint
venture, or other material transaction (a "Merger Proposal"). Neither the
foregoing prohibition, nor any other provision of this Agreement shall be
interpreted to prohibit Cerulean from (i) making any disclosure of information
required by law, (ii) communicating any information to the shareholders of
Cerulean to the extent necessary to comply with the fiduciary duties of the
Board of Directors of Cerulean, or (iii) providing non-public information
regarding Cerulean to, or negotiating with, any third party (provided such party
is subject to an executed confidentiality agreement) that makes an unsolicited
Merger Proposal; provided, however, that prior to any such action referred to in
clause (iii), the Board of Directors of Cerulean shall have determined in good
faith after consultation with its outside legal counsel and financial advisors
that such Merger Proposal, if accepted by Cerulean on substantially the terms
presented, is likely to be consummated and would, if consummated, result in a
transaction superior to the one contemplated by this Agreement after taking into
account all relevant factors, including, without limitation, the consideration
to be received pursuant to such Merger Proposal (any such superior Merger
Proposal being referred to herein as a "Superior Proposal").

5.18 Settlement of Lawsuit. WellPoint and Cerulean agree that Cerulean is
authorized to (i) pay the amount of cash, (ii) create and issue the number of
shares of Cerulean Class A Stock and a warrant for shares of Cerulean Series A
Preferred Stock, and (iii) do all other acts and pay all other expenses and fees
that, in the opinion of counsel to Cerulean, are reasonably necessary in order
to effectuate the settlement of the Let's
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Get Together, Inc., et al. v. Insurance Commissioner of the State of Georgia,
Blue Cross and Blue Shield of Georgia, Inc. and Cerulean Companies, Inc.
litigation (the "Settlement"), all in compliance with the terms of the
Stipulation and Agreement of Settlement executed in connection with the
Settlement and attached hereto as Exhibit 5.18 (all of such actions,
collectively, the "Settlement Actions"). Notwithstanding any other provision in
this Agreement to the contrary, the performance of any or all of the Settlement
Actions shall not violate any of the conditions to closing set forth in this
Agreement and shall not be included in any amount used in connection with the
calculation of an amount constituting a Cerulean Material Adverse Effect.

5.19 Agreements of Affiliates. Cerulean shall deliver to WellPoint a
letter identifying all persons who, at the Effective Time, may, in the
reasonable opinion of counsel to Cerulean, be deemed to be "affiliates" of
Cerulean for purposes of Rule 145 under the Securities Act. Cerulean shall use
its best efforts to cause each person who is so identified as an "affiliate" to
deliver to WellPoint on or prior to the Effective Time a customary written
agreement reasonably satisfactory to WellPoint with respect to the shares of
WellPoint Common Stock to be received by such affiliate in connection with the
Merger.

5.20 Adjustments. (a) Prior to the Closing, Cerulean shall be entitled to
request a private letter ruling from the Internal Revenue Service regarding (i)
the application of the provisions contained in Proposed Treasury Regulation
ss.280G-1, Q&A 24(b) or (c) to reduce certain obligations payable in connection
with the Cerulean Companies, Inc. Performance Unit Plan (the "PUP"), (ii) the
inapplicability of Code Section 280G to the funding of a rabbi trust upon a
change of control for amounts accrued under Blue Cross and Blue Shield of
Georgia, Inc.'s Supplemental Executive Retirement Plan, Benefit Restoration Plan
and certain other nonqualified plans (the "Rabbi Trust Plans"), and (iii) the
inapplicability of Code Section 280G to certain bonus payments. Prior to the
submission of such ruling request, Cerulean will consult with WellPoint
regarding the pertinent factual representations to be made in connection with
such ruling request and subsequent supplemental submissions. If Cerulean has
obtained a private letter ruling prior to the Closing providing that any portion
of the payments under the PUP are not subject to excise tax by reason of
Proposed Treasury Regulation sec. 280G-1, Q&A 24(b) or (c), that sec. 280G is
inapplicable to the funding of the rabbi trust upon the change of control for
amounts accrued under any of the Rabbi Trust Plans, or sec. 280G is inapplicable
to the Short-Term Incentive Plan (each, an "Excluded Payment"), the parties
agree that the "Aggregate Merger Price" referenced in Section 2.01(b)(i) shall
be increased by the amount of excise tax and gross-up that would have been
payable absent the treatment of such amounts as Excluded Payments. The parties
agree that the amount of such increase to the Aggregate Merger Price will be no
greater than $10,000,000. If Cerulean and its advisors and WellPoint and its
advisors are unable to agree upon the amount of increase in the "Aggregate
Merger Price" required under this Section 5.20 within 10 days of the receipt of
written notice by WellPoint from Cerulean including Cerulean's computation of
the amount of the increase in the Aggregate Merger Price, either party may refer
the matter to an Independent Arbitrator (as defined in Section 8.16), who may
engage an independent third party actuarial firm, which firm shall be provided
all relevant information and assumptions by the Independent Arbitrator, for a
determination of the amount of savings to be added to the "Aggregate Merger
Price" in Section 2.01(b)(i). The Independent Arbitrator shall hold a hearing
and render his decision, which shall be final and binding upon the parties,
within thirty (30) days following either party's request for arbitration, but in
no event later than the Closing Date. Each party shall be entitled to submit a
written brief to the Independent Arbitrator (with a copy being simultaneously
provided to the other party) prior to the hearing. The costs and expenses of the
Independent Arbitrator shall be borne by WellPoint.

(b) Cerulean agrees that in the event the aggregate costs or liabilities
described in the due diligence memorandum exchanged between the parties
contemporaneous herewith (the "Diligence Memorandum") exceed the aggregate
estimated cost of such obligations as specified in the Diligence Memorandum by
more than $1,000,000, then the Aggregate Merger Price shall be reduced on a
dollar for dollar basis by the amount of such excess and directly related costs.

(c) The Aggregate Merger Price shall be reduced to the extent of amounts
paid by Cerulean to repurchase the stock of Cerulean pursuant to Section 2.2(d)
of the Stipulation and Agreement of Settlement executed in connection with the
Settlement.

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5.21 Benefits. WellPoint and WPAC covenant to provide to the retained
employees of Cerulean and the Cerulean Subsidiaries employee benefits comparable
to the employee benefits offered by WellPoint to its employees and the employees
of its affiliates.

ARTICLE VI.

CONDITIONS

6.01 Conditions to Each Party's Obligations. The respective obligation of
each party to effect the Merger and the other transactions to be effected
contemporaneous with or as a result of the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:

(a) Shareholder Approval; Consummation of Merger. This Agreement and the
Merger shall have been adopted at or prior to the Effective Time by the
requisite vote of the shareholders of Cerulean in accordance with generally
applicable law and the Articles of Incorporation and Bylaws of Cerulean, and the
Merger shall have been consummated concurrently with the Closing.

(b) No Injunction. No order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
or prevents the consummation of the transactions contemplated hereby and which
has not been stayed or vacated by the Effective Time. Each of Cerulean, WPAC,
and WellPoint shall use its best efforts and shall cooperate with each other to
have any such order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction vacated, lifted or stayed.

(c) HSR Act. Any waiting period applicable to the Merger under the HSR Act
shall have expired or earlier termination thereof shall have been granted.

(d) Effective Form S-4. The Form S-4 shall have been declared effective by
the SEC and no stop order suspending the effectiveness of the Form S-4 shall
have been issued and no proceeding for that purpose shall have been initiated or
threatened by the SEC.

(e) NYSE Listing. The WellPoint Common Stock issuable in the Merger shall
have been approved for listing on the New York Stock Exchange upon notice of
issuance.

(f) Consent of Georgia Department of Insurance and Other State
Regulators. The consent of the Georgia Department of Insurance, together with
any other state regulatory consents, shall have been obtained pursuant to an
order which by its terms does not impose any Materially Burdensome Condition (as
defined below), and be in full force and effect, except for those the failure of
which to obtain or be in full force and effect would not have a WellPoint
Material Adverse Effect. "Materially Burdensome Condition" shall mean a
condition imposed upon WPAC, WellPoint, Cerulean or a Cerulean Subsidiary which
differs materially in character, degree or scope from conditions commonly
imposed by such consents and which would (i) materially limit the ability of
WPAC to operate the businesses of Cerulean and the Cerulean Subsidiaries after
the Merger or (ii) materially change the material terms of the transaction.

(g) Approval of The Blue Cross Blue Shield Association. The approval of
the Blue Cross Blue Shield Association of the consummation of the transactions
contemplated by this Agreement pursuant to that certain license agreement with
Cerulean dated February 22, 1996 shall have been obtained.

(h) Closing Price. The Closing Price (as defined in Section 2.01(c)(i))
shall be greater than or equal to $30 per share of WellPoint Common Stock,
subject to appropriate adjustment in the event of a stock split, stock dividend,
recapitalization or other similar event applicable to shares of WellPoint Common
Stock after the date of this Agreement.

(i) Superior Proposal. In the event that Cerulean has provided WellPoint
with written notice pursuant to Section 7.01(f)(ii), the expiration of the seven
(7) day period referenced in subsection (iii) of 7.02(f) shall have expired.

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6.02 Conditions to Obligations of Cerulean. The obligation of Cerulean to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waived in writing by Cerulean:

(a) Obligations Performed. WellPoint and WPAC shall have performed and
complied with in all material respects its obligations, agreements and covenants
under this Agreement which are required to be performed or complied with by it
at or prior to the Effective Time.

(b) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties contained in Article IV shall
be true and correct in all material respects as if made on and as of the Closing
Date (except in each case for (i) such changes that are caused by WellPoint's
compliance with the terms of this Agreement, and (ii) representations and
warranties that address matters only as of a date or with respect to the period
of time specified therein and not as of the Closing Date or for any period
through the Closing Date); provided, however, that with respect to the
representations and warranties other than those already qualified by WellPoint
Material Adverse Effect, such representations and warranties shall be deemed
true and correct in all material respects unless the failure of such
representations and warranties to be true and correct, whether individually or
in the aggregate, would result in a WellPoint Material Adverse Effect.

(c) Certificate Delivered. WellPoint and WPAC shall have delivered to
Cerulean a certificate executed on their behalf by their respective Presidents
or another authorized executive officer in its corporate capacity to the effect
that the conditions set forth in subsections 6.02(a) and 6.02(b) have been
satisfied.

(d) Opinion of Counsel to Cerulean. Cerulean shall have received from
counsel to Cerulean an opinion, dated the Closing Date, that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code.

(e) Fairness Opinion. The opinion of Morgan Stanley, dated as of the date
of the Proxy Statement, that the value of the consideration to be paid to the
shareholders of Cerulean in the Merger is fair from a financial point of view to
the shareholders of Cerulean, shall not have been withdrawn or amended or
modified in any material respect.

(f) Certificate of Merger. WPAC shall have executed and delivered the
Certificate of Merger in accordance with Section 1.02 hereof.

(g) Appointment of Cerulean Director. WellPoint shall have taken all
action necessary to appoint to the Board of Directors of WellPoint the person
nominated pursuant to Section 5.16.

(h) Rule 145 Shares. WellPoint shall have entered into a Registration
Rights Agreement in the form set forth in Exhibit 6.02(h) with each person or
entity which is a shareholder of Cerulean as of the date of this Agreement that
will be subject to the resale limitations of Sections (c) and (d) of Rule 145
promulgated under the Securities Act.

(i) Required Consents. Any required material consents or approvals to be
obtained by WellPoint and WPAC, as contemplated hereby, shall have been obtained
and be in full force and effect.

(j) No Material Adverse Change. There shall have not occurred any
WellPoint Material Adverse Effect which has as its proximate cause an action or
inaction by WellPoint since the date of this Agreement.

(k) Private Letter Ruling. In the event that a letter ruling from the
Internal Revenue Service has been obtained pursuant to Section 5.20, Cerulean
and WellPoint shall have agreed upon an amount of savings resulting from such
ruling or, in the event an arbitration has been instituted by either party
pursuant to Section 5.20, the Independent Arbitrator shall have rendered a final
and binding decision regarding the amount of savings. Notwithstanding the
foregoing, obtaining a ruling pursuant to Section 5.20 shall not be a condition
to Closing.

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6.03 Conditions to Obligations of WellPoint and WPAC. The obligation of
WellPoint and WPAC to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the following additional conditions, any one
or more of which may be waived in writing by WellPoint:

(a) Obligations Performed. Cerulean shall have performed and complied with
in all material respects its obligations, agreements and covenants under this
Agreement which are required to be performed or complied with by it at or prior
to the Effective Time.

(b) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties contained in Article III
shall be true and correct in all material respects as if made on and as of the
Closing Date (except in each case for (i) such changes that are caused by
Cerulean's compliance with the terms of this Agreement, and (ii) representations
and warranties that address matters only as of a date or with respect to the
period of time specified therein, and not as of the Closing Date or for any
period through the Closing Date); provided, however, that with respect to the
representations and warranties other than those already qualified by Cerulean
Material Adverse Effect, such representations and warranties shall be deemed
true and correct in all material respects unless the failure of such
representations and warranties to be true and correct, whether individually or
in the aggregate, would result in a Cerulean Material Adverse Effect; and
provided further, that no representation or warranty contained in Section 3.19
shall be violated by reason of the expiration of any Contract in accordance with
its terms.

(c) Certificate Delivered. Cerulean shall have delivered to WellPoint a
certificate executed on its behalf by its President or another authorized
executive officer in its corporate capacity to the effect that the conditions
set forth in subsections 6.03(a) and 6.03(b) have been satisfied.

(d) Opinion of Counsel to WellPoint. WellPoint shall have received from
counsel to WellPoint an opinion, dated the Closing Date, which shall include an
opinion to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.

(e) Certificate of Merger. Cerulean shall have executed and delivered the
Certificate of Merger in accordance with Section 1.02 hereof.

(f) Required Consents. Any required material consents or approvals to be
obtained by Cerulean as contemplated hereby, shall have been obtained and be in
full force and effect.

(g) Settlement of Certain Litigation. Cerulean shall have effected the
Settlement of Let's Get Together, Inc., et al. v. Insurance Commissioner of the
State of Georgia, Blue Cross and Blue Shield of Georgia, Inc. and Cerulean which
settlement shall have been approved by the Superior Court of Fulton County in a
Final Order (as defined in Section 1.5 of the Stipulation and Agreement of
Settlement executed in connection with the Settlement) that effectuates a
settlement of such litigation and a dismissal of all claims brought by the
plaintiffs thereto, with prejudice against the plaintiffs and the class
represented thereby.

(h) No Other Litigation. There shall not be pending any suit, litigation
or other similar proceeding relating to the conversion of Cerulean's affiliate
Blue Cross and Blue Shield of Georgia, Inc. or to the distribution of
consideration contemplated by this Agreement and as to which there is a
significant likelihood of material liability to either WellPoint, Cerulean or
any of their affiliates (a "Material Case"); provided, however, that in the
event WellPoint notifies Cerulean that it considers a matter to be a Material
Case, Cerulean and WellPoint agree that Cerulean may refer the matter to an
Independent Arbitrator (as defined in Section 8.16) for a determination of
whether the matter is a Material Case within the meaning of this Section
6.03(h). The Independent Arbitrator shall hold a hearing and render his
decision, which shall be final and binding upon the parties, within ten (10)
days following Cerulean's request. Each party shall be entitled to submit a
written brief to the Independent Arbitrator (with a copy being simultaneously
provided to the other party) prior to the hearing. The costs and expenses of the
arbitrator shall be borne by WellPoint.

(i) No Material Adverse Change. There shall have not occurred any Cerulean
Material Adverse Effect which has as its proximate cause an action or inaction
by Cerulean since the date of this Agreement.

(j) Receipt of Agreements of Affiliates. WellPoint shall have received
from each person who is identified as an "affiliate" of Cerulean for purposes of
Rule 145 under the Securities Act a written agreement
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substantially in the form of Exhibit 5.19 hereto with respect to the shares of
WellPoint Common Stock to be received by such affiliate in the Merger.

(k) Conversion of Warrants. Prior to the Effective Time, all outstanding
warrants to purchase Cerulean Series A Stock shall have been exercised in the
manner specified in the warrant agreement without payment of cash.

(l) Termination of Shareholders' Agreement. At least 10 days prior to the
Effective Time, that certain Shareholders' Agreement between Cerulean, Blue
Cross and Blue Shield of Georgia, Inc., and the holders of Cerulean Class B
Stock dated February 2, 1996 shall have been amended to eliminate from the
definition of "Registrable Stock" any shares of common stock issued in a merger
pursuant to a registration statement on Form S-4.

ARTICLE VII.

TERMINATION PRIOR TO CLOSING

7.01 Termination of Agreement. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after approval by the shareholders of Cerulean:

(a) By the written agreement of Cerulean and WellPoint;

(b) By either of Cerulean or WellPoint if the Merger shall not have been
consummated on or before the one year anniversary of this Agreement (or such
later date as may be agreed to by Cerulean and WellPoint); provided, however,
neither Cerulean nor WellPoint may terminate this Agreement under this Section
if the failure has been caused by such party's material breach or default of its
obligations under this Agreement;

(c) By Cerulean in writing, without liability, if WellPoint or WPAC shall
have (i) materially breached any of their respective covenants contained herein
or (ii) breached any of their respective representations or warranties contained
herein which, individually or in the aggregate, has resulted in a WellPoint
Material Adverse Effect, which breach is not cured within thirty (30) days after
Cerulean has notified WellPoint of its intent to terminate this Agreement
pursuant to this subparagraph (c);

(d) By WellPoint and WPAC in writing, without liability, if Cerulean shall
have (i) materially breached any of its covenants contained herein or (ii)
breached any of its representations or warranties contained herein which,
individually or in the aggregate, has resulted in a Cerulean Material Adverse
Effect, which breach is not cured within thirty (30) days after WellPoint has
notified Cerulean of its intent to terminate this Agreement pursuant to this
subparagraph (d);

(e) By either Cerulean or WellPoint in writing, without liability, if any
order, statute, rule, regulation, executive order, stay, decree, judgment or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits or prevents the consummation of
the transactions contemplated hereby, provided that WellPoint, WPAC and Cerulean
shall have used their respective best efforts to have any such order, statute,
rule, regulation, executive order, stay, decree, judgment or injunction vacated,
lifted or stayed and the same shall not have been vacated, lifted or stayed
within 30 days after entry, by any such court or governmental or regulatory
agency;

(f) by Cerulean in writing, without liability other than as provided in
Section 7.02, if the Board of Directors of Cerulean authorizes Cerulean to
execute a binding written agreement with respect to a transaction that
constitutes a Superior Proposal; provided, however, that prior to any
termination pursuant to this Section 7.01(f), (i) the Board of Directors of
Cerulean, after consultation with legal counsel, determines in good faith that
contemplation of such Superior Proposal and terminating this Agreement is
necessary for such Board of Directors to comply with its fiduciary duties under
applicable law; (ii) Cerulean must notify WellPoint in writing that it intends
to enter into such an agreement and provide WellPoint with the then-current
version of the proposed definitive documentation for such transaction and, (iii)
WellPoint does not, within seven (7) days after the receipt of such written
notice, provide a written offer that the Board of
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Directors of Cerulean determines in good faith, after application of the
analysis set forth in Section 5.17, to be at least as favorable as the Superior
Proposal; or

(g) by either of Cerulean or WellPoint in writing, without liability other
than as provided in Section 7.02, if (i) Cerulean's shareholders decline to
approve the Merger, (ii) the Georgia Department of Insurance declines to approve
the Merger, (iii) the FTC or the Justice Department declines to approve the
Merger under the HSR Act; or (iv) the Blue Cross Blue Shield Association
declines to approve the Merger.

7.02 Liquidated Damages. In the event of termination pursuant to Section
7.01(f) or Section 7.01(g) (if but only if such termination pursuant to Section
7.01(g) results from the failure of the holders of Cerulean Class B Stock to
approve the Merger), Cerulean shall be obligated to pay to WellPoint within 15
days after such termination a termination fee of $10 million, which the parties
hereto agree shall be the appropriate measure of liquidated damages and shall
represent complete reimbursement of expenses incurred by WellPoint up to the
date of termination, and which amount shall be the total damages and sole remedy
of WellPoint upon the termination of this Agreement pursuant to Section 7.01(f)
or Section 7.01(g).

7.03 Termination of Obligations. Termination of this Agreement pursuant to
this Article VII shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 7.02 (if applicable in connection with
a termination), 7.03 and 8.07 hereof; provided, however, that termination
pursuant to subparagraphs (b), (c) or (d) of Section 7.01 hereof shall not
relieve a defaulting or breaching party from any liability to the other party
hereto.

ARTICLE VIII.

MISCELLANEOUS

8.01 Entire Agreement. This Agreement (including the Schedules and
Exhibits) constitutes the sole understanding of the parties with respect to the
subject matter hereof; provided, however, that this provision is not intended to
abrogate any other written agreement between the parties executed with or after
this Agreement, or abrogate the effect of that certain Confidentiality Agreement
dated November 14, 1997 between Cerulean and WellPoint.

8.02 Amendment. No amendment, modification or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.

8.03 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto prior to the Effective
Time without the prior written consent of the other parties hereto. Except for
the parties hereto and any person or entity covered by an indemnification
provision hereunder, this Agreement is not intended to confer upon any other
person any rights or remedies hereunder.

8.04 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.

8.05 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.

8.06 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to be or shall constitute a waiver of any other provision hereof
(whether or not similar).

8.07 Expenses. Except as otherwise expressly provided herein, if the
Merger is not consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses, subject to the rights of such party
contemplated under Article VII with respect to a willful breach, violation or
default by the other party hereto.
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8.08 Survival of Representations and Warranties. The respective
representations and warranties of Cerulean, WellPoint and WPAC contained herein
or in any certificates or other documents delivered prior to or at the Closing
by such parties pursuant to the terms of this Agreement shall terminate upon the
consummation of the Merger and be of no further force and effect.

8.09 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid, or sent by facsimile with original sent by overnight courier,

if to Cerulean to:
Cerulean Companies, Inc.
3350 Peachtree Road, N.E.
Capital City Plaza Building, 4th Floor
Atlanta, Georgia 30326
Attention: Mr. Hugh J. Stedman
Telecopy No.: (404) 842-8451

with a copy to:
Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: Edgar H. Sims, Jr., Esq.
Johnathan H. Short, Esq.
Telecopy No.: (404) 527-4198

if to WellPoint or WPAC to:
21555 Oxnard Street
Woodland Hills, CA 91367
Attn: General Counsel
Telecopy No.: (818) 703-4406

with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Attn: William L. Hudson, Esq.
Telecopy No.: (415) 986-5309

or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.

8.10 Governing Law. This Agreement is executed by the parties hereto in
and shall be construed in accordance with and governed by the laws of Georgia
without giving effect to the principles of conflicts of law thereof.

8.11 Cerulean's Knowledge. As used herein, the terms "Cerulean's
knowledge" and "to the knowledge of Cerulean" with respect to Cerulean shall
mean the actual knowledge of any officer of Cerulean listed on Schedule 8.11.

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8.12 "Including." Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.

8.13 "Gender and Number." Where the context requires, the use of a pronoun
of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural, and
vice versa.

8.14 References. Whenever reference is made in this Agreement to any
Article, Section, Schedule or Exhibit, such reference shall be deemed to apply
to the specified Article or Section of this Agreement or the specified Schedule
or Exhibit to this Agreement.

8.15 Waiver of Jury Trial. Each party hereto waives its rights to a trial
by jury in connection with any matter related to the Merger or this Agreement.

8.16 Independent Arbitrator. As used herein, the term "Independent
Arbitrator" shall mean an arbitrator which is mutually acceptable to the
parties.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date indicated on the first page
hereof.

CERULEAN COMPANIES, INC.

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

WELLPOINT HEALTH NETWORKS INC.

By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Chairman and Chief Executive Officer

WATER POLO ACQUISITION CORP.

By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
President

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APPENDIX B

OPINION OF MORGAN STANLEY & CO. INCORPORATED

AS TO THE FAIRNESS OF THE MERGER

TO THE CERULEAN SHAREHOLDERS

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MORGAN STANLEY

MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000

July 8, 1998

Board of Directors

Cerulean Companies, Inc.
3350 Peachtree Road, NE
Atlanta, Georgia 30326

Members of the Board of Directors:

We understand that Cerulean Companies, Inc. (the "Company"), WellPoint
Health Networks Inc. (the "Buyer") and WellPoint Acquisition Corp., a wholly
owned subsidiary of the Buyer, ("Acquisition Sub") propose to enter into an
Agreement and Plan of Merger, substantially in the form of the draft dated July
8, 1998 (the "Merger Agreement") which provides, among other things, for the
merger (the "Merger") of the Company with and into Acquisition Sub. Pursuant to
the Merger, each outstanding share of Class A Convertible Common Stock, no par
value, of the Company (the "Class A Common Stock"), and each outstanding share
of Series A Preferred Stock, no par value, of the Company (the "Series A
Preferred Stock"), other than shares held in treasury or held by the Buyer or an
affiliate of the Buyer or as to which dissenters' rights have been perfected,
will be converted into the right to receive, at the election of the holder in
certain circumstances, either (i) a certain number of shares of common stock,
par value $0.01 per share, of the Buyer (the "Buyer Common Stock"), (ii) a
certain amount per share in cash, or (iii) a combination thereof, each
determined pursuant to a certain formula set forth in the Merger Agreement. In
addition, each outstanding share of Class B Convertible Preferred Stock, no par
value, of the Company (the "Class B Preferred Stock"), other than shares held in
treasury or held by the Buyer or any affiliate of the Buyer or as to which
dissenters' rights have been perfected, will be converted into the right to
receive a certain number of shares of the Buyer Common Stock, determined
pursuant to a certain formula set forth in the Merger Agreement. For the
purposes of this opinion, we have assumed that the Series A Preferred Stock and
the Class B Preferred Stock have been converted into Class A Common Stock
immediately prior to the consummation of the Merger. The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.

You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Class A Common Stock, Series A Preferred
Stock and Class B Preferred Stock pursuant to the Merger Agreement is fair from
a financial point of view to such holders.

For purposes of the opinion set forth herein, we have:

(i) reviewed certain publicly available financial statements and other
information of the Company and the Buyer;

(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and the Buyer prepared
by the managements of the Company and the Buyer, respectively;

(iii) analyzed certain financial projections prepared by the
management of the Company;

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(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;

(v) discussed the past and current operations and financial condition
and the prospects of the Buyer with senior executives of the Buyer;

(vi) reviewed the reported prices and trading activity for the Buyer
Common Stock;

(vii) compared the financial performance of the Company and the Buyer
and the trading activity of the Buyer Common Stock with that of certain
comparable publicly-traded companies and their securities;

(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;

(ix) participated in discussions and negotiations among
representatives of the Company and Buyer and their financial and legal
advisors;

(x) reviewed the draft Merger Agreement and certain related documents;
and

(xi) performed such other analyses as we have deemed appropriate.

We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. In addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement, including, among
other things, that the Merger will be treated as a tax-free reorganization
and/or exchange, each pursuant to the Internal Revenue Code of 1986. Morgan
Stanley has assumed that in connection with the receipt of all necessary
regulatory approvals for the proposed Merger, no restrictions will be imposed
that would have a material adverse effect upon the contemplated benefits
expected to be derived from in the proposed Merger. We have not made any
independent valuation or appraisal of the assets or liabilities of the Company,
nor have we been furnished with any such appraisals. We note that the holders of
Class B Preferred Stock will not have an election to receive cash in the Merger
and, in receiving shares of Buyer Common Stock in the transaction, may assume
the market risk of holding such stock. We also note that the capital structure
of the Company is comprised of three classes of stock, the Class A Common Stock,
the Series A Preferred Stock and the Class B Preferred Stock, and we express no
opinion as to the relative fairness of the consideration to be received among
the various classes or series of stock. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us of, the date hereof.

We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services. In the past, Morgan Stanley & Co. Incorporated and its
affiliates have provided financial advisory and financing services for the
Company and the Buyer and their affiliates and have received fees for the
rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the transaction with the
Securities and Exchange Commission. In addition, this opinion does not in any
manner address the prices at which the Buyer's Common Stock will trade following
the consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the shareholders of the Company should vote at the
shareholders' meeting held in connection with the Merger. As you know, in
connection with the Merger we solicited a group of potential purchasers based
upon certain criteria developed in consultation with the Special Committee of
the Board of Directors and management of the Company.

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Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Class A
Common Stock, Series A Preferred Stock and Class B Preferred Stock pursuant to
the Merger Agreement is fair from a financial point of view to such holders.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By:
------------------------------------
Mary Anne Citrino
Managing Director

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APPENDIX C

ARTICLE 13 OF THE

GEORGIA BUSINESS CORPORATION CODE

RELATING TO RIGHTS OF

DISSENTING SHAREHOLDERS

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CODE OF GEORGIA

TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS

CHAPTER 2. BUSINESS CORPORATIONS

ARTICLE 13. DISSENTERS' RIGHTS

PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

CURRENT THROUGH THE END OF 1995 EXTRAORDINARY SESSION OF THE GENERAL ASSEMBLY

14-2-1301 Definitions.

As used in this article, the term:

(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.

(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.

(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.

(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14- 2-1320 through
14-2-1327.

(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.

(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.

(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.

(8) "Shareholder" means the record shareholder or the beneficial
shareholder.

(Code 1981, Sec. 14-2-1301, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 16.)

14-2-1302. Right to dissent.

(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:

(1) Consummation of a plan of merger to which the corporation is a
party:

(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or

(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;

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(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;

(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:

(A) Alters or abolishes a preferential right of the shares;

(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;

(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;

(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or

(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or

(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.

(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.

(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:

(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or

(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.

(Code 1981, Sec. 14-2-1302, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 58.)

14-2-1303. Dissent by nominees and beneficial owners.

A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights.

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The rights of a partial dissenter under this Code section are determined as if
the shares as to which he dissents and his other shares were registered in the
names of different shareholders.

(Code 1981, Sec. 14-2-1303, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1320. Notice of dissenters' rights.

(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.

(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.

(Code 1981, Sec. 14-2-1320, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 17.)

14-2-1321. Notice of intent to demand payment.

(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:

(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and

(2) Must not vote his shares in favor of the proposed action.

(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.

(Code 1981, Sec. 14-2-1321, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1322. Dissenters' notice.

(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.

(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:

(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and

(4) Be accompanied by a copy of this article.

(Code 1981, Sec. 14-2-1322, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1323. Duty to demand payment.

(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.

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(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.

(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.

(Code 1981, Sec. 14-2-1323, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1324. Share restrictions.

(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.

(Code 1981, Sec. 14-2-1324, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1325. Offer of payment.

(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.

(b) The offer of payment must be accompanied by:

(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;

(2) A statement of the corporation's estimate of the fair value of the
shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and

(5) A copy of this article.

(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.

(Code 1981, Sec. 14-2-1325, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 59; Ga. L. 1993, p. 1231, Sec. 18.)

14-2-1326. Failure to take action.

(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.

(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.

(Code 1981, Sec. 14-2-1326, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1990, p. 257, Sec. 20.)

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14-2-1327. Procedure if shareholder dissatisfied with payment or offer.

(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:

(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or

(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.

(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.

(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and

(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.

(Code 1981, Sec. 14-2-1327, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 60; Ga. L. 1990, p. 257, Sec. 21; Ga. L. 1993, p. 1231, Sec.
19.)

14-2-1330 Court action.

(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.

(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.

(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.

(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.

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(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.

(Code 1981, Sec. 14-2-1330, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 61; Ga. L. 1993, p. 1231, Sec. 20.)

14-2-1331 Court costs and counsel fees.

(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.

(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:

(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or

(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.

(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.

(Code 1981, Sec. 14-2-1331, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

14-2-1332 Limitation of actions.

No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.

(Code 1981, Sec. 14-2-1332, enacted by Ga. L. 1988, p. 1070, Sec. 1.)

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APPENDIX D

CERTIFICATE OF INCORPORATION OF WELLPOINT

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RESTATED

CERTIFICATE OF INCORPORATION

WELLPOINT HEALTH NETWORKS INC.

(PURSUANT TO SECTION 245)

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The undersigned, LEONARD D. SCHAEFFER and THOMAS C. GEISER, hereby certify
that:

One: They are the Chief Executive Officer and Secretary,
respectively, of WellPoint Health Networks Inc. (the "Corporation").
WellPoint Health Networks Inc. was originally incorporated under the same
name, and the original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on August 29,
1996.

Two: Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the
Certificate of Incorporation of this Corporation.

Three: The Certificate of Incorporation of the Corporation is hereby
restated and amended to read in its entirety as follows:

ARTICLE I
NAME

The name of the corporation (hereinafter called the "Corporation") is
WellPoint Health Networks Inc.

ARTICLE II
PURPOSE

Section 1. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware ("DGCL").

ARTICLE III
AUTHORIZED CAPITAL STOCK

Section 1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is three hundred and fifty million
(350,000,000) shares as follows: (a) three hundred million (300,000,000) shares
of Common Stock, $.01 par value per share ("Common Stock"), and (b) fifty
million (50,000,000) shares of Preferred Stock, $.01 par value per share
("Preferred Stock").

Section 2. The rights, preferences, privileges and restrictions of the
classes of stock of the Corporation and the express grant of authority to the
Board of Directors to fix by resolution the rights, preferences, privileges and
restrictions relating to the classes of stock of the Corporation which are not
fixed by this Restated Certificate of Incorporation, are as follows:

COMMON STOCK

A. Dividends. Subject to any other provisions of this Restated Certificate
of Incorporation, as amended from time to time, holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon from time to time by the
Board of Directors of the Corporation (the "Board of Directors") out of assets
or funds of the Corporation legally available therefor.

B. Voting. (i) At every meeting of the stockholders, every holder of
Common Stock shall be entitled to one (1) vote in person or by proxy for each
share of Common Stock standing in his or her name on the transfer books of the
Corporation.

(ii) The provisions of this Article III of this Restated Certificate of
Incorporation shall not be modified, revised, altered or amended, repealed or
rescinded, in whole or in part, without the affirmative vote of the holders of a
majority of the shares of Common Stock.

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PREFERRED STOCK

The Board of Directors is authorized to provide, by resolution, for the
issuance of one or more series of Preferred Stock out of the unissued shares of
Preferred Stock and the Board of Directors is authorized to determine the
designation and to fix the number of shares of each series. Except as maybe
required by law, the shares in any series of Preferred stock need not be
identical to any other series of Preferred Stock or any other class. The Board
of Directors of the Corporation is further authorized to determine or alter the
rights, preferences, privileges, and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock, and to increase or decrease (but not
below the number of shares of such series then outstanding) the number of shares
of any series of Preferred Stock subsequent to the issue of shares of that
series.

ARTICLE IV
BOARD OF DIRECTORS AND STOCKHOLDER MEETINGS

The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:

Section 1. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors consisting of not less than nine
nor more than seventeen directors, the exact number of directors to be
determined in accordance with the Bylaws of the Corporation. The directors shall
be divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. At each annual
meeting of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.

Section 2. In the case of any vacancy on the Board of Directors, including
any vacancy created by the removal of a director, or in the case of any newly
created directorship, a director elected to fill the vacancy or the newly
created directorship for the unexpired portion of the term being filled shall be
elected pursuant to the procedures set forth in the Bylaws of the Corporation.
The director elected to fill a vacancy shall hold office for the unexpired term
in respect of which the vacancy occurred and until his successor shall be
elected and shall qualify or until his or her earlier death, resignation or
removal.

Section 3. Any director or the entire Board of Directors may be removed,
with or without cause, by the affirmative vote of the holders of a majority of
the voting power of the shares of the Corporation's stock entitled to vote at an
election of directors. However, a director may not be removed without cause if
the votes cast against removal of the director would be sufficient to elect the
director if voted cumulatively (without regard to whether shares may otherwise
be voted cumulatively) at an election at which the same total number of votes
were cast and either the number of directors elected at the most recent annual
meeting of the stockholders, or if greater, the number of directors for whom
removal is being sought, were then being elected.

Section 4. Whenever the holders of any series of Preferred Stock issued by
the Corporation or of any other securities of the Corporation shall have the
right, voting separately by series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation applicable thereto.

Section 5. Election of Directors need not be by ballot unless a
stockholder demands election by ballot at the meeting and before the voting
begins or unless the Bylaws so require.

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Section 6. The Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change, add to or repeal (collectively,
"Change") the Bylaws of the Corporation.

Section 7. Meetings of the stockholders of the Corporation for any purpose
or purposes may be held within or without the State of Delaware, as the Bylaws
may provide.

Section 8. No action required or permitted to be taken at any annual or
special meeting of stockholders of the Corporation may be taken by written
consent without a meeting of such stockholders.

Section 9. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, a majority of the members of the Board of Directors or the holders of
shares entitled to cast not less than 10% of the votes at the meeting. Such
special meeting may not be called by any other person or persons or in any other
manner.

Section 10. The approval of the greater of at least two-thirds or seven of
the directors of the Corporation then in office shall be required for the Board
of Directors to approve and authorize any of the following:

(a) any amendment to this Restated Certificate of Incorporation of the
Corporation; and

(b) the amendment of Sections 8 and 10 of Article II, Sections 2, 3
and 14 of Article III, Sections 1 and 2 of Article IV, and Sections 6 and 7
of Article V of the Bylaws of the Corporation.

ARTICLE V

INDEMNIFICATION

Section 1. Other than in the case of an action by, or in the right of, the
Corporation, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or an officer of the
Corporation or of a Predecessor Corporation, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by the DGCL and any other applicable law, as from time to
time in effect. To the maximum extent permitted by the DGCL, the Corporation
shall advance expenses (including attorneys' fees) incurred by any person
indemnified hereunder in defending any civil, criminal, administrative or
investigative action, suit or proceeding upon an undertaking by or on behalf of
such person to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation. Such rights of
indemnification and advancement of expenses shall not be deemed to be exclusive
of any other rights to which such director or officer may be entitled apart from
the foregoing provisions. The foregoing provisions of this Section 1 shall be
deemed to be a contract between the Corporation (or any Predecessor Corporation)
and each director and officer who serves in such capacity at any time while this
Section 1 and the relevant provisions of the DGCL and other applicable law, if
any, are in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing, with respect to any state of facts then or
theretofore existing, or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts. For purposes hereof "Predecessor Corporation" shall mean WellPoint
Health Networks Inc., a California corporation ("WellPoint California").

Section 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceedings whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was an employee or
agent of the Corporation (or a Predecessor Corporation), or is or was serving at
the request of the Corporation (or a Predecessor Corporation), as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including, but not limited to,
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding to
the extent and in the manner set forth in and permitted by the DGCL and any
other
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applicable law as from time to time in effect. Such right of indemnification
shall not be deemed to be exclusive of any other rights to which any such person
may be entitled apart from the foregoing provisions.

ARTICLE VI

LIABILITY FOR BREACH OF FIDUCIARY DUTY

A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a Director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article VI by the stockholders of the Corporation shall not adversely
affect any right or protection of a Director of the Corporation existing at the
time of such repeal or modification.

ARTICLE VII

RESTRICTION ON TRANSFER

Section 1. No Person (as defined in Section 14 below) shall Beneficially
Own (as defined in Section 14 below) shares of Capital Stock (as defined in
Section 14 below) in excess of the Ownership Limit (as defined in Section 14
below). Any Transfer (as defined in Section 14 below) that, if effective, would
result in any Person Beneficially Owning Capital Stock in excess of the
Ownership Limit shall result in such intended transferee acquiring no rights in
such shares of Capital Stock (other than those rights expressly granted in this
Article VII) and such number of shares of Capital Stock shall be deemed
transferred to the Share Escrow Agent (as defined in Section 14 below) as set
forth in this Article VII.

Section 2. If, notwithstanding any other provisions of this Article VII,
there is a purported Transfer or other change in the capital structure of the
Corporation such that any Person would Beneficially Own shares of Capital Stock
in excess of the Ownership Limit (a "Purported Owner"), then, upon such Transfer
or change in capital structure, such shares of Capital Stock in excess of the
Ownership Limit shall be Excess Shares for purposes of this Article VII;
provided, however, that in the event that any Person becomes a Purported Owner
as a result of Beneficial Ownership of Capital Stock of one Person being
aggregated with another Person, then the number of Excess Shares subject to this
Article VII shall be allocated pro rata among each Purported Owner in proportion
to each Person's total Beneficial Ownership (without regard to any aggregation
with another Person pursuant to Section 14(b)(4) or (5) of this Article VII).
Upon the occurrence of any event that would cause any Person to exceed the
Ownership Limit (including without limitation the expiration of a voting trust,
without being renewed on substantially similar terms, that entitled such Person
to an exemption from the Ownership Limit), all shares of Capital Stock
Beneficially Owned by such Person in excess of the Ownership Limit shall also be
Excess Shares for purposes of this Article VII, such Person shall be deemed the
Purported Owner of such Excess Shares and such Person's rights in such Excess
Shares shall be as prescribed in this Article VII.

Excess Shares shall not constitute a separate class of Capital Stock.

Section 3. If the Corporation at any time determines that a Transfer has
taken place in violation of Section 1 of this Article VII or that a Purported
Owner intends to acquire or has attempted to acquire Beneficial Ownership of any
shares of Capital Stock in violation of Section 1 of this Article VII, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer, including, without limitation, refusing
to give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin or rescind such Transfer; provided, however, that any
purported Transfers in

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violation of Section 1 of this Article VII shall automatically result in all
shares of Capital Stock in excess of the Ownership Limit being deemed Excess
Shares. Notwithstanding the foregoing, nothing contained in this Article VII
shall limit the authority of the Corporation to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of its
stockholders.

Section 4. Any Purported Owner who acquires or attempts to acquire shares
of Capital Stock in violation of Section l of this Article VII, or any Purported
Owner who is a transferee such that any shares of Capital Stock are deemed
Excess Shares under Section 2 of this Article VII, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request.

Section 5. Each certificate for Capital Stock issued by the Corporation
shall bear the following legend:

The shares of stock represented by this certificate are subject to
restrictions on ownership and transfer. No Person shall Beneficially Own shares
of Capital Stock in excess of the Ownership Limit (as defined in Article VII,
Section 14 of the Restated Certificate of Incorporation of the Corporation).
Subject to certain limited specific exemptions, Beneficial Ownership of 5% or
more of the outstanding shares of any class of Capital Stock will exceed the
Ownership Limit. These provisions have been designed to ensure that the
Corporation will not violate the terms of the License Agreement between the
Corporation and the Blue Cross and Blue Shield Association (the "BCBSA"). The
Corporation maintains at its principal executive office a copy of the applicable
requirements of the BCBSA relating to such restrictions on ownership and
transfer, as such requirements may be amended from time to time, which are open
to inspection by the stockholders, at all reasonable times during office hours.
Any Person who attempts to beneficially own shares in violation of this
limitation must immediately notify the Corporation. All capitalized terms in
this legend have the meanings ascribed to them in the Corporation's Restated
Certificate of Incorporation, as the same may be amended from time to time, a
copy of which, including the restrictions on ownership and transfer, will be
sent without charge to each stockholder who so requests. Upon the occurrence of
any event that would cause any Person to exceed the Ownership Limit (including
without limitation the expiration of a voting trust that entitled such Person to
an exemption from the Ownership Limit), all shares of Capital Stock Beneficially
Owned by such Person in excess of the Ownership Limit will automatically be
deemed Excess Shares and be transferred immediately to the Share Escrow Agent
and be subject to the provisions of the Corporation's Restated Certificate of
Incorporation and the Share Escrow Agent Agreement, a copy of which the
Corporation maintains at its principal executive office. The foregoing summary
of the restrictions on ownership and transfer is qualified in its entirety by
reference to the Corporation's Restated Certificate of Incorporation.

Section 6. Upon the occurrence of a Transfer or an event that results in
Excess Shares pursuant to Section 2 of this Article VII, such Excess Shares
shall automatically be transferred immediately to the Share Escrow Agent, which
Excess Shares, subject to the provisions of this Article VII, shall be held by
the Share Escrow Agent until such time as the Excess Shares are transferred to a
Person whose acquisition thereof will not violate the Ownership Limit (a
"Permitted Transferee") and the Share Escrow Agent shall be authorized to
execute any and all documents sufficient to transfer title to any Permitted
Transferee, even in the absence of receipt of certificate(s) representing Excess
Shares. The Corporation shall take such actions as it deems necessary to give
effect to such transfer to the Share Escrow Agent, including by issuing a stop
transfer order to the Corporation's transfer agent with respect to any attempted
transfer by the Purported Owner or its nominee of any Excess Shares and by
giving effect, or by instructing the Corporation's transfer agent to give
effect, to such transfer to a Permitted Transferee on the books of the
Corporation. Excess Shares so held shall be issued and outstanding shares of
Capital Stock. The Purported Owner shall have no rights in such Excess Shares
except as provided in Sections 7, 8, and 11 of this Article VII and the
administration of the Excess Shares escrow shall be governed by the terms of a
Share Escrow Agent Agreement.

Section 7. The Share Escrow Agent, as record holder of Excess Shares,
shall be entitled to receive all dividends and distributions as may be declared
by the Board of Directors with respect to Excess Shares (the "Excess Share
Dividends") and shall hold the Excess Share Dividends until disbursed in
accordance with the provisions of Section 11 following. The Purported Owner,
with respect to Excess Shares purported to be Beneficially Owned by such
Purported Owner prior to such time that the Corporation determines that such

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shares are Excess Shares, shall repay to the Share Escrow Agent the amount of
any Excess Share Dividends received by it that (i) are attributable to any
Excess Shares and (ii) the record date of which is on or after the date that
such shares become Excess Shares. The Corporation shall take all measures that
it determines reasonably necessary to recover the amount of any Excess Share
Dividends paid to a Purported Owner, including, if necessary, withholding any
portion of future dividends or distributions payable on shares of Capital Stock
Beneficially Owned by any Purported Owner (including on shares which fall below
the Ownership Limit as well as on Excess Shares), and, as soon as practicable
following the Corporation's receipt or withholding thereof, shall pay over to
the Share Escrow Agent the dividends so received or withheld, as the case may
be.

Section 8. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of, or any distribution of the assets of, the
Corporation, the Share Escrow Agent shall be entitled to receive, ratably with
each other holder of Capital Stock of the same class or series, that portion of
the assets of the Corporation that is available for distribution to the holders
of such class or series of Capital Stock. The Share Escrow Agent shall
distribute to the Purported Owner the amounts received upon such liquidations,
dissolution or winding up or distribution in accordance with the provisions of
Section 11 of this Article VII.

Section 9. The Share Escrow Agent shall be entitled to vote all Excess
Shares. The Share Escrow Agent shall be instructed by the Corporation to vote,
consent or assent the Excess Shares as follows: (i) if the matter concerned is
the election of directors, the Share Escrow Agent shall vote, consent or assent
the whole number of Excess Shares held by the Share Escrow Agent for each
director by multiplying the number of votes held in escrow by a fraction, the
numerator of which is the number of Nonaffiliated Votes cast for the director
and the denominator of which is the number of Nonaffiliated Votes that could
have been cast in the election of the director and are present in person or by
proxy at the meeting; (ii) where the matter under the DGCL or this Restated
Certificate of Incorporation or the Bylaws of the Corporation requires at least
an absolute majority of all outstanding shares of Common Stock in order to be
effected, then the Share Escrow Agent shall vote, assent or consent all of such
Excess Shares in favor of or in opposition to such matter as the majority of all
Nonaffiliated Votes are cast; and (iii) on all other matters, the Share Escrow
Agent shall at all times vote, assent or consent all of such shares in the
identical proportion in favor of or in opposition to such matter as
Nonaffiliated Votes are cast. If any calculation of votes under the preceding
sentence would require a fractional vote, the Share Escrow Agent shall vote the
next lower number of whole Excess Shares. The Share Escrow Agent shall use all
reasonable commercial efforts to ensure, with respect to Excess Shares, that
such Excess Shares are counted as being present for the purposes of any quorum
required for stockholder action of the Corporation and to vote as set forth
above. For purposes of this Restated Certificate of Incorporation,
"Nonaffiliated Votes" shall mean the votes cast by stockholders other than any
Share Escrow Agent with respect to Excess Shares.

Section 10. (a) In an orderly fashion so as not to materially adversely
affect the price of Common Stock on the New York Stock Exchange or, if Common
Stock is not listed on the New York Stock Exchange, on the exchange or other
principal market on which Common Stock is traded, the Share Escrow Agent shall
sell or cause the sale of Excess Shares at such time or times as the Share
Escrow Agent determines to be appropriate. The Share Escrow Agent shall have the
right to take such actions as the Share Escrow Agent deems appropriate to seek
to restrict sale of the shares to Permitted Transferees.

(b) The Share Escrow Agent shall have the power to convey to the purchaser
of any Excess Shares sold by the Share Escrow Agent ownership of the Excess
Shares free of any interest of the Purported Owner of those Excess Shares and
free of any other adverse interest arising through the Purported Owner.

(c) Upon acquisition by any Permitted Transferee of any Excess Shares sold
by the Share Escrow Agent or the Purported Owner, such shares shall upon such
sale cease to be Excess Shares and shall become regular shares of Capital Stock
in the class to which the Excess Shares belong, and the purchaser of such shares
shall acquire such shares free of any claims of the Share Escrow Agent or the
Purported Owner.

(d) To the extent permitted by law, none of the Corporation, the Share
Escrow Agent or anyone else shall have any liability to the Purported Owner or
anyone else by reason of any action or inaction the Corporation or the Share
Escrow Agent shall take which either shall in good faith believe to be within
the
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scope of its authority under this Article VII or by reason of any decision as to
when or how to sell any Excess Shares or by reason of any other action or
inaction in connection with activities under this Article VII which docs not
constitute gross negligence or willful misconduct. Without limiting by
implication the scope of the preceding sentence, to the extent permitted by law,
(a) neither the Share Escrow Agent nor the Corporation shall have any liability
on grounds that either failed to take actions which would have produced higher
proceeds for any of the Excess Shares or by reason of the manner or timing for
any disposition of any Excess Shares and (b) the Share Escrow Agent shall not be
deemed to be a fiduciary or Agent of any Purported Owner.

Section 11. The proceeds from the sale of the Excess Shares to a Permitted
Transferee and any Excess Share Dividends shall be distributed as follows: (i)
first, to the Share Escrow Agent for any costs and expenses incurred in respect
of its administration of the Excess Shares that have not theretofore been
reimbursed by the Corporation; (ii) second, to the Corporation for all costs and
expenses incurred by the Corporation in connection with the appointment of the
Share Escrow Agent, the payment of fees to the Share Escrow Agent with respect
to the services provided by the Share Escrow Agent in respect of the escrow and
all funds expended by the Corporation to reimburse the Share Escrow Agent for
costs and expenses incurred by the Share Escrow Agent in respect of its
administration of the Excess Shares and for all fees, disbursements and expenses
incurred by the Share Escrow Agent in connection with the sale of the Excess
Shares; and (iii) third, the remainder thereof (as the case may be) to the
Purported Owner or the Person who was the holder of record before the shares
were transferred to the Share Escrow Agent (depending on who shall at such time
be entitled to any economic interest in the Excess Shares); provided, however,
if the Share Escrow Agent shall have any questions as to whether any security
interest or other interest adverse to the Purported Owner shall have existed
with respect to any Excess Shares, the Share Escrow Agent shall not be obligated
to disburse proceeds for those shares until the Share Escrow Agent is provided
with such evidence as the Share Escrow Agent shall deem necessary to determine
the parties who shall be entitled such proceeds.

Section 12. Subject to Section 13 of this Article VII, nothing contained
in this Article VII or in any other provision of this Restated Certificate of
Incorporation shall limit the authority of the Corporation to take such other
action as it deems necessary or advisable to protect the Corporation and the
interests of its stockholders.

Section 13. Nothing in this Restated Certificate of Incorporation shall
preclude the settlement of any transactions entered into through the facilities
of the New York Stock Exchange or any other exchange or through the means of any
automated quotation system now or hereafter in effect.

Section 14. The following definitions shall apply with respect to this
Article VII:

(a) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended or supplemented (the
"Exchange Act") at the time as of which the term shall be applied and any
other federal law which BCBSA shall reasonably judge to have replaced or
supplemented the coverage of the Exchange Act as in effect at May 20, 1996.

(b) Except as is provided in (c) of this Section 14, a Person shall be
deemed to "Beneficially Own," be the "Beneficial Owner" of or have
"Beneficial Ownership" of any Capital Stock:

(1) in which such Person shall then have a direct or indirect
beneficial ownership interest;

(2) in which such Person shall have the right to acquire any direct
or indirect beneficial ownership interest pursuant to any option or
other agreement (either immediately or after the passage of time or the
occurrence of any contingency);

(3) which such Person shall have the right to vote;

(4) in which such Person shall hold any other interest which would
count in determining whether such Person would be required to file a
Schedule 13D; or

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(5) which shall be Beneficially Owned (under the concepts provided
in the preceding clauses) by any affiliate or associate of the
particular Person or by any other Person with whom the particular Person
or any such affiliate or associate has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities and other than pursuant to that certain
Registration Rights Agreement between the Corporation and Western Health
Partnerships dated as of May 20, 1996 relating to the acquisition,
holding, voting or disposing of any securities of the Corporation).

(c) The following provisions are included to clarify (b) above: (1) A
Person shall not be deemed to Beneficially Own, be the Beneficial Owner of,
or have Beneficial Ownership of Capital Stock by reason of possessing the
right to vote if (i) such right arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act, and (ii) such Person is
not the Purported Owner of any Excess Shares, is not named as holding a
beneficial ownership interest in any Capital Stock in any filing on
Schedule 13D and is not an affiliate or associate of any such Purported
Owner or named Person.

(2) A member of a national securities exchange or a registered
depositary shall not be deemed to Beneficially Own, be the Beneficial
Owner of or have Beneficial Ownership of Capital Stock held directly or
indirectly by it on behalf of another Person (and not for its own
account) solely because such member or depositary is the record holder
of such Capital Stock, and (in the case of such member), pursuant to the
rules of such exchange, such member may direct the vote of such Capital
Stock without instruction on matters which are uncontested and do not
affect substantially the rights or privileges of the holders of the
Capital Stock to be voted but is otherwise precluded by the rules of
such exchange from voting such Capital Stock without instruction on
either contested matters or matters that may affect substantially the
rights or the privileges of the holders of such Capital Stock to be
voted.

(3) A Person who in the ordinary course of business is a pledgee of
Capital Stock under a written pledge agreement shall not be deemed to
Beneficially Own, be the Beneficial Owner of or have Beneficial
Ownership of such pledged Capital Stock solely by reason of such pledge
until the pledgee has taken all formal steps which are necessary to
declare a default or has otherwise acquired the power to vote or to
direct to vote such pledged Capital Stock, provided that;

(i) the pledge agreement is bona fide and was not entered into
with the purpose nor with the effect of changing or influencing the
control of the Corporation, nor in connection with any transaction
having such purpose or effect, including any transaction subject to
Rule 13d-3(b) promulgated under the Exchange Act; and

(ii) the pledge agreement does not grant to the pledgee the
right to vote or to direct the vote of the pledged securities prior
to the time the pledgee has taken all formal steps which are
necessary to declare a default.

(4) A Person engaged in business as an underwriter or a placement
agent for securities who enters into an agreement to acquire or acquires
Capital Stock solely by reason of its participation in good faith and in
the ordinary course of its business in the capacity of underwriter or
placement agent in any underwriting or agent representation registered
under the Securities Act of 1933, as amended and in effect at May 20,
1996 (the "Securities Act"), a bona fide private placement, a resale
under Rule 144A promulgated under the Securities Act or in any foreign
or other offering exempt from the registration requirements under the
Securities Act shall not be deemed to Beneficially Own, be the
Beneficial Owner of or have Beneficial Ownership of such securities
until the expiration of forty (40) days after the date of such
acquisition so long as (i) such Person does not vote such Capital Stock
during such period and (ii) such participation is not with the purpose
or with the effect of changing or influencing control of the
Corporation, nor in connection with or facilitating any transaction
having such purpose or effect, including any transaction subject to Rule
13d-3(b) promulgated under the Exchange Act.
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(5) If the Corporation shall sell shares in a transaction not
involving any public offering, then each purchaser in such offering
shall be deemed to obtain Beneficial Ownership in such offering of the
shares purchased by such purchaser, but no particular purchaser shall be
deemed to Beneficially Own or have acquired Beneficial Ownership or be
the Beneficial Owner in such offering of shares purchased by any other
purchaser solely by reason of the fact that all such purchasers are
parties to customary agreements relating to the purchase of equity
securities directly from the Corporation in a transaction not involving
a public offering, provided that: (i) all the purchasers are persons
specified in Rule 13d-1(b)(1)(ii) promulgated under the Exchange Act;

(ii) the purchase is in the ordinary course of each purchaser's
business and not with the purpose nor with the effect of changing or
influencing control of the Corporation, nor in connection with or as
a participant in any transaction having such purpose or effect,
including any transaction subject to Rule 13d-3(b) promulgated under
the Exchange Act;

(iii) there is no agreement among or between any purchasers to
act together with respect to the Corporation or its securities except
for the purpose of facilitating the specific purchase involved; and

(iv) the only actions among or between any purchasers with
respect to the Corporation or its securities subsequent to the
closing date of the nonpublic offering are those which are necessary
to conclude ministerial matters directly related to the completion of
the offer or sale of the securities sold in such offering.

(6) The Share Escrow Agent shall not be deemed to be the Beneficial
Owner of any Excess Shares held by such Share Escrow Agent pursuant to a
Share Escrow Agent Agreement, nor shall any such Excess Shares be
aggregated with any other share of Capital Stock held by affiliates or
associates of such Share Escrow Agent.

(d) "Capital Stock" shall mean shares (or any other basic unit) of any
class or series of any voting security which the Corporation may at any
time issue or be authorized to issue, that entitles the holder thereof to
vote on any election, but not necessarily all elections, of directors. To
the extent that classes or series of Capital Stock vote together in the
election of directors with equal votes per share, they shall be treated as
a single class of Capital Stock for the purpose of computing the relevant
Ownership Limit or the right to amend this Restated Certificate of
Incorporation.

(e) "License Agreement" shall mean the license agreement between the
Corporation and the BCBSA, including any and all addenda thereto, now in
effect and, as it may be amended, modified, superseded and/or replaced from
time to time, with respect to, among other things, the "Blue Cross" name
and mark.

(f) "Ownership Limit" shall mean the following:

(1) Except as otherwise expressly provided in this Subsection (f)
and subject to Section 15(a), the Ownership Limit shall be that number
of shares of Capital Stock one share lower than the number of shares of
Capital Stock which would represent 5% of the Voting Power.

(2) In the event the Corporation and BCBSA shall agree in writing,
through an amendment of the License Agreement or otherwise, that an
Ownership Limit of a higher percentage than that prescribed in clause
(1) shall apply, then the Ownership Limit shall be as specified in such
written agreement.

(3) In the event any particular Person shall Beneficially Own
shares of Capital Stock in excess of the Ownership Limit which would
apply were it not for this clause (3) (the "Regular Limit"), such
ownership shall not be deemed to exceed the Ownership Limit provided
that (i) such Person shall not at any time Beneficially Own shares of
Capital Stock in excess of the Regular Limit plus 1% and (ii) within
thirty (30) days of the time when the particular Person becomes aware of
the fact that the regular Limit has been exceeded, the particular Person
reduces such Person's Beneficial Ownership below the Regular Limit.
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(g) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of any such entity.

(h) "Schedule 13D" means a report on Schedule 13D under Regulation 13D
of the Exchange Act as in effect at May 20, 1996 and any report which may
be required in the future under any requirements which BCBSA shall
reasonably judge to have any of the purposes served by Schedule 13D as in
effect at May 20, 1996.

(i) "Share Escrow Agent" shall mean the Person appointed by the
Corporation to act as escrow agent with respect to some or all of the
Excess Shares.

(j) "Transfer" shall mean any sale, transfer, gift, hypothecation,
pledge, assignment, devise or other disposition of Capital Stock (including
(i) the granting of any option or entering into any agreement for the sale,
transfer or other disposition of Capital Stock or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible
into or exchangeable for Capital Stock), whether voluntary or involuntary,
whether of record, constructively or beneficially and whether by operation
of law or otherwise.

(k) "Voting Power." The percentage of the voting power attributable to
the shares of Capital Stock Beneficially Owned by any particular Person
shall be equal to the percentage of all votes which could be cast in any
election of any director which could be accounted for by the shares of
Capital Stock Beneficially Owned by that particular Person. If in
connection with an election for any particular position on the Board,
shares in different classes or series are entitled to be voted together for
purposes of such election, then in determining the number of "all votes
which could be cast" in the election for that particular position for
purposes of the preceding sentence, the number shall be equal to the number
of votes which could be cast in the election for that particular position
if all shares entitled to be voted in such election (regardless of series
or class) were in fact voted in such election. If the Corporation shall
issue any series or class of shares for which positions on the Board are
reserved or shall otherwise issue shares which have voting rights which can
arise or vary based upon terms governing that class or series, then the
percentage of the voting power represented by the shares of Capital Stock
Beneficially Owned by any particular Person shall be the highest percentage
of the total votes which could be accounted for by those shares in any
election of any director.

Section 15. (a) This Article VII shall not be applicable with respect to
any outstanding shares of Capital Stock of the Corporation owned by the
California HealthCare Foundation (the "Foundation") which were (i) issued by the
Corporation in exchange for "Original Shares" (such shares of Capital Stock
being referred to as "Exchange Shares") or (ii) acquired by the Foundation with
respect to Exchange Shares as a result of a stock dividend, stock split,
conversion, recapitalization, exchange of shares or the like, so long as such
Capital Stock of this Corporation shall be Beneficially Owned by the Foundation
or an affiliate of the Foundation or by a trustee for the account of the
Foundation or affiliate of the Foundation. "Original Shares" means shares of
capital stock of WellPoint California owned by the Foundation which were
outstanding on May 20, 1996, and shares of WellPoint California acquired by the
Foundation with respect to such shares after such time as a result of a stock
dividend, stock split, conversion, recapitalization, exchange of shares or the
like. All (1) Exchange Shares and such other shares of Capital Stock received by
the Foundation or affiliate of the Foundation or by a trustee for the account of
the Foundation or affiliate of the Foundation as a result of a stock dividend,
stock split, conversion, recapitalization, exchange of shares or the like
relating to such Exchange Shares shall be aggregated with (2) any other shares
of Capital Stock for which the Foundation or affiliate or trustee of the
Foundation becomes a Beneficial Owner, including shares of Capital Stock issued
in exchange for shares of WellPoint California which were not Original Shares
(all such shares referred to in the immediately preceding clause (2) being
defined as "After Acquired Shares"), in determining if such After Acquired
Shares are Excess Shares. Upon the transfer of any Beneficial Ownership interest
in any Exchange Shares and such other shares of Capital Stock received by the
Foundation or affiliate of the Foundation or by a trustee for the account of the
Foundation or affiliate of the Foundation as a result of a stock dividend, stock
split, conversion, recapitalization, exchange of shares or the like relating to
such Exchange Shares, from the

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Foundation or affiliate or trustee thereof to any unaffiliated transferee, that
Capital Stock shall become fully subject to this Article VII from and at all
times after such transfer.

Any Exchange Shares and such other shares of Capital Stock received by the
Foundation or affiliate of the Foundation or by a trustee for the account of the
Foundation or affiliate of the Foundation as a result of a stock dividend, stock
split, conversion, recapitalization, exchange of shares or the like relating to
such Exchange Shares shall automatically become subject to this Article VII upon
transfer to any affiliate or trustee of the Foundation, unless such affiliate or
trustee is subject to a binding obligation to vote such shares in the manner
prescribed by the terms of the Voting Agreement dated May 20, 1996 or Voting
Trust Agreement dated May 8, 1996 (as such agreements or replacements thereof
may be in effect from time to time), whichever is applicable, entered into by
the Foundation with respect to Original Shares subject to such agreement. For
purposes of this Section 15(a), neither The California Endowment nor any of its
successors in interest or affiliates shall be deemed to be an affiliate of the
Foundation.

(b) This Article VII shall become ineffective and of no further force and
effect in the event that the Corporation ceases to be subject to any License
Agreement.

(c) Subject to (a) and (b) above, the Board of Directors of the Corporation
has the power to interpret this Article VII and, in the absence of manifest
error, any interpretation by the Board of Directors of the Corporation shall be
binding; provided, however, that in making any such interpretation, the Board of
Directors of the Corporation shall consider the Corporation's obligations to the
BCBSA, wherever relevant.

ARTICLE VIII

NO PREFERENTIAL RIGHTS

No stockholder of the Corporation shall, by reason of his, her or its
holding shares of any class, have any preemptive or preferential rights to
purchase or subscribe to any shares of the Corporation now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible into
or carrying options or warrants to purchase shares of any class now or hereafter
to be authorized (whether or not the issuance of any such shares or such notes,
debentures, bonds or other securities would adversely affect the dividend or
voting rights of such stockholder) other than such rights, if any, as the Board
of Directors in its discretion from time to time may grant and at such price as
the Board of Directors may fix; and the Board of Directors may issue shares of
the Corporation or any notes, debentures, bonds or other securities, convertible
into or carrying options or warrants to purchase shares without offering any
such shares, either in whole or in part, to the existing stockholders.

ARTICLE IX

NO CUMULATIVE VOTING

Stockholders are not entitled to cumulate votes at any election of
directors.

ARTICLE X

BOOKS AND RECORDS

The books and records of the Corporation may be kept (subject to any
provision contained in the statutes) at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.

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ARTICLE XI

RIGHT TO AMEND RESTATED CERTIFICATE OF INCORPORATION

The Corporation reserves the right to Change any provision contained in
this Restated Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation; provided, however, that subject to the
powers and rights provided for herein with respect to Preferred Stock issued by
the Corporation, if any, but not withstanding anything else contained in this
Restated Certificate of Incorporation to the contrary, (a) the affirmative vote
of the holders of at least seventy-five percent (75%) of each class of the
shares of Capital Stock, represented and voting at a duly held meeting of
stockholders of the Corporation at which a quorum is present, voting by class,
shall be required to Change Sections 1, 2, 6, 8 and 10 of Article IV, Article
VII, Article IX or this Article XI; (b) no amendment of this Restated
Certificate of Incorporation as described in the preceding clause (a) shall be
effective unless approved by the affirmative vote of a majority of the
outstanding shares of Capital Stock entitled to vote, (c) the provisions of
clause (a) above shall not apply to any amendment to Article VII to conform
Article VII to a change to the terms of the License Agreement or to any
amendment to Article VII required or permitted by the BCBSA (whether or not
constituting a change to the terms of the License Agreement) and (d) the
provisions of clauses (a), (b) and (c) above shall become ineffective and of no
further force and effect in the event that the Corporation ceases to be subject
to any License Agreement.

ARTICLE XII

REGISTERED AGENT

The address of the registered office of the corporation in the state of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is CT Corporation.

The foregoing amendment and restatement of the Certificate of Incorporation
was duly adopted in accordance with Sections 242 and 245 of the Delaware General
Corporation Law.

We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this Certificate are true and correct of
our own knowledge.

IN WITNESS WHEREOF, the undersigned have executed this Certificate on July
29, 1997.

LEONARD D. SCHAEFFER

--------------------------------------
Leonard D. Schaeffer
Chief Executive Officer

THOMAS C. GEISER

--------------------------------------
Thomas C. Geiser
Secretary

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The undersigned certify under penalty of perjury that they have read the
foregoing Restated Certificate of Incorporation and know the contents thereof
and that the statements therein are true and correct.

Executed at Los Angeles, California, on July 29, 1997.

LEONARD D. SCHAEFFER

--------------------------------------
Leonard D. Schaeffer
Chief Executive Officer

THOMAS C. GEISER

--------------------------------------
Thomas C. Geiser
Secretary

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APPENDIX E

BYLAWS OF WELLPOINT

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BYLAWS OF WELLPOINT HEALTH NETWORKS INC.

ARTICLE I

OFFICES

Section 1. Principal Office. The Board of Directors shall fix the location
of the principal executive office of the Corporation at any place within or
outside the State of Delaware. If the principal executive office is located
outside this state, and the Corporation has one or more business offices in this
state, the Board of Directors shall fix and designate a principal business
office in the State of Delaware.

Section 2. Other Offices. The Board of Directors may at any time establish
branch or subordinate offices at any place or places within or outside the State
of Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation by the Board of Directors,
stockholders' meetings shall be held at the principal executive office of the
Corporation.

Section 2. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before such meeting shall be held on the second Tuesday of May
each year at 10:00 A.M., if not a legal holiday under the laws of the place
where such meeting is to be held, and if a legal holiday, then on the next
succeeding day not a legal holiday under the laws of that place, or on such
other date and at such hour as may be fixed from time to time by the Board of
Directors.

Section 3. Special Meetings. Subject to the rights of holders of any class
or series of stock having a preference over the Corporation's common stock (the
"Common Stock"), a special meeting of the stockholders may be called at any time
by a majority of the entire Board of Directors, the Chairman of the Board, the
President or the holders of shares entitled to cast not less than 10% of the
votes at the meeting.

If a special meeting is called by any person or persons other than the
Board of Directors, the Chairman of the Board or the President, the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the Corporation.

Section 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than 10 nor more than 60 days before the date of the
meeting. The notice shall specify the place, date and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, and no other business may be transacted or (ii) in the case of the
annual meeting, those matters which the Board of Directors, at the time of
giving the notice, intends to present for action by the stockholders. The notice
of any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by the Board of
Directors for election.

If action is proposed to be taken at any meeting for approval of (i)
amendment of the Certificate of Incorporation, pursuant to Section 242 of the
Delaware General Corporation Law (the "DGCL"), (ii) a merger or consolidation of
the Corporation, pursuant to Subchapter IX of the DGCL, or (iii) a voluntary
dissolution of the Corporation, pursuant to Subchapter X of the DGCL; the notice
shall also state the general nature of that proposal.

Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any
meeting of stockholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid,

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addressed to the stockholder at the address of that stockholder appearing on the
books of the Corporation or given by the stockholder to the Corporation for the
purpose of notice. If no such address appears on the Corporation's books or is
given, notice shall be deemed to have been given if sent to that stockholder by
first-class mail or telegraphic or other written communication to the
Corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county in which that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.

If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the Corporation is returned to the Corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if such notices or reports shall be available to the stockholder
on written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of such notice
or report to other stockholders.

An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting shall be executed by the Secretary, Assistant Secretary,
or any transfer agent of the Corporation giving the notice, and shall be filed
and maintained in the minute book of the Corporation.

Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum (unless reduced by an amendment to the Certificate of
Incorporation of the Corporation, but in any case no fewer than one-third of the
shares entitled to vote) for the transaction of business. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.

Section 7. Adjourned Meeting; Notice. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.

When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than 30 days from the date set for the original meeting,
in which case the Board of Directors shall set a new record date. Notice of any
such adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 4
and 5 of this Article II. At any adjourned meeting the Corporation may transact
any business which might have been transacted at the original meeting.

Section 8. Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Section 217 of the DGCL
(relating to voting shares held by a fiduciary, pledges or in joint ownership).
The stockholders' vote may be by voice vote (unless required by law or
determined by a majority of the Board of Directors to be unadvisable) or by
ballot; provided, however, that any election for directors must be by ballot if
demanded by any stockholder before the voting has begun. Any stockholder may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the stockholder
fails to specify the number of shares which such stockholder is voting
affirmatively, it will be conclusively presumed that the stockholder's approving
vote is with respect to all shares that such stockholder is entitled to vote. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the stockholders, unless the vote of
a greater number or voting by classes is required under applicable law or by the
Certificate of Incorporation.

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At a stockholders' meeting at which directors are to be elected, no
stockholder shall be entitled to cumulate votes.

At any meeting of stockholders at which shares of Common Stock are voted
that are held of record by the trustee pursuant to the Voting Trust Agreement
(the "Foundation Voting Trust") effective as of May 20, 1996 by and between
California HealthCare Foundation and Wilmington Trust Company, as trustee (the
"Foundation Trust Shares") (or any successor agreement thereto) or held by the
Share Escrow Agent pursuant to Article VII of the Corporation's Certificate of
Incorporation ("Excess Shares"), the polls at such meeting shall be
conditionally closed following such time as stockholders have cast their votes
either by proxy or by ballot. Thereafter, following a preliminary tabulation of
the votes cast at such meeting, the polls shall be reopened solely for the
purpose of permitting the Foundation Trust Shares, and any Excess Shares
pursuant to Article VII of the Corporation's Certificate of Incorporation, if
any, to be voted in accordance with the Foundation Voting Trust, or Article VII
of the Corporation's Certificate of Incorporation, as the case may be.

Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of the stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote thereat, not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of stockholders. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.

Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.

Section 10. Stockholder Action By Written Consent Without a
Meeting. Notwithstanding anything contained in these Bylaws to the contrary, no
action required or permitted to be taken at any meeting of stockholders of the
Corporation may be taken by written consent without a meeting of stockholders.

Section 11. Record Date for Stockholder Notice and Voting. For purposes of
determining the stockholders entitled to notice of any meeting or to vote, the
Board of Directors may fix, in advance, a record date, which shall not be more
than 60 days nor less than 10 days before the date of any such meeting, and in
this event only stockholders of record on the date so fixed are entitled to
notice and to vote, notwithstanding any transfer of any shares on the books of
the Corporation after the record date, except as otherwise provided in the DGCL.

If the Board of Directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.

Section 12. Proxies. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the Corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of three (3) years from the date of the proxy,
unless otherwise provided in the proxy. The

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revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212 of the DGCL.

Section 13. Inspectors of Election. Before any meeting of stockholders,
the Board of Directors shall appoint a person other than nominees for office,
directors or stockholders to act as inspectors of election at the meeting or its
adjournment. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting shall appoint a person to fill that
vacancy.

The inspector shall:

(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;

(b) Receive votes or ballots;

(d) Count and tabulate all votes;

(e) Determine when the polls shall close;

(f) Determine the result; and

(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.

ARTICLE III

DIRECTORS

Section 1. Powers. Subject to the provisions of the DGCL and any
limitations in the Corporation's Certificate of Incorporation relating to action
required to be approved by the stockholders or by the outstanding shares, the
business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.

Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:

(a) Select and remove all officers, agents, and employees of the
Corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation, and with these Bylaws; fix
their compensation; and require from them security for faithful service.

(b) Change the registered office in the State of Delaware from one
location to another; cause the Corporation to be qualified to do business
in any other state, territory, dependency, or country and conduct business
within or outside the State of Delaware; and designate any place within or
outside the State of Delaware for the holding of any stockholders' meeting,
or meetings, including annual meetings.

(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.

(d) Authorize the issuance of shares of stock of the Corporation on
any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, or tangible or intangible
property actually received.

(e) Borrow money and incur indebtedness on behalf of the Corporation,
and cause to be executed and delivered for the Corporation's purposes, in
the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, and other evidences of debt and
securities.

Section 2. Number and Qualification of Directors. Until the expiration of
the Initial Period, the Board of Directors shall consist of nine (9) members.
For purposes hereof, "Initial Period" shall mean the period

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commencing as of May 20, 1996 and ending upon the date on which California
HealthCare Foundation and its affiliates, when taken together, cease to
Beneficially Own Capital Stock (as defined in Section 14(d) of Article VII of
the Corporation's Certificate of Incorporation) in excess of the Ownership Limit
(as defined in Section 14(f) of Article VII of the Corporation's Certificate of
Incorporation).

Each of the directors of the Corporation shall hold office for the term for
which he or she is elected and until (i) his or her successor has been elected
and qualified or (ii) his or her earlier death, resignation or removal. The
directors of the Corporation shall be classified, with respect to the time for
which they hold office, into three classes as nearly equal in number as
possible: Class I, consisting of Roger E. Birk, Elizabeth A. Sanders and Sheila
P. Burke, whose term expires at the annual meeting of stockholders held in 2000,
and Class II, consisting of David R. Banks and Stephen L. Davenport, whose term
expires at the annual meeting of stockholders held in 1998 and Class III,
consisting of Julie A. Hill, W. Toliver Besson and Leonard D. Schaeffer, whose
term expires at the annual meeting of stockholders held in 1999, with each class
to hold office until its successors are elected and qualified. If the number of
directors is changed by the Board of Directors, then any newly created
directorships or any decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal as possible; provided, that no
decrease in the number of directors shall shorten the term of any incumbent
director. At each annual meeting of the stockholders, subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.

Directors need not be stockholders. In any election of directors, the
persons receiving a plurality of the votes cast, up to the number of directors
to be elected in such election, shall be deemed to be elected.

Section 3. Vacancies. In the case of any vacancy on the Board of Directors
or in the case of any newly created directorship, a director elected to fill the
vacancy or the newly created directorship for the unexpired portion of the term
being filled, shall be elected by a vote of not less than a majority of the
directors of the Corporation then in office, from a list of one or more persons
proposed in accordance with the nominating process specified in Article IV,
Section 2 of these Bylaws, or, in the absence of such list being arrived at in
accordance with the nominating process specified in Article IV, Section 2 of
these Bylaws, then by the vote of a majority of the Board of Directors,
provided, however, during the Initial Period, in the case of replacing or
filling a vacancy of a BCC Designee (as such term is defined in Article IV,
Section 2), the vote shall be of not less than a majority of the remaining BCC
Designees and, in the case of replacing or filling a vacancy of a WellPoint
Designee (as such term is defined in Article IV, Section 2), the vote shall be
of not less than a majority of the remaining WellPoint Designees. Each director
so elected shall hold office until the next annual meeting of the stockholders
and until a successor has been elected and qualified. A vacancy or vacancies in
the Board of Directors shall be deemed to exist in the event of the death,
resignation, or removal of any director, or if the Board of Directors by
resolution declares vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony, or if the authorized
number of directors is increased, or if the stockholders fail, at any meeting of
stockholders at which any director or directors are elected, to elect the number
of directors to be voted for at that meeting.

The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors.

Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.

No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

Section 4. Removal of Directors. Any or all of the directors may be
removed, with or without cause, by the affirmative vote of the holders of a
majority of the voting power of the shares of the Corporation's stock

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entitled to vote at an election of directors. However, a director may not be
removed without cause if the votes cast against removal of the director would be
sufficient to elect the director if voted cumulatively (without regard to
whether shares may otherwise be voted cumulatively) at an election at which the
same total number of votes were cast and either the number of directors elected
at the most recent annual meeting of the stockholders, or if greater, the number
of directors for whom removal is being sought, were then being elected.

Section 5. Place of Meetings and Meetings by Telephone. Regular meetings
of the Board of Directors may be held at any place within or outside the State
of Delaware that has been designated from time to time by resolution of the
Board of Directors. In the absence of such a designation, regular meetings shall
be held at the principal executive office of the Corporation. Special meetings
of the Board of Directors shall be held at any place within or outside the State
of Delaware that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the Corporation. Any meeting, regular or special, may be held by conference
telephone, electronic video screen communication or other communications
equipment, if (1) each member participating in the meeting can communicate with
all of the other members concurrently, (2) each member is provided the means of
participating in all matters before the Board of Directors, including the
capacity to propose, or to interpose an objection, to a specific action to be
taken by the Corporation, and (3) the Corporation adopts and implements some
means of verifying that (a) a member communicating by telephone, electronic
video screen, or other communications equipment is a director entitled to
participate in the meeting and (b) all statements, questions, actions, or votes
were made by that director and not by another person not permitted to
participate as a director. Participation in a meeting as permitted by this
Section 5 constitutes presence in person at such meeting.

Section 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held without call at such time as shall from time to time be fixed by
the Board of Directors. Such regular meetings may be held without notice.

Section 7. Special Meetings. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President or by a majority of directors.

Notice of the time and place of special meetings (but the purpose need not
be stated) shall be delivered personally or by telephone, facsimile, or
electronic mail message to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
residence or usual place of business. In case the notice is mailed, it shall be
deposited in the United States mail at least two (2) calendar days before the
time of the holding of the meeting. In case the notice is delivered personally,
or by telephone, facsimile, electronic mail message, or telegram, it shall be
delivered personally or by telephone, facsimile, electronic mail message, or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. As used herein, notice by telephone shall be deemed to
include a voice messaging system or other system or technology designed to
record and communicate messages, or wireless, to the recipient, including the
recipient's designated voice mailbox or address on such a system.

Section 8. Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except as so provided in
Section 14 of this Article and as provided in Article IV. Every act done or
decision made by a majority of the directors present at a meeting duly held at
which a quorum is present shall be regarded as the act of the Board of
Directors, subject to the provisions of Section 144 of the DGCL (as to approval
of contracts or transactions in which a director has a direct or indirect
material financial interest), Section 141 of the DGCL (as to appointment of
committees), and Section 145 of the DGCL (as to indemnification of directors). A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.

Section 9. Waiver of Notice. The transactions of any meeting of the Board
of Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a

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written waiver of notice, a consent to holding the meeting or an approval of the
minutes. The waiver of notice or consent need not specify the purpose of the
meeting. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Notice of a
meeting shall also be deemed given to any director who attends the meeting
without protesting before or at its commencement the lack of notice to that
director.

Section 10. Adjournment. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.

Section 11. Notice of Adjournment. Notice of the time and place of holding
an adjourned meeting need not be given, unless the meeting is adjourned for more
than 24 hours, in which case notice of the time and place shall be given prior
to the time of the adjourned meeting, in the manner specified in Section 7 of
this Article III, to the directors who were not present at the time of the
adjournment.

Section 12. Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors may be taken without a meeting, if all members
of the Board shall individually or collectively consent in writing to that
action. Such action by written consent shall have the same force and effect as a
unanimous vote of the Board of Directors. Such written consent or consents shall
be filed with the minutes of the proceedings of the Board.

Section 13. Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. This Section 13 shall not be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.

Section 14. Rules and Regulations. The Board of Directors may adopt such
rules and regulations not inconsistent with the provisions of the Certificate of
Incorporation, these Bylaws or applicable law for the conduct of its meetings
and management of the affairs of the Corporation as the Board of Directors may
deem to be proper.

Section 15. Loans by the Corporation to Officers. The Board of Directors,
acting alone (by a vote sufficient without counting the vote of any interested
director or directors), and without any approval of the stockholders of the
Corporation, shall be authorized to approve the making of any loan of money or
property by the Corporation to, or the guarantee by the Corporation of the
obligation of, any officer (whether or not a director) of the Corporation, or an
employee benefit plan authorizing such a loan or guaranty to an officer (whether
or not a director), if the Board of Directors determines that such a loan or
guaranty or plan may reasonably be expected to benefit the Corporation.

ARTICLE IV

COMMITTEES

Section 1. Committees. The Board may, by resolution adopted by a majority
of the authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board,
provided, however, that any executive committee established pursuant to this
provision shall, during the Initial Period, have at least one member who shall
be a BCC Designee (as hereinafter defined) and a majority of members who shall
be non-BCC Designees. Subject to Section 2 of this Article IV, the Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. Any
committee, to the extent allowed by law and provided in these Bylaws or the
resolution establishing the committee, shall have all the authority of the Board
in the management and of the business and affairs of the Corporation. Each
committee shall keep regular minutes and report to the Board when required.

Section 2. Nominating Committee. There shall be a Nominating Committee of
the Board which shall consist of three directors, at least one of whom shall be
a BCC Designee and a majority of members who shall be non-BCC Designees, and all
of whom shall be independent, but none of whom shall consist of the
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Chairman of the Board so long as the Chairman of the Board is also an executive
officer of the Corporation. The Nominating Committee shall continue in
existence, with the power and authority specified in this Section 2, at least
until the expiration of the Initial Period. So long as it shall remain in
existence, the Nominating Committee shall have the power, acting by majority
vote, to nominate persons to serve as directors of the Corporation, subject (i)
to any rights of stockholders under law to nominate persons to serve as
directors, (ii) in the case of a person nominated to be a replacement for any
BCC Designee on the Board, the BCC Designee member(s) of the Nominating
Committee shall have a veto vote, (iii) in the case of a person nominated to be
a replacement for any WellPoint Designee on the Board, the Nominating Committee
shall not nominate such a person if a majority of the WellPoint Designee members
of the Nominating Committee oppose such a nomination, (iv) to any contractual
obligations of the Corporation, and (v) to the next paragraph hereof.

So long as the Nominating Committee shall remain in existence, if the
Nominating Committee is unable to nominate a candidate for the Corporation's
Board of Directors as set forth above on a timely basis, nominations shall be
made by vote of a majority of the Board of Directors, provided, however, in the
case of replacing a BCC Designee, by vote of a majority of the remaining BCC
Designees or, in the case of replacing a WellPoint Designee, by vote of a
majority of the remaining WellPoint Designees and with respect to any other
position on the Board, by a vote of a majority of the Board of Directors.

As used in these Bylaws, "BCC Designee" means each of W. Toliver Besson,
Stephen L. Davenport and Sheila P. Burke, or a direct or indirect replacement
thereof; "WellPoint Designees" shall mean Leonard D. Schaeffer, David R. Banks,
Roger E. Birk, Julie A. Hill and Elizabeth E. Sanders, or a direct or indirect
replacement thereof.

Section 3. Powers of Committees. Any committee, to the extent allowed by
law and provided in these Bylaws or the resolution of the Board of Directors
establishing the committee, shall have all the authority of the Board of
Directors, except with respect to:

(a) the approval of any action which, under the DGCL, also requires
stockholders' approval or approval of the outstanding shares;

(b) the filling of vacancies on the Board of Directors or in any
committee;

(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;

(e) the amendment or repeal of any resolution of the Board of
Directors;

(f) a distribution to the stockholders of the Corporation, except at a
rate or in a periodic amount or within a price range set forth in the
Corporation's Certificate of Incorporation or determined by the Board of
Directors; or

(g) the appointment of any other committees of the Board of Directors
or the members of these committees.

Section 4. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 5 (place of meetings),
Section 6 (regular meetings), Section 7 (special meetings and notice), Section 8
(quorum), Section 9 (waiver of notice), Section 10 (adjournment), Section 11
(notice of adjournment), and Section 12 (action without meeting), with such
changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee; special
meetings of committees may also be called by resolution of the Board of
Directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.

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ARTICLE V

OFFICERS

Section 1. Officers. The officers of the Corporation shall be a Chairman
of the Board, a President, a Secretary, and a Chief Financial Officer. The
Treasurer is the Chief Financial Officer of the Corporation unless the Board of
Directors has by resolution determined a Vice President or other officer to be
the Chief Financial Officer. The Corporation may also have, at the discretion of
the Board of Directors, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.

Section 2. Election of Officers. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the Board of Directors, and
each shall serve at the pleasure of the Board, subject to the rights, if any, of
any officer under an express written contract of employment.

Section 3. Subordinate Officers. The Board of Directors may appoint, and
may empower the President to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the Bylaws or as the
Board of Directors or the President may from time to time determine.

Section 4. Removal and Resignation of Officers. Except as otherwise
provided in these Bylaws and subject to the rights, if any, of any officer under
an express written contract of employment, any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special
meeting of the Board of Directors, or except in the case of an officer chosen by
the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.

Section 5. Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to that office.

Section 6. Chairman of the Board. The Chairman of the Board shall, when
present, preside at meetings of the Board of Directors and, when present,
preside at the meetings of the stockholders. The Chairman of the Board shall
perform such duties and possess such powers as are usually vested in the office
of the Chairman of the Board or as may be vested in the Chairman of the Board by
the Board of Directors, subject to the terms of his or her employment agreement.

Section 7. President/Chief Executive Officer. The President shall be the
chief operating officer of the Corporation. He shall also be the chief executive
officer of the Corporation, unless such title is assigned to the Chairman of the
Board. The President shall perform such duties and possess such powers as are
usually vested in the office of the President or as may be vested in the
President by the Board of Directors, subject to the terms of his or her
employment agreement.

Section 8. Vice President. In the absence or disability of the President,
the vice presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a vice president designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.

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Section 9. Secretary. The Secretary shall keep or cause to be kept, at the
principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and the proceedings.

The Secretary shall keep or cause to be kept, at the principal executive
office or at such other place as designated by the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep the seal of the Corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the Bylaws.

Section 10. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.

The Chief Financial Officer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or by the Bylaws.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS AND FIDUCIARIES

Section 1. Indemnification of Directors and Officers. The Corporation
shall be required, to the maximum extent permitted by the DGCL, to indemnify
each of its directors and officers against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that any such person is or was
a director, officer, employee, or other agent of the Corporation or a
Predecessor Corporation or is or was serving at the request of the Corporation
or a Predecessor Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise. For
purposes hereof, "Predecessor Corporation" shall mean WellPoint Health Networks
Inc. , a California corporation ("WellPoint").

Section 2. Indemnification of Other Agents. The Corporation may, in its
absolute discretion, up to the maximum extent permitted by the DGCL, indemnify
each of its agents who are not required to be indemnified under Section 1 of
this Article VI against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that any such person is or was an agent of the
Corporation or a Predecessor Corporation. For purposes of this Section 2, an
"agent" of the Corporation includes any person who is or was an employee or
other agent of the Corporation or a Predecessor Corporation, or is or was
serving at the request of the Corporation or a Predecessor Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise.

Section 3. Indemnification of Fiduciaries. The Corporation shall indemnify
any director, officer, employee, or other agent of the Corporation against
expenses, judgments, fines, settlements, and other

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amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that any such person is or was a trustee,
investment manager, or other fiduciary under any employee benefit plan of the
Corporation (or a Predecessor Corporation). The provisions of this Section 3
shall be deemed to constitute a contract between the Corporation (or any
Predecessor Corporation) and any such indemnified person, or for the benefit of
any such indemnified person.

Section 4. Advances of Expenses. To the extent permitted by the DGCL,
expenses incurred in defending any proceeding in the cases described in Sections
1 and 3 of this Article VI shall, and in the case described in Section 2 of this
Article VI may, be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of any undertaking by or on behalf of the agent to
repay such amount, if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this section.

ARTICLE VII

RECORDS AND REPORTS

Section 1. Maintenance and Inspection of Share Register. The Corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Directors, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of shares held by each
stockholder.

Any stockholder of the Corporation may upon written demand under oath
stating the proper purpose thereof (i) inspect and copy the records of
stockholders' names and addresses and shareholdings during usual business hours
upon five (5) days' prior written demand on the Corporation, or (ii) obtain from
the transfer agent of the Corporation, upon the tender of such transfer agent's
usual charges for such list, a list of the stockholders' names and addresses
entitled to vote for the election of directors, and their shareholdings, as of
the most recent record date for which that list has been compiled or as of a
date specified by the stockholder subsequent to the date of demand. This list
shall be made available to any such stockholder by the transfer agent on or
before the later of five days after the demand is received or the date specified
in the demand as the date as of which the list is to be compiled. The record of
stockholders shall also be open to inspection on the written demand of any
stockholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
stockholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the stockholder or holder of a voting trust certificate making the demand.

Section 2. Maintenance and Inspection of Bylaws. The Corporation shall
keep at its principal executive office the original or a copy of the Bylaws as
amended to date, which shall be open to inspection by the stockholders at all
reasonable times during office hours.

Section 3. Maintenance and Inspection of Other Corporate Records. The
accounting books and records and minutes of proceedings of the stockholders and
the Board of Directors and any committee or committees of the Board of Directors
shall be kept at such place or places designated by the Board of Directors, or,
in the absence of such designation, at the principal executive office of the
Corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any stockholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the stockholder's interests as a
stockholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and to make extracts.

Section 4. Inspection by Directors. Every director shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.

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ARTICLE VIII

GENERAL CORPORATE MATTERS

Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before any such action, and in that case only stockholders
of record on the date so fixed are entitled to receive the dividend,
distribution, or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date so fixed, except as otherwise provided in the DGCL.

If the Board of Directors does not so fix a record date, the record date
for determining stockholders for any such purpose shall be at the close of
business on the date on which the Board of Directors adopts the applicable
resolution.

Section 2. Checks, Drafts, Evidences of Indebtedness. All checks, drafts,
or other orders for payment of money, notes, or other evidences of indebtedness,
issued in the name of or payable to the Corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.

Section 3. Executing Corporate Contracts and Instruments. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.

Section 4. Certificates for Shares. A certificate or certificates for
shares of the capital stock of the Corporation shall be issued to each
stockholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state thereon the amount of the consideration to
be paid for them and the amount paid. All certificates shall be signed in the
name of the Corporation by the Chairman of the Board or the President or Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the stockholder. Any or all of the signatures
on the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Corporation with the
same effect as if that person were an officer, transfer agent, or registrar at
the date of issue.

Section 5. Lost Certificates. Except as provided in this Section 5, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Board of Directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Board of Directors
may require, including provision for indemnification of the Corporation secured
by a bond or other adequate security sufficient to protect the Corporation
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.

Section 6. Representation of Shares of Other Corporations. The Chairman of
the Board, the President, or any Vice President, or any other person authorized
by resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the Corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the Corporation. The authority granted to these officers to vote or
represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
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Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
DGCL shall govern the construction of these Bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.

ARTICLE IX

AMENDMENTS

Section 1. Amendment by Stockholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote of holders of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law or in
the Certificate of Incorporation.

Section 2. Amendment by Directors. Subject to the rights of the
stockholders as provided in Section 1 of this Article IX, to adopt, amend, or
repeal Bylaws, and subject to the provisions of the Certificate of
Incorporation, Bylaws may be adopted, amended, or repealed by the Board of
Directors; provided, however, that the Board of Directors may adopt a Bylaw or
amendment of a Bylaw changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Certificate of Incorporation.

E-14
<PAGE> 242

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

WellPoint is a Delaware corporation. Section 145 of the General Corporation
Law of the state of Delaware (the "Delaware Law") empowers a Delaware
corporation to indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.

WellPoint's certificate of incorporation provides that the liability of
WellPoint's directors to WellPoint or WellPoint's stockholders for monetary
damages for breach of fiduciary duty will be eliminated to the fullest extent
permissible under Delaware law except for (i) breaches of the duty of loyalty;
(ii) acts or omissions not in good faith or involving intentional misconduct or
knowing violations of the law; (iii) the payment of unlawful dividends or
unlawful stock repurchases or redemptions; or (iv) transactions in which a
director received an improper personal benefit.

The effect of these provisions is to eliminate the rights of WellPoint and
its stockholders (through stockholders' derivative suits on behalf of WellPoint)
to recover monetary damages against a director for breach of fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in certain limited situations. These provisions do
not limit or eliminate the rights of WellPoint or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. These provisions will not alter the liability of
directors under federal securities law.

WellPoint's bylaws provide that WellPoint will indemnify each present and
former director and officer of WellPoint or a predecessor company and each of
their respective subsidiaries, as such companies exist or have existed, and such
agents of WellPoint as the Board of Directors shall determine, to the fullest
extent provided by Delaware law.

In addition, WellPoint has entered into indemnification agreements with its
directors and certain officers that provide for the maximum indemnification
permitted by law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.

(b) All of the financial statement schedules for which provision is made in
the applicable accounting regulations of the Commission are not required under
the applicable instructions or are not applicable and therefore have been
omitted.

II-1
<PAGE> 243

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through the use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form. The registrant undertakes that
every prospectus: (i) that is filed pursuant to the immediately preceding
sentence, or (ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

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 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.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-2
<PAGE> 244

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Los Angeles, State of
California, on September 30, 1998.

WELLPOINT HEALTH NETWORKS INC.

By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Chairman of the Board of Directors
and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Leonard D. Schaeffer and Thomas C.
Geiser, and each of them, with full power to act without the other, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
fully to all intents and purposes as he or she might or could do in person
thereby ratifying and confirming all that said attorney-in-fact and agents or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LEONARD D. SCHAEFFER Chairman of the Board of September 30, 1998
- ----------------------------------------------------- Directors and Chief
Leonard D. Schaeffer Executive Officer
(Principal Executive
Officer)

/s/ DAVID C. COLBY Executive Vice President and September 30, 1998
- ----------------------------------------------------- Chief Financial Officer
David C. Colby (Principal Financial
Officer)

/s/ S. LOUISE MCCRARY Senior Vice President, September 30, 1998
- ----------------------------------------------------- Controller and Chief
S. Louise McCrary Accounting Officer
(Principal Accounting
Officer)

/s/ DAVID R. BANKS Director September 30, 1998
- -----------------------------------------------------
David R. Banks

/s/ W. TOLIVER BESSON Director September 30, 1998
- -----------------------------------------------------
W. Toliver Besson
</TABLE>

II-3
<PAGE> 245

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROGER E. BIRK Director September 30, 1998
- -----------------------------------------------------
Roger E. Birk

/s/ SHEILA A. BURKE Director September 30, 1998
- -----------------------------------------------------
Sheila A. Burke

/s/ STEPHEN L. DAVENPORT Director September 30, 1998
- -----------------------------------------------------
Stephen L. Davenport

/s/ JULIE A. HILL Director September 30, 1998
- -----------------------------------------------------
Julie A. Hill

/s/ ELIZABETH A. SANDERS Director September 30, 1998
- -----------------------------------------------------
Elizabeth A. Sanders
</TABLE>

II-4
<PAGE> 246

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <C> <S>
2.1 -- Amended and Restated Recapitalization Agreement dated as of
March 31, 1995, by and among the Registrant, Blue Cross of
California, Western Health Partnership and Western
Foundation for Health Improvement, incorporated by reference
to Exhibit 2.1 to Registrant's Form S-4 dated April 8, 1996
2.2 -- Purchase and Sale Agreement, dated as of October 10, 1996,
by and between the Registrant and John Hancock Mutual Life
Insurance Company ("John Hancock"), incorporated by
reference to Exhibit 2.1 to Registrant's Current Report on
Form 8-K dated October 9, 1996
2.3 -- Agreement and Plan of Reorganization dated as of July 22,
1997 by and among the Registrant, WellPoint Health Networks
Inc., a California corporation ("WellPoint California"), and
WLP Acquisition Corp., incorporated by reference to Exhibit
99.1 to Registrant's Current Report on Form 8-K filed on
August 5, 1997
2.4 -- Agreement and Plan of Merger dated as of July 9, 1998, by
and among Cerulean, WellPoint and Merger Sub (included in
Appendix A to the Proxy Statement/Prospectus included as a
part of this Registration Statement)
3.1 -- Restated Certificate of Incorporation of the Registrant
(included in Appendix D to the Proxy Statement/Prospectus
included as a part of this Registration Statement)
3.2 -- Bylaws of the Registrant (included in Appendix E to the
Proxy Statement/Prospectus included as a part of this
Registration Statement)
4.1 -- Specimen of common stock certificate of WellPoint Health
Networks Inc., incorporated by reference to Exhibit 4.4 of
Registrant's Registration Statement on Form 8-B,
Registration No. 001-13083.
4.2 -- Restated Certificate of Incorporation of the Registrant
(included in Appendix D to the Proxy Statement/Prospectus
included as a part of this Registration Statement)
4.3 -- Bylaws of the Registrant (included in Appendix E to the
Proxy Statement/Prospectus included as a part of this
Registration Statement)
5.1* -- Form of Opinion of Gibson, Dunn & Crutcher LLP as to
legality of Shares
8.1* -- Form of Opinion of Gibson, Dunn & Crutcher LLP as to certain
tax matters
8.2* -- Form of Opinion of Long Aldridge & Norman LLP as to certain
tax matters
23.1 -- Consent of Gibson, Dunn & Crutcher LLP (to be included as
part of Exhibits 5.1 and 8.1 hereto)
23.2 -- Consent of Long Aldridge & Norman LLP (to be included as
part of Exhibit 8.2 hereto)
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of Ernst & Young LLP
23.5 -- Consent of Morgan Stanley & Co. Incorporated
24.1 -- Power of Attorney (included on Signature Page)
99.1 -- Form of Proxy Card for Meeting of holders of Class A Stock
99.2 -- Form of Proxy Card for meeting of holders of Class B Stock
99.3* -- Form of Letter of Transmittal to be used by holders of Class
B Stock in connection with the Merger
99.4 -- Fairness Opinion of Morgan Stanley & Co. Incorporated
(included in Appendix B to the Proxy Statement/Prospectus
included as a part of this Registration Statement)
</TABLE>

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

* To be filed by amendment

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration
statement of WellPoint Health Networks Inc. Form S-4 (File No. 333- )
of our report dated February 2, 1998, on our audits of the consolidated
financial statements of WellPoint Health Networks Inc. We also consent to the
reference to our firm under the caption "Experts."

/s/ PricewaterhouseCoopers LLP

Los Angeles, California
September 29, 1998

<PAGE> 1
EXHIBIT 23.4

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
"Independent Auditors" and to the use of our report dated February 6, 1998,
with respect to the consolidated financial statements of Cerulean Companies,
Inc. included in the Proxy Statement/Prospectus that is made a part of the
Registration Statement (Form S-4) of WellPoint Health Networks Inc. for the
registration of shares of its common stock.

/s/ ERNST & YOUNG LLP
Atlanta, Georgia
September 29, 1998

<PAGE> 1
EXHIBIT 23.5

MORGAN STANLEY DEAN WITTER

1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000

September 30, 1998

Cerulean Companies
Board of Directors
3350 Peachtree Road NE
Atlanta, GA 30326

Dear Sirs:

We hereby consent to the inclusion in the Registration Statement of
WellPoint Health Networks Inc. on Form S-4, of our opinion letter appearing as
Appendix B to the Proxy Statement/Prospectus which is part of the Registration
Statement and to the references of our firm name therein. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations adopted by the Securities and Exchange
Commission thereunder, nor do we admit that we are experts with respect to any
part of the Registration Statement within the meaning of the term "experts" as
used in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By: /s/ Mary Anne Citrino
------------------------------------
Mary Anne Citrino
Managing Director

<PAGE> 1
EXHIBIT 99.1

Please mark
your vote as [X]
indicated in
the example
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock
-------------------------------------------------------------- --------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTE FOR ITEMS 1 AND 2
-------------------------------------------------------------- --------------------------------------------------------
Item 1. Approve of the Merger, as FOR AGAINST ABSTAIN Item 2. Election of Directors FOR WITHHOLD
more fully described in the Proxy [ ] [ ] [ ] Election of the following ALL AUTHORITY
Statement/Prospectus and the nominees as Directors: NOMINEES to vote for All
transactions contemplated Nominees
thereby. ----------------------------- [ ] [ ]

------------------.
Withhold authority to vote for the
following nominee(s):

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

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

----------------------------------------------------------------- ------------------------------------------------
FOR W-4 INFORMATION
Item 1.a. I elect to receive cash in the Merger, if approved. [ ] Social Security No. or Employer Identification
NO.
-----------------------------
-----------------------------------------------------------------
Awaiting TIN [ ]
----------------
Certification - Under penalties of perjury, I
certify that (1) The Number shown on this form
is my correct Taxpayer Identification Number (or
I am waiting for a number to be issued to me),
and (2) I am not subject to backup withholding
either because I have not been notified by the
Internal Revenue Service (IRS) that I am subject
to backup withholding as a result of a failure to
report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup
withholding.
-------------------------------------------------

Signature Signature Date
------------------------------------- ----------------------------------------------- ------------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>

<PAGE> 1
EXHIBIT 99.2

Please mark
your vote as [X]
indicated in
the example
CLASS B PREFERRED
STOCK

<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTE FOR ITEM 1
---------------------------------------------------------------------------------------
Item 1. Approve of the Merger, as more fully described FOR AGAINST ABSTAIN
in the Proxy Statement/Prospectus, and the [ ] [ ] [ ]
transactions contemplated thereby.

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