<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 1996
                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from to

                         Commission File Number 1-11538

                               HEALTHSOURCE, INC.
             (Exact name of registrant as specified in its charter)

              New Hampshire                               02-0387748
     (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                   Two College Park Drive, Hooksett, NH 03106
                    (Address of principal executive offices)

                                 (603) 268-7000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                          Common Stock, $.10 par value
                   5% Convertible Subordinated Notes Due 2003
                                (Title of Class)

        Securities registered pursuant to Section 12(g) of the Act: NONE

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $1,227,749,676(based upon the reported closing price of $20
5/8 on the New York Stock Exchange on March 24, 1997).

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

     Title of Each Class: Common Stock, $.10 par value

     Number of Shares Outstanding at March 24, 1997: 63,860,017 shares
<PAGE>   2

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's 1996 Annual Report are incorporated by
reference in Part II of this Form 10-K.


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<PAGE>   3

                               HEALTHSOURCE, INC.
                                    FORM 10-K

                   TABLE OF CONTENTS AND CROSS-REFERENCE SHEET

                                                               Reference by Page
                                                                 to Information
                                                      Page of     Incorporated
Item No. in Form 10-K                                 Report     by Reference
---------------------                                 ------     ------------

PART I
  1.  Business....................................       4            N/A

  2.  Properties..................................      19            N/A

  3.  Legal Proceedings...........................      20            N/A

  4.  Submission of Matters to a Vote of Security
      Holders.....................................      20            N/A

PART II
  5.  Market for Registrant's Common Equity and
      Related Shareholder Matters.................      21        1996 Annual
                                                                 Report, p. 25

  6.  Selected Financial Data.....................      21        1996 Annual
                                                                  Report, p. 2

  7.  Management's Discussion and Analysis of
      Financial Condition and Results of Operations     21        1996 Annual
                                                                  Report, p. 3

  8.  Financial Statements and Supplementary Data.      21        1996 Annual
                                                                  Report, p. 8

  9.  Changes in and Disagreements with Accountants
      on Accounting and Financial Disclosure......      22            N/A

PART III
 10.  Directors and Executive Officers of the
      Registrant..................................      22            N/A

 11.  Executive Compensation......................      27            N/A

 12.  Security Ownership of Certain Beneficial
      Owners and Management.......................      34            N/A

 13.  Certain Relationships and Related Transactions    36            N/A



PART IV
 14.  Exhibits, Financial Statement Schedules, and
      Reports on Form 8-K.........................      37            N/A

Exhibit Index.....................................      45            N/A

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<PAGE>   4
                                    PART I


ITEM 1.  BUSINESS

     (a) General Development of Business. See (c) below.

     (b) Financial Information about Industry Segments. Not Applicable.

     (c) Narrative Description of Business.

General

     Healthsource, a New Hampshire corporation established in 1985
("Healthsource" or the "Company"), is a geographically diversified provider of a
broad range of managed healthcare services. Healthsource is a leading managed
care provider with health maintenance organizations ("HMOs") in North Carolina,
South Carolina, New Hampshire, Massachusetts, Indiana, Maine, Tennessee,
Arkansas, Syracuse, New York, Louisville, Kentucky, Georgia, north central
Texas, southwestern Ohio, New York City, northern New Jersey, and Connecticut.
Healthsource acquired the group health, HMO and third party administration
("TPA") business of Provident Life and Accident Insurance Company of America
("Provident") of Chattanooga, Tennessee in May 1995 (the "Provident
Transaction"). The national indemnity insurance and TPA business acquired from
Provident (collectively referred to as "Healthsource Provident") is concentrated
in the Southeast and serves a total of over 1.7 million members. On January 6,
1997, the Company completed the acquisition (effective December 31, 1996) of the
remaining 85% interest in ChubbHealth, Inc., a 68,000 member HMO in the greater
New York City area. On January 1, 1997 Healthsource provided or administered
healthcare benefits for over 3.1 million members. Healthsource also offers point
of service ("POS") plans, preferred provider organization ("PPOs") plans,
insured and self-insured dental plans, utilization review ("UR") services,
managed workers' compensation services, pharmacy benefit management services and
other managed care consulting and administrative services to other healthcare
payors including Provident and Liberty Mutual Insurance Company. The Company's
executive offices are located at Two College Park Drive, Hooksett, New Hampshire
03106; telephone number (603) 268-7000.

Recent Development - Announced CIGNA Merger Agreement

     On February 28, 1997, the Company announced that it had signed an Agreement
and Plan of Merger (the "CIGNA Merger Agreement") with CIGNA Corporation
("CIGNA") under which CIGNA agreed to acquire, through a wholly-owned
subsidiary, all of the outstanding Common Stock of the Company for a price of
$21.75 in cash per share, through a public tender offer (the "Tender Offer") for
all outstanding shares which was commenced on March 6, 1997, to be followed by a
statutory merger (the "Merger") cashing-out the remaining public shareholders at
the same price per share. The consummation of the Tender Offer and Merger are
subject to regulatory and other approvals and conditions; there is no assurance
that such approvals will be obtained or that such conditions will be satisfied.
The CIGNA Merger Agreement has been filed as an exhibit to the Company's Report
on Form 8-K filed March 4, 1997, and the terms of the CIGNA Merger Agreement are
incorporated herein by reference. The Company has agreed to redeem the Rights
issued under the Rights Agreement dated as of July 29, 1996 with The Bank of New
York prior to the consummation


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<PAGE>   5

of the Tender Offer. In connection with the Merger, CIGNA has agreed to fund the
repurchase of the Company's $247,250,000 principal amount 5% Convertible
Subordinated Notes Due 2003 (the "Notes"), the holders of which will have the
right to require that the Company repurchase such Notes at a purchase price in
cash of 101% of the principal amount of such Notes, plus interest to the date
such Notes are accepted for payment by the Company, following the consummation
of the Tender Offer.

     In connection with the CIGNA Merger Agreement, CIGNA entered into a Tender
Agreement and Irrevocable Proxy (the "Shareholder Agreement") with Norman C.
Payson, M.D., the Company's President and Chief Executive Officer and a member
of the Company's Board, with respect to the 4,332,760 shares of the Company's
Common Stock owned by Dr. Payson. Pursuant to the Shareholder Agreement, Dr.
Payson has agreed to tender all shares owned by him in the Tender Offer and
CIGNA has agreed to accept for payment and pay for such shares, subject to the
terms of the Tender Offer. See Item 12 "Security Ownership of Certain Beneficial
Owners and Management" for additional information regarding the Shareholder
Agreement.

The Managed Care Industry

     The managed care industry has grown substantially in recent years.
Healthsource expects industry growth to continue because of continued pressure
from employers and state and federal governments to control healthcare costs and
the failure of unmanaged indemnity products to provide such controls.
Healthsource believes that managed care will continue to be a major mechanism to
control, finance and deliver healthcare in the United States in the future and
may largely replace the indemnity healthcare financing system.

Healthsource's Business Strategy

     Healthsource seeks to enhance its position as a leader in providing quality
and affordable healthcare in an expanding set of local markets. Healthsource's
business strategy has three components: (i) to increase HMO enrollment in its
existing markets by capitalizing on the historically low HMO penetration rate in
many of those markets, emphasizing the conversion to HMO membership of members
currently being served in the Company's indemnity and self-funded plans
(especially those acquired in the Provident Transaction) and continuing to
develop and offer new products for different segments of the population such as
Medicare, (ii) to continue positioning its HMOs to be less vulnerable to
declining average premiums by linking a portion of healthcare costs to premiums
through global capitation arrangements or other suitable arrangements with
healthcare providers, and (iii) to reorient the Company's start-up activities in
new markets with the goal of reducing the Company's losses in such markets below
the levels experienced in 1996. In seeking to convert existing indemnity and
self-funded plan members to HMO membership, Healthsource continues to maintain
working relationships with local physicians and hospitals and, in certain
markets, to provide operating and financial support to primary care practices in
order to enhance the access to, and quality and cost effectiveness of, its
managed care products.


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<PAGE>   6

Healthsource Health Plans

     Healthsource owns fifteen (15) operating HMOs as well as two (2) other
major operating subsidiaries: (i) Healthsource Provident Administrators, Inc.
("HPA"), which operates the 1.5 million member TPA business acquired in the
Provident Transaction and (ii) Healthsource Insurance Company ("HIC"), which
operates the 222,000 member indemnity group health insurance business acquired
in the Provident Transaction. HPA and HIC are headquartered in Chattanooga,
Tennessee and service a national client base.

     The following table shows the membership by the Company's plans at January
1, 1997:

<TABLE>
<CAPTION>
                                                                       Membership as of January 1, 1997

                                               HMO/Other
                                                 Fully
                                                 Insured      Indemnity                 Self-Insured
                                              HMO Products    Insurance         TPA         POS         PPO        Other       Total
---------------------------                   ------------    ---------      ---------    -------    ---------    -------    -------
<S>                                               <C>             <C>         <C>       <C>           <C>       <C>          <C>
Leading Plans:

Healthsource North Carolina..........             212,200           ---          ---     62,300          ---        ---      274,500
Healthsource South Carolina..........             141,400           300          ---      7,800          ---     11,200      160,700
Healthsource New Hampshire...........             136,300           900       75,700     44,100       30,900     90,700      378,600
Healthsource Maine...................              70,700           ---          ---     37,900        2,400        700      111,700

Subtotal Leading Plans...............        ------------     ---------      -------      -----     --------     ------     --------
                                                  560,600         1,200       75,700    152,100       33,300    102,600      925,500

Other Plans:

Healthsource CMHC....................              77,100           ---          ---        ---          ---      1,600       78,700
Healthsource Indiana.................              36,500           ---          ---        ---          ---     16,300       52,800
Healthsource New York/New Jersey
  New York City......................              33,600           ---          ---        ---          ---        ---       33,600
  New Jersey.........................              34,200           ---          ---        ---          ---        ---       34,200
Healthsource HMO of New York
  (Syracuse NY)......................              19,000           ---          ---        700       10,200        ---       29,900
Healthsource Kentucky................              12,400           ---          ---        ---          ---        ---       12,400
Healthsource Ohio....................               2,500           ---          ---        ---          ---        400        2,900
Healthsource Connecticut.............               1,600           ---          ---        ---          ---        ---        1,600
Healthsource Tennessee...............              92,600           ---          ---     27,500        6,500        ---      126,600
Healthsource Arkansas (1)............              34,600           ---       54,500      1,000        1,100        ---       91,200
Healthsource Georgia ................              24,800           ---          ---        ---          ---        ---       24,800
Healthsource North Texas (1).........              13,000           ---          ---        ---          100        ---       13,100
HIC (Chattanooga) (2)................                 ---        43,900          ---        ---          ---    178,700      222,600
HPA (Chattanooga) (2)................                 ---           ---    1,524,500        ---          ---        ---    1,524,500
                                              -----------     ---------    ---------    -------    ---------    -------    ---------

Subtotal Other Plans.................             381,900        43,900    1,579,000     29,200       17,900    197,000    2,248,900


         Total All Plans.............             942,500        45,100    1,654,700    181,300       51,200    299,600    3,174,400
</TABLE>


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<PAGE>   7

---------
(1)   70% owned.

(2)   Totals only -- Not separately categorized into POS and PPO plans, although
      many of these members are in such plans.

     Managed Care Products

     With the rise in healthcare costs, many private employers are encouraging
their employees to enroll in HMOs or other managed care options. Responding to
similar cost pressures, various federal and state government healthcare programs
are adding more managed care options to their healthcare plans. Healthsource
seeks to meet these needs of employers and government programs not only through
its core offerings of traditional HMO plans, but with a spectrum of other
managed care options, including POS plans, PPO plans and managed workers'
compensation. Healthsource also offers UR services, third-party claims
administration and pharmacy benefit management services to assist self-insured
employers. Healthcare providers typically participate in each of the
Healthsource managed care plans that cover their geographic area.

     HMO Products

     Healthsource offers a variety of HMO products, enabling it to modify its
benefit structure and pricing to appeal to the varying needs of employers and
their employees. In an HMO plan, the HMO bears the underwriting risk that the
covered medical expenses of its members will exceed related premium revenues in
return for charging pre-determined premiums to employers.

     Healthsource's HMOs consist of individual practice association plans in
which each HMO maintains a network of primary care and specialist physicians,
most of whom contract directly with the HMO. Independent physicians are
generally reimbursed for their services by each HMO according to a fee schedule
(also known as fee-for-service) or under fixed fee per member per month ("PMPM")
arrangements (also known as capitation). Both methodologies provide various
incentives for quality and cost-effective care. The Company is emphasizing its
global capitation arrangements with hospitals (discussed at greater length
below) under which variations in the costs of physicians serving Healthsource
members are borne by the hospitals at risk for such members' healthcare costs.

     HMO Global Capitation Hospital Contracts

     The Company's contracts with hospital providers are a key element in its
efforts to control healthcare costs. While the Company routinely contracts with
hospitals on a discounted fee-for-service, per diem and other fixed payment
bases, the primary focus of the Company's current contracting policy is to have
global capitation arrangements with major hospital providers. In such
arrangements, the hospital generally accepts as full payment for its services
all monies remaining from the global capitation amount after payment of all
other covered medical and healthcare expenses of assigned members; this global
capitation amount is generally linked to a fixed dollar amount PMPM or a
percentage of the Company's premiums collected for assigned members with certain
negotiated variations. Through these global capitation arrangements,


                                       7
<PAGE>   8

hospitals and their affiliated providers, such as owned physician practices, are
incentivized to mitigate inappropriate utilization and otherwise strive for
efficiencies in patient care. Generally, the global capitation rate in these
contracts varies directly with premium pricing, which provides incentives for
hospitals that are parties to global capitation arrangements to assist in
enhancing the quality, value and perception of the Company's HMOs in the
marketplace and allows the Company more predictability in its medical loss ratio
("MLR") and less financial exposure if there are reductions in premium pricing
since reductions in premium pricing are generally absorbed pro-rata by the
globally-capitated hospitals. Various protections including premium floors,
catastrophic stop-loss, risk sharing and reimbursement arrangements have been
negotiated by hospitals which can further increase the Company's healthcare
costs during periods of unfavorable healthcare experience.

     The Company has in excess of 100 globally-capitated hospital provider
contracts. During 1996, due primarily to premium contraction, healthcare cost
deterioration and various specific local factors, the reimbursement experience
of some globally-capitated hospitals was less than such hospitals had expected
and, in some cases, resulted in minimal or no reimbursement to the hospital. In
many if not most cases, however, the hospital also had a substantial volume of
non-capitated business with the Company on which it received negotiated levels
of reimbursement and which tempered the impact of the global capitation
arrangement on the Company's provider relationships.

     During 1996, a number of hospitals commenced arbitration proceedings,
indirectly threatened arbitration or complained orally or in writing to the
Company's local HMOs that they are unhappy with the terms of their contracts.
The Company has renegotiated the terms of several of such capitated hospital
provider contracts on terms which it considers favorable. It is also possible
that other hospitals may, among other things, request arbitration seeking to
renegotiate or terminate these long-term contracts. There can be no assurance of
a favorable result in any arbitration proceeding.

     Despite the adverse healthcare costs experienced in 1996 and the
unhappiness of certain globally capitated hospitals, the Company has been able
to conclude a substantial number of new global capitation contracts effective
January 1, 1997 and has additional potential contracts in negotiation. The goal
of the Company is to obtain as many global capitation arrangements as reasonably
possible.

     Point of Service Plans

     A POS plan incorporates greater flexibility than a traditional HMO plan,
typically containing some of the favored provider pricing and utilization
controls of an HMO while permitting the member to use providers outside the
prescribed network at an increased cost to the member. These plans may be
offered to employers on a fully-insured or self-insured basis depending upon the
preferences of the employer. The availability of the POS option has enabled
Healthsource to service various large national employers who have requested this
option. In most cases, the Company's global capitation provider contracts cover
its POS products.


                                       8
<PAGE>   9

     Preferred Provider Organizations

     A PPO is an indemnity healthcare plan which relies on a network of
physicians, hospitals and other providers to provide care on negotiated
financial terms (including discounts or other favorable pricing methodologies)
and which provides members with a greater level of coverage for using network
providers. In markets where the Company has its own HMO, it typically uses the
HMO providers as the preferred providers in the PPO network. To serve the
broader geographic base of members acquired in the Provident Transaction and
other national and regional accounts in other markets, the Company contracts
with third-party PPO providers for access to their networks. The Company
believes PPOs are a transitional product since health plans such as HMOs and POS
plans allow better utilization management and are more easily supported by
global capitation arrangements.

     Third-Party Administration Services

     Through its TPA services, Healthsource processes claims for medical and
dental services to members of employer-sponsored, self-funded plans and
reimburses the provider or member according to the terms of each plan. Employers
often purchase TPA services which are bundled with UR services and selected PPO
networks in an effort to apply managed care techniques to their self-funded
plans. Under its TPA arrangements, Healthsource does not generally bear any
healthcare cost risk and, accordingly, is not paid an underwriting premium.
Instead, Healthsource's TPA arrangements typically provide for the payment of
administrative fees which generally vary by the number of members covered.
Certain of these contracts contain performance guarantees as to timeliness and
accuracy and certain other features which can place compensation under such
contracts at risk. Of the total of 1.6 million members being provided TPA
services, more than 1.5 million are serviced by HPA from its headquarters in
Chattanooga, Tennessee, seven regional claims centers, and field sales offices
in 13 states. Other significant TPA operations are administered by affiliates of
the New Hampshire and Arkansas plans.

     Medicare Risk Products

     The Company is actively developing HMO products for the Medicare market
using a task force headquartered in New Hampshire. The task force is designing
provider contracts, creating marketing materials and strategies and preparing
the Health Care Financing Administration ("HCFA") applications and documentation
on a centralized basis with the expectation that Medicare risk contracts would
eventually be sought in most of the Company's markets. The Company expects to
support the offering of Medicare HMO products in each market typically with a
global capitation arrangement with one or more local hospitals. The Company has
found that its hospital providers are often interested in providing care to
Medicare HMO plans and willing to consider healthcare risk assumption under
global capitation arrangements. The degree of customer acceptance of these
products is unknown and will depend upon various policy decisions by Congress
and HCFA, as well as upon successful marketing in each market inasmuch as
Medicare HMO membership is sold on an individual rather than a group basis. The
Company is presently marketing Medicare risk products in Arkansas and New
Hampshire.

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<PAGE>   10

Indemnity Insurance Products

     Prior to the Provident Transaction, the Company owned three small indemnity
insurance companies. With the Provident Transaction, the Company chartered a new
Tennessee insurance company -- HIC, headquartered in Chattanooga, Tennessee. HIC
currently reinsures the indemnity insurance portion of the Provident group
health business, which consisted of approximately 222,000 members on January 1,
1997, through Experience-Rated Refundable Premium Insurance and Other Insurance
Products. Healthsource expects that the bulk of these indemnity insurance
policies will be novated by HIC during 1997.

     Experience Rated Refundable Premium Insurance

     Approximately 178,000 persons are covered under Experience Rated Refundable
Premium policies in which the employer generally bears most of the healthcare
claims risk and can receive a refund when claims experience is favorable.
Premiums for this coverage are based on the actual claims experience of the
employer in prior periods, adjusted for projected future experience, plus a
charge for administrative expenses, certain risks and profit. At the end of each
policy year, an employer's account will show a surplus or deficit balance
depending on defined claims experience. Surplus balances for a current year are
first applied to prior deficits, if any, and then, at the employer's election,
either held in reserve to offset future deficits or refunded. In years with
deficit balances, premiums for future periods are sought to be adjusted so that
Healthsource may recover the deficit, provided the employer maintains its
relationship with Healthsource. There is no assurance that any such deficit can
ultimately be recovered. Operating results fluctuate with claims experience
since all claims are expensed, whether or not currently recoverable from
employers.

     Other Insurance Products

     In the Provident Transaction, Healthsource also acquired a book of
fully-insured group health policies which are marketed to small and medium sized
employers and which covered 43,900 members on January 1, 1997. The current
market for this business is primarily employers located in the southeastern
United States and having less than 150 employees, although in some cases larger
employers may choose these types of plans. The majority of this business
includes the use of contracted PPO networks with premiums actuarially based on
the expected claims experience of pools of similar risks, together with
provision for administrative expenses and profit. Profitability of this business
is affected by premium pricing competition, deviations of actual claims
experience from expected claims experience and the ability to control
administrative expenses. Claims experience for this product is primarily a
function of healthcare costs, morbidity rates and the effectiveness of
utilization controls and provider discounts available through contracted PPO
networks. Healthcare expenses increased more rapidly than expected during 1996
resulting in losses in these products; while rates for such products have been
increased in 1997, there can be no assurance such increases will cover future
increases in costs.


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<PAGE>   11

Other Managed Care Services

     Utilization Review Services

     UR services are provided to certain self-funded and insured plans by
Healthsource's healthcare professionals and may include pre-admission
certification and concurrent review of inpatient care, as well as other
utilization management services. As with TPA services, Healthsource does not
typically bear utilization risk in providing UR services; rather it receives
fees which are based on the level of services provided.

     Managed Workers' Compensation

     Healthsource also applies its managed care expertise to workers'
compensation programs of insurers and employers, both in the residual and
voluntary markets. Under these managed workers' compensation arrangements, the
insurer or employer retains the underwriting risk for healthcare and disability
costs while Healthsource furnishes access to provider networks and renders TPA
and case management services for a fee. Healthsource currently has a managed
workers' compensation program in New England including the residual market in
New Hampshire and Vermont but also for commercial accounts in New Hampshire,
Maine and Massachusetts.

     Pharmacy Benefit Management Services

     Through its subsidiary, Healthsource Rx, Healthsource provides pharmacy
benefit management services to its affiliated plans and to self-insured
employers. These services include network and claims administration services and
discount arrangements.

Physician Relationships

     Healthsource believes that physicians are a critical factor in managing
healthcare costs through their ability to control the quality and utilization of
services from hospitals, specialists and other providers. Therefore,
Healthsource has structured its business on the premise that physicians need to
be actively involved in its HMOs. Healthsource's HMOs typically have quality
assurance and UR committees comprised of local physicians, and physicians
currently constitute a majority of the Board of Directors of Healthsource and
several of Healthsource's majority-owned HMOs. Healthsource has also found that
its policy of involving physicians is helpful as it seeks to enlist physician
support in new markets. Healthsource currently contracts with over 40,000
physicians.

Quality Management

     The Company promotes quality healthcare for its members. Most initiatives
are performed at the local HMO level. Typical initiatives include programs to
increase preventive screening such as mammography testing, primary care
physician profiling for quality indicators ("report cards"), disease management
programs to improve certain disease outcomes (such as for asthma treatment),
consumer satisfaction surveys to assess member perceptions, and quality of
service indicators such as telephone waiting time.


                                       11
<PAGE>   12

     The Company operates an organ transplant provider network from its
Chattanooga headquarters for the benefit of its HMOs and various other managed
care subsidiaries. The providers in this network are among the nation's leading
organ transplant centers, although individual HMOs and other subsidiaries are
not required to use it exclusively.

     The Company is obtaining voluntary accreditations for its health plans from
the National Committee of Quality Assurance (NCQA), an independent organization
which reviews HMOs. The Company's HMOs in New Hampshire, New York and Maine have
received three-year accreditation - the highest level of accreditation available
from NCQA. The North Carolina plan currently has a provisional status pending
the results of their renewal survey which was done January 1997. The South
Carolina plan also has provisional status and is scheduled for resurvey in June
1997. The HMOs in Tennessee and Massachusetts are both scheduled for their
initial NCQA survey in March 1997. The Company is planning to have its other
HMOs reviewed as soon as practical.

Marketing

     The Company uses a variety of marketing strategies to sell its managed care
products. The Company, as with most HMOs, has historically relied upon an
internal sales force to pursue local markets. With expanded small group market
sales, many of the Company's HMOs have established relationships with
independent insurance brokers in their local markets. The Company's national TPA
business (centered in Chattanooga) has provided it with substantial contacts
with both national and regional brokerage firms.

     The Company has established an integrated marketing program under a Senior
Vice President of Marketing, who is developing a coordinated approach for
national and regional accounts. The Company has a focused marketing effort on a
cross-plan basis to seek HMO conversions from its TPA membership. The Company's
sales force also cross-sells HMO, POS, TPA, and indemnity products so as to seek
total replacement coverage for customer accounts.

Management Information Services

     All of the Company's HMOs and other products use extensive computer-based
management information systems ("MIS") for various purposes, including claims
processing, billing, utilization management and precertification of selected
healthcare services, underwriting, marketing and sales tracking, general
accounting, medical cost trending, managed care reporting and financial
planning. The MIS systems provide on-line support to member, group and provider
service functions. The Company's MIS systems and supporting hardware are
continually being enhanced and upgraded in order to increase efficiency,
capacity and flexibility of the system.

      The Company maintains two major MIS centers in Hooksett, New Hampshire
(120 employees) and Raleigh, North Carolina (70 employees) to service its HMOs
and related products. HIC and HPA receive data processing services from
Provident's main computer system in Chattanooga under a comprehensive Computer
Services Agreement with a term through May 1, 1999 and containing early
termination provisions. The Company has 140 MIS employees in Chattanooga
primarily working on software maintenance and development to support the
business needs of HIC and HPA.


                                       12
<PAGE>   13

     The Company has made substantial investments in MIS for healthcare cost,
utilization and quality management reporting. Assisting its healthcare providers
with their data needs is a major priority of the Company's MIS Department and
involves a large commitment of resources by the Company. The claims history of
managed care members is available on a separate computer system, the "Data
Warehouse," which utilizes a relational database to accomplish data analysis and
report generation by MIS personnel, financial analysts and plan personnel.
Healthsource's medical management subsidiary, Healthsource Innovative Medical
Management, Inc., is developing a proprietary set of reports, the Diagnostic
Medical Management Information System. Two components of this system are (i) the
Network Performance Package which provides an analysis of the healthcare
utilization of members associated with the particular capitated hospital group
to support the development of customized, effective, medical management
improvement initiatives, and (ii) the Primary Source which profiles a primary
care physician on the utilization of medical services associated with members
under the physician's care.

Competition

     The managed healthcare industry is highly competitive at both the local HMO
level and in the regional and national employer markets. The principal
competitive factors affecting the Company's products are premium rates and fees,
plan design and flexibility, and physician/hospital network and reputation. In
many historically under-penetrated markets such as the Carolinas, many new HMOs
have been recently licensed which is reflected in premium pressure for new and
renewal business. In part as a result of this competition, the Company
experienced a 4.5% decline in average premium yield per member during 1996. The
Company has attempted to increase premiums where competitively practicable for
January account renewals and will likely continue to do so during 1997. As a
result the Company expects an increase in average premium yield per-member
during 1997.

     The Company competes with Blue Cross plans, indemnity insurers, HMOs, TPAs,
PPOs and other managed care companies, some of which have greater financial
resources than the Company. The Company also faces competition in many of its
markets from hospitals and other provider groups who have organized their own
networks to contract directly with employer groups. As managed care has expanded
generally, many more employers are offering both HMO and indemnity options; thus
the ability to offer a wide variety of HMO, POS, PPO and other services has
become an important competitive factor. The Company uses its healthcare provider
relationships to enhance its competitive position. The Company expects that
competition will remain intense and could become even more so.

     In connection with start-up HMOs developed with strategic provider partners
and certain consulting arrangements and in certain other circumstances, the
Company may agree to restrict its activities in a defined area; the Company has
made such agreements in connection with Healthsource Arkansas, Healthsource
North Central Texas, and Vermont Blue Cross, among others. As part of the
Provident Transaction, the Company entered into a non-competition agreement with
Provident under which the Company agreed not to write for its own account
certain types of medical stop-loss insurance, group long- and short-term
disability insurance or group life insurance for certain


                                       13
<PAGE>   14

accounts and areas and for certain restricted periods ending between 1998 and
2000 as specified in the agreement. The non-competition agreement is subject to
various exceptions.

Governmental Regulation

     General. State and federal regulation of HMOs, managed care products and
indemnity insurance varies from jurisdiction to jurisdiction, is subject to
frequent change and generally gives responsible administrative agencies broad
discretion. Laws and regulations relating to Healthsource's businesses are
subject to amendment or interpretation in each jurisdiction and any such
amendments or interpretations could adversely affect Healthsource's operations,
products, profitability or business prospects or require Healthsource to change
some of its products, services, contracting policies or marketing plans.
Healthsource is unable to forecast which additional laws or regulations, if any,
affecting its business might be enacted in the future or how existing or future
regulations might be interpreted.

     New Restrictive Laws. Recent federal legislation concerning maternity stay,
mental health coverage and benefit portability will affect the Company's HMOs. A
number of states have enacted small group insurance and rating reforms which
generally limit the ability of insurers or HMOs to use risk selection or
pre-existing condition exclusions as methods of controlling costs. In addition,
many states are considering (or have enacted) specific limitations on the
ability of insurers or HMOs to control admissions and length of stay, to affect
the provision of healthcare services through UR procedures, to use certain
capitation or other payment methodologies, to expend less than a certain
percentage of premium on healthcare costs, to contract exclusively with
physicians or other providers or to exclude certain providers and other
measures. The effect of widespread enactment of such laws might be to reduce the
Company's ability to control some major elements of its healthcare expenses.

     HMOs. All of the states in which the Company owns HMOs have enacted
comprehensive statutes regulating the activities of HMOs. Most states require
periodic financial reports from licensed HMOs and impose minimum capital and
specific reserve requirements. These capital requirements impose significant
restrictions on the ability of any affiliated HMO to pay dividends to the
Company and could require the Company to make additional capital contributions
to its HMOs. A significant portion of the Company's cash, marketable securities
and other assets is held by HIC, Healthsource New Hampshire, Healthsource North
Carolina, Healthsource South Carolina, and other HMOs, and is restricted to use
within the operations of each of those entities. In addition, certain of the
Company's HMOs are required to maintain segregated cash reserves in
interest-bearing instruments held by bank trustees or state regulators. Some
regulations also enable state agencies to review all material contracts entered
into by HMOs, including management contracts, for reasonableness of fees charged
and other issues.

     Governmental Programs. The Company currently has two approved Medicare risk
contracts (Arkansas and New Hampshire). The Company's HMOs which obtain Medicare
risk contracts are subject to regulation by the HCFA, an agency of the United
States Department of Health and Human Services. HCFA has the right to audit HMOs
operating under Medicare risk contracts to determine compliance


                                       14
<PAGE>   15

with HCFA contracts and regulations as well as the quality of care rendered to
plan members. Medicare risk contracts require an HMO to comply with requirements
for independent review of member services by contracted peer review
organizations. The Company's HMOs which have Medicaid contracts are subject to
both federal and state regulation regarding services to be provided to Medicaid
enrollees and payment for those services. Both Medicare and Medicaid have
extensive laws and regulations relating to physician incentive plans and
provider referrals which may affect the Company's operations. Some of the
Company's HMOs have contracts with the Office of Personnel Management ("OPM")
for the Federal Employees Health Benefits Program; these contracts are subject
to extensive regulation, including complex rules relating to permissible
premiums that may be charged to employees. OPM has the authority to audit the
rates charged and often seeks refunds and other sanctions against participating
HMOs where premiums are claimed to have exceeded permissible levels. Many of the
Company's HMOs also have contracts with states permitting HMO products to be
offered to a broad range of governmental employees in such states and are
subjected to various operating and financial requirements as a condition of such
contracts.

     Indemnity Insurance Regulation. The Company's indemnity insurance
subsidiaries are subject to regulation by the Department of Insurance in each
state in which the entity is licensed. Regulatory authorities exercise extensive
supervisory power over insurance companies with respect to the licensing of new
companies and products, the level of required capital and reserves, required
benefits, the approval of policy forms, limitations on investments, and periodic
examination of operations. The Company's insurance company subsidiaries are also
required to file periodic statutory financial statements in each licensed
jurisdiction and are restricted in their ability to pay dividends to, or
contract with, the Company and its affiliates in a similar manner as HMOs.

      Insurance Holding Company Regulation. The Company, by virtue of its
ownership of HMOs and insurance subsidiaries, is subject to various state
insurance holding company laws; such insurance holding company laws and related
regulations generally require registration with the state Department of
Insurance and the filing of certain periodic reports describing the capital
structure, ownership, financial condition, certain intercompany transactions and
general business operations of the holding company system. Changes to the
capital structure of the Company and its subsidiaries or material inter-company
transfers or agreements may trigger notice or prior approval requirements,
depending on the size and nature of the transactions.

      ERISA. The provision of goods and services to or through certain types of
employee health benefit plans is subject to the Employee Retirement Income
Security Act of 1974 ("ERISA") and regulations promulgated thereunder. ERISA is
administered by the United States Department of Labor ("DOL") and provides
various restrictions on the Company's administration of most self-funded and
other ERISA-governed plans exclusive of governmental plans. The DOL is engaged
in an active ERISA enforcement program, including litigation surrounding the
calculation of percentage co-insurance provisions on discounted services, which
enforcement activities may expand the potential liabilities associated with
administering ERISA plans. The provisions of ERISA have generally been
considered to preempt state regulation (other than insurance regulation) of
plans governed by ERISA and the Company thereby has been exempt from most


                                       15
<PAGE>   16

state-law based claims arising from the administration of ERISA plans; recent
judicial decisions, however, have weakened the ERISA preemption doctrine. There
have also been recent legislative attempts to limit ERISA's preemptive effect.
As a result, the Company could be exposed to greater threat of state law-based
claims relating to ERISA plans and services.

     TPAs. HPA and certain other subsidiaries of the Company are also licensed
as TPAs in states where such licensing is required for their activities. TPA
regulations generally contain certain required claims procedures, periodic
reporting obligations and minimum financial requirements which vary by state.

     PPOs. Certain of the Company's subsidiaries that offer PPO panels or
arrangements may be subject to regulation in various states. Such PPO
regulations generally contain certain network, contracting, financial and
reporting requirements which vary by state.

     UR. A number of states have enacted laws or adopted regulations governing
the provision of UR activities. Generally, these laws and regulations require
compliance with specific standards for the delivery of services,
confidentiality, staffing and policies and procedures of private review
entities. Some of these laws and regulations may affect certain operations of
the Company's subsidiaries.

Personnel

     As of February 1, 1997, Healthsource and its majority-owned subsidiaries
employed approximately 5,500 employees. None of Healthsource's employees are
subject to collective bargaining agreements. Healthsource believes its
relationship with its employees is good.

Provident Transaction

     Effective May 1, 1995, Healthsource acquired the group health, HMO and TPA
business of Provident for $231 million in cash and securities. The business
acquired in such transaction had $76 million in tangible net equity. The Company
paid $131 million in cash, subject to certain post-closing adjustments, and
issued to Provident 1,000,000 shares of non-voting, non-convertible Class A
Cumulative Preferred Stock (the "Preferred Stock") with an aggregate face value
of $100,000,000. The Preferred Stock was redeemed in March 1996.

     In conjunction with the Provident Transaction, the Company and Provident
entered into an agreement expiring in December 1997 under which the Company
provides certain administrative services relating to Provident's retained
stop-loss business and Provident's disability products. The Company also entered
into a Computer Services Agreement having a minimum term of two years by which
the services of Provident's main computer center are provided to the operations
of HPA and HIC.


                                       16
<PAGE>   17

Recent Acquisition

     On January 6, 1997, the Company purchased from Chubb Life Insurance Company
of America the remaining 85% interest in ChubbHealth, Inc., a 68,000 member HMO
operating in the Metropolitan New York City area. The purchase price for such
interest was $25.6 million in cash. The Company may be required to contribute an
additional $6 million to ChubbHealth under terms of the agreeement. ChubbHealth
has been renamed Healthsource New York/New Jersey, Inc. and offers HMO and POS
products in both New York and New Jersey.

     SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
     1995.

     The statements contained in the description of the Company's Business as
     well as those in the Management's Discussion and Analysis of Financial
     Condition and Results of Operations and elsewhere in this Annual Report on
     Form 10-K concerning future profitability, premium pricing levels, future
     levels of medical-loss ratios, the Company's ability to control healthcare
     and SG&A costs, the Company's success in obtaining global capitation
     contracts, and all other statements that are not historical facts are
     forward looking statements. Because such statements involve risks and
     uncertainties, the following factors, among others, could affect the
     Company's actual results and could cause actual future results to differ
     materially from those expressed in any forward looking statements made by
     the Company or its representatives including those made herein or in other
     SEC filings, press releases, presentations to securities analysts or
     investors or other communications by the Company:

     Control and Predictability of Health Care Costs. The Company's
     profitability depends in large part on predicting and maintaining effective
     control of the healthcare costs of its HMOs. The future profitability of
     the Company's HMOs is dependent upon controlling future healthcare costs in
     part through appropriate benefit design, utilization control and
     negotiation of favorable provider contracts, including global capitation
     arrangements with hospitals which generally link healthcare costs for
     assigned members to the premiums received for such members. The Company may
     be unable to predict accurately or to control healthcare costs because of
     many factors, including the inherent unpredictability of rates of
     utilization of services in any given period and the volatility of such use
     particularly in quarterly periods; major epidemics; undetected increases in
     costs of units of services (in some cases implemented by providers without
     prior notice); changes in risk profile of a rapidly increasing membership;
     pre-existing medical conditions; changing demographics and other factors;
     and increased utilization driven by changes in physician practice patterns
     and new techniques (e.g., use of bone marrow transplants for an increasing
     number of diagnostic categories)and new or more costly pharmaceutical
     products and by consumer demand for these pharmaceuticals. There can be no
     assurance that the Company will be successful in predicting or mitigating
     the effect of any of these factors nor that its global capitation
     agreements will be able to totally buffer these factors or costs for
     assigned members, especially since the Company expects that certain
     provider disputes will require it to pay higher than originally anticipated
     costs for health care services in 1997 and beyond.


                                       17
<PAGE>   18

     Competition and Premium Pricing. The managed healthcare industry is highly
     competitive at both the local HMO level and in the regional and national
     employer markets. The principal competitive factors affecting the Company's
     products are premium rates and fees, plan design and flexibility, and
     physician/hospital network and reputation. The Company competes with Blue
     Cross plans, indemnity insurers, HMOs, TPAs, PPOs and other managed care
     companies. The Company also faces competition in many of its markets from
     hospitals and other provider groups who have organized their own networks
     to contract directly with employer groups.

     The price charged for providing benefits is in many instances the
     controlling factor in obtaining and retaining employer groups, and in
     certain markets some competitors are underpricing the Company's products.
     In many historically under-penetrated markets such as the Carolinas and
     upper New England, many new HMOs have been recently licensed which is
     reflected in premium pressure for new and renewal business. Partially as a
     result of this competition, the Company experienced a 4.5% decline in
     average premium yield per member during fiscal 1996. The Company expects
     the difficult premium pricing environment to continue.

     Accounting; MIS; Network Disruption Issues. Reserves for incurred but not
     reported claims ("IBNR") are a large component of the Company's medical
     claims payable reserve and are based upon an estimation of future claims
     using traditional actuarial techniques heavily influenced by historical
     claims experience; rapid growth and changing risk profiles could render the
     Company's IBNR estimates inaccurate and there can be no assurance as to the
     ultimate accuracy of such estimates or that subsequent adjustments will not
     cause fluctuations in the Company's operating results. The ability to
     predict IBNR, control healthcare costs in general and to manage
     increasingly complicated global capitation arrangements depends upon the
     use of sophisticated customized MIS systems; there can be no assurance that
     such systems can be developed quickly enough to effectively manage the
     increasing complexity of the Company's contractual arrangements nor that
     facility or equipment problems will not disrupt the Company's ability to
     effectively provide such MIS support. The increasing complexity of
     contractual arrangements and adverse experience in periods of premium
     contraction and increasing costs create the potential for disagreements
     with major hospital providers over the reimbursement under such contracts,
     which disagreements (if not resolved) could disrupt relations with
     affiliated hospital or physician providers, could potentially affect the
     perception of the Company's plans in the affected markets and has
     contributed to the Company's election to invest in certain of these
     long-term arrangements to smooth the affiliated providers' transition to
     global risk arrangements.

     New Products. A significant part of the Company's long-term business
     strategy is to develop new products. Until start-up HMOs reach a critical
     mass of membership, they generally produce operating losses (despite
     capitated provider contracts) and failure to generate sufficient membership
     in start-up markets could adversely affect operating results. The Company
     is expanding its product offerings, most


                                       18
<PAGE>   19

     notably by developing and seeking a license for Medicare risk products in
     certain of its markets. The Company expended approximately $5 million in
     1996 in developing such Medicare products. Such products, once developed,
     require a substantial marketing program before the Company generates
     revenues from such products in any market; the failure to achieve Medicare
     membership quickly in various markets may further impact operating results
     as such development expenses are relatively fixed. There can be no
     assurance that the Company will successfully mitigate any of the foregoing
     risks.

     Impact of Healthcare Reform. Many federal and state proposals have been
     made in the past to reform the healthcare system. Federal legislation
     covering minimum maternity stay and enhanced mental health benefits has
     been recently passed and will affect the Company's HMOs. The Company
     anticipates that federal and state legislatures will continue to assess
     alternative healthcare systems and payment methodologies as well as other
     mandated coverages, capitation limits, underwriting constraints and other
     measures that could affect the Company's business. The Company is unable to
     predict which, if any, of these healthcare reform or other proposals may be
     adopted and the Company could be materially adversely impacted by certain
     proposals; for example the imposition of a single-payor system in any state
     could potentially eliminate the Company's business in that state. See
     "Business - Governmental Regulation".

     Governmental Regulation. The Company's HMOs, insurance companies and
     certain of its other subsidiaries are licensed by and subject to periodic
     examination and extensive regulation by the states in which they operate
     and by the federal government. Such state and federal statutes and
     regulations are subject to change and such changes could adversely impact
     the Company's operations in the future. There can be no assurance that the
     Company will be able to obtain any regulatory approvals required to enter
     new markets or to offer new products. See "Business - Governmental
     Regulation".

     Volatility of the Company's Stock. The existence of the CIGNA Merger
     Agreement largely controls the trading price of the Company's Common Stock
     and Notes. In the absence of the CIGNA Merger Agreement, the price of the
     Company's Common Stock would likely decrease and, thereafter, the market
     price for the Company's stock may be affected by investor perception of the
     Company, by general economic and market conditions, by fluctuations in
     quarterly earnings, by general trends in the healthcare market, by adverse
     news coverage of the HMO industry and by regulatory developments especially
     at the federal level.

ITEM 2.  PROPERTIES

     Healthsource's principal executive offices are located at Two College Park
Drive, Hooksett, New Hampshire 03106, where Healthsource owns and occupies a
97,600 square foot office building.

     Healthsource's health plans and other affiliates own or lease office space
in the following major locations, among others, to support their operations:


                                       19
<PAGE>   20

                                           Facility                  Monthly
Location                                   (Sq. Ft.)  Leased/Owned   Base Rent
--------                                   ---------  ------------   ---------
Chattanooga, TN........................      196,400        Leased    $227,000
Raleigh, NC............................      185,000        Leased    $133,000
Concord, NH (2 bldgs.).................      100,000        Leased    $ 55,000
Chattanooga, TN........................      100,000         Owned         N/A
Charleston, SC.........................       70,000         Owned         N/A
Freeport, ME...........................       60,000        Leased    $ 50,700
Worcester, MA..........................       55,000        Leased    $ 67,400
Indianapolis, IN.......................       36,800        Leased    $ 44,000
Little Rock, AK........................       33,300        Leased    $ 37,000

     Healthsource also maintains sales offices in 20 cities in leased
facilities.

     Healthsource believes that the facilities which it currently owns or
leases, together with the expansion plans and options which it has arranged,
will be adequate to meet its current needs.

ITEM 3.  LEGAL PROCEEDINGS

     On March 7, 1997, Betty Grayson Kurzweil and Robert Grayson, as trustees
under the will of Florence Rosenman (together, the "Plaintiffs"), filed a
putative class action in the Superior Court of Merrimack County, New Hampshire
(the "Complaint") in connection with the CIGNA Merger Agreement. See Item 1,
"Business - Recent Development - Announced CIGNA Merger Agreement" for a
description of the CIGNA Merger Agreement. The Complaint asserts one cause of
action sounding in breach of fiduciary duty against the Company, each of the
Company's directors (the "Director Defendants") and CIGNA. The Complaint alleges
that the Company's February 28, 1997 announcement of the CIGNA Merger Agreement
failed to indicate whether the Company had engaged a financial advisor to
evaluate the Company or had made any attempt to "seek out other potential
suitors for the Company." As a result, the Plaintiffs allege that the Director
Defendants failed to adequately evaluate the Company's value as a potential
merger or acquisition candidate and/or did not act to enhance the Company's
value as such a candidate. The Complaint further alleges that CIGNA disregarded
the alleged breach of fiduciary duty and thus aided and abetted the alleged
breach. The Complaint seeks unspecified monetary damages. The Company believes
that the lawsuit is without merit.

     In the ordinary course of business, Healthsource is a party to pending
legal and arbitration proceedings with providers, members and other parties.
Other than as described above, none of such proceedings is believed to have any
material impact on Healthsource's financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                                       20
<PAGE>   21

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     On March 8, 1996, the Company completed the sale of $247,250,000 principal
amount of its 5% Convertible Subordinated Notes Due 2003, which are convertible
into shares of Common Stock at a price of $46.965 per share. The Notes were sold
pursuant to Section 4(2) of the Securities Act to a group of initial purchasers
comprised of Bear, Stearns & Co. Inc., Goldman, Sachs & Co., Merrill Lynch &
Co., Morgan Stanley & Co. Incorporated, Robertson, Stephens & Company and Smith
Barney Inc., in connection with an offering by such initial purchasers to
"qualified institutional buyers" and institutional "accredited investors" under
Rule 144A and outside of the U.S. pursuant to Regulation S under the Securities
Act. In connection with the offering, the initial purchasers realized an
aggregate underwriting discount of $5,563,125. The public resale of the Notes
and the shares of Common Stock into which the Notes are convertible was
registered with the Securities and Exchange Commission on the Company's Form S-3
Registration Statement dated June 5, 1996, as amended by Amendment No. 1 dated
August 16, 1996 (No. 333-5223).

     On April 11, 1996, the Company issued 33,002 shares of its Common Stock to
Candler Health System, Inc.("Candler"), a Savannah, Georgia hospital provider,
pursuant to Section 4(2) of the Securities Act. Such shares were issued in
exchange for Candler's 5% interest in Healthsource Savannah and a rearrangement
of certain provider agreements.

     Other than as described above, the Company has not engaged in any sales of
securities which were not registered under the Securities Act since January 1,
1994.

     Except as set forth above the information required for this item is
incorporated by reference to p. 25 of Healthsource's 1996 Annual Report to
Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

     The information required for this item is incorporated by reference to p. 2
of Healthsource's 1996 Annual Report to Shareholders.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The information required for this item is incorporated by reference to p. 3
of Healthsource's 1996 Annual Report to Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required for this item is incorporated by reference to p. 8
of Healthsource's 1996 Annual Report to Shareholders.


                                       21
<PAGE>   22

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Company

     The following table sets forth certain information with respect to the
current directors of the Company as of March 28, 1997.

Merwyn Bagan, M.D., M.P.H.
Director since 1985
Age 61

      Dr. Bagan has served as the Chairman of the Board of the Company since
1985.  Dr. Bagan served as President of Healthsource New Hampshire, Inc. from
1985 until July 1993.  He is a board certified neurosurgeon and practiced for
23 years in Concord and Manchester, New Hampshire prior to his retirement in
July 1993.  He subsequently earned an M.P.H. degree and presently works as a
consultant in international health.  Dr. Bagan is a past President of both
the New Hampshire Medical Society and the American Association of
Neurological Surgeons.

Paul D. Baron, M.D.
Director since 1985
Age 56

     Dr. Baron has served as a director of the Company since 1985. He is a board
certified anatomic and clinical pathologist and has practiced for 22 years, the
last 17 at Concord Hospital in Concord, New Hampshire. Dr. Baron is the Chairman
of the Department of Pathology at Concord Hospital.

Robert H. Bilbro, M.D.
Director since 1994
Age 56

     Dr. Bilbro has served as a director of the Company since May 1994 and since
1987 has served as President and Chairman of the Board of Directors of
Healthsource Health Plans, Inc. ("HSHP"). Dr. Bilbro is engaged in the practice
of internal medicine and cardiology with Raleigh Medical Group, P.A., Raleigh,
North Carolina, where he has practiced for 24 years. He was nominated by the
Company Board pursuant to the agreement under which the Company acquired HSHP in
March 1994.

Robert S. Cathcart, III, M.D.
Director since 1993
Age 58

     Dr. Cathcart has served as a director of the Company since May 1993 and
served as President of Healthsource South Carolina, Inc. from May 1992 to


                                       22
<PAGE>   23

October 1996.  Dr. Cathcart is a board certified general surgeon with
Surgical Associates of Charleston, South Carolina, P.A. and has practiced for
25 years in Charleston, South Carolina.

J. Harold Chandler
Director since 1995
Age 48

     Mr. Chandler has served as a director of the Company since June 1995. Mr.
Chandler is President and Chief Executive Officer and a director of Provident
Companies, Inc. ("Provident") and various of its subsidiaries. Prior to joining
Provident in 1993, he served as President of NationsBank MidAtlantic Banking
Group. Mr. Chandler currently serves as a director of AmSouth Bancorporation and
Herman Miller Inc.

Daniel F. Eubank, M.D.
Director since 1985
Age 49

     Dr. Eubank has served as a director of the Company since 1985. Since
January 1995, Dr. Eubank has been the Director of the Residency Program at
Concord Hospital. Dr. Eubank was a partner in Concord Family Medicine from 1983
to 1995. He is board certified in family medicine and has practiced for 17 years
in the Concord, New Hampshire area.

Robert A. Leipold, M.D.
Director since 1985
Age 46

     Dr. Leipold has served as a director of the Company since 1985 and as
President of Healthsource New Hampshire, Inc. from 1993 to 1996. Dr. Leipold is
a board certified obstetrician/gynecologist with Garrison Medical Professional
Association and has practiced for 17 years in Dover, New Hampshire.

Francis G. Middleton, M.D.
Director since 1989
Age 57

     Dr. Middleton has served as President and Chief Executive Officer of
Healthsource South Carolina, Inc. since October 1996 and as President of
Healthsource South, Inc. since January 1995. He previously served as Medical
Director of Healthsource South Carolina, Inc. from 1986 to January 1995. Until
July 1991, Dr. Middleton practiced medicine in Charleston, South Carolina as a
specialist in internal medicine and infectious disease.

Norman C. Payson, M.D.
Director since 1985
Age 48

     Dr. Payson has served as President and Chief Executive Officer of the
Company since 1985. Dr. Payson has been in the HMO field since 1975, first as a
practicing physician and director of an HMO quality program. By 1980, Dr.


                                       23
<PAGE>   24

Payson had assumed a full-time position as Chief Executive Officer of a large
physician group practice and as Medical Director for a related HMO company.

David W. Schall, M.D.
Director since 1989
Age 53

     Dr. Schall has been a director of the Company since September 1989 and the
President of Healthsource Maine, Inc. since 1986. Since January 1994, Dr. Schall
has been employed as President, Chief Executive Officer and Chief Operating
Officer and a Director of Bowdoin Medical Group and as Managing Partner of
Bowdoin Medical Group Associates. He is board certified in family medicine and
practiced for 25 years in Brunswick, Maine prior to his retirement from private
practice in November 1996.

Right to Designate Directors; The CIGNA Designees

      The CIGNA Merger Agreement provides that, subject to compliance with
applicable law, promptly upon the purchase of and payment by CIGNA for shares of
the Company's Common Stock pursuant to the Tender Offer which represent at least
a majority of such outstanding shares (on a fully diluted basis), CIGNA will be
entitled to designate such number of directors (the "CIGNA Designees"), rounded
up to the next whole number, on the Company Board as is equal to the product of
the total number of directors on the Company Board (determined after giving
effect to the directors elected pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by CIGNA and
any of its affiliates bears to the total number of shares then outstanding. The
Company will promptly, upon the request of CIGNA, use its best efforts to cause
the CIGNA Designees to be so elected, including, if necessary, increasing the
size of the Company Board or seeking the resignations of one or more existing
directors. Notwithstanding the foregoing, until the effective time of the
Merger, the Company Board will have at least two directors who are directors on
the date of execution of the CIGNA Merger Agreement.

     Set forth below is certain information with respect to the initial CIGNA
Designees:

William M. Pastore
Age 48

     Senior Vice President, National Service Organization, CIGNA HealthCare
since December 1995. Prior to that, Mr. Pastore served as Vice President,
Director of National Servicing for Citicorp from 1971 until 1995.

W. Alen Schaffer, M.D.
Age 45

     Senior Vice President, Managed Care Operations, CIGNA HealthCare since
November 1994. Prior to that, Dr. Schaffer served as Senior Vice President and
National Medical Director, CIGNA HealthCare beginning in May 1993. Dr. Schaffer
also served as the Vice President, Professional Affairs for Aetna Life and
Casualty from 1992 until 1993 and the Vice President, Quality Management &
Training from 1990 until 1992.


                                       24
<PAGE>   25

Joseph M. Fitzgerald
Age 52

     Senior Vice President, Underwriting Operations, CIGNA HealthCare since May
1992. Prior to that, Mr. Fitzgerald served as Senior Vice President and Chief
Financial Officer, Employee Benefits Division from February 1991 until May 1992
and Senior Vice President National Accounts, Employee Benefits Division from
June 1990 until February 1991.

H. Edward Hanway
Age 45

     President of CIGNA HealthCare since February 1996. Prior to that, Mr.
Hanway served as President of CIGNA International from March 1994 until February
1996 and President of CIGNA International, Property & Casualty from February
1989 until March 1994.

     CIGNA has informed the Company that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, CIGNA may
choose additional or other CIGNA Designees, subject to the requirements of Rule
14f-1.

     Based solely on the information set forth in CIGNA's Offer to Purchase,
none of the CIGNA Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any directors
or executive officers of the Company, or (iii) to the best knowledge of CIGNA,
beneficially owns any securities (or any rights to acquire such securities) of
the Company. The Company has been advised by CIGNA that, to the best of CIGNA's
knowledge, none of the CIGNA Designees has been involved in any transactions
with the Company or any of its directors, officers, or affiliates which are
required to be disclosed pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"), except as may be disclosed herein or in the
Company's related Schedule 14D-9.

Executive Officers of the Company

     The following table sets forth certain information with respect to the
current executive officers of the Company as of March 28, 1997.

Norman C. Payson, M.D.
President and Chief Executive Officer
Age 48

     Dr. Payson has served as President and Chief Executive Officer of the
Company since 1985. Dr. Payson has been in the HMO field since 1975, first as a
practicing physician and director of an HMO quality program. By 1980, Dr. Payson
had assumed a full-time position as Chief Executive Officer of a large physician
group practice and as Medical Director for a related HMO company.


                                       25
<PAGE>   26

Charles M. Schneider
Executive Vice President and Chief Operating Officer
Age 51

     Mr. Schneider has served as Chief Operating Officer of the Company since
January 1997 and as Executive Vice President since October 1993. Prior thereto,
he served as Vice President for Development of the Company from February 1991 to
October 1993 and as Director of Business Development of Healthsource New
Hampshire, Inc. from April 1990 to February 1991. Before joining the Company in
April 1990, Mr. Schneider served as Chief Executive Officer of a New England
hospital, and previously held several senior healthcare management positions.

Joseph M. Zubretsky
Chief Financial Officer
Age 40

     Mr. Zubretsky has served as Chief Financial Officer since July 1996. Prior
to joining the Company, Mr. Zubretsky was with Coopers & Lybrand LLP's National
Insurance Practice based in Hartford, Connecticut from 1981 through July 1996,
where he had been a partner since 1990.

Francis G. Middleton, M.D.
President and Chief Executive Officer,
Healthsource South Carolina, Inc. and
President, Healthsource South, Inc.
Age 57

     Dr. Middleton has served as President and Chief Executive Officer of
Healthsource South Carolina, Inc. since October 1996 and as President of
Healthsource South, Inc. since January 1995. He previously served as Medical
Director of Healthsource South Carolina, Inc. from 1986 to January 1995. Until
July 1991, Dr. Middleton practiced medicine in Charleston, South Carolina as a
specialist in internal medicine and infectious disease.

Richard B. Salmon, M.D., Ph.D.
Senior Vice President for Medical Affairs
Age 47

     Dr. Salmon has served as corporate medical director of the Company since
October 1994 and served as Medical Director for Healthsource New Hampshire, Inc.
from 1991 to 1994. Dr. Salmon is responsible for medical management issues on a
company-wide basis. Before joining the Company, Dr. Salmon served as medical
director for another New Hampshire HMO and was a family practice physician.

Robert Chin
Chief Information Officer
Age 37

     Mr. Chin has served as Chief Information Officer of the Company since
August 1993. Mr. Chin is responsible for the Company's information services and
technology development functions. Prior to joining the Company, Mr. Chin served
as Chief Information Officer at Tufts Associated Health Plan from 1985


                                       26
<PAGE>   27

to 1993 and as Systems Manager at Harvard Community Health Plan from 1977 to
1985.

     There are no family relationships existing between or among any of the
above listed officers, nor is there any involvement in certain legal proceedings
for which disclosure is required under Item 401 of Regulation S-K. The term of
office of each of the foregoing officers extends until the organizational
meeting of the Board following the annual meeting of shareholders or until
removed by the Board. See Item 11, "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements" for a description of agreements
under which certain executive officers serve as such.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the issued and
outstanding shares of Common Stock, to file with the SEC and the New York Stock
Exchange initial reports of ownership and reports of changes in beneficial
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

     To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
officers, directors and greater than ten percent beneficial owners were complied
with during 1996, other than with respect to one late report regarding one sale
transaction by Dr. Bilbro, with respect to one late report regarding one option
award transaction to Dr. Schall, and with respect to one late report regarding
one purchase transaction by Dr. Salmon.

ITEM 11. EXECUTIVE COMPENSATION

     Summary Compensation Table

     The following Summary Compensation Table sets forth for the fiscal years
ended December 31, 1996, 1995 and 1994 information as to the total compensation
received by each of the Chief Executive Officer and the four highest paid
executive officers who received total compensation in excess of $100,000 in all
capacities.


                                       27
<PAGE>   28

                           SUMMARY COMPENSATION TABLE

                                                                    Long-Term
                                                                  Compensation
                                    Annual Compensation              Awards
                                    -------------------              ------
                                                                    Securities
                                                                    Underlying
         Name and                                     Other Annual    Stock
    Principal Position      Year  Salary(1)   Bonus   Compensation  Options(2)
    ------------------      ----  ---------   -----   ------------  ----------
Norman C. Payson, M.D.....  1996  $ 548,754     --(3) $ 25,550(4)    200,000
President and Chief         1995    483,081     --(3)   10,000(4)    200,000
Executive Officer           1994    387,604     --(3)   10,000(4)  2,200,000(5)


Sally W. Crawford(6)......  1996    349,531 $65,000     10,000(7)       --
Former Chief Operating      1995    324,233  65,000     42,063(7)    100,000
Officer                     1994    289,530  28,500     10,000(7)    100,000


Charles M. Schneider......  1996    360,968 206,743     62,484(9)    250,000(10)
Executive Vice President    1995    322,884 165,000(8)  26,127(9)    150,000
and Chief Operating Officer 1994    210,865  21,500        --        150,000(10)


Francis G. Middleton, M.D.  1996    348,133  65,000      1,412       110,000
President and Chief         1995    305,384  25,000        --        100,000
Executive Officer,
Healthsource South
Carolina, Inc. and
President, Healthsource
South, Inc.(11)

Joseph M. Zubretsky (12)..  1996    143,750 150,000     47,089(13)   250,000(14)
Chief Financial Officer

----------

(1)   Includes amounts deferred pursuant to the Company's 401(k) Plan.

(2)   Includes options granted in 1997 for services rendered in 1996.

(3)   Dr. Payson declined a cash bonus.

(4)   Includes $15,500 for personal use of the Company airplane in 1996 and
      $10,000 for automobile expenses in 1996, 1995 and 1994.

(5)   Includes options to purchase 2,000,000 shares granted to Dr. Payson in May
      1994 in connection with the adoption of the 1994 Stock Option Plan by
      shareholders at the 1994 Annual Meeting of Shareholders.

(6)   Ms. Crawford resigned effective December 31, 1996.

(7)   Includes $10,000 for automobile expenses in 1996, 1995 and 1994 and
      $32,063 for unused vacation time in 1995.

(8)   Includes $100,000 for relocation bonus.

(9)   Includes $51,890 for relocation expenses, $4,850 for personal use of the
      Company airplane, $1,160 for country club dues and $4,583 for automobile
      expenses in 1996. Also includes $11,577 for unused vacation time and
      $14,550 for relocation expenses in 1995.


                                       28
<PAGE>   29

(10)  Includes options to purchase 50,000 shares granted to defray relocation
      expenses in each of 1996 and 1994.

(11)  Dr. Middleton was initially designated an executive officer in 1995.

(12)  Mr. Zubretsky joined the Company in July 1996.

(13)  Relocation expenses.

(14)  Includes options to purchase 50,000 shares granted to defray relocation
      expenses.

      Shown in the table below is information on stock options granted to the
President and Chief Executive Officer and to the four other named executive
officers shown in the Summary Compensation Table who received options to
purchase shares of the Company's Common Stock for fiscal year 1996.

                       OPTION GRANTS FOR FISCAL YEAR 1996

<TABLE>
<CAPTION>
                                             % of
                                             Total
                                             Options
                                Number of    Granted
                                Shares       to           Grant
                                Underlying   Employees    Date                           Grant Date
                                Options      for 1996     Closing  Exercise  Expiration  Present
Name                            Granted      (1,721,794)  Price    Price     Date        Value(1)
----                            -------      -----------  -----    -----     ----        --------
<S>                              <C>            <C>      <C>       <C>        <C>        <C>
Norman C. Payson, M.D .......    200,000(2)     11.6%    $12.87    $14.16(3)  2/9/07     $1,161,800
President and Chief
Executive Officer

Sally W. Crawford (4)                --            --      --         --        --          --
Former Chief Operating
Officer

Charles M. Schneider ........    200,000(2)     11.6%     12.87    14.16(3)   2/9/07      1,161,800
Executive Vice President          50,000(5)      2.9%     13.37    14.71(6)  7/16/06        273,650
and Chief
Operating Officer

Francis G. Middleton, M.D. ..    110,000(2)      6.4%     12.87    14.16(3)   2/9/07        638,990
President and Chief
Executive Officer,
Healthsource South
Carolina, Inc. and
President, Healthsource
South, Inc.

Joseph M. Zubretsky (7) .....    200,000(2)     11.6%     12.87    14.16(3)   2/9/07      1,161,800
Chief Financial Officer           50,000(8)      2.9%     13.37    14.71(6)  7/16/06        273,650
</TABLE>
----------

(1)   Based on the Black-Scholes option pricing model adapted for use in valuing
      employee stock options. Assumptions made for the named executives are for
      grants expiring on February 9, 2007: expected option term of six years;
      risk-free interest rate of 6.25%; annual dividend rate of zero; and
      annualized volatility of 38.2%. Assumptions for grants expiring on July
      16, 2006 are; expected option term of six years; risk-free interest rate
      of 6.57%; annual dividend rate of zero; and annualized volatility of
      31.5%.

(2)   Options granted on February 9, 1997 for services rendered in fiscal year
      1996. Options are exercisable after February 9, 1999.

(3)   Exercise price is 110% of the closing price of the Company's Common Stock
      on February 7, 1997.

(4)   Ms. Crawford resigned effective December 31, 1996.


                                       29
<PAGE>   30

(5)   Options granted on July 16, 1996 which become exercisable after July
      16, 1998.

(6)   Exercise price is 110% of the closing price of the Company's Common Stock
      on July 16, 1996.

(7)   Mr. Zubretsky joined the Company in July 1996.

(8)   Options granted on July 16, 1996 which become exercisable as to half on
      July 16, 1997 and the remaining half on July 16, 1998.

      Shown in the table below, with respect to the President and Chief
Executive Officer and the four other named executive officers shown in the
Summary Compensation Table, are exercised and unexercised options to purchase
shares of the Company's Common Stock granted in fiscal year 1996 and prior years
pursuant to the Company's stock option plans.

                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
                     AND 1996 FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                    Number of Shares
                          Shares                       Underlying              Value of Unexercised
                         Acquired                 Unexercised Options at     In-The-Money Options at
                            On       Value         December 31, 1996(1)      December 31, 1996($)(2)
                         Exercise  Realized($)  Exercisable  Unexercisable  Exercisable  Unexercisable

<S>                         <C>      <C>         <C>            <C>           <C>            <C>
Norman C. Payson, M.D...     --        --        1,240,000      1,560,000     $521,000        --
President and Chief
Executive Officer

Sally W. Crawford (3)...     --        --           80,000        180,000        --           --
Former Chief Operating
Officer

Charles M. Schneider....     --        --          122,000        320,000       83,360        --
Executive Vice President
and Chief Operating
Officer

Francis G. Middleton, M.D.   --        --          140,000        180,000      337,800        --
President and Chief
Executive Officer,
Healthsource South
Carolina, Inc. and
President, Healthsource

South, Inc.

Joseph M. Zubretsky(4)..     --        --           --             50,000        --           --
Chief Financial Officer
</TABLE>
----------

(1)   Does not include options granted in 1997 for services rendered in 1996.

(2)   Based upon the closing share price of $13.125 for the Company's Common
      Stock on December 31, 1996. Does not include options granted in 1997 for
      services rendered in 1996.

(3)   Ms. Crawford resigned effective December 31, 1996.

(4)   Mr. Zubretsky joined the Company in July 1996.

Compensation of Directors

      Each director of the Company (except Drs. Payson and Middleton)
currently receives a $25,000 annual director's fee plus $1,000 per meeting of


                                       30
<PAGE>   31

the Company Board and $1,000 for each committee meeting attended. The Company
also reimbursed the directors for their travel expenses and Drs. Schall,
Cathcart and Bilbro for lost practice time in travel to meetings.

      Pursuant to the Company's 1996 Non-Employee Director Stock Option Plan
(the "1996 Director Plan"), each non-employee director of the Company received,
at no cost, options to purchase 45,000 shares of the Common Stock of the Company
after the 1996 Annual Meeting of Shareholders. Each set of options granted under
the 1996 Director Plan is exercisable for a period of ten (10) years and vests
and becomes exercisable as to 15,000 shares on the date of each succeeding
annual meeting during which the director continues to serve as such with the
Company.

      The exercise price of options granted under the 1996 Director Plan was set
at one hundred ten percent (110%) of the fair market value of the shares on the
date of grant ($25.16) and no option granted thereunder may be exercised after
the expiration of ten years from the date of grant. Vested options are
exercisable provided that the option holder remains a director of the Company.
In the event of the death, retirement or permanent and total disability of a
director, such director may exercise vested options through the date of
expiration of the option. In the event of termination of a director's service on
the Company Board for other reasons, such director's options will terminate
within 30 days of the date of termination of service and all then outstanding
options that have been vested will be exercisable during such period. Pursuant
to the CIGNA Merger Agreement, all options held by the Company's directors and
executive officers (among others) will be converted to CIGNA options based on a
formula set forth therein, at the effective time of the Merger.

Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

      Dr. Payson. In connection with the execution of the CIGNA Merger
Agreement, CIGNA entered into a consulting agreement (the "Consulting
Agreement") with Dr. Payson. The Consulting Agreement has a term of nine months,
commencing on the date of the consummation of the Tender Offer. During the term,
Dr. Payson will perform such services relating to the business of CIGNA as he
and the President of CIGNA HealthCare mutually agree. The Consulting Agreement
requires Dr. Payson to provide up to 120 hours of consulting services per month
during the first six months of the term of the Consulting Agreement and up to 80
hours per month for the remainder of the term. For a nine month period following
the consummation of the Tender Offer, Dr. Payson will be subject to a covenant
not to compete against CIGNA or the Company or their respective subsidiaries.
Dr. Payson has also agreed that during the term of the Consulting Agreement and
for a period of one year following the termination of the Consulting Agreement,
he will not (i) induce any employee of CIGNA, the Company or any of their
respective affiliates to leave such employment or to accept any other employment
or position, or (ii) assist any other person in hiring any such employee.
Pursuant to the Consulting Agreement, Dr. Payson will receive $100,000 per month
for the nine month term of the Consulting Agreement and is entitled to
reimbursement of ordinary and appropriate business expenses. The Consulting
Agreement further provides that Dr. Payson is entitled to welfare benefits
generally available to senior executive officers of CIGNA and access to a
corporate airplane, with


                                       31
<PAGE>   32

the right to purchase such airplane at the book value thereof. Dr. Payson will
also receive a cash payment of $25,000 to purchase office equipment as well as
reimbursement of office and staffing expenses up to $200,000 per year. The
Consulting Agreement further provides that, notwithstanding anything to the
contrary, CIGNA will take all necessary action to cause any Company stock
options held by Dr. Payson or his successors to remain freely exercisable until,
and expire no earlier than, the tenth anniversary of the grant of such options
without regard to the termination of the Consulting Agreement, termination of
Dr. Payson's employment with the Company, Dr. Payson's death or disability or
the cessation of Dr. Payson's services to CIGNA.

      Severance Agreements. The CIGNA Merger Agreement provides that the Company
will enter into severance agreements with 29 of the Company's officers (the
"Severance Agreements"), including the executive officers of the Company for
which disclosure is provided herein, prior to the Merger. The Severance
Agreements will provide that severance benefits will be paid to the officer if
his or her employment is terminated by the officer for good reason or by the
Company other than for cause, in either case within two years following the
consummation of the Tender Offer. Dr. Payson will receive severance benefits
upon the consummation of the Tender Offer since his employment with the Company
will be terminated at such time. Severance benefits under the Severance
Agreements will include a lump sum cash payment equal to the sum of the
officer's current base salary plus maximum annual incentive bonus, multiplied by
a factor of three for Dr. Payson, Mr. Schneider and Mr. Zubretsky and a factor
of two for Mr. Chin and Dr. Salmon. Severance benefits also include the payment
of a pro rata portion of the officer's target bonus for the current year,
continuation of medical and welfare benefits for a number of years following
termination of employment equal to the multiple described above, office and
secretarial services for the same period of time, outplacement and financial
planning services for one year following termination of employment, a cash
payment reimbursing the officer for any liabilities in respect of any taxes or
excise taxes in respect of Section 4999 of the Internal Revenue Code (the
"Parachute Tax"), if applicable, and reimbursement of legal fees reasonably
incurred by the officer in connection with enforcing his or her rights under a
Severance Agreement or in respect of the Parachute Tax. Assuming that the
following officers of the Company are terminated from employment immediately
following the Merger, and assuming the Merger occurs on June 30, 1997, each such
officer would be entitled to a lump sum cash payment (excluding from such amount
any reimbursements in respect of the Parachute Tax, if any) equal to the
following: Dr. Payson, $2,475,000; Mr. Schneider, $1,677,000; Mr. Zubretsky,
$1,500,000; Dr. Middleton, $946,890; and Dr. Salmon, $643,750.

      Dr. Middleton. In January 1995, Dr. Middleton entered into a five year
employment agreement with the Company pursuant to which he serves as President
of Healthsource South, Inc., and more recently as President and Chief Executive
Officer of Healthsource South Carolina, Inc., at a current annual salary
(including stipend) of $350,700 and is also eligible to receive an annual
performance bonus. Under this agreement, Dr. Middleton conducts development
activities for the Company throughout the southern United States and manages the
operations of the Company's South Carolina HMO. The employment agreement is
terminable by the Company or Dr. Middleton without cause on 60 days' notice and
provides for a severance benefit of $300,000 plus two months' base pay for each
year completed under the agreement, up to a maximum of 12 months, in the event
of termination without cause by the Company, or $500,000 plus two months' base
pay for each year since 1991, up to a


                                       32
<PAGE>   33

maximum of 12 months, in the event Dr. Middleton terminates his employment
within 90 days following a change of control of the Company. Dr. Middleton is
also eligible to receive stock options under the Company's employee stock option
plans.

      Mr. Zubretsky. In June 1996, Mr. Zubretsky entered into an employment
agreement with the Company under which he serves as the Chief Financial Officer
of the Company, at a current annual salary of $375,000 and is eligible to
receive a performance bonus. The agreement expires December 31, 1997, subject to
annual renewal. If Mr. Zubretsky's employment is terminated by the Company
without cause or if the Company does not renew the agreement, Mr. Zubretsky
becomes entitled to continue to receive his base salary for a two year period,
so long as he complies with noncompetition and nondisclosure provisions
contained in the agreement. Further, if Mr. Zubretsky's employment is terminated
by the Company (or by Mr. Zubretsky if his authority or status with the Company
is reduced) within 180 days following a change in control of the Company, then
Mr. Zubretsky becomes entitled to continue to receive his base salary for a
three year period.

      Other Agreements.  Mr. Schneider has a severance arrangement with the
Company.  Mr. Schneider's arrangement provides that if his employment is
terminated by the Company without cause or by Mr. Schneider if, following a
change in control of the Company, his duties or compensation are adversely
altered, he becomes entitled to receive his base salary for a two year
period.  Mr. Chin has a severance arrangement with the Company pursuant to
which Mr. Chin becomes entitled to receive six months of base salary if his
employment is terminated for cause, and one year of base salary if his
employment is terminated without cause.  Dr. Salmon has a severance
arrangement with the Company providing that if his employment is terminated
by the Company with or without cause, or if his duties and responsibilities
are materially altered, he becomes entitled to one year of salary
continuation, plus an additional month of salary continuation for each year
of employment with the Company, plus an amount equal to his eligible bonus.

Compensation Committee Interlocks and Insider Participation

      The Compensation Committee determines the compensation of executive
officers and stock options to be granted to employees of the Company. Messrs.
Bagan, Baron, Chandler and Leipold serve on the Compensation Committee. Mr.
Chandler serves as President and Chief Executive Officer of Provident. Effective
May 1, 1995, the Company purchased the assets of the group health, HMO and third
party administration business of Provident for a purchase price of $131 million
in cash and $100 million face amount of 6.25% cumulative preferred stock (the
"Provident Transaction"). In conjunction with the Provident Transaction, the
Company and Provident entered into agreements under which the Company provides
certain administrative services to Provident's retained stop-loss business and
Provident's disability products; the Company also agreed to obtain computer
services from Provident's Chattanooga, Tennessee data processing center for the
acquired Provident business for a minimum of two years. In September 1996, the
Company and Provident settled for approximately $2.8 million certain claims and
accounting issues arising out of the Provident Transaction and amended the
stop-loss servicing agreement


                                       33
<PAGE>   34

between them. In October 1996, the Company also purchased approximately 72 acres
of land in Chattanooga from Provident for a purchase price of $2.8 million. Mr.
Chandler joined the Company's Board of Directors pursuant to the Provident
Transaction agreements after the completion of the Provident Transaction. On
March 6, 1996, the Company redeemed the $100 million face amount of preferred
stock issued in the Provident Transaction and the Company no longer has an
obligation to nominate a Provident representative to the Company's Board of
Directors.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of March 24, 1997, certain information
as to those persons who were beneficial owners of more than 5% of the 63,860,017
shares of Common Stock issued and outstanding as of such date and as to the
shares of Common Stock beneficially owned by each of the executive officers and
by all the Company's executive officers and directors as a group.

                                                      Number of
                                                        Shares      Percentage
                                                     Beneficially    of Class
                Name of Beneficial Owner              Owned (1)     Outstanding
                ------------------------              ---------     -----------
Norman C. Payson, M.D.
 President and Chief Executive Officer
 Two College Park Drive
 Hooksett, NH  03106..................................  6,012,760      9.2

Franklin Resources, Inc.
 777 Mariners Island Blvd.
 San Mateo, CA  94403-7777(2).........................  6,838,466      10.7

Massachusetts Financial Services Company
 500 Boylston Street
 Boston, MA  02116-3741(4)............................  7,609,466      11.9

Southeastern Asset Management, Inc.
 6075 Poplar Avenue, Suite 900
 Memphis, TN  38119(4)................................  3,350,900      5.3

Charles M. Schneider..................................    152,000       *

Joseph M. Zubretsky...................................         --       *

Francis G. Middleton, M.D.............................    271,000       *

Robert Chin...........................................     36,000       *

Richard B. Salmon, M.D., Ph.D.........................    107,000       *

All Executive Officers and Directors as a Group (14     7,919,737      11.9
persons) (5)

----------

*     Less than 1%.

(1)   The listed figures include options exercisable within 60 days to
      purchase 1,680,000, 152,000, 160,000, 36,000, 80,000 and 2,515,000,
      shares held by Dr. Payson, Mr. Schneider, Dr. Middleton, Mr. Chin, Dr.


                                       34
<PAGE>   35

      Salmon, and all directors and executive officers as a group,
      respectively.

(2)   Franklin Resources, Inc. ("FRI") is considered a "beneficial owner" of the
      Company's Common Stock through its ownership of all of the outstanding
      capital stock of Templeton Global Advisors Limited, Templeton Management
      Limited, Templeton Investment Management Limited and Franklin Advisers,
      Inc., registered investment advisers. The Company is advised, FRI, its
      principal shareholders and each advisory subsidiary disclaim any economic
      or beneficial ownership in any of the Company securities.

(3)   Massachusetts Financial Services Company ("MFS"), a registered investment
      advisor, is considered the "beneficial owner" of the Company's Common
      Stock. As sponsor of various mutual fund entities, the Company is advised
      that 4,397,110 (6.9%) shares and 3,051,930 (4.8%) shares of Company Common
      Stock are held by MFS Series Trust II -MFS Emerging Growth Fund and other
      non-reporting entities, respectively.

(4)   Southeastern Asset Management, Inc. ("Southeastern"), a registered
      investment advisor and its Chairman of the Board, in the event he could be
      deemed to be a controlling person of Southeastern, advise the Company that
      all of the Company Common Stock reported herein are owned by
      Southeastern's investment advisory clients and none are owned directly or
      indirectly by Southeastern or its Chairman as to which both parties
      disclaim any beneficial ownership in any of the Company's securities.

(5)   Includes 145,629 shares owned by spouses and minor children of directors
      and executive officers and shares held or owned by custodians for the
      benefit of such minors, officers or directors, as to which beneficial
      ownership may be disclaimed.

      In connection with the CIGNA Merger Agreement, CIGNA entered into a Tender
Agreement and Irrevocable Proxy (the "Shareholder Agreement") with Norman C.
Payson, M.D., the Company's President and Chief Executive Officer and a member
of the Company Board, with respect to the 4,332,760 shares of the Company's
Common Stock owned by Dr. Payson. Pursuant to the Shareholder Agreement, Dr.
Payson has agreed to tender all shares owned by him in the Tender Offer and
CIGNA has agreed to accept for payment and pay for such shares subject to the
terms and conditions of the Tender Offer. Pursuant to the Shareholder Agreement,
Dr. Payson has also granted to CIGNA an irrevocable proxy to vote his shares in
connection with any meeting of the Company's shareholders, or in connection with
any written consent of the Company's shareholders, (i) in favor of the Merger,
the execution and delivery by the Company of the CIGNA Merger Agreement and the
approval and adoption of the Merger and the terms thereof and each of the other
actions contemplated by the CIGNA Merger Agreement and the Shareholder Agreement
and any actions required in furtherance thereof; (ii) against any action or
agreement that would impede, interfere with, or prevent the Tender Offer or the
Merger; and (iii) except as otherwise agreed to in writing in advance by CIGNA,
against the following actions (other than the Tender Offer, the Merger and the
transactions contemplated by the CIGNA Merger Agreement and the Shareholder
Agreement): (I) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of


                                       35
<PAGE>   36

its subsidiaries; (II) any sale, lease or transfer of a material amount of the
assets or business of the Company or its subsidiaries, or any reorganization,
restructuring, recapitalization, special dividend, dissolution, liquidation or
winding up of the Company or its subsidiaries; and (III) any change in the
present capitalization of the Company including any proposal to sell any
material equity interest in the Company or any amendment of the Articles of
Incorporation of the Company. Such irrevocable proxy shall terminate on the
termination of the Shareholder Agreement.

      During the term of the Shareholder Agreement, Dr. Payson has agreed that
he will not (i) transfer to any person any or all of his shares (except to CIGNA
pursuant to the Tender Offer; or (ii) except for the proxy granted to CIGNA,
grant any proxies or powers of attorney, deposit any of his shares into a voting
trust or enter into a voting agreement, understanding or arrangement with
respect to such shares. The Shareholder Agreement does permit Dr. Payson to
transfer his shares to any family member, certain entities owned by or formed
for the benefit of Dr. Payson or his family members, and certain of his
successors, provided, that in the case of any such transfer, the transferee
executes an agreement to be bound by the terms of the Shareholder Agreement, or
terms substantially identical thereto.

      Until the termination of the Shareholder Agreement, Dr. Payson has agreed
to comply with the provisions in the CIGNA Merger Agreement prohibiting the
Company from initiating, soliciting, or encouraging, directly or indirectly, any
inquiries or the making of a proposal regarding an alternative transaction,
engaging in negotiations or discussions with or furnishing any information with
respect to any alternative transaction, or entering into any agreement with
respect to or approving an alternative transaction, except for taking action in
connection with certain unsolicited offers in pursuance of the Board's fiduciary
duties.

      The Shareholder Agreement, and all rights and obligations of the parties
thereunder, terminates upon the earlier of (a) the date upon which CIGNA shall
have purchased and paid for all of Dr. Payson's shares in accordance with the
Tender Offer and (b) the date on which the CIGNA Merger Agreement is terminated.
See Item 1, "Business - Recent Developments Announced CIGNA Merger Agreement"
for additional information regarding the Tender Offer.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Dr. Leipold. In May 1995, the Company made a 7-year term loan in the
principal amount of $1,547,910 to Garrison Medical Professional Association
("Garrison"), the group with which Dr. Leipold practices medicine and is a
shareholder. The loan currently bears interest at a rate of 7.25% which is
adjustable on each anniversary of the loan to a rate one percent below the
reported prime rate of interest. The loan is secured by certain real estate and
accounts receivable of Garrison. The maximum principal amount of the loan
outstanding at any time during 1996 was $1,471,442. As of December 31, 1996,
$1,353,416 in principal amount remained outstanding under the loan.

      Mr. Schneider.  In June 1996, the Company loaned $400,000 to Mr.
Schneider to temporarily cover the cost of relocating from Chattanooga,
Tennessee to Company headquarters in Hooksett, New Hampshire.  The loan bears
interest at 6% per annum and remained outstanding at December 31, 1996.


                                       36
<PAGE>   37

      Mr. Chandler/Provident Transaction.  Mr. Chandler serves as President
and Chief Executive Officer of Provident.  For a description of certain
transactions between the Company and Provident, see Item 11, "Executive
Compensation - Compensation Committee Interlocks and Insider Participation."

      Participating Physician Agreements. Each physician director of the
Company, other than Drs. Payson, Bagan and Middleton, provided medical services
as a participating physician to one of the Company`s HMOs during 1996. Each such
director's participating physician agreement conformed with the standard
agreements for all participating physicians in the respective HMOs.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)   Documents Filed as Part of This Report.

(1)   Financial Statements.  The following financial statements are filed
      herewith and appear in Item 8:

      Independent Auditors Report

      Consolidated balance sheets as of December 31, 1996 and 1995

      Consolidated statements of operations for the years ended December 31,
      1996, 1995 and 1994

      Consolidated statements of cash flows for the years ended December 31,
      1996, 1995 and 1994

      Consolidated statements of changes in shareholders' equity for the years
      ended December 31, 1996, 1995 and 1994

      Notes to consolidated financial statements

(2)   Financial Statement Schedules. Not applicable.

(3)   Exhibits. Pursuant to Rule 12b-32 and General Instruction G, the following
      Exhibits are required to be filed with this Report under Item 14 and are
      incorporated by reference from the reference source cited in the Exhibit
      Index below, are filed herewith, or are not applicable.


                                       37
<PAGE>   38

 Reg. S-K
 Item 601                                              Source or Consecutive
Exhibit No.                Document                     Page of this Report
-----------                --------                     -------------------

(2)        Plan of Acquisition

           2.1   Agreement and Plan of Merger       Exhibit 2 to Schedule
                 dated as of February 27, 1997      14D-9 dated March 6, 1997
                 among Healthsource, Inc., CIGNA
                 Corporation and CHC Acquisition
                 Corp.

           2.2   Confidentiality Agreement dated    Exhibit 1 to Schedule
                 January 31, 1997 between           14D-9 dated March 6, 1997
                 Healthsource, Inc. and CIGNA
                 Corporation

(3)        Articles of Incorporation and By-Laws

           3.1   Articles of Incorporation of       Exhibit 3.1 to Form 10-K
                 Healthsource, Inc., as amended     for the Fiscal Year Ended
                                                    December 31, 1994 filed on
                                                    March 19, 1995

           3.2   Articles of Amendment to the       Exhibit 4.1 to Form 8-K
                 Articles of Incorporation of       dated June 14, 1995
                 Healthsource, Inc. designating
                 the rights of the Class A
                 Cumulative Preferred Stock

           3.3   Articles of Amendment to the       Filed herewith
                 Articles of Incorporation of
                 Healthsource, Inc. increasing
                 the authorized Common Stock to
                 800,000,000 shares

           3.4   By-Laws of Healthsource, Inc.,     Exhibit 3.2 to Amendment
                 as amended                         No. 2 to Form S-4
                                                    Registration Statement No.
                                                    33-56446 dated February
                                                    19, 1993

(4)        Instruments Defining the Rights of
           Security Holders


                                       38
<PAGE>   39

 Reg. S-K
 Item 601                                              Source or Consecutive
Exhibit No.                Document                     Page of this Report
-----------                --------                     -------------------

           4.1   Indenture dated as of March 6,     Exhibit 4.1 to Form S-3
                 1996 by and between                Registration Statement No.
                 Healthsource, Inc. and The Bank    333-5223 dated June 4, 1996
                 of New York, as Trustee, and
                 the form of First Supplemental
                 Indenture dated as of June 3,
                 1996

           4.2   Note Resale Registration Rights    Exhibit 4.2 to Form S-3
                 Agreement dated as of March 6,     Registration Statement No.
                 1996 by and between                333-5223 dated June 4, 1996
                 Healthsource, Inc. and Bear,
                 Stearns & Co., Inc. for itself
                 and on behalf of the Initial
                 Purchasers

           4.3   Rights Agreement dated as of       Exhibit 1 to Form 8-A
                 July 29, 1996 between              Registration Statement
                 Healthsource, Inc. and The Bank    dated August 2, 1996
                 of New York, as Rights Agent

(10)       Material Contracts

           10.1  Indemnity Agreement (form)         Exhibit 10.7 to Form S-1
                 dated September 11, 1989           Registration Statement No.
                 between Healthsource, Inc. and     33-31165 dated September
                 each of its directors and          20, 1989
                 executive officers
                 (compensatory contract)

           10.2  Healthsource, Inc. 1991            Exhibit 10.21 to Form 10-K
                 Non-Qualified Stock Option Plan    for the Fiscal Year Ended
                 (compensatory plan)                December 31, 1990 filed on
                                                    March 28, 1991

           10.3  Healthsource, Inc. 1992            Exhibit 10.2 to Form 10-Q
                 Director Stock Option Plan         for the Quarter Ended June
                 (compensatory plan)                30, 1992 filed on August
                                                    12, 1992

           10.4  Healthsource, Inc. 1994 Stock      Exhibit to Proxy Statement
                 Option Plan (compensatory plan)    for the Annual Meeting of
                                                    Shareholders held on May
                                                    11, 1994 filed on April 11,
                                                    1994


                                       39
<PAGE>   40

 Reg. S-K
 Item 601                                              Source or Consecutive
Exhibit No.                Document                     Page of this Report
-----------                --------                     -------------------

           10.5  Employment Agreement dated as      Exhibit 8 to Schedule
                 of July 30, 1993 between           14D-9 dated March 6, 1997
                 Healthsource, Inc. and Robert
                 Chin (compensatory contract)

           10.6  Employment Agreement dated as      Exhibit 10 to Schedule
                 of June 25, 1996 between           14D-9 dated March 6, 1997
                 Healthsource, Inc. and Joseph
                 M. Zubretsky (compensatory
                 contract)

           10.7  Employment Agreement dated as      Exhibit 11 to Schedule
                 of July 19, 1996 between           14D-9 dated March 6, 1997
                 Healthsource, Inc. and Charles
                 M. Schneider (compensatory
                 contract)

           10.8  Employment Agreement dated as      Exhibit 12 to Schedule
                 of February 14, 1997 between       14D-9 dated March 6, 1997
                 Healthsource, Inc. and Richard
                 B. Salmon, M.D., Ph.D.
                 (compensatory contract)

           10.9  Employment Agreement dated as      Exhibit 10.7 to Form 10-K
                 of January 1, 1995 between         for the Fiscal Year Ended
                 Healthsource, Inc. and Francis     December 31, 1994 dated
                 G. Middleton, M.D.                 March 17, 1995
                 (compensatory contract)

           10.10 Healthsource, Inc. Deferred        Exhibit 13 to Schedule
                 Compensation Plan for Selected     14D-9 dated March 6, 1997
                 Employees

           10.11 Formation Agreement dated July     Exhibit 10 to Form 8-K
                 28, 1993 between Healthsource,     dated July 30, 1993
                 Inc. and St. Vincent Infirmary
                 Medical Center


                                       40
<PAGE>   41

 Reg. S-K
 Item 601                                              Source or Consecutive
Exhibit No.                Document                     Page of this Report
-----------                --------                     -------------------

           10.12 Asset and Stock Purchase           Exhibit 2.1 to Form 10-K
                 Agreement dated as of December     for the Fiscal Year Ended
                 20, 1994 among Provident Life      December 31, 1994 dated
                 and Accident Insurance Company     March 17, 1995
                 of America, Provident Life
                 Capital Corporation, Provident
                 Life and Accident Insurance
                 Company, Provident Life and
                 Casualty Insurance Company,
                 Provident Health Care Plans,
                 Inc. and Healthsource, Inc.

           10.13 Third Closing Amendment to         Exhibit 10.1 to Form 8-K
                 Asset and Stock Purchase           dated June 14, 1995
                 Agreement dated May 31, 1995
                 among Provident Life and
                 Accident Insurance Company of
                 America, et al. and
                 Healthsource, Inc.

           10.14 Non-Competition Agreement dated    Exhibit 10.3 to Form 8-K
                 May 31, 1995 between               dated June 14, 1995
                 Healthsource, Inc. and Provident
                 Life and Accident Insurance
                 Company of America

           10.15 Lease dated as of May 1, 1995      Exhibit 10.4 to Form 8-K
                 between Provident Life and         dated June 14, 1995
                 Accident Insurance Company and
                 Healthsource Provident
                 Administrators, Inc. relating to
                 a certain property located at
                 One Fountain Square,
                 Chattanooga, Tennessee

(11)       Computation of Per Share Earnings        Filed herewith

(12)       Computation of Historical Financial      Filed herewith
           Ratios

(13)       Annual Report to Security Holders

           13.1  Healthsource, Inc. 1996 Annual     Filed herewith
                 Report

(21)       Subsidiaries of Healthsource, Inc.       Filed herewith

(23)       Consents of Experts and Counsel


                                       41
<PAGE>   42

 Reg. S-K
 Item 601                                              Source or Consecutive
Exhibit No.                Document                     Page of this Report
-----------                --------                     -------------------

           23.1  Consent of Deloitte & Touche       Filed herewith
                 LLP

(27)       Financial Data Schedule                  Filed herewith

(b)        Reports on Form 8-K.

      The following reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended December 31, 1996 and subsequently.

      (i)   On March 4, 1997 Healthsource filed a Form 8-K reporting the signing
            of a definitive agreement with CIGNA Corporation providing for the
            acquisition of Healthsource by CIGNA through a cash tender offer for
            all outstanding shares of Healthsource common stock for $21.75 per
            share, to be followed by a statutory merger which will cash-out all
            remaining shares, other than shares held by dissenters, at the same
            cash price.

      (ii)  On January 10, 1997 Healthsource filed a Form 8-K reporting the
            closing on January 6, 1997 of its previously-announced agreement to
            acquire the remaining 85% interest in ChubbHealth, Inc., an HMO
            joint venture with Chubb Life Insurance Company of America located
            in Metropolitan New York City, for $25.3 million in cash.


                                       42
<PAGE>   43

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:  March 28, 1997          HEALTHSOURCE, INC.


                               By: /s/ Norman C. Payson, M.D.
                                   ----------------------------------------
                                            Norman C. Payson, M.D.
                                    President and Chief Executive Officer
                                        (Principal Executive Officer)


                               By: /s/ Joseph M. Zubretsky
                                   ----------------------------------------
                                             Joseph M. Zubretsky
                                           Chief Financial Officer
                                 (Principal Financial and Accounting Officer)

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the dates indicated.

             Signature                         Title                 Date
             ---------                         -----                 ----


/s/ Merwyn Bagan, M.D.
-----------------------------------  Chairman of the Board of  March 28, 1997
         Merwyn Bagan, M.D.          Directors


/s/ Paul D. Baron, M.D.
-----------------------------------  Director                  March 22, 1997
        Paul D. Baron, M.D.


/s/ Robert A. Leipold, M.D.
-----------------------------------  Director                  March 21, 1997
    Robert A. Leipold, M.D.

/s/ Francis G. Middleton, M.D.
-----------------------------------  Director                  March 28, 1997
     Francis G. Middleton, M.D.


/s/ Robert H. Bilbro, M.D.
-----------------------------------  Director                  March 21, 1997
       Robert H. Bilbro, M.D.


/s/ Norman C. Payson, M.D.
-----------------------------------  President, Chief          March 28, 1997
       Norman C. Payson, M.D.        Executive Officer and
                                     Director

                                       43
<PAGE>   44


/s/ Daniel F. Eubank, M.D.
-----------------------------------  Director                  March 23, 1997
       Daniel F. Eubank, M.D.


/s/ David W. Schall, M.D.
-----------------------------------  Director                  March 21, 1997
       David W. Schall, M.D.


/s/ Robert S. Cathcart III, M.D.
-----------------------------------  Director                  March 21, 1997
    Robert S. Cathcart III, M.D.


/s/ J. Harold Chandler
-----------------------------------  Director                  March 28, 1997
         J. Harold Chandler


                                       44

<PAGE>   45

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
    Reg. S-K
    Item 601                                                                          Source or Consecutive
   Exhibit No.                            Document                                     Page of this Report
   -----------                            --------                                     -------------------
<S>                 <C>                                                     <C>
(2)                 Plan of Acquisition

                    2.1     Agreement and Plan of Merger dated as            Exhibit 2 to Schedule 14D-9
                            of Exhibit 2 to Schedule 14D-9 dated             dated March 6, 1997
                            February 27, 1997 among Healthsource, Inc.,
                            March 6, 1997 CIGNA Corporation and CHC
                            Acquisition Corp.

                    2.2     Confidentiality Agreement dated January 31,      Exhibit 1 to Schedule 14D-9 dated
                            1997 between Healthsource, Inc. and CIGNA        March 6, 1997
                            Corporation

(3)                 Articles of Incorporation and By-Laws

                    3.1     Articles of Incorporation of Healthsource,       Exhibit 3.1 to Form 10-K for the
                            Inc., as amended                                 Fiscal Year Ended December 31, 1994
                                                                             filed on March 19, 1995

                    3.2     Articles of Amendment to the Articles of         Exhibit 4.1 to Form 8-K dated June 14,
                            Incorporation of Healthsource, Inc.              1995
                            designating the rights of the Class A
                            Cumulative Preferred Stock

                    3.3     Articles of Amendment to the Articles of         Filed herewith
                            Incorporation of Healthsource, Inc.
                            increasing the authorized Common Stock to
                            800,000,000 shares

                    3.4     By-Laws of Healthsource, Inc., as amended        Exhibit 3.2 to Amendment No. 2 to Form
                                                                             S-4 Registration Statement No.
                                                                             33-56446 dated February 19, 1993

(4)                 Instruments Defining the Rights of Security Holders
</TABLE>


                                       45
<PAGE>   46

<TABLE>
<CAPTION>
    Reg. S-K
    Item 601                                                                          Source or Consecutive
   Exhibit No.                            Document                                     Page of this Report
   -----------                            --------                                     -------------------
<S>               <C>                                                       <C>
                  4.1     Indenture dated as of March 6, 1996 by and        Exhibit 4.1 to Form S-3 Registration
                          between Healthsource, Inc. and The Bank of New    Statement No. 333-05223 dated June 4,
                          York, as Trustee, and the form of First           1996
                          Supplemental Indenture dated as of June 3, 1996

                  4.2     Note Resale Registration Rights Agreement dated   Exhibit 4.2 to Form S-3 Registration
                          as of March 6, 1996 by and between                Statement No. 333-05223 dated June 4,
                          Healthsource, Inc. and Bear, Stearns & Co.,       1996
                          Inc. for itself and on behalf of the Initial
                          Purchasers

                  4.3     Rights Agreement dated as of July 29, 1996        Exhibit 1 to Form 8-A Registration
                          between Healthsource, Inc. and The Bank of New    Statement dated August 2, 1996
                          York, as Rights Agent

(10)              Material Contracts

                  10.1     Indemnity Agreement (form) dated September 11,   Exhibit 10.7 to Form S-1 Registration
                           1989 between Healthsource, Inc. and each of      Statement No. 33-31165 dated September
                           its directors and executive officers             20, 1989
                           (compensatory contract)

                  10.2    Healthsource, Inc. 1991 Non-Qualified Stock       Exhibit 10.21 to Form 10-K for the
                          Option Plan (compensatory plan)                   Fiscal Year Ended December 31, 1990
                                                                            filed on March 28, 1991

                  10.3    Healthsource, Inc. 1992 Director Stock Option     Exhibit 10.2 to Form 10-Q for the
                          Plan (compensatory plan)                          Quarter Ended June 30, 1992 filed on
                                                                            August 12, 1992

                  10.4    Healthsource, Inc. 1994 Stock Option Plan         Exhibit to Proxy Statement for the
                          (compensatory plan)                               Annual Meeting of Shareholders held on
                                                                            May 11, 1994 filed on April 11, 1994
</TABLE>


                                       46
<PAGE>   47

<TABLE>
<CAPTION>
    Reg. S-K
    Item 601                                                                          Source or Consecutive
   Exhibit No.                            Document                                     Page of this Report
   -----------                            --------                                     -------------------
<S>               <C>                                                       <C>
                  10.5    Employment Agreement dated as of July 30, 1993    Exhibit 8 to Schedule 14D-9 dated March
                          between Healthsource, Inc. and Robert Chin        6, 1997
                          (compensatory contract)

                  10.6    Employment Agreement dated as of June 25, 1996    Exhibit 10 to Schedule 14D-9 dated
                          between Healthsource, Inc. and Joseph M.          March 6, 1997
                          Zubretsky (compensatory contract)

                  10.7    Employment Agreement dated as of July 19, 1996    Exhibit 11 to Schedule 14D-9 dated
                          between Healthsource, Inc. and Charles M.         March 6, 1997
                          Schneider (compensatory contract)

                  10.8    Employment Agreement dated as of February 14,     Exhibit 12 to Schedule 14D-9 dated
                          1997 between Healthsource, Inc. and Richard B.    March 6, 1997
                          Salmon, M.D., Ph.D. (compensatory contract)

                  10.9    Employment Agreement dated as of January 1,       Exhibit 10.7 to Form 10-K for the
                          1995 between Healthsource, Inc. and Francis G.    Fiscal Year Ended December 31, 1994
                          Middleton, M.D. (compensatory contract)           dated March 17, 1995

                  10.10   Healthsource, Inc. Deferred Compensation Plan     Exhibit 13 to Schedule 14D-9 dated
                          for Selected Employees                            March 6, 1997

                  10.11   Formation Agreement dated July 28, 1993 between   Exhibit 10 to Form 8-K dated July 30,
                          Healthsource, Inc. and St. Vincent Infirmary      1993
                          Medical Center
</TABLE>


                                       47
<PAGE>   48

<TABLE>
<CAPTION>
    Reg. S-K
    Item 601                                                                          Source or Consecutive
   Exhibit No.                            Document                                     Page of this Report
   -----------                            --------                                     -------------------
<S>               <C>                                                       <C>
                  10.12   Asset and Stock Purchase Agreement dated as of    Exhibit 2.1 to Form 10-K for the Fiscal
                          December 20, 1994 among Provident Life and        Year Ended December 31, 1994 dated
                          Accident Insurance Company of America,            March 17, 1995
                          Provident Life Capital Corporation, Provident
                          Life and Accident Insurance Company, Provident
                          Life and Casualty Insurance Company, Provident
                          Health Care Plans, Inc. and Healthsource, Inc.

                  10.13   Third Closing Amendment to Asset and              Exhibit 10.1 to Form 8-K dated June 14,
                          Stock Purchase Agreement dated May 31, 1995       1995
                          among Provident Life and Accident Insurance
                          Company of America, et al. and Healthsource,
                          Inc.

                  10.14   Non-Competition Agreement dated May 31, 1995      Exhibit 10.3 to Form 8-K dated June 14,
                          between Healthsource, Inc. and Provident Life     1995
                          and Accident Insurance Company of America

                  10.15   Lease dated as of May 1, 1995 between Provident   Exhibit 10.4 to Form 8-K dated June 14,
                          Life and Accident Insurance Company and           1995
                          Healthsource Provident Administrators, Inc.
                          relating to a certain property located at One
                          Fountain Square, Chattanooga, Tennessee

(11)              Computation of Per Share Earnings                         Filed herewith

(12)              Computation of Historical Financial Ratios                Filed herewith

(13)              Annual Report to Security Holders

                  13.1    Healthsource, Inc. 1996 Annual Report             Filed herewith

(21)              Subsidiaries of Healthsource, Inc.                        Filed herewith

(23)              Consents of Experts and Counsel
</TABLE>


                                       48
<PAGE>   49

<TABLE>
<CAPTION>
    Reg. S-K
    Item 601                                                                          Source or Consecutive
   Exhibit No.                            Document                                     Page of this Report
   -----------                            --------                                     -------------------
<S>                <C>                                                       <C>
                   23.1     Consent of Deloitte & Touche LLP                                 Filed herewith

(27)               Financial Data Schedule                                                   Filed herewith

</TABLE>


                                       49