-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, As1lDJ18adwmtVUbM56xKT+gXtXMiHXaXn/Bup8rZ2NJ5rvPxsxR+86Pe9wIGl8Y ouFdF+TNS4SKE/a8xPPchQ== /in/edgar/work/0000914039-00-000432/0000914039-00-000432.txt : 20001030 0000914039-00-000432.hdr.sgml : 20001030 ACCESSION NUMBER: 0000914039-00-000432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OXFORD HEALTH PLANS INC CENTRAL INDEX KEY: 0000865084 STANDARD INDUSTRIAL CLASSIFICATION: [6324 ] IRS NUMBER: 061118515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19442 FILM NUMBER: 747076 BUSINESS ADDRESS: STREET 1: 48 MONROE TURNPIKE CITY: TRUMBULL STATE: CT ZIP: 06611 BUSINESS PHONE: 2034596000 MAIL ADDRESS: STREET 1: 48 MONROE TURNPIKE CITY: TRUMBULL STATE: CT ZIP: 06611 10-Q 1 y41780e10-q.txt 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------------------------------------- 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: 0-19442 -------------------------------------------------------- OXFORD HEALTH PLANS, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-1118515 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 48 Monroe Turnpike, Trumbull, Connecticut 06611 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
(203) 459-6000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock, par value $.01 per share, outstanding on October 24, 2000 was 86,149,196. 1 2 OXFORD HEALTH PLANS, INC. INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1 Financial Statements Consolidated Balance Sheets at September 30, 2000 and December 31, 1999.................................3 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2000 and 1999.......................................................................4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 ............5 Notes to Consolidated Financial Statements .............................................................6 Report of Independent Accountants .....................................................................10 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................................................11 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk ............................................23 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings .....................................................................................24 ITEM 2 Changes in Securities and Use of Proceeds .............................................................25 ITEM 5 Other..................................................................................................25 ITEM 6 Exhibits and Reports on Form 8-K ......................................................................25 SIGNATURES .....................................................................................................27
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
September 30, December 31, Current assets: 2000 1999 - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 325,579 $ 332,882 Investments - available-for-sale, at market value 805,807 829,054 Premiums receivable, net 62,552 64,071 Other receivables 27,717 32,588 Prepaid expenses and other current assets 6,119 3,862 Deferred income taxes 63,587 68,266 - --------------------------------------------------------------------------------------------------------------- Total current assets 1,291,361 1,330,723 Property and equipment, net 31,830 49,519 Deferred income taxes 132,108 231,512 Restricted cash and investments 57,558 61,603 Other noncurrent assets 24,349 13,531 - --------------------------------------------------------------------------------------------------------------- Total assets $ 1,537,206 $1,686,888 ===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Medical costs payable $ 614,767 $ 656,063 Trade accounts payable and accrued expenses 123,092 122,345 Unearned premiums 38,438 97,155 Current portion of capital lease obligations 7,757 12,467 - --------------------------------------------------------------------------------------------------------------- Total current liabilities 784,054 888,030 Long-term debt 198,700 350,000 Obligations under capital leases 473 5,787 Redeemable preferred stock 232,241 344,316 Shareholders' equity: Preferred stock, $.01 par value, authorized 2,000,000 shares - - Common stock, $.01 par value, authorized 400,000,000 shares; issued and outstanding 86,119,849 shares in 2000 and 81,986,457 shares in 1999 861 820 Additional paid-in capital 526,743 488,030 Accumulated deficit (197,962) (372,350) Accumulated other comprehensive loss (7,904) (17,745) - --------------------------------------------------------------------------------------------------------------- Total shareholders' equity 321,738 98,755 - --------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 1,537,206 $1,686,888 ===============================================================================================================
See accompanying notes to consolidated financial statements. 3 4 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
Three Months Nine Months Ended September 30, Ended September 30, ------------------- ------------------- Revenues: 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Premiums earned $1,012,570 $1,025,518 $3,004,006 $3,085,774 Third-party administration, net 4,266 4,419 11,997 12,120 Investment and other income, net 21,233 22,512 57,244 65,641 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues 1,038,069 1,052,449 3,073,247 3,163,535 - -------------------------------------------------------------------------------------------------------------------------------- Expenses: Health care services 758,557 809,219 2,377,063 2,567,928 Marketing, general and administrative 119,926 142,578 361,719 447,525 Interest and other financing charges 7,460 12,009 27,548 38,239 Restructuring charges -- 19,963 -- 19,963 - -------------------------------------------------------------------------------------------------------------------------------- Total expenses 885,943 983,769 2,766,330 3,073,655 - -------------------------------------------------------------------------------------------------------------------------------- Operating earnings before income taxes and extraordinary item 152,126 68,680 306,917 89,880 Income tax expense 63,892 28,846 128,905 37,750 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings before extraordinary item 88,234 39,834 178,012 52,130 Extraordinary item - Loss on early retirement of debt, net of income tax benefit of $2,624 -- -- (3,624) -- - -------------------------------------------------------------------------------------------------------------------------------- Net earnings 88,234 39,834 174,388 52,130 Less - preferred dividends and amortization (7,638) (11,503) (27,989) (33,962) - -------------------------------------------------------------------------------------------------------------------------------- Net earnings attributable to common shares $ 80,596 $ 28,331 $ 146,399 $ 18,168 ================================================================================================================================ Earnings per common share - basic: Earnings before extraordinary item $ 0.94 $ 0.35 $ 1.80 $ 0.22 Extraordinary item -- -- (0.04) -- - -------------------------------------------------------------------------------------------------------------------------------- Net earnings per common share - basic $ 0.94 $ 0.35 $ 1.76 $ 0.22 ================================================================================================================================ Earnings per common share - diluted: Earnings before extraordinary item $ 0.81 $ 0.34 $ 1.66 $ 0.22 Extraordinary item -- -- (0.04) -- - -------------------------------------------------------------------------------------------------------------------------------- Net earnings per common share - diluted $ 0.81 $ 0.34 $ 1.62 $ 0.22 ================================================================================================================================ Weighted-average common shares outstanding-basic 85,370 81,354 83,197 81,098 Effect of dilutive securities: Stock options 5,915 2,867 3,921 3,057 Warrants 8,074 -- 3,154 -- - -------------------------------------------------------------------------------------------------------------------------------- Weighted-average common shares outstanding-diluted 99,359 84,221 90,272 84,155 ================================================================================================================================
See accompanying notes to consolidated financial statements. 4 5 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS)
Nine Months Ended September 30, ------------- 2000 1999 -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $174,388 $ 52,130 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 26,952 43,301 Noncash restructuring charges and write-downs - 15,060 Deferred income taxes 121,996 37,750 Provision for doubtful accounts and advances - 13,800 Realized loss on sale of investments 67 4,462 Extraordinary item - loss on early retirement of debt 3,624 - Gain on sale of Direct Script - (9,500) Other, net 1,420 1,751 Changes in assets and liabilities: Premiums receivable 1,519 24,375 Other receivables 3,239 11,289 Prepaid expenses and other current assets (2,257) (865) Medical costs payable (41,296) (175,573) Trade accounts payable and accrued expenses 747 (12,298) Unearned premiums (58,717) (61,819) Other, net 1,780 (8,119) ------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 233,462 (64,256) ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (9,849) (7,443) Purchases of available-for-sale investments (346,093) (706,221) Sales and maturities of available-for-sale investments 380,583 815,182 Proceeds from sale of Direct Script - 12,450 Other, net (10,621) 5,460 ------------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 14,020 119,428 ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from exercise of stock options 50,003 10,673 Cash dividends paid (10,064) - Redemption of notes payable (154,700) - Redemption of preferred stock (130,000) - Payments under capital leases (10,024) (14,153) ------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (254,785) (3,480) ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (7,303) 51,692 Cash and cash equivalents at beginning of period 332,882 237,717 ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $325,579 $289,409 ============================================================================================================= Supplemental schedule of noncash investing and financing activities: Cash payments (refunds) for income taxes, net $ 5,899 $ (851) Cash payments for interest 21,197 35,488 Supplemental schedule of noncash investing and financing activities: Unrealized appreciation (depreciation) of short-term investments 9,841 (16,836) Preferred stock dividends and amortization 27,989 33,962
See accompanying notes to consolidated financial statements. 5 6 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The interim consolidated financial statements included herein have been prepared by Oxford Health Plans, Inc. ("Oxford") and subsidiaries (collectively, the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been omitted pursuant to SEC rules and regulations; nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial statements include amounts that are based on management's best estimates and judgments. The most significant estimates relate to medical costs payable and other policy liabilities as well as liabilities and asset impairments related to operational restructuring activities. These estimates may be adjusted as more current information becomes available. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position and results of operations of the Company with respect to the interim consolidated financial statements have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 1999 and 1998 and for each of the years in the three-year period ended December 31, 1999, included in the Company's Form 10-K filed with the SEC for the fiscal year ended December 31, 1999. (2) RESTRUCTURING CHARGES During the first half of 1998 and the third quarter of 1999, the Company recorded restructuring charges and write-downs of strategic investments primarily associated with implementation of the Company's plan ("Turnaround Plan") to improve operations and restore the Company's profitability. The table below presents the activity in the first nine months of 2000 related to the restructuring charge reserves. As of September 30, 2000, the Turnaround Plan is proceeding in all material respects as expected and the activity during the first nine months of 2000 is consistent with the Company's estimates. The Company believes that the reserves as of September 30, 2000 are adequate and that no revisions of estimates are necessary at this time.
12/31/99 9/30/00 Restructuring Cash Noncash Restructuring (In thousands) Reserves Used Activity Reserves - ---------------------------------------------------------------------------------------------------------------- Provisions for loss on noncore businesses $ 2,065 $ (218) $(16) $ 1,831 Severance and related costs 7,724 (2,054) - 5,670 Costs of consolidating operations 8,006 (3,729) - 4,277 ------------------------------------------------------------- $17,795 $(6,001) $(16) $11,778 =============================================================
Cash expenses charged against the reserve for loss on noncore businesses amounted to $0.2 million during the first nine months of 2000 and were primarily related to premium deficiencies, professional fees and other incremental costs associated with exiting such businesses. As of September 30, 2000, the ending reserve balance of $1.8 million represents a full valuation allowance for noncore assets yet to be disposed of and an estimate of remaining legal costs related to the disposition of the related noncore businesses. The reduction in the reserve for severance and related costs reflects contractual payments of approximately $2.1 million to former employees of the Company in accordance with their respective 6 7 severance arrangements. The September 30, 2000 balance represents contracted amounts payable through the first half of 2001 and is related to individuals no longer employed by the Company. The reduction in the reserve for costs of consolidating operations reflects lease payments and occupancy costs of approximately $3.7 million, net of sublease income, related to vacated office space. The remaining costs of the operations consolidations reserve at September 30, 2000 is comprised of future minimum lease rentals and estimated lease termination fees and other costs, net of sublease income. The Company's related lease obligations for these properties extend to July 2005. (3) REDEEMABLE PREFERRED STOCK As of September 30, 2000, the Company had outstanding 247,318.20 shares of Series D Cumulative Preferred Stock ("Series D Preferred Stock") and 26,283.27 shares of Series E Cumulative Preferred Stock ("Series E Preferred Stock", the Series D Preferred Stock and the Series E Preferred Stock, together, being the "Preferred Stock"). The Series D Preferred Stock accumulates dividends at a rate of 5.129810% per year, payable quarterly in cash provided that prior to May 13, 2000, the Series D Preferred Stock accumulated dividends at the rate of 5.319521% per year, payable annually in cash or additional shares of Series D Preferred Stock, at the option of the Company. The Series E Preferred Stock accumulates dividends at a rate of 14% per year, payable quarterly in cash, provided that prior to May 13, 2000, the Series E Preferred Stock accumulated dividends at the rate of 14.589214% per year, payable annually in cash or additional shares of Series E Preferred Stock, at the option of the Company. The Company must redeem all of the outstanding shares of Preferred Stock on May 13, 2008 and may redeem all (but not less than all) of the outstanding shares of either series of Preferred Stock on or after May 13, 2003. In addition, the holders of the Preferred Stock may require the Company to redeem any or all of the shares of the Preferred Stock upon the occurrence of a change of control. The redemption price for each share of Preferred Stock is equal to all unpaid dividends accumulated to the date of payment of the redemption price, plus the stated value of $1,000 per share. With respect to dividend rights, the Series D Preferred Stock and Series E Preferred Stock rank on a parity with each other and prior to the Company's common stock. Under certain circumstances, the Company has the right to exchange the Series D Preferred Stock or the Series E Preferred Stock on any dividend payment date for junior subordinated debentures issued pursuant to an indenture. The indenture that would govern the junior subordinated debentures would have terms comparable to the terms of the series of Preferred Stock that is exchanged, including an interest rate that is the same as the dividend rate on that series of Preferred Stock. As required by the certificates of designations governing the Preferred Stock, the Company made the following dividend payments on each series of Preferred Stock during the first nine months of 2000. On May 13, 2000, the Company (a) issued a dividend in the amount of $53.20 per share of Series D Preferred Stock in the form of shares of such Series D Preferred Stock to the holders of record as of April 28, 2000 and (b) paid a cash dividend in the amount of $145.89 per share of Series E Preferred Stock to the holders of record as of April 28, 2000. The total amount of the May 13, 2000 cash dividend paid was approximately $3.8 million. On June 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock in the amounts of $6.70 and $18.28 per share, respectively, to the holders of record as of June 16, 2000. The total amount of the June 30, 2000 cash dividends paid was approximately $2.1 million. On September 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock in the amounts of $12.82 and $35.00 per share, respectively, to the holders of record as of September 15, 2000. The total amount of the September 30, 2000 cash dividends paid was approximately $4.1 million. See Note (8), Subsequent Events, for additional discussion concerning the redeemable preferred stock. 7 8 (4) COMPREHENSIVE INCOME (LOSS) For the three months ended September 30, 2000 and 1999, the changes in value of available-for-sale securities included in other comprehensive loss include unrealized holding gains (losses) of $8.1 million and $(2.0) million, respectively, and reclassification adjustments of $0.3 million and $(1.1) million, respectively. For the nine months ended September 30, 2000 and 1999, the changes in value of available-for-sale securities included in other comprehensive loss include unrealized holding gains (losses) of $9.9 million and $(10.1) million, respectively, and reclassification adjustments of $(0.1) million and $(4.5) million, respectively. (5) REGULATORY MATTERS In April 2000, the Company provided notice to the New York State regulatory authorities that it would pay a dividend from its New York health plan ("Oxford NY") to the parent company. In May 2000, a dividend of approximately $84.2 million was received by the parent company from Oxford NY. Additionally, New York State regulatory authorities authorized the repayment of a $38 million surplus note plus $6 million in accrued interest by Oxford NY to the parent company. Such amounts were received by the parent company in May 2000. In addition, a dividend of approximately $6 million was received in May 2000 by the parent company from its Connecticut health plan. In July 2000 and September 2000, the Company received regulatory approvals from New York State authorizing dividends of $40 million and $80 million, respectively from Oxford NY to the parent company. The dividend payments were received in the third quarter of 2000. (6) CONTINGENCIES Following the October 27, 1997 decline in the price per share of the Company's common stock, more than fifty purported securities class action lawsuits were filed against the Company and certain of its officers and directors in the United States District Courts for the Southern and Eastern Districts of New York, the District of Connecticut and the District of Arkansas. In addition, purported shareholder derivative actions were filed against the Company, its directors and certain of its officers in the United States District Courts for the Southern District of New York and the District of Connecticut, and Connecticut Superior Court. The purported securities class and derivative actions assert claims arising out of the October 27 decline in the price per share of the Company's common stock. The purported class actions are now all consolidated before Judge Charles L. Brieant of the United States District Court for the Southern District of New York. The purported federal derivative actions have been consolidated before Judge Brieant for all purposes, and any discovery in the Connecticut derivative actions will be coordinated with discovery in the federal derivative actions under the supervision of Judge Brieant. The State Board of Administration of Florida has filed an individual action against the Company and certain of its officers and directors, which is also now pending in the United States District Court for the Southern District of New York, asserting claims arising from the October 27 decline in the price per share of the Company's common stock. Additional purported securities class, shareholder derivative, and individual actions may be filed against the Company and certain of its officers and directors asserting claims arising from the October 27 decline in the price per share of the Company's common stock. Although the outcome of these actions cannot be predicted at this time, the Company believes that the defendants have substantial defenses to the claims asserted in the complaints and intends to defend the actions vigorously. In addition, the Company is currently being investigated and is undergoing examinations by various state and federal agencies, including the Securities and Exchange Commission, various state insurance departments, and the New York State Attorney General. The outcome of these investigations and examinations cannot be predicted at this time. On September 7, 2000, the Connecticut Attorney General filed suit against four HMOs, including the Company, in a federal district court in Connecticut, on behalf of a putative class consisting of all Connecticut members of the defendant HMOs who are enrolled in plans governed by ERISA. The suit 8 9 alleges that the named HMOs breached their disclosure obligations and fiduciary duties under ERISA by, inter alia, (i) failing to timely pay claims; (ii) the use of inappropriate and arbitrary coverage guidelines as the basis for denials; (iii) the inappropriate use of drug formularies; (iv) failing to respond to member communications and complaints; and (v) failing to disclose essential coverage and appeal information. The suit seeks preliminary and permanent injunctions enjoining the defendants from pursuing the complained of acts and practices. Also, on September 7, 2000, a group of plaintiffs' law firms commenced an action in federal district court in Connecticut against the Company and four other HMOs on behalf of a putative national class consisting of all members of the defendant HMOs who are or have been enrolled in plans governed by ERISA within the past six years. The substantive allegations of this complaint, which also claims violations of ERISA, are nearly identical to that filed by the Connecticut Attorney General. The complaint seeks the restitution of premiums paid and/or the disgorgement of profits, in addition to injunctive relief. Although the outcome of these actions cannot be predicted at this time, the Company believes that the claims asserted are without merit and intends to defend the actions vigorously. The Company also is involved in other legal actions in the normal course of its business, some of which seek monetary damages, including claims for punitive damages, which may not be covered by insurance. The Company believes any ultimate liability associated with these other legal actions would not have a material adverse effect on the Company's consolidated financial position or results of operations. (7) EXTRAORDINARY ITEM During the second quarter of 2000, the Company redeemed $136 million outstanding under the Term Loan Agreement, dated as of May 13, 1998 (the "Term Loan"), prior to maturity. Proceeds from dividend and surplus note repayments received from Oxford NY were used to redeem the Term Loan. In connection with the redemption, the Company recorded an extraordinary charge of approximately $3.6 million or $0.04 per diluted share, net of income tax benefits of approximately $2.6 million. The extraordinary charge represents the payment of a redemption premium and the write-off of deferred finance costs, net of related tax benefits. (8) SUBSEQUENT EVENTS In October 2000, the Company redeemed approximately $5.2 million principal amount of Senior Notes at a cost, before income tax benefits, of approximately $5.8 million, including redemption premium and the write-off of deferred finance costs. Proposed Capital and Financing Arrangements On October 25, 2000, the Company announced that it had entered into an exchange and repurchase agreement (the "Agreement") with the holders of its redeemable Preferred Stock and warrants (the "Investors") whereby (a) the Company will repurchase approximately $78.6 million face value of outstanding Preferred Stock and warrants for approximately 11.5 million shares at a total cost of approximately $220 million, and (b) the Investors will exchange their remaining approximately $195 million face value of outstanding Preferred Stock and their remaining warrants for approximately 11 million shares of common stock. The transaction includes an agreement to terminate the investment agreement dated February 23, 1998 between the Company and Investors, as amended. In connection with the Agreement, the Company will write off approximately $38 million of unamortized discount and issuance expenses related to the Preferred Stock upon the closing of the transaction. Among other things, the Agreement is contingent upon the Company completing a successful tender offer for its outstanding 11% Senior Notes due 2005 (the "Senior Notes") and obtaining a new term loan and revolving credit facility by January 16, 2001. In connection with the tender offer for the Senior Notes, the Company anticipates that it will record an extraordinary charge of approximately $16 million, net of income tax benefits, upon completion of the tender offer. All such transactions are anticipated to close in the fourth quarter of 2000. 9 10 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Oxford Health Plans, Inc. Trumbull, Connecticut We have reviewed the accompanying consolidated balance sheets of Oxford Health Plans, Inc. and subsidiaries (the "Company") as of September 30, 2000, the consolidated statements of earnings for the three-month and nine-month periods ended September 30, 2000 and 1999, and the consolidated statements of cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements at September 30, 2000, and for the three-month and nine-month periods ended September 30, 2000 for them to be in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP New York, New York October 25, 2000 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows membership by product:
As of September 30, Increase (Decrease) ------------------- ------------------- Membership: 2000 1999 Amount % ---- ---- ------ ------ Freedom, Liberty and Other Plans 1,111,300 1,238,900 (127,600) (10.3%) HMOs 222,300 238,400 (16,100) (6.8%) -------------------------------------------------------------------------------------------------- Total commercial membership 1,333,600 1,477,300 (143,700) (9.7%) Medicare 90,300 101,100 (10,800) (10.7%) -------------------------------------------------------------------------------------------------- Total fully insured membership 1,423,900 1,578,400 (154,500) (9.8%) Third-party administration 62,000 50,700 11,300 22.3% -------------------------------------------------------------------------------------------------- Total membership 1,485,900 1,629,100 (143,200) (8.8%) ======================================================================================================== =====
The following table provides certain statement of operations data expressed as a percentage of total revenues for the three month and nine month periods ended September 30, 2000 and 1999:
Three Months Nine Months Ended September 30, Ended September 30, --------------------------- ---------------------------- Revenues: 2000 1999 2000 1999 Premiums earned 97.5% 97.4% 97.7% 97.5% Third-party administration, net 0.4% 0.4% 0.4% 0.4% Investment and other income, net 2.1% 2.2% 1.9% 2.1% -------------------------------------------------------------------------------------------------------------------------- Total revenues 100.0% 100.0% 100.0% 100.0% -------------------------------------------------------------------------------------------------------------------------- Expenses: Health care services 73.1% 76.9% 77.3% 81.2% Marketing, general and administrative 11.5% 13.5% 11.8% 14.1% Interest and other financing charges 0.7% 1.2% 0.9% 1.3% Restructuring charges - 1.9% - 0.6% -------------------------------------------------------------------------------------------------------------------------- Total expenses 85.3% 93.5% 90.0% 97.2% -------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary item 14.7% 6.5% 10.0% 2.8% Income tax expense 6.2% 2.7% 4.2% 1.2% -------------------------------------------------------------------------------------------------------------------------- Net earnings before extraordinary item 8.5% 3.8% 5.8% 1.6% Extraordinary item - Loss on early retirement of debt, net of income tax benefits - - (0.1%) - -------------------------------------------------------------------------------------------------------------------------- Net earnings 8.5% 3.8% 5.7% 1.6% Less - preferred dividends and amortization (0.7%) (1.1%) (0.9%) (1.1%) -------------------------------------------------------------------------------------------------------------------------- Net earnings attributable to common shares 7.8% 2.7% 4.8% 0.5% ========================================================================================================================== Selected Information: Medical loss ratio 74.9% 78.9% 79.1% 83.2% Administrative loss ratio 11.8% 13.8% 12.0% 14.4% PMPM premium revenue $ 236.87 $ 214.70 $ 229.95 $ 210.44 PMPM medical expense $ 177.45 $ 169.41 $ 181.96 $ 175.13 Fully insured member months (000's) 4,274.8 4,776.6 13,063.8 14,663.1
11 12 RESULTS OF OPERATIONS Overview The Company's revenues consist primarily of commercial premiums derived from its Freedom Plan, Liberty Plan and health maintenance organizations ("HMOs"), and reimbursements under government contracts relating to its Medicare+Choice ("Medicare") programs, third-party administration fee revenue for its self-funded plan services (which is stated net of direct expenses such as third-party reinsurance premiums) and investment income. Health care services expense primarily comprises payments to physicians, hospitals and other health care providers under fully insured health care business and includes an estimated amount for incurred but not reported or paid claims ("IBNR"). The Company estimates IBNR expense based on a number of factors, including prior claims experience. The actual expense for claims attributable to any period may be more or less than the amount of IBNR reported. See "Cautionary Statement Regarding Forward-Looking Statements". Since it began operations in 1986 and through 1997, the Company experienced substantial growth in membership and revenues. The membership and revenue growth has been accompanied by increases in the cost of providing health care in the Company's service areas. The Company experienced declines in membership and revenue beginning in 1998 and into the third quarter of 2000 and may experience additional declines in membership for the remainder of 2000, although to a much lesser extent. Since the Company provides services on a prepaid basis, with premium levels fixed for one-year periods, unexpected cost increases during the annual contract period cannot be passed on to employer groups or members. Restructuring Charges During the first half of 1998 and the third quarter of 1999, the Company recorded restructuring charges and write-downs of strategic investments primarily associated with implementation of the Company's plan ("Turnaround Plan") to improve operations and restore the Company's profitability. The table below presents the activity in the first nine months of 2000 related to the restructuring charge reserves. As of September 30, 2000, the Turnaround Plan is proceeding in all material respects as expected and the activity during the first nine months of 2000 is consistent with the Company's estimates. The Company believes that the reserves as of September 30, 2000 are adequate and that no revisions of estimates are necessary at this time.
12/31/99 9/30/00 Restructuring Cash Noncash Restructuring (In thousands) Reserves Used Activity Reserves - ------------------------------------------------------------------------------------------------------------------- Provisions for loss on noncore businesses $ 2,065 $ (218) $(16) $ 1,831 Severance and related costs 7,724 (2,054) - 5,670 Costs of consolidating operations 8,006 (3,729) - 4,277 -------------------------------------------------------------- $17,795 $(6,001) $(16) $11,778 ==============================================================
Cash expenses charged against the reserve for loss on noncore businesses amounted to $0.2 million during the first nine months of 2000 and were primarily related to premium deficiencies, professional fees and other incremental costs associated with exiting such businesses. As of September 30, 2000, the ending reserve balance of $1.8 million represents a full valuation allowance for noncore assets yet to be disposed of and an estimate of remaining legal costs related to the disposition of the related noncore businesses. The reduction in the reserve for severance and related costs reflects contractual payments of approximately $2.1 million to former employees of the Company in accordance with their respective 12 13 severance arrangements. The September 30, 2000 balance represents contracted amounts payable through the first half of 2001 and is related to individuals no longer employed by the Company. The reduction in the reserve for costs of consolidating operations reflects lease payments and occupancy costs of approximately $3.7 million, net of sublease income, related to vacated office space. The remaining costs of the operations consolidations reserve at September 30, 2000 is comprised of future minimum lease rentals and estimated lease termination fees and other costs, net of sublease income. The Company's related lease obligations for these properties extends to July 2005. Three months ended September 30, 2000 compared with three months ended September 30, 1999 Total revenues for the quarter ended September 30, 2000 were $1.04 billion, down 1.4% from $1.05 billion during the same period in the prior year. Net earnings attributable to common shares for the third quarter of 2000 totaled $80.6 million, or $0.81 per diluted common share, compared with $28.3 million, or $0.34 per diluted common share, for the third quarter of 1999. Membership in the Company's fully insured health care programs as of September 30, 2000 decreased by approximately 155,000 members from the level of such membership as of September 30, 1999 and by approximately 120,000 members since year-end 1999. Such membership attrition is a result of the Company's continued efforts to rationalize its product lines, particularly certain small group product offerings, by not renewing groups or products where underwriting margins are unacceptable. Membership in Medicare programs decreased by approximately 11,000 members compared with September 30, 1999 and by approximately 7,000 members since year-end 1999. The overall decline in Medicare membership is primarily due to the Company's withdrawal or restructuring, including changes in provider arrangements and benefit plans, of the Medicare business in several markets, including the withdrawal from the Medicare market in Suffolk County, New York during the first quarter of 2000. The Company has announced that it will withdraw from the Medicare market in 8 counties within New Jersey at the end of 2000, resulting in the loss of approximately 8,000 additional Medicare members. The Company believes that future Medicare premiums may be adversely affected by the implementation of risk adjustment mechanisms announced by the Health Care Financing Administration ("HCFA"). Total commercial premiums earned for the three months ended September 30, 2000 increased 0.2% to $842.3 million compared with $840.6 million in the same period in the prior year. The increase in premiums earned is attributable to an 11.8% increase in average premium yield over the third quarter of 1999, partially offset by a 10.4% decrease in member months in the Company's commercial health care programs. Average premium rates for the full year 2000 are expected to be approximately 10% higher in the Company's core commercial business than in the full year 1999. Premiums earned from Medicare programs decreased 7.9% to $170.3 million in the third quarter of 2000 compared with $184.9 million in the third quarter of 1999. The revenue decline was caused by membership declines as member months of Medicare programs decreased 12% when compared with the prior year third quarter, partially offset by increases in average premium yields of Medicare programs of 4.6% over the level of the prior year third quarter. This yield increase exceeded the average rate increase granted by HCFA as membership losses occurred primarily in lower reimbursement counties. The Company withdrew from Medicaid programs in the first quarter of 1999. Investment and other income decreased 5.7% to $21.2 million for the three months ended September 30, 2000 compared with $22.5 million for the same period last year. Net investment income increased 26.8% to $19.4 million due to higher investment yields and higher average invested balances during the third quarter of 2000 compared with the third quarter of 1999. Other income decreased by $5.4 million to $1.8 million in the 2000 third quarter compared with 1999. Included in other income for the three months ended September 30, 1999 is a gain on the sale of Direct Script of approximately $7 million. 13 14 Health care services expense stated as a percentage of premium revenues (the "medical loss ratio") was 74.9% for the third quarter of 2000 compared with 78.9% for the third quarter of 1999. The improvement in the third quarter of 2000 over the third quarter of 1999 reflects a 10.3% increase in average overall premium yield offset in part by a 4.7% increase in per member per month medical costs, net of favorable prior period development of medical cost estimates. Included in medical costs for the three months ended September 30, 2000 are favorable developments of prior year estimates of medical costs of approximately $30.7 million. Health care services expense in the third quarter of 1999 was favorably impacted by net changes in prior period estimates of medical costs aggregating approximately $19.6 million. Excluding the favorable development of prior year estimates of medical costs in the third quarter of 2000, the medical loss ratio would have been 77.9%. The increase in per member per month medical costs is primarily the result of medical cost inflation partially offset by a significant change in the Company's membership composition (for example, a reduction in the number of members in government programs) and initiatives to improve health care utilization and costs. The Company believes it has made adequate provision for medical costs as of September 30, 2000. There can be no assurance, however, that additional reserve additions will not be necessary as the Company continues to review and reconcile provider claims. Additions to reserves could also result as a consequence of regulatory examinations. Such additions would be included in the results of operations for the period in which the adjustments are made. Marketing, general and administrative expenses totaled $119.9 million in the third quarter of 2000 compared with $142.6 million in the third quarter of 1999. The decrease when compared with the third quarter of 1999 is primarily attributable to a $11.7 million decrease in payroll and benefits due to reduced staffing and $4.5 million in lower depreciation expense. Administrative expenses as a percent of operating revenue were 11.8% during the third quarter of 2000 compared with 13.8% during the third quarter of 1999 and 14.6% for the full year 1999. Included in marketing, general and administrative expense for the three months ended September 30, 2000 are severance costs of approximately $2.5 million related to changes in operating management structure and reporting responsibilities. Interest expense decreased 37.9% or $4.5 million to $7.5 million in the third quarter of 2000 compared with $12 million in the third quarter of 1999. The Company incurred interest and other financing charges of $6 million in the third quarter of 2000 related to its outstanding debt and capital lease obligations, compared with $10 million in the comparable 1999 period. Interest expense on delayed claims declined in the third quarter of 2000 compared with the third quarter of 1999. Interest expense on debt and capital lease obligations decreased due to the repayment of the term loan during the second quarter of 2000. The decrease in interest expense on delayed claims is a result of more timely claim payments and lower levels of older claims outstanding. Interest payments have been made in accordance with the Company's interest payment policy and applicable law. The Company's future results will continue to reflect interest payments by the Company on delayed claims, although to a lesser extent than in prior years, as well as interest expense on its outstanding senior notes or new bank financings (see Liquidity and Capital Resources) as well as capital lease obligations. The Company recorded income tax expense of $63.9 million for the third quarter of 2000 compared with $28.8 million for the third quarter of 1999, reflecting an effective tax rate of 42% for 2000. The Company's periodic analysis to assess the realizability of the deferred tax assets includes an evaluation of the results of operations for the current and prior periods, the progress to date in its Turnaround Plan and projections of future results of operations, including the estimated impact of the Turnaround Plan. The Company will continue to evaluate the realizablity of its net deferred tax assets in future periods and will make adjustments to the valuation allowances when facts and circumstances indicate that a change is necessary. At September 30, 2000, the Company had deferred tax assets of approximately $195.7 million (net of valuation allowances of approximately $42.5 million). The valuation allowance relates primarily to capital loss carryforwards and state net operating loss carryforwards. The amounts of future taxable income necessary during the carryforward period to utilize the unreserved net deferred tax assets is approximately $466 million. 14 15 Net earnings attributable to common shares for the three months ended September 30, 2000 and 1999 were reduced by preferred dividends and amortization of approximately $7.6 million and $11.5 million, respectively. Nine months ended September 30, 2000 compared with nine months ended September 30, 1999 Total revenues for the nine months ended September 30, 2000 were $3.07 billion, down 2.9% from $3.16 billion during the same period in the prior year. Net earnings before extraordinary item attributable to common stock for the first nine months of 2000 totaled $150 million, or $1.66 per diluted common share, compared with $18.2 million, or $0.22 per diluted common share, for the first nine months of 1999. Total commercial premiums earned for the nine months ended September 30, 2000 decreased 0.6% to $2.5 billion compared with $2.51 billion in the same period in the prior year. The year to year decrease in premiums earned is attributable to a 10.7% increase in average premium yield compared with the first nine months of 1999 offset by a 10.3% decrease in member months in the Company's commercial health care programs. Average premium rates for the full year 2000 are expected to be approximately 10% higher in the Company's core commercial business than in the full year 1999. Premiums earned from Medicare programs decreased 9.7% to $506.4 million in the first nine months of 2000 from $560.6 million in the first nine months of 1999. The revenue decline was caused by membership declines as member months of Medicare programs decreased 14.3% when compared with the prior year period, partially offset by increases in average premium yields of Medicare programs of 5.5% over the level of the prior year period. This yield increase exceeded the average rate increase granted by HCFA as membership losses occurred primarily in lower reimbursement counties. The Company withdrew from Medicaid programs in the first quarter of 1999. Premiums earned from Medicaid programs were $11.9 million in the first nine months of 1999. Investment and other income decreased 12.8% to $57.2 million for the first nine months of 2000 compared with $65.6 million in the comparable 1999 period. Net investment income for the nine months ended September 30, 2000 increased 26.5% to $56.3 million from $44.5 million for the same period last year. The improvement is primarily due to a $4.5 million decrease in capital losses realized in the first nine months of 2000 compared with the prior year period and an increase in average investment yields during the first nine months of 2000 compared with the comparable 1999 period. Included in other income for the nine months ended September 30, 1999 is a $13.5 million gain from the sale of the Company's New York Medicaid business and $7 million related to the sale of Direct Script for the nine months ended September 30, 1999. Health care services expense stated as a percentage of premium revenues (the "medical loss ratio") was 79.1% for the first nine months of 2000 compared with 83.2% for the first nine months of 1999. The improvement in the first nine months of 2000 over the first nine months of 1999 reflects an 9.3% increase in average overall premium yield offset in part by a 3.9% increase in per member per month medical costs, net of favorable prior period development of medical cost estimates, when compared to the prior year period. Included in medical costs for the nine months ended September 30, 2000 are favorable developments of prior period medical costs of approximately $54.1 million. Excluding the favorable development of prior year estimates of medical costs in the first nine months of 2000, the medical loss ratio would have been 80.9%. Medical costs were adversely affected during the first nine months of 1999 by a provision for loss on claims advances totaling $13.8 million and $8 million for additional reserves related to the unwinding of a Medicare risk transfer agreement in New Jersey. See "Liquidity and Capital Resources." The increase in per member per month medical costs is primarily the result of medical cost inflation partially offset by a significant change in the Company's membership composition (for example, a reduction in the number of members in government programs) and initiatives to improve health care utilization and costs. The Company believes it has made adequate provision for medical costs as of September 30, 2000. There can be no assurance, however, that additional reserve additions will not be necessary as the Company continues to review and reconcile provider claims. Additions to reserves could 15 16 also result as a consequence of regulatory examinations. Such additions would be included in the results of operations for the period in which the adjustments are made. Marketing, general and administrative expenses totaled $361.7 million in the first nine months of 2000 compared with $447.5 million in the first nine months of 1999. The decrease when compared to the prior year period is primarily attributable to a $37.1 million decrease in payroll, benefits and occupancy costs due to reduced staffing, an $11.2 million decrease in consulting fees and temporary help, an $8.4 million decrease in marketing and related expenses and $13.3 million in lower depreciation expense. These expenses as a percent of operating revenue were 12% during the first nine months of 2000 compared with 14.4% during the first nine months of 1999. Included in marketing, general and administrative expense for the first nine months of 2000 are severance costs of approximately $7.5 million related to changes in operating management structure and reporting responsibilities. Interest expense decreased $10.7 million to $27.5 million in the first nine months of 2000 compared with $38.2 million in the comparable prior year period. The Company incurred interest and other financing charges of $24.5 million in the first nine months of 2000 related to its outstanding debt and capital lease obligations, compared with $30.2 million in the first nine months of 1999. Interest expense on delayed claims totaled $3.1 million in the first nine months of 2000 compared with $8 million in the first nine months of 1999. Interest expense on debt and capital lease obligations decreased due to the repayment of the $150 million term loan during the second quarter of 2000. The decrease in interest expense on delayed claims is a result of more timely claim payments and lower levels of older claims outstanding. Interest payments have been made in accordance with the Company's interest payment policy and applicable law. The Company's future results will continue to reflect interest payments by the Company on delayed claims, although to a lesser extent than in prior years, as well as interest expense on its outstanding senior notes or new bank financings (see Liquidity and Capital Resources) together with capital lease obligations. The Company recorded income tax expense of $128.9 million for the first nine months of 2000 reflecting an effective tax rate of 42% for 2000, compared with $37.8 million for the 1999 period. Net earnings before extraordinary item attributable to common shares for the nine months ended September 30, 2000 and 1999 were reduced by preferred dividends and amortization of approximately $28 million and $34 million, respectively. Preferred dividends and amortization for the nine months ended September 30, 2000 include a charge of approximately $2.6 million of issue costs relating to the Company's repurchase of approximately $130 million of preferred stock in February 2000. During the second quarter of 2000, the Company prepaid its outstanding term loan and incurred an extraordinary charge of $3.6 million or $0.04 per diluted common share, net of $2.6 million of income tax benefits. The extraordinary charge represents the payment of a redemption premium and the write off of deferred finance costs, net of related tax benefits. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations during the first nine months of 2000 approximated $233.5 million, compared with cash used of $64.3 million for the first nine months of 1999. The $297.8 million improvement in cash flow was the result of increased net earnings and improved working capital management, particularly in the area of medical costs and other payables. In addition, cash flow for the first nine months of 1999 was negatively affected by the runoff of claims reserves relating to discontinued or restructured businesses of approximately $98 million and reductions of claim inventories. The Company's capital expenditures for the first nine months of 2000 totaled $9.8 million compared with $7.4 million for the first nine months of 1999. Amounts were principally for certain leasehold improvements, computer equipment and software. Net investment proceeds were $34.5 million in 2000 compared with $109 million in 1999. The Company was able to use cash generated by operations and stock option proceeds to fund current year financing activities thereby necessitating less drawdowns on investments. Also included in 1999 cash flow is $12.4 million attributable to the sale of Direct Script. 16 17 Cash used by financing activities totaled $254.8 million during the first nine months of 2000 compared with $3.5 million in the first nine months of 1999. During the first nine months of 2000, the Company repurchased shares of its Series D and Series E Preferred Stock for an aggregate amount of approximately $130 million and repurchased the remaining outstanding obligation of its $150 million term loan under the Term Loan Agreement, dated as of May 13, 1998 (the "Term Loan"). In connection with the repayment of the Term Loan, the Company paid a redemption premium of approximately $3.4 million. Such amount is included as an extraordinary charge, net of income tax benefits for the nine month period ended September 30, 2000. In addition, during the third quarter of 2000, the Company repurchased $1.3 million of its Senior Notes. Costs associated with this redemption, including redemption premiums, were not material and are included in interest and other financing charges for the three months ended September 30, 2000. The Company paid the May 13, 2000 dividend on the Series D Cumulative Preferred Stock (the "Series D Preferred Stock"), valued at approximately $12.5 million, in shares of Series D Preferred Stock and paid the May 13, 2000 dividend on the Series E Cumulative Preferred Stock (the "Series E Preferred Stock," the Series D Preferred Stock and Series E Preferred Stock together being the "Preferred Stock") of approximately $3.8 million in cash. All dividends on both the Series D Preferred Stock and Series E Preferred Stock after May 13, 2000 are payable in cash on a quarterly basis. Accordingly, on June 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock of approximately $1.6 million and $0.5 million, respectively. On September 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock of approximately $3.2 million and $0.9 million, respectively. As of September 30, 2000, cash and investments aggregating $57.6 million have been segregated in the accompanying consolidated balance sheet as restricted investments to comply with federal and state regulatory requirements. During the first quarter of 2000, the regulatory restrictions on approximately $0.8 million of collateral (cash and cash equivalents) for advances made by Oxford Health Plans (NJ), Inc., the Company's New Jersey HMO subsidiary ("Oxford NJ"), were removed. The restriction on the remaining $4.4 million (cash and cash equivalents) was removed during the third quarter of 2000. With respect to the Company's New York subsidiaries, the minimum amount of surplus required is based on a formula established by the New York State Insurance Department ("NYSID"), which required approximately $140 million at September 30, 2000. During 2000, the Company received regulatory approvals from NYSID to pay dividends in excess of required surplus from Oxford Health Plans (NY), Inc., the Company's New York HMO subsidiary ("Oxford NY"), to the parent company. Such dividends received were approximately $120 million and $204.2 million for the three month and nine month periods ended September 30, 2000, respectively. A dividend of approximately $6 million was received in May 2000 by the parent company from its Connecticut health plan. In addition, on April 26, 2000, Oxford NY repaid a surplus note plus accrued interest to the parent company of approximately $44 million. The Company intends to continue to seek the maximum permitted dividends in excess of required surplus from its subsidiaries. However, there can be no assurances as to the amount of or the ability of the subsidiaries to pay any such future dividends. In September 1998, the National Association of Insurance Commissioners ("NAIC") adopted new minimum capitalization requirements, known as risk-based capital rules, for health care coverage provided by HMOs and other risk-bearing health care entities. Depending on the nature and extent of the new minimum capitalization requirements ultimately adopted by each state, there could be an increase in the capital required for certain of the Company's regulated subsidiaries. The Connecticut Department of Insurance has promulgated regulations based on the NAIC model which are applicable to its 1999 annual financial statements. Neither New York nor New Jersey has enacted similar legislation; however, risk- based capital legislation has been introduced in New York. In addition, the New Jersey Department of Banking and Insurance published solvency regulations in June 1999 that resulted in an additional $1.5 million solvency deposit by Oxford NJ. The Company believes that the current capitalization of its subsidiaries is sufficient to meet all proposed requirements. The New Jersey State legislature has passed legislation that includes a $50 million assessment on HMOs in the state based on market share and to be collected over a three-year period. Although the Company does not anticipate that this assessment will have a material impact on its operations, the assessment may necessitate a capital contribution to Oxford NJ in an amount up to approximately 17 18 $6 million. The Company's estimate of this assessment is included in medical costs payable at September 30, 2000. The Company's medical costs payable were $614.8 million as of September 30, 2000 (including $522.8 million for IBNR) compared with $656.1 million as of December 31, 1999 (including $570.7 million for IBNR). Medical payable days were 75 at September 30, 2000 compared with 76 days at December 31, 1999. The decrease reflects an increase in payments of prior period claims, a change in mix of outstanding claims, favorable development of prior period estimates of medical costs and the timing of certain pharmacy payments. The Company estimates the amount of its IBNR reserves using standard actuarial methodologies based upon historical data, including the average interval between the date services are rendered and the date claims are received and paid, denied claims activity, expected medical cost inflation, seasonality patterns and changes in membership. Outstanding provider advances, which have been fully reserved for, aggregated approximately $25.8 million at September 30, 2000. The Company continues its efforts to recover outstanding advance payments, either through repayment by the provider or application against future claims. The liability for medical costs payable is also affected by shared-risk arrangements, including arrangements related to the Company's Medicare business in certain counties and Private Practice Partnerships ("Partnerships"). In determining the liability for medical costs payable, the Company accounts for the financial impact of the transfer of risk for certain Medicare members and experience of risk-sharing Partnership providers (who may be entitled to credits from Oxford for favorable experience or subject to deductions for accrued deficits). In the case of the North Shore Medicare risk arrangement described below, the Company no longer records a reserve for claims liability since the payment obligation has been transferred to North Shore. The Company has reviewed its Partnership program and has terminated most of its Partnership arrangements as a result of difficulties and expense associated with administering the program as well as other considerations. The Company believes that its reserves for medical costs payable are adequate to satisfy its ultimate claim liabilities. In an effort to control increasing medical costs in its Medicare programs, the Company has an agreement with North Shore-Long Island Jewish Health Systems ("North Shore") pursuant to which it has transferred to North Shore a substantial portion of the medical cost risk associated with its current 22,000 Medicare members in certain New York counties. The Company and North Shore have made progress in resolving certain operational difficulties under the agreements; nonetheless the Company bears the risk of nonperformance or default by North Shore, and the failure of the North Shore arrangement could have a material adverse effect on the Company's results of operations. During the first nine months of 2000, Oxford NY made cash contributions to the capital of its indemnity insurance subsidiary of approximately $41.5 million. In addition, the Company made cash contributions to its New Jersey HMO subsidiary of approximately $6 million during the first nine months of 2000. During the first nine months of 1999, the Company made cash contributions to the capital of two of its HMO subsidiaries totaling approximately $4.5 million. The capital contributions were made to ensure that the subsidiaries had sufficient surplus under applicable regulations after giving effect to operating results and reductions to surplus resulting from the nonadmissibility of certain assets. The Company does not expect that any additional capital contributions to the subsidiaries will be required during the remainder of 2000. As of September 30, 2000, the Company had outstanding 247,318.20 shares of Series D Preferred Stock and 26,283.27 shares of Series E Preferred Stock. The Series D Preferred Stock accumulates dividends at a rate of 5.129810% per year, payable quarterly in cash, provided that prior to May 13, 2000, the Series D Preferred Stock accumulated dividends at the rate of 5.319521% per year, payable annually in cash or additional shares of Series D Preferred 18 19 Stock, at the option of the Company. The Series E Preferred Stock accumulates dividends at a rate of 14% per year, payable quarterly in cash, provided that prior to May 13, 2000, the Series E Preferred Stock accumulated dividends at the rate of 14.589214% per year, payable annually in cash or additional shares of Series E Preferred Stock, at the option of the Company. Future quarterly dividends on both the Series D and Series E Preferred Stock are payable in cash. The Company must redeem all of the outstanding shares of Preferred Stock on May 13, 2008 and may redeem all (but not less than all) of the outstanding shares of either series of Preferred Stock on or after May 13, 2003. In addition, the holders of the Preferred Stock may require the Company to redeem any or all of the shares of the Preferred Stock upon the occurrence of a change of control. The redemption price for each share of Preferred Stock is equal to all unpaid dividends accumulated to the date of payment of the redemption price, plus the stated value of $1,000 per share. With respect to dividend rights, the Series D Preferred Stock and Series E Preferred Stock rank on a parity with each other and prior to the Company's common stock. Under certain circumstances, the Company has the right to exchange the Series D Preferred Stock or the Series E Preferred Stock on any dividend payment date for junior subordinated debentures issued pursuant to an indenture. The indenture that would govern the junior subordinated debentures would have terms comparable to the terms of the series of Preferred Stock that is exchanged, including an interest rate that is the same as the dividend rate on that series of Preferred Stock. As required by the certificates of designations governing the Preferred Stock, the Company made the following dividend payments on each series of Preferred Stock for the nine months ended September 30, 2000. On May 13, 2000, the Company (a) issued a dividend in the amount of $53.20 per share of Series D Preferred Stock in the form of shares of such Series D Preferred Stock to the holders of record as of April 28, 2000 and (b) paid a cash dividend in the amount of $145.89 per share of Series E Preferred Stock to the holders of record as of April 28, 2000. The total amount of the May 13, 2000 cash dividend paid was approximately $3.8 million. On June 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock in the amounts of $6.70 and $18.28 per share, respectively, to the holders of record as of June 16, 2000. The total amount of the June 30, 2000 cash dividend paid was approximately $2.1 million. On September 30, 2000, the Company paid cash dividends on the Series D Preferred Stock and Series E Preferred Stock in the amount of $12.82 and $35.00 per share, respectively, to the holders of record as of September 15, 2000. The total amount of the September 30, 2000 cash dividend paid was approximately $4.1 million. In October 2000, the Company redeemed approximately $5.2 million principal amount of Senior Notes at a cost, before income tax benefits, of approximately $5.8 million, including redemption premium and the write-off of deferred finance costs. Proposed Capital and Financing Arrangements On October 25, 2000, the Company announced that it had entered into an exchange and repurchase agreement (the "Agreement") with the holders of its redeemable Preferred Stock and warrants (the "Investors") whereby (a) the Company will repurchase approximately $78.6 million face value of outstanding Preferred Stock and warrants for 11.5 million shares at a total cost of approximately $220 million, and (b) the Investors will exchange their remaining approximately $195 million face value of outstanding Preferred Stock and their remaining warrants for approximately 11 million shares of common stock. The transaction includes an agreement to terminate the investment agreement dated as of February 23, 1998 between the Company and Investors, as amended. In connection with the Agreement, the Company will write off approximately $38 million of unamortized discount and issuance expenses related to the Preferred Stock upon the closing of the transaction. Among other things, the Agreement is contingent upon the Company completing a successful tender offer for its outstanding 11% Senior Notes due 2005 (the "Senior Notes") and obtaining a new term loan and revolving credit facility by January 16, 2001. In connection with the tender offer for the Senior Notes, the Company anticipates that it will record an extraordinary charge of approximately 19 20 $16 million, net of income tax benefits, upon completion of the tender offer. All such transactions are anticipated to close in the fourth quarter of 2000. MARKET RISK DISCLOSURES The Company's consolidated balance sheet as of September 30, 2000 includes a significant amount of assets whose fair value is subject to market risk. Since a substantial portion of the Company's investments are in fixed income securities, interest rate fluctuations represent the largest market risk factor affecting the Company's consolidated financial position. Interest rates are managed within a tight duration band, 2.25 to 2.5 years, and credit risk is managed by investing in U.S. government obligations and in corporate debt securities with high average quality ratings and maintaining a diversified sector exposure within the debt securities portfolio. The Company's investment in equity securities as of September 30, 2000 was not significant. In order to determine the sensitivity of the Company's investment portfolio to changes in market risk, valuation estimates were made on each security in the portfolio using a duration model. Duration models measure the expected change in security market prices arising from hypothetical movements in market interest rates. The expected change is then adjusted for the estimated convexity of the instruments in the Company's investment portfolio by mathematically "correcting" the changes in duration as market interest rates shift. The model used industry standard calculations of security duration and convexity as provided by third party vendors such as Bloomberg and Yield Book. For certain structured notes, callable corporate notes, and callable agency bonds, the duration calculation utilized an option-adjusted approach, which helps to ensure that hypothetical interest rate movements are applied in a consistent way to securities that have embedded call and put features. The model assumed that changes in interest rates were the result of parallel shifts in the yield curve. Therefore, the same basis point change was applied to all maturities in the portfolio. The change in valuation was tested using positive and negative adjustments in yield of 100 and 200 basis points. Hypothetical immediate increases of 100 and 200 basis points in market interest rates would decrease the fair value of the Company's investments in debt securities as of September 30, 2000 by approximately $19.3 million and $38 million, respectively (compared with $19.3 million and $38 million as of September 30, 1999, respectively). Hypothetical immediate decreases of 100 and 200 basis points in market interest rates would increase the fair value of the Company's investments in debt securities as of September 30, 2000 by approximately $19.8 million and $39.5 million, respectively (compared with $19.7 million and $39.2 million as of September 30, 1999, respectively). Because duration and convexity are estimated rather than known quantities for certain securities, there can be no assurance that the Company's portfolio would perform in line with the estimated values. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", including statements concerning future results of operations or financial position, future liquidity, future ability to receive cash from the Company's regulated subsidiaries, future ability to pay dividends, future ability to retire, repurchase or exchange debt and equity, future health care and administrative costs, future premium rates and yields for commercial and Medicare business, the employer renewal process, future growth or reduction in membership and membership composition, future health care benefits, future provider network, future provider utilization rates, future medical loss ratio levels, future claims payment, service performance and other operations matters, future administrative loss ratio levels, the Company's information systems, proposed efforts to control health care and administrative costs, future impact of risk-sharing and cost-containment agreements with health care providers, future enrollment levels, future government regulation and relations and the impact of new laws and regulation, the future of the health care industry, and the impact on the Company of legal proceedings and regulatory investigations and examinations, and other statements contained herein regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934, as amended). Because such statements involve risks and uncertainties, actual 20 21 results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed below. IBNR estimates; Inability to control health care costs Medical costs payable in Oxford's financial statements include reserves for incurred but not reported or paid claims ("IBNR") which are estimated by Oxford. Oxford estimates the amount of such reserves primarily using standard actuarial methodologies based upon historical data including the average interval between the date services are rendered and the date claims are received and paid, denied claims activity, expected medical cost inflation, seasonality patterns and changes in membership. The estimates for submitted claims and IBNR are made on an accrual basis and adjusted in future periods as required. Oxford believes that its reserves for IBNR are adequate in order to satisfy its ultimate claim liability. However, there can be no assurances as to the ultimate accuracy of such estimates. Any adjustments to such estimates could adversely affect Oxford's results of operations in future periods. The Company's future results of operations depend, in part, on its ability to predict and control health care costs (through, among other things, appropriate benefit design, utilization review and case management programs and risk-sharing and other payment arrangements with providers) while providing members with coverage for the health care benefits provided under their contracts. However, Oxford's ability to contain such costs may be adversely affected by various factors, including: new technologies and health care practices, hospital costs, changes in demographics and trends, new mandated benefits or practices, selection biases, increases in unit costs paid to providers, major epidemics, catastrophes, inability to establish acceptable compensation arrangements with providers, operational and regulatory issues which could delay, prevent or impede those arrangements, and higher utilization of medical services, including higher out-of-network utilization under point-of-service plans. There can be no assurance that Oxford will be successful in mitigating the effect of any or all of the above-listed or other factors. The effect of higher administrative costs Although a key element of the Company's future strategy is a reduction in administrative expenses, no assurance can be given that the Company will be able to achieve such reductions, especially since such reductions will involve changing work processes and staffing levels for various functions which, in turn, could involve operational challenges and the risk of unanticipated costs, including unexpected employee attrition. Changes in laws and regulations The health care financing industry in general, and HMOs in particular, are subject to substantial federal and state government regulation, including, but not limited to, regulations relating to cash reserves, minimum net worth, licensing requirements, approval of policy language and benefits, mandatory products and benefits, provider compensation arrangements, member disclosure, premium rates and periodic examinations by state and federal agencies. State regulations require the Company's HMO and insurance subsidiaries to maintain restricted cash or available cash reserves and restrict their ability to make dividend payments, loans or other payments to the Company. In recent years, significant federal and state legislation affecting the Company's business was enacted. For example, effective July 1999, New York State implemented a requirement that managed care members have a right to an external independent appeal of certain final adverse determinations, including those involving experimental treatments and clinical trials. In addition, in 1999 and 2000 Connecticut and New Jersey enacted legislation concerning prompt payment of claims, mental health parity and other mandated benefits and practices. State and federal government authorities are continually considering changes to laws and regulations applicable to the Company and are currently considering regulations relating to mandatory benefits and products, defining medical necessity, provider compensation, health 21 22 plan liability to members who fail to receive appropriate care, disclosure and composition of physician networks, and allowing physicians to collectively negotiate contract terms with carriers, including fees. All of these proposals would apply to the Company. In addition, Congress is considering significant changes to Medicare, including a pharmacy benefit requirement and payment relief to Medicare plans, as well as proposals relating to health care reform, including a comprehensive package of regulations on managed care called the "Patient Bill of Rights" legislation. Separate and distinct versions of the Patient Bill of Rights have passed both the House of Representatives and the Senate and are awaiting further action. Premiums for Oxford's Medicare programs are determined through formulas established by HCFA for Oxford's Medicare contracts. Federal law provides for annual adjustments in Medicare reimbursement by HCFA which could reduce the reimbursement received by the Company. Premium rate increases in a particular region that are lower than the rate of increase in health care service expenses for Oxford's Medicare members in such region, could adversely affect Oxford's results of operations. Any Medicare risk agreements entered into by Oxford could pose operational challenges for the Company and could be adversely affected by regulatory actions or by the failure of the risk contractor to comply with the terms of such agreement, and failure under any such agreement could have an adverse effect on the Company's Medicare membership or its relationship with its providers. Oxford's Medicare programs are subject to certain additional risks compared to commercial programs, such as higher comparative medical costs, higher levels of utilization and higher marketing and advertising costs. Service and management information systems The Company's claims and service systems depend upon the smooth functioning of two complex computer systems. While these systems presently operate at 99% availability and are sufficient to operate the Company's current business, the systems remain subject to unexpected interruptions resulting from occurrences such as hardware failures or the impact of ongoing program modifications. There can be no assurance that such interruptions will not occur in the future, and any such interruptions could adversely affect the Company's business and results of operations. Moreover, operating and other issues can lead to data problems that affect performance of important functions, including, but not limited to, claims payment and group and individual billing. There can also be no assurance that the process of improving existing systems, developing systems to support the Company's operations and improving service levels will not be delayed or that additional systems issues will not arise in the future. Health care provider network The Company is subject to the risk of disruption in its health care provider network. Network physicians, hospitals and other health care providers could terminate their contracts with the Company. In addition, disputes often arise under provider contracts that could adversely affect the Company or could expose the Company to regulatory or other liabilities. Such disruptions could have a material adverse effect on the Company's ability to market its products and service its membership. Cost-containment arrangements entered into by Oxford could be adversely affected by regulatory actions or by the failure of the providers to comply with the terms of such agreements. Furthermore, the effect of mergers and consolidations of health care providers or potential unionization of, or concerted action by, physicians in the Company's service areas could enhance the providers' bargaining power with respect to higher reimbursement levels and changes to the Company's utilization review and administrative procedures. Pending litigation and other proceedings against Oxford The Company is a defendant in a number of purported securities class action lawsuits and shareholder derivative lawsuits that were filed after a substantial decline in the price of the Company's common stock in October 1997. The Company is also the subject of examinations, investigations and inquiries by several Federal and state governmental agencies. The Company has recently been sued (i) in a Connecticut class action grounded in ERISA claims and (ii) by the Connecticut Attorney General's office on similar claims. For a discussion of these proceedings, as well as other lawsuits pending against the Company, see "Legal Proceedings" herein and in the Company's Annual Report on Form 10-K for the year 22 23 ended December 31, 1999 and Form 10-Q for the quarterly period ended June 30, 2000. The results of these lawsuits, examinations, investigations and inquiries could adversely affect the Company's results of operations, financial condition, membership growth and ability to retain members through the imposition of sanctions, required changes in operations and potential limitations on enrollment. In addition, evidence obtained in governmental proceedings could be used adversely against the Company in civil proceedings. The Company cannot predict the outcomes of these lawsuits, examinations, investigations and inquiries. Negative HMO publicity and potential for additional litigation The managed care industry, in general, has received significant negative publicity. This publicity has led to increased legislation, regulation and review of industry practices. Certain litigation, including purported class actions on behalf of plan members commenced against certain large, national health plans, and recently against the Company, has resulted in negative publicity for the managed care industry and creates the potential for similar additional litigation against the Company. See "Legal Proceedings". These factors may adversely affect the Company's ability to market its products and services, may require changes to its products and services and may increase the regulatory burdens under which the Company operates, further increasing the costs of doing business and adversely affecting the Company's results of operations. Concentration of business The Company's commercial and Medicare business is concentrated in New York, New Jersey and Connecticut, with more than 80% of its tri-state commercial premium revenues received from New York business. As a result, changes in regulatory, market or health care provider conditions in any of these states, particularly New York, could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company's Medicare revenue represented approximately 17% of premiums earned during the first nine months of 2000 and 18% of its premiums earned during the year 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures." 23 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As a result of the October 27, 1997 decline in the price per share of the Company's common stock, the Company is the subject of numerous legal proceedings and investigations, including: - a securities class action alleging, among other things, that the Company, several current and former directors and officers of the Company and the Company's former independent auditors failed to disclose material information regarding changes in the Company's computer system and the Company's membership, enrollment, revenues, medical expenses and ability to collect on its accounts receivable; - a stockholder derivative action alleging, among other things, that the Company's directors and certain of its officers mismanaged the Company and wasted its assets in planning and implementing certain changes to the Company's computer system; - an investigation by the New York State Attorney General "in regard to matters relating to the practices of the Company and others in the offering, issuance, sale, promotion, negotiation, advertisement, distribution or purchase of securities"; and - an investigation by the Securities and Exchange Commission regarding a number of subjects, including disclosures made in the Company's October 27, 1997 press release announcing a loss in the third quarter of 1997. The Company is also the subject of an arbitration proceeding initiated by the New York County Medical Society and joined by other medical associations seeking, among other things, injunctive relief from the Company's practices regarding the payment of claims submitted by physicians. The Company has described these and other legal proceedings in more detail in its Annual Report on Form 10-K for the year ended December 31, 1999 and its quarterly report on Form 10-Q for the quarterly period ended June 20, 2000. Other than as described below, there have been no material developments in the legal proceedings involving the Company in the third quarter of 2000. On September 7, 2000, the Connecticut Attorney General filed suit against four HMOs, including the Company, in a federal district court in Connecticut, on behalf of a putative class consisting of all Connecticut members of the defendant HMOs who are enrolled in plans governed by ERISA. The suit alleges that the named HMOs breached their disclosure obligations and fiduciary duties under ERISA by, inter alia, (i) failing to timely pay claims; (ii) the use of inappropriate and arbitrary coverage guidelines as the basis for denials; (iii) the inappropriate use of drug formularies; (iv) failing to respond to member communications and complaints; and (v) failing to disclose essential coverage and appeal information. The suit seeks preliminary and permanent injunctions enjoining the defendants from pursuing the complained of acts and practices. On September 7, 2000, a group of plaintiffs' law firms commenced an action in federal district court in Connecticut against the Company and four other HMOs on behalf of a putative national class consisting of all members of the defendant HMOs who are or have been enrolled in plans governed by ERISA within the past six years. The substantive allegations of this complaint, which also claims violations of ERISA, are nearly identical to that filed by the Connecticut Attorney General. The complaint seeks the restitution of premiums paid and/or the disgorgement of profits, in addition to injunctive relief. Although the outcome of these actions cannot be predicted at this time, the Company believes that the claims asserted are without merit and intends to defend the actions vigorously. 24 25 In the ordinary course of its business, the Company is subject to claims and legal actions by its members in connection with benefit coverage determinations and alleged acts by network providers and by health care providers and others. In addition, the Company is subject to examinations from time to time with respect to financial condition and market conduct for its HMO and insurance subsidiaries in the states where it conducts business. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS See information contained in notes 3, 7 and 8 of "Notes to Consolidated Financial Statements" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 5. OTHER INFORMATION Future Earnings Release and Conference Call Schedule The Company intends to post, on the Investor Relations page of its web site (www.oxfordhealth.com), the dates of its public release of quarterly earnings and the time of the related calls with analysts. The public is permitted to listen to the conference calls and should use the telephone number and instructions as shown on the Company's web site. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description of Document 3(a) Second Amended and Restated Certificate of Incorporation, as amended, of the Registrant 3(b) Amended and Restated By-laws of the Registrant 4(a) Certificate of Designations of Series D Cumulative Preferred Stock 4(b) Certificate of Designations of Series E Cumulative Preferred Stock 10 Exchange and Repurchase Agreement, dated as of October 25, 2000, by and among TPG Partners II, L.P., TPG Investors II, L.P., TPG Parallel II, L.P., Chase Equity Associates, L.P., Oxford Acquisition Corp., the DLJ Entities listed therein and the Registrant 15 Letter of Ernst & Young LLP re Unaudited Consolidated Interim Financial Statements
25 26 (b) Reports on Form 8-K In a report on Form 8-K dated July 26, 2000 and filed on July 27, 2000, the Company reported, under Item 5. "Other Events", its second quarter 2000 earnings press release. 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OXFORD HEALTH PLANS, INC. ----------------------------------- (REGISTRANT) October 27, 2000 /s/ MARC M. KOLE - ---------------------------- ----------------------------------- Date MARC M. KOLE, VICE PRESIDENT OF FINANCE AND CHIEF ACCOUNTING OFFICER 27 28 OXFORD HEALTH PLANS, INC. INDEX TO EXHIBITS
Exhibit Number Description of Document ------ ----------------------- 3(a) Second Amended and Restated Certificate of Incorporation, as amended, of the Registrant* 3(b) Amended and Restated By-laws of the Registrant, incorporated by reference to Exhibit 3(ii) of the Registrant's Form 10-Q for the quarterly period ended September 30, 1998 (File No. 0-19442) 4(a) Certificate of Designations of Series D Cumulative Preferred Stock* 4(b) Certificate of Designations of Series E Cumulative Preferred Stock* 10 Exchange and Repurchase Agreement, dated as of October 25, 2000, by and among TPG Partners II, L.P., TPG Investors II, L.P., TPG Parallel II, L.P., Chase Equity Associates, L.P., Oxford Acquisition Corp., the DLJ Entities listed therein and the Registrant* 15 Letter of Ernst & Young LLP re Unaudited Consolidated Interim Financial Statements*
*Filed herewith 28 29 Exhibit 10 EXCHANGE AND REPURCHASE AGREEMENT EXCHANGE AND REPURCHASE AGREEMENT, dated as of October 25, 2000 (the "Agreement"), by and among TPG Partners II, L.P., a Delaware limited partnership ("TPG Partners"), TPG Parallel II, L.P., a Delaware limited partnership ("TPG Parallel"), TPG Investors II, L.P., a Delaware limited partnership ("TPG Investors", and together with TPG Partners and TPG Parallel, "TPG"), Chase Equity Associates, L.P., a Delaware limited partnership ("Chase"), Oxford Acquisition Corp., a Delaware corporation ("Acquisition"), the entities listed as "DLJ Entities" on the signature pages hereto (each, a "DLJ Entity," and together with TPG, Chase and Acquisition, the "Investors") and Oxford Health Plans, Inc., a Delaware corporation (the "Company"). WHEREAS, the Investors are the holders of 247,318.200 shares of the Company's Series D Cumulative Preferred Stock, par value $0.01 per share ("Series D Shares"), 26,283.276 shares of the Company's Series E Cumulative Preferred Stock, par value $0.01 per share ("Series E Shares"), 15,800,000 Series A Warrants of the Company ("Series A Warrants") to purchase shares of the Company's Common Stock, par value $0.01 per share ("Common Stock"), and 6,730,000 Series B Warrants of the Company ("Series B Warrants") to purchase shares of Common Stock (the Series A Warrants and the Series B Warrants being hereinafter collectively referred to as the "Warrants"); and WHEREAS, the Company desires to purchase from the Investors, and the Investors desire to sell to the Company, 78,591.70585 Series D Shares and 11,543,534.09972 Series A Warrants for an aggregate purchase price of $220,010,900.28, on the terms, and subject to the conditions, set forth below (the "Repurchase"); and WHEREAS, the Investors desire to exchange with the Company all remaining Series D Shares and all Series E Shares for shares of Common Stock by the exercise of all remaining Warrants, on the terms, and subject to the conditions, set forth below (the "Exchange"); and WHEREAS, the Company desires to terminate the Investment Agreement, dated as of February 23, 1998, between the Company and TPG Oxford LLC, as amended (the "Investment Agreement"), and the Investors are willing to terminate the Investment Agreement effective immediately upon consummation of the Exchange and Repurchase; NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereto agree as follows: SECTION 1. THE EXCHANGE AND REPURCHASE. Upon the terms and subject to the conditions set forth in this Agreement: (a) The Company shall declare and pay in cash on the Closing Date (as defined in Section 2) all accumulated and unpaid dividends on the Series D Shares and Series E Shares to the Closing Date. Each Investor shall, on the Closing Date, exchange 30 the number of Series D Shares and Series E Shares set forth opposite such Investor's name on Schedule B hereto (such shares being hereinafter referred to as such Investor's "Exchange Preferred Shares") for that number of shares of Common Stock set forth opposite such Investor's name on Schedule B hereto ("Warrant Shares") by exercising the number of Series A Warrants and Series B Warrants set forth opposite such Investor's name on Schedule B hereto (such Warrants being hereinafter referred to as such Investor's "Exchange Warrants") and delivering to the Company, on the Closing Date, the Exchange Preferred Shares in payment of the exercise price of the Exchange Warrants. The Company and the Investors intend that the Exchange will be treated as a recapitalization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, and agree not to take any position with any tax authority that is inconsistent with such treatment. (b) On the Closing Date, the Company shall purchase from each Investor, and each Investor shall sell to the Company, the number of Series A Warrants and Series D Shares set forth opposite such Investor's name on Schedule C hereto, for the aggregate purchase price set forth opposite such Investor's name on Schedule C hereto. SECTION 2. CLOSING. (a) The closing of the transactions contemplated in this Agreement shall occur as soon as practicable after the conditions set forth in Section 6 have been satisfied. The time at which the closing occurs is referred to as the "Closing Date". (b) On the Closing Date, as a part of a simultaneous transaction, each Investor shall deliver to the Company all Warrants, Series D Shares and Series E Shares owned by such Investor, and the Company shall pay to each Investor, by wire transfer to an account designated by such Investor, in immediately available funds the amounts payable by the Company to such Investor pursuant to Section 1 and deliver to each Investor such Investor's Warrant Shares. SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to, and agrees with, each Investor as follows: (a) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement, and the consummation by the Company of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity. 2 31 (c) Except for regulatory approvals, registrations, declarations and filings that would not prevent or materially delay the consummation of the transactions contemplated hereby, or impair the Company's ability to consummate the transactions contemplated hereby, no regulatory approval from, or registration, declaration or filing with, any governmental entity is required to be made or obtained by the Company or any of its subsidiaries in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. (d) The execution and delivery of this Agreement does not, and the performance of the obligations set forth herein and the consummation of the transactions contemplated hereby will not (i) violate any provision of the Company's Second Amended and Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), or the Bylaws of the Company or the comparable governing instruments of any of its subsidiaries; (ii) give rise to any rights of first refusal or other similar rights on behalf of any person under any applicable law or any provision of the Certificate of Incorporation or the Bylaws of the Company or any agreement or instrument applicable to the Company; (iii) conflict with, contravene or result in a breach or violation of any of the terms or provisions of, or constitute a default (with or without notice or the passage of time) under, or result in or give rise to a right of termination, cancellation, acceleration or modification of any right or obligation under, or give rise to a right to put or to compel a tender offer for outstanding securities of the Company or any of its subsidiaries under, or require any consent, waiver or approval under, any note, bond, debt instrument, indenture, mortgage, deed of trust, lease, loan agreement, joint venture agreement, regulatory approval, contract or any other agreement, instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any property of the Company or any of its subsidiaries is bound; or (iv) violate any law applicable to the Company or any of its subsidiaries; other than, in the case of clauses (ii) through (iv) above, such exceptions as would not prevent or materially delay the consummation of the transactions contemplated hereby, or impair the Company's ability to consummate the transactions contemplated hereby on the Closing Date, and would not have, individually or in the aggregate, a material adverse effect on the financial condition, results of operations, business or regulatory condition of the Company and its subsidiaries taken as a whole. SECTION 4. INVESTORS' REPRESENTATIONS AND WARRANTIES. Each Investor, severally and not jointly, represents and warrants to, and agrees with, the Company as follows: (a) Such Investor has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement, and the consummation by such Investor of the transactions contemplated hereby, have been duly authorized by all other necessary action on the part of such Investor. 3 32 (b) Such Investor owns the number of Series D Shares, Series E Shares, Series A Warrants and Series B Warrants set forth opposite such Investor's name on Schedule A hereto, free and clear of all liens, encumbrances, claims and security interests. (c) This Agreement has been duly executed and delivered by such Investor, and this Agreement constitutes a legal, valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity. (d) Except for regulatory approvals, registrations, declarations and filings that would not prevent or materially delay the consummation of the transactions contemplated hereby, or impair such Investor's ability to consummate the transactions contemplated hereby, no regulatory approval from, or registration, declaration or filing with, any governmental entity is required to be made or obtained by such Investor in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. (e) The execution and delivery of this Agreement does not, and the performance of the obligations set forth herein and the consummation of the transactions contemplated hereby will not, (i) violate any provision of the organizational documents of such Investor; (ii) conflict with, contravene or result in a breach or violation of any of the terms or provisions of, or constitute a default (with or without notice or the passage of time) under, or result in or give rise to a right of termination, cancellation, acceleration or modification of any right or obligation under, or require any consent, waiver or approval under, any note, bond, debt instrument, indenture, mortgage, deed of trust, lease, loan agreement, joint venture agreement, regulatory approval, contract or any other agreement, instrument or obligation to which such Investor is a party or by which such Investor or any of its property is bound; or (iii) violate any law applicable to the Investor; other than, in the case of clauses (ii) and (iii) above, such exceptions as would not prevent or materially delay the consummation of the transactions contemplated hereby, or impair such Investor's ability to consummate the transactions contemplated hereby on the Closing Date. (f) Such Investor acknowledges that neither the Company nor any of its advisers has made any representation or warranty, or provided any advice, to such Investor regarding any federal, state or local tax consequences to such Investor in connection with or arising from any of the transactions contemplated by this Agreement, and such Investor has consulted its own tax adviser regarding such matters. (g) Such Investor acknowledges that the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may be sold or disposed of only pursuant to an effective registration statement under the 4 33 Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. SECTION 5. RESTRICTION ON RESALE OF WARRANT SHARES. Each Investor agrees not to offer or sell any Warrant Shares (other than to the Company) prior to February 15, 2001; provided, however, that any Investor may at any time transfer any or all of its Warrant Shares to one or more of its Permitted Transferees, provided, that each such Permitted Transferee agrees to be bound by the transfer restrictions set forth in this Section. For purposes hereof, the term "Permitted Transferee" shall mean (i) any general or limited partner of any Investor (an "Investor Partner"), and any corporation, partnership or other entity that is an affiliate (as defined in Rule 144 under the Securities Act) of any Investor Partner or Investor (collectively, the "Investor Affiliate"), (ii) any managing director, general partner, director, limited partner or employee of an Investor Affiliate or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of such persons referred to in this clause (collectively, the "Investor Associates"), and (iii) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only such Investor, Investor Affiliates, Investor Associates, their spouses or their lineal descendants. SECTION 6. CLOSING CONDITIONS. The respective obligations of the Company and the Investors to consummate the transactions contemplated in this Agreement are subject to the satisfaction or waiver on or prior to the Closing Date of each of the conditions set forth below: (a) Concurrently with or prior to the consummation of the transactions contemplated by this Agreement, the Company shall consummate its Offer to Purchase and Consent Solicitation (the "Offer") relating to the Company's 11% Senior Notes due 2005 (the "Notes"), and the Company and the trustee for the Notes shall have amended the indenture, dated May 13, 1998 (the "Note Indenture"), in a manner that will permit the transactions contemplated by this Agreement, and such amendment shall have become effective in accordance with its terms, as contemplated by the Offer to Purchase and Consent Solicitation Statement relating to the Offer. (b) Each of the representations and warranties of the Company or the Investors, as the case may be, shall be true and correct as if made on the Closing Date. (c) The Company shall have received bank financing in the amount of up to $400 million (but not less than $300 million) on terms reasonably acceptable to it. SECTION 7. BEST EFFORTS. The Company agrees to use its best efforts to (i) obtain the requisite consents of holders of Notes to the amendment of the Note Indenture specified in Section 6(a), (ii) consummate the Offer (which Offer shall be reasonably designed to procure such amendment of the Note Indenture), and (iii) procure the bank financing as specified in Section 6(c). 5 34 SECTION 8. TERMINATION OF THE INVESTMENT AGREEMENT. Immediately upon consummation of the Exchange and Repurchase on the Closing Date, the Investment Agreement shall be terminated and shall become null and void and of no further force and effect, and each party to the Investment Agreement shall be fully and unconditionally discharged and released from any and all obligations, liabilities and claims based upon, or arising from or under, or relating to, the Investment Agreement; provided, however, that the indemnification provisions of clause (ii) of Section 11.05(a) (and, solely insofar as they relate to clause (ii) of Section 11.05(a), Sections 11.05(c), 11.06 (except that the address of the Company in paragraph (a) thereof shall be amended to read "Oxford Health Plans, Inc., 48 Monroe Turnpike, Trumbull, CT 06611, Attention: General Counsel"), 11.09 and 11.10(a)) of the Investment Agreement shall remain in full force and effect in respect of any litigation, claims, suits, proceedings, penalties, costs, liabilities, damages and expenses as a result of, relating to or arising out of acts, omissions or events that occur on or before the Closing Date. Notwithstanding such termination of the Investment Agreement, the Registration Rights Agreement, dated as of February 23, 1998, between the Company and TPG Oxford LLC, shall remain in full force and effect. SECTION 9. CUSTODY AGREEMENT. Upon the request of the Company, not more than 14 days prior to the anticipated Closing Date, each Investor shall deposit the Series D Shares, Series E Shares and Warrants owned by such Investor with a custodian pursuant to a custody agreement in form and substance reasonably satisfactory to the parties hereto. SECTION 10. TERMINATION. This Agreement may be terminated by notice in writing (i) at any time prior to the Closing Date by the Company or a majority in interest of the Investors if the Exchange and Repurchase shall not have been consummated by the close of business on January 16, 2001, or (ii) at any time after the close of business on November 10, 2000 and prior to the close of business on November 30, 2000, by a majority in interest of the Investors if the Company shall not have received by the close of business on November 10, 2000, a commitment letter on customary terms, subject to syndication, relating to the bank financing referred to in Section 6(c). SECTION 11. ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the entire agreement among the parties hereto with respect to the transactions contemplated by this Agreement and supersedes any other agreement or understanding (whether written or oral) with respect thereto. Any provision of this Agreement may be amended, modified or supplemented in whole or in part at any time by an agreement in writing among the parties hereto executed in the same manner as this Agreement; provided, however, that in the case of the Company, any such amendment, modification or supplement must be approved by a majority of the directors of the Company other than the Investor Nominees (as defined in the Investment Agreement) and any other directors who are employed by or serve as a director of any Investor or any affiliate of an Investor (other than the Company or any subsidiary of the Company). 6 35 SECTION 12. FURTHER ASSURANCES. Each Investor agrees that it will provide such further assurances, and execute and deliver such certificates or other documents, as the Company may reasonably request regarding such Investor's rights, title and interests in the Series D Shares, Series E Shares and Warrants to be exchanged, exercised or sold by such Investor pursuant to this Agreement or may otherwise reasonably request to the extent necessary or desirable in order to effect the transactions contemplated by this Agreement in accordance with its terms. SECTION 13. EFFECTIVENESS; COUNTERPARTS. This Agreement shall become effective when executed by each of the parties hereto. This Agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. SECTION 14. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the principles thereof regarding conflicts of law. 7 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers or partners thereunto duly authorized, as of the date first above written. OXFORD HEALTH PLANS, INC. By: /s/ Norman C. Payson ------------------------------ Name: Norman C. Payson Title: Chairman and Chief Executive Officer TPG PARTNERS II, L.P. By: TPG GenPar II, L.P. General Partner By: TPG Advisors II, Inc. General Partner By: /s/ Richard Ekleberry ------------------------------ Name: Richard Ekleberry Title: Vice President TPG PARALLEL II, L.P. By: TPG GenPar II, L.P. General Partner By: TPG Advisors II, Inc. General Partner By: /s/ Richard Ekleberry ------------------------------ Name: Richard Ekleberry Title: Vice President 37 TPG INVESTORS II, L.P. By: TPG GenPar II, L.P. General Partner By: TPG Advisors II, Inc. General Partner By: /s/ Richard Ekleberry ------------------------------ Name: Richard Ekleberry Title: Vice President CHASE EQUITY ASSOCIATES, L.P. By: Chase Capital Partners General Partner By: /s/ Chris Behrans ------------------------------ Name: Chris Behrans Title: General Partner OXFORD ACQUISITION CORP. By: /s/ John D. Howard ------------------------------ Name: John D. Howard Title: Executive Vice President 38 DLJ ENTITIES: DLJMB FUNDING II, INC. /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ MERCHANT BANKING PARTNERS II, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ MERCHANT BANKING PARTNERS II-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ OFFSHORE PARTNERS II, C.V. By: DLJ Merchant Banking II, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal 39 DLJ DIVERSIFIED PARTNERS, L.P. By: DLJ Diversified Partners, L.P. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ DIVERSIFIED PARTNERS-A, L.P. By: DLJ Diversified Partners, L.P. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ MILLENNIUM PARTNERS, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ MILLENNIUM PARTNERS-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal 40 UK INVESTMENT PLAN 1997 PARTNERS By: UK Investment Plan 1997 Partners, Inc. Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ EAB PARTNERS, L.P. By: DLJ LBO Plans Management Corporation General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ FIRST ESC L.P. By: DLJ LBO Plans Management Corporation General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal 41 DLJ ESC II L.P. By: DLJ LBO Plans Management Corporation Manager /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal DLJ CAPITAL CORPORATION /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal THE SPROUT CEO FUND, L.P. By: DLJ Capital Corporation Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal SPROUT GROWTH II, L.P. By: DLJ Capital Corporation General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal 42 SPROUT CAPITAL VIII, L.P. By: DLJ Capital Corporation Managing General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal SPROUT VENTURE CAPITAL, L.P. By: DLJ Capital Corporation General Partner /s/ Ivy B. Dodes ------------------------- Name: Ivy B. Dodes Title: Principal 43 SCHEDULE A
Series A Series B Series D Series E Name of Investor Warrants Warrants Shares Shares TPG Partners II, L.P. 10,779,898 4,591,691 168,738.2821995 17,932.34330113 TPG Parallel II, L.P. 735,648 313,349 11,515.1353916 1,223.74936667 TPG Investors II, L.P. 1,124,455 478,961 17,601.1416706 1,870.52819843 Chase Equity Associates, L.P. 677,142 288,428 10,599.3513528 1,126.42611783 Oxford Acquisition Corp. 225,714 96,142 3,533.1172021 375.47537261 DLJMB Funding II, Inc. 201,951 86,022 3,161.6351669 335.92533977 DLJ Merchant Banking Partners II, L.P. 1,137,465 484,503 17,804.8914885 1,892.14555286 DLJ Merchant Banking Partners II-A, L.P. 45,299 19,295 708.6423868 75.34536456 DLJ Offshore Partners II, C.V. 55,935 23,825 875.2035655 93.11788539 DLJ Diversified Partners, L.P. 66,501 28,326 1,040.7552457 110.64011620 DLJ Diversified Partners-A, L.P. 24,696 10,519 386.6240066 41.05194836 DLJ Millenium Partners L.P. 18,392 7,834 287.6966966 30.53862741 DLJ Millenium Partners-A, L.P. 3,587 1,528 56.5298915 6.00757441 DLJ EAB Partners, L.P. 5,107 2,175 79.7475879 8.51073771 UK Investment Plan 1997 Partners 30,095 12,819 471.4188438 50.06335379 DLJ First ESC L.P. 2,189 932 34.3216836 3.75478879 DLJ ESC II L.P. 214,497 91,365 3,357.470790 356.70160 DLJ ESC II L.P. 32,696 13,927 511.797270 54.56910 DLJ Capital Corporation 5,998 2,555 93.8800707 10.01265322 The Sprout CEO Fund, L.P. 4,579 1,950 71.6718629 7.75986761 Sprout Growth II, L.P. 276,790 117,899 4,332.6111640 460.58310036 Sprout Capital VIII, L.P. 123,885 52,769 1,939.1765176 205.76049718 Sprout Venture Capital, L.P. 7,481 3,186 117.0975237 12.26552650 Total 15,800,000 6,730,000 247,318.200 26.283.276
44 SCHEDULE B
Series A Series B Series D Series E Warrant Name of Investor Warrants Warrants Shares Shares Shares -------- -------- ------ ------ ------ TPG Partners II, L.P. 2,904,067 4,591,691 115,117.36201 17,932.34330 7,495,758 TPG Parallel II, L.P. 198,181 313,349 7,855.90556 1,223.74937 511,530 TPG Investors II, L.P. 302,924 478,961 12,007.92714 1,870.52820 781,885 Chase Equity Associates, L.P. 182,419 288,428 7,231.13541 1,126.42612 470,847 Oxford Acquisition Corp. 60,806 96,142 2,410.37853 375.47537 156,948 DLJ Merchant Banking Partners II, L.P. 306,429 484,503 12,146.93022 1,892.14555 790,932 DLJ Merchant Banking Partners II-A, L.P. 12,203 19,295 483.45308 75.34536 31,498 DLJ Offshore Partners II, C.V. 15,068 23,825 597.08517 93.11789 38,893 DLJ Diversified Partners, L.P. 17,915 28,326 710.02855 110.64012 46,241 DLJ Diversified Partners-A, L.P. 6,653 10,519 263.76431 41.05195 17,172 DLJMB Funding II, Inc. 54,404 86,022 2,156.94444 335.92534 140,426 DLJ Millenium Partners, L.P. 4,954 7,834 196.27369 30.53863 12,788 DLJ Millenium Partners-A, L.P. 966 1,528 38.56607 6.00757 2,494 DLJ EAB Partners, L.P. 1,375 2,175 54.40575 8.51074 3,550 UK Investment Plan 1997 Partners 8,107 12,819 321.61341 50.06335 20,926 DLJ ESC II L.P. 57,784 91,365 2,290.54827 356.70160 149,149 DLJ ESC II L.P. 8,808 13,927 349.16055 54.56910 22,735 DLJ First ESC L.P. 589 932 23.41509 3.75479 1,521 DLJ Capital Corporation 1,615 2,555 64.04727 10.01265 4,170 Sprout Growth II, L.P. 74,566 117,899 2,955.81276 460.58310 192,465 The Sprout CEO Fund, L.P. 1,233 1,950 48.89629 7.75987 3,183 Sprout Capital VIII, L.P. 33,374 52,769 1,322.95341 205.76050 86,143 Sprout Venture Capital, L.P. 2,015 3,186 79.88678 12.26553 5,201 Total 4,256,455 6,730,000 168,726.49373 26,283.27600 10,986,455
45 SCHEDULE C
Aggregate Series A Series D purchase Name of Investor Warrants Shares price -------- ------ ----- TPG Partners II, L.P. 7,875,830.38952 53,620.92018 150,100,454.36 TPG Parallel II, L.P. 537,466.94768 3,659.22983 10,243,252.26 TPG Investors II, L.P. 821,530.67317 5,593.21454 15,657,292.11 Chase Equity Associates, L.P. 494,722.26376 3,368.21595 9,429,299.92 Oxford Acquisition Corp. 164,907.42125 1,122.73868 3,143,433.33 DLJ Merchant Banking Partners II, L.P. 831,035.82372 5,657.96127 15,838,326.39 DLJ Merchant Banking Partners II-A, L.P. 33,095.60451 225.18931 631,005.96 DLJ Offshore Partners II, C.V. 40,866.30252 278.11840 779,428.08 DLJ Diversified Partners, L.P. 48,585.85830 330.72669 926,045.16 DLJ Diversified Partners-A, L.P. 18,042.98216 122.85970 343,904.07 DLJMB Funding II, Inc. 147,546.09209 1,004.69072 2,813,038.27 DLJ Millenium Partners, L.P. 13,437.25817 91.42301 256,771.25 DLJ Millenium Partners-A, L.P. 2,620.67448 17.96382 50,392.60 DLJ EAB Partners, L.P. 3,731.19169 25.34185 71,857.26 UK Investment Plan 1997 Partners 21,987.51005 149.80544 419,642.39 DLJ ESC II L.P. 156,712.24264 1,066.92252 2,987,404.85 DLJ ESC II L.P. 23,887.80955 162.63672 455,452.83 DLJ First ESC L.P. 1,599.29090 10.90660 31,207.01 DLJ Capital Corporation 4,382.15934 29.83280 84,354.92 Sprout Growth II, L.P. 202,223.72174 1,376.79840 3,854,317.26 The Sprout CEO Fund, L.P. 3,345.43308 22.77557 64,324.05 Sprout Capital VIII, L.P. 90,510.80519 616.22311 1,725,175.29 Sprout Venture Capital, L.P. 5,465.64422 37.21074 104,520.67 Total 11,543,534.09972 78,591.70585 220,010,900.28
EX-15 2 y41780ex15.txt EX-15 1 EXHIBIT 15 Letter of Ernst & Young LLP re Unaudited Consolidated Interim Financial Statements The Board of Directors Oxford Health Plans, Inc. Trumbull, Connecticut We are aware of the incorporation by reference in the Oxford Health Plans, Inc. registration statements on Form S-8 (Nos. 33-49738, 33-70908, 33-94242, 333-988, 333-28109, 333-35693, 333-79063, 333-33226 and 333-42920) of our report dated October 25, 2000, relating to the unaudited consolidated interim financial statements of Oxford Health Plans, Inc. included in its Form 10-Q for the quarter ended September 30, 2000. Ernst & Young LLP New York, New York October 25, 2000 29 EX-27 3 y41780ex27.txt EX-27
5 This schedule contains summary financial information extracted from the consolidated balance sheet at September 30, 2000 and the consolidated statement of operations for the 9 months ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. 0000865084 OXFORD HEALTH PLANS, INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 325,579 805,807 62,552 10,000 0 1,291,361 186,860 155,030 1,537,206 784,054 199,173 232,241 0 861 320,877 1,537,206 0 3,073,247 0 2,377,063 361,719 0 27,548 306,917 128,905 178,012 0 (3,624) 0 174,388 1.76 1.62
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