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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 24, 1998
OXFORD HEALTH PLANS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19442 06-1118515
(State or other jurisdiction) (Commission (IRS Employer
of incorporation) File Number) Identification No.)
800 Connecticut Avenue, Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
(203) 852-1442
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
The Company's Press Release, dated February 24, 1998, is attached as an
Exhibit hereto and incorporated herein by reference.
The Series A Preferred Stock and the Series B Preferred Stock referred
to in the Press Release will not be redeemable by the Company prior to the
fifth anniversary of their original issuance. Thereafter, subject to certain
conditions, the Series A and Series B Preferred Stock will be redeemable at the
option of the Company for an aggregate redemption price of $245 million and
$105 million, respectively (in each case, plus accrued and unpaid dividends),
and will be subject to mandatory redemption at the same price on the tenth
anniversary of their original issuance.
The Series A Warrants and the Series B Warrants referred to in the
Press Release will expire on the earlier of the tenth anniversary of their
original issuance or redemption of the related series of Preferred Stock. The
Warrants will be detachable from the Preferred Stock.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits
99(a) Press Release dated February 24, 1998
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.
Date: February 24, 1998 By: /s/ BRENDAN R. SHANAHAN
------------------------------------
BRENDAN R. SHANAHAN
Vice President and Controller
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
99(a) Press Release dated February 24, 1998 4
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EXHIBIT 99(a)
TEXAS PACIFIC GROUP TO INVEST $350 MILLION IN OXFORD;
COMPANY TO RAISE $350 MILLION IN DEBT FINANCING
Dr. Norman Payson to Become CEO at Close of Transaction
Company Announces 1997 Results
Norwalk, CT, February 24, 1998 -- Oxford Health Plans, Inc. (NASDAQ: OXHP)
announced today that the investment firm Texas Pacific Group has signed a
definitive agreement to invest $350 million in Oxford and that the company
intends to raise an additional $350 million in debt financing.
The company also announced that Dr. Norman C. Payson, a founder and the former
president and chief executive officer of Healthsource, Inc., has agreed to
become chief executive officer of Oxford upon finalization of the transaction.
Prior to closing, Dr. Payson will work as a consultant to the company. Under Dr.
Payson's leadership, New Hampshire-based Healthsource became the sixth largest
health care payer in the United States, with approximately 3.5 million enrolled
members. The company was acquired by CIGNA Corporation last year.
Upon closing, Dr. Payson has also agreed to personally invest $10 million by
purchasing shares of common stock from the company.
Fred F. Nazem, formerly chairman of the executive committee, has been elected
non-executive chairman of the board. Stephen Wiggins, founder and former
chairman, will continue as a member of Oxford's board.
"I am extremely pleased that Dr. Norm Payson has committed to join in the
revitalization of Oxford," said Mr. Wiggins. "Norm is a long-standing leader in
the managed care industry who is going to bring significant insight into our
current challenges. As a physician, he has a special understanding and rapport
with the medical community. I know he will preserve those aspects of Oxford that
make it special and unique, while being effective in working to restore
confidence in the company," added Mr. Wiggins.
In the interim period, serving as a consultant, Dr. Payson will work closely
with current President and Chief Executive Officer William M. Sullivan. "Norm
Payson brings a wealth of experience to Oxford as we confront our many
challenges and look to the future with optimism," said Mr. Sullivan. "I look
forward to working closely with him as we develop and implement the turnaround
strategy."
"Although the challenges facing Oxford are significant and will take time to
remedy, I believe we will be successful in re-establishing this company as a
national leader in health care," Dr. Payson said. "I plan on spending the next
30 to 60 days analyzing, assessing and observing the business and then
implementing the turnaround plan with the Oxford management team. We will be
intensely focused on addressing administrative systems and financial issues
while concurrently regaining the confidence and support of the medical
community. I also plan to actively recruit additional management support," he
added.
Mr. Nazem stated, "I am also very pleased that we have secured the backing of
Texas Pacific, one of the finest investment firms in the country, who no doubt
will bring significant talent to Oxford in addition to their capital investment.
Its investment is a strong vote of confidence in the company's future."
Upon the closing of the transaction, Texas Pacific will be represented with four
seats on Oxford's board of directors. Dr. Payson will also join the board at
that time.
Under the terms of the definitive agreement, Texas Pacific will purchase $350
million in preferred stock issued as Series A and Series B with dividend rates
of 8% and 9% respectively. The preferred shares also come with warrants to
acquire 22.5 million shares of Oxford common stock with a strike price of
$17.75. This price represents a 5% premium over the average trading price of
Oxford shares for 30 trading days ended February 20, 1998. The strike price is
to become 115% of the average trading price of Oxford common stock for the 20
trading days following the filing of the Company's annual report on Form 10-K
for the year ending December 31, 1998, if such adjustment would reduce the
strike price.
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The Series A Preferred Stock will carry a dividend of 8% and will be issued with
warrants to purchase 15,800,000 shares of common stock, or 19.9% of the present
outstanding voting power of Oxford's common stock. The Series A Preferred Stock
will have 16.6% of the combined voting power of Oxford's outstanding common
stock and the Series A shares. The Series B Preferred Stock, which will be
issued with warrants to purchase non-voting junior participating preferred
stock, is non-voting and will carry a dividend of 9%. The Series B Preferred
Stock will become voting, the dividend rate will decrease to 8% and the related
warrants will be exercisable for 6,730,000 shares of common stock at such time
as Oxford's shareholders approve the increase in voting rights of Texas Pacific
to 22.1%. The equity financing is subject to various conditions, which include
regulatory approvals, completion of the debt financing and expiration of the
requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
Closing is not subject to shareholder approval.
Jonathan Coslet, partner of Texas Pacific, stated, "While Oxford's superb
innovation has led to exceptional growth, unfortunately its systems and
operations capabilities could not keep pace. With new capital and leadership, we
believe we are investing in an excellent turnaround opportunity. Oxford's strong
franchise will be the platform for growth and renewed profitability once a
turnaround is effected," he added.
Oxford also announced year-end results, indicating that the company will post a
fourth quarter net loss of $284.7 million, or $3.58 per share, resulting in a
net loss of $291.3 million, or $3.70 per share for the year ended December 31,
1997. The fourth quarter loss resulted primarily from approximately $239.0
million added to reserves for payment of medical costs ($200 million of which
was included in the company's December announcement) and approximately $75
million in write-offs of accounts receivable and additions to valuation
reserves.
Fourth quarter results were also adversely affected by high administrative
expenses ($245.1 million for the fourth quarter of 1997 compared to $176.6
million for the previous quarter) associated with further supporting the
company's operations, as well as a reduction in the value of the company's
investment in expansion markets in Florida and Illinois totaling approximately
$41.6 million. The fourth quarter results include the recognition of a $25
million gain on the sale of the company's interest in Health Partners, Inc.
The company also announced that its enrollment totaled 2,102,000 members at
January 1, 1998, an increase of almost 160,000 since September 30, 1997.
"Fourth quarter results reflect the steps being taken by the company to address
the issues arising from previously disclosed claims payment and billing
problems, including a determination to focus on our core businesses in the
Northeast," said Al Koch, Oxford's chief financial officer. "We believe high
medical and administrative costs will result in losses until the company begins
to realize the benefits of its turnaround strategy."
* * * * *
Certain statements in this press release, such as statements concerning the
Company's future results of operations or financial condition, future health
care costs and administrative costs, the eventual completion of the transaction
referred to herein and other statements regarding matters that are not
historical facts, are forward-looking statements (as defined in the Securities
Exchange Act of 1934, as amended); and because such statements involve risks and
uncertainties, actual 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:
The Company's ability to obtain debt financing and satisfy the other conditions
to closing the equity financing with Texas Pacific.
Changes in federal or state regulation relating to health care and health
benefit plans.
Rising medical costs or higher utilization of medical services, including higher
out-of-network utilization under point-of-service plans.
Competition from health benefit plan providers and competitive pressure on
pricing Oxford products.
High administrative costs in operating the Company's business, the Company's
ability to develop processes and systems to support its growing operations and
the cost and impact on service of changing technologies.
The effect, if any, of recent events at the Company (including any adverse
publicity) and competitive conditions on future enrollment in the Company's
health benefit plans.
Any changes in the Company's estimates of its medical costs and expected cost
trends as a result of information gained in the process of continuing to
reconcile delayed claims and to pay down backlogged claims.
The impact of litigation (including purported class actions filed against the
Company and certain officers and directors), regulatory proceedings and other
governmental action (including the examination, investigation and review of the
Company by the New York State Insurance Department and other
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regulatory authorities and the inquiries by the Securities and Exchange
Commission and the New York State Attorney General regarding, among other
matters, public disclosures by the Company).
Those factors included under the caption "Business - Cautionary Statement
Regarding Forward-Looking Statements" in the Company's 1996 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
Oxford Health Plans, Inc. is a managed health care company serving more than 2.1
million members. Product lines include traditional health maintenance
organizations, point-of-service plans (the company's largest product offering),
third-party administration of employer funded benefits plans, Medicare and
Medicaid plans, and dental plans. Oxford markets its health plans to employers
in New York, New Jersey, Pennsylvania, Connecticut, Illinois, Florida and New
Hampshire through direct sales and independent brokers.
Texas Pacific Group, sponsor of TPG Partners II, L.P., is based in Fort Worth,
Texas and San Francisco. TPG II is a private investment partnership with capital
of approximately $2.5 billion. The partnership specializes in significant
private equity investments in a wide range of industries and succeeds TPG
Partners, L.P. formed in December 1993 with $720 million in capital. TPG's
principals include David Bonderman, James G. Coulter, William S. Price and
Richard Schifter. The partnerships and its principals have completed significant
investments in the healthcare (Genesis ElderCare, Vivra Specialty Partners),
energy (Belden & Blake, Denbury Resources), airline (Continental Airlines,
America West), food and beverage (Del Monte, Favorite Brands, Beringer) consumer
products (J. Crew, Ducati) and telecommunications (GT Com, Paradyne) industries.
Media Contacts:
OXFORD
Nicole Reilly
203-851-1169
TEXAS PACIFIC GROUP
OWEN BLICKSILVER
212-303-7603
Visit www.oxhpinfocenter.com for More Information
(Tables to follow)
###
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AND MEMBERSHIP DATA)
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
-----------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $1,107,414 863,595 4,167,224 3,022,168
Third-party administration, net 2,501 2,526 12,592 10,401
Investment and other income, net 16,978 14,417 60,330 42,620
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 1,126,893 880,538 4,240,146 3,075,189
- -------------------------------------------------------------------------------------------------------------------------
Expenses:
Health care services 1,286,659 691,018 3,916,742 2,421,167
Marketing, general and administrative 245,078 133,506 737,425 477,373
Unusual charges - write-down of assets 41,618 -- 41,618 --
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 1,573,355 824,524 4,695,785 2,898,540
- -------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (446,462) 56,014 (455,639) 176,649
Equity in net loss of affiliate -- (1,050) (1,140) (4,600)
Gain on sale of affiliate 25,168 -- 25,168 --
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (421,294) 54,964 (431,611) 172,049
Provision (credit) for income taxes (136,609) 22,966 (140,323) 72,426
- -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(284,685) 31,998 (291,288) 99,623
=========================================================================================================================
Earnings (loss) per common and common equivalent share:
Basic $ (3.58) .42 (3.70) 1.34
Diluted $ (3.58) .39 (3.70) 1.25
Weighted average common stock and
common stock equivalents outstanding:
Basic 79,448 76,927 78,635 74,285
Diluted 79,448 81,897 78,635 79,662
</TABLE>
<TABLE>
<CAPTION>
Membership at
December 31
- -------------------------------------------------------------------------------------------------------
MEMBERSHIP HIGHLIGHTS 1997 1996 Increase
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Freedom Plan 1,333,500 1,015,100 318,400
HMO 270,400 192,300 78,100
Medicare 161,000 125,000 36,000
Medicaid 189,600 162,000 27,600
- -------------------------------------------------------------------------------------------------------------------------
Total Fully Insured 1,954,500 1,494,400 460,100
Self-funded 53,600 41,100 12,500
=========================================================================================================================
Total Membership 2,008,100 1,535,500 472,600
=========================================================================================================================
</TABLE>
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,141 72,160
Short-term investments - available-for-sale, at market value 635,743 767,312
Premiums receivable, net 275,646 315,126
Other receivables 45,418 26,343
Prepaid expenses and other current assets 10,097 5,814
Refundable income taxes 120,439 --
Deferred income taxes 38,092 23,429
- --------------------------------------------------------------------------------------------------------------
Total current assets 1,129,576 1,210,184
Property and equipment, at cost, net of accumulated depreciation
and amortization of $125,926 in 1997 and $69,739 in 1996 147,093 104,954
Deferred income taxes 86,406 5,700
Other noncurrent assets 34,914 35,559
- --------------------------------------------------------------------------------------------------------------
Total assets $1,397,989 1,356,397
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 762,959 624,359
Trade accounts payable and accrued expenses 152,152 51,256
Income taxes payable -- 9,902
Unearned premiums 124,603 63,052
Deferred income taxes 9,059 9,658
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 1,048,773 758,227
- --------------------------------------------------------------------------------------------------------------
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 79,474,439 in 1997
And 77,376,282 in 1996 795 774
Additional paid-in capital 437,653 391,602
Retained earnings (deficit) (95,498) 195,790
Unrealized net appreciation of investments 6,266 10,004
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 349,216 598,170
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,397,989 1,356,397
==============================================================================================================
</TABLE>
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