<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
------------------------------------------------------
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 (IRS Employer
of incorporation or organization) 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
Value $.01 Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A No. 2 or any
amendment to this Form 10-K/A No. 2. [_]
As of April 22, 1998, there were 79,530,910 shares of common stock issued and
outstanding. The aggregate market value of such stock held by nonaffiliates, as
of that date, was $1,374,837,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
William M. Sullivan 34 Chief Executive Officer, President
Marvin P. Rich 52 Executive Vice President, Chief
Administrative Officer
Albert A. Koch 55 Chief Financial Officer
Jeffery H. Boyd 41 Executive Vice President and General
Counsel
Alan Muney, M.D., M.H.A. 44 Executive Vice President, Chief Medical
Officer
Brendan R. Shanahan 36 Vice President and Controller
Fred F. Nazem 57 Chairman of the Board(1)(3)(4)
James B. Adamson 50 Director(2)(4)
Benjamin H. Safirstein, M.D. 59 Director
Robert B. Milligan, Jr. 48 Director(2)(3)
Marcia J. Radosevich, Ph.D. 45 Director(4)
Thomas A. Scully 40 Director(1)(2)(4)
Stephen F. Wiggins 41 Director
</TABLE>
- - ----------
(1) Member, Audit Committee
(2) Member, Compensation Committee
(3) Member, Nominating Committee
(4) Member, Ethics and Business Practices Committee
William M. Sullivan joined the Company as Director of Sales in August
1988, was appointed Vice President, Sales in January 1990, was elected Executive
Vice President in December 1994 and was appointed to the additional position of
Chief Executive Officer-New York Region in October 1995. He was appointed
President and Chief Operating Officer in July 1996 and was elected Chief
Executive Officer of the Company in August 1997.
Marvin P. Rich joined the Company as Executive Vice President and Chief
Administrative Officer in March 1998. From October 1994 through March 1998, Mr.
Rich served as Executive Vice President, Strategic Planning, Finance &
Administration for Kmart Corporation. Previous to his employment at Kmart, Mr.
Rich was an Executive Vice President at Wellpoint Health Networks, Inc. in
charge of specialty companies and financial and information services from 1989
to 1994.
Albert A. Koch has been a financial consultant to the Company acting in
the capacity of the Company's Chief Financial Officer since December 1997. Mr.
Koch has been the chief operating officer of Jay Alix & Associates, a management
consulting firm, since February 1995. Prior thereto, Mr. Koch was a managing
director of Equity Partners of America from January 1988 until January 1995.
2
<PAGE> 3
Jeffery H. Boyd joined the Company as Executive Vice President and General
Counsel in June 1995. Prior to joining the Company, Mr. Boyd was Assistant
General Counsel of Lord, Abbett & Co., a private investment management firm,
from July 1994 to May 1995. From March 1988 to June 1994, Mr. Boyd was a partner
with the law firm of Robinson & Cole.
Alan Muney, M.D., M.H.A. joined the Company as Vice President/Chief
Medical Officer in April 1998. Prior thereto, Dr. Muney was the Senior Vice
President of Medical Affairs/Chief Medical Officer of Avanti Health Systems and
NYLCare Health Plans from December 1995 until April 1998. From 1988 until 1995,
Dr. Muney held a number of positions with Mulliken Managed Care, his most recent
position being Regional Medical Director.
Brendan R. Shanahan joined the Company as Controller in July 1991 and was
elected Vice President and Controller in October 1995. From July 1984 to July
1991, Mr. Shanahan was an auditor with KPMG Peat Marwick in the firm's New York
health care practice audit department, most recently as a Senior Audit Manager.
Fred F. Nazem has served as a Director of the Company since June 1990. He
was elected non-executive Chairman of the Board in February 1998. Since 1981,
Mr. Nazem has been President of Nazem, Inc. and Managing General Partner of the
general partner of several Nazem & Company limited partnerships which are
affiliated venture capital funds. Mr. Nazem is a director of two public
companies, Tegal Corporation and Spatial Technology, Inc., as well as a number
of privately held firms.
James B. Adamson has been a Director of the Company since January 1996.
Since May 1995, he has been Chairman, President and Chief Executive Officer of
Advantica Restaurant Group (formerly Flagstar Companies, Inc.), one of the
nation's largest restaurant companies, which is headquartered in Spartanburg,
South Carolina. From January 1992 until February 1995, Mr. Adamson served in
several senior executive capacities with The Burger King Corporation, most
recently as Chief Executive Officer. Mr. Adamson is also a director of Kmart
Corporation.
Benjamin H. Safirstein, M.D. has been a Director since 1985. Dr.
Safirstein has been Oxford's New York Regional Vice President and Medical
Director since January 1996 after serving as the Senior Medical Director of the
Company from 1985 to September 1992. Dr. Safirstein is a Clinical Associate
Professor of Medicine and is the Director of Pulmonary Medicine at Saint
Michael's Medical Center, Newark, New Jersey. He is board certified in internal
medicine and pulmonary medicine. Dr. Safirstein also is in private practice
with the Montclair Medical Group, Montclair, New Jersey. Dr. Safirstein is a
graduate of the Chicago Medical School and the Mount Sinai Hospital residency
program, where he was Chief Resident of Medicine.
Robert B. Milligan, Jr. has been a Director of the Company since July
1992. Mr. Milligan is Chairman of Wyndam Capital, L.P., a registered
broker-dealer, and, through December 1997, was Director, President and Chief
Executive Officer of Verigen Inc., a biopharmaceutical company. Mr. Milligan
currently engages in business and financial consulting as President and Chief
Executive Officer of Fairchester, Inc. Mr. Milligan has been an officer and has
served on the boards of several private and public companies.
Marcia J. Radosevich, Ph.D. was elected a Director in July 1994. Dr.
Radosevich has been acting as a consultant to Boston University's Health Policy
Institute since March 1998. From April 1992 until December 1997, Dr. Radosevich
was the Chairman, President and Chief Executive Officer of HPR Inc. (formerly,
Health Payment Review, Inc.), a software company headquartered in Cambridge,
Massachusetts, which develops and markets cost management, provider profiling
and information systems for the health care industry. From December 1997 until
March 1998, Dr. Radosevich worked as a consultant to HPR Inc. From July 1988 to
April 1992, Dr. Radosevich served as the President and Chief Executive Officer
of HPR Inc. which she co-founded in 1988.
Thomas A. Scully was elected a Director in September 1993. Since January
1995, he has been President of the Federation of American Health Systems in
Washington, D.C. From 1992 until the end of 1994, he was a partner in the
Washington D. C. law firm of Patton, Boggs & Blow. Prior to that, Mr. Scully
served for four years on the White House staff. During 1992, he was Deputy
Assistant for Domestic Policy to President Bush. From 1989 to 1992, he served as
counselor to the Director of OMB and as the Associate Director of OMB for Human
Resources, Veterans and Labor. He also participated in the formulation of
President Bush's comprehensive Health Care Reform Plan. Prior to his White House
appointment, Mr. Scully was
3
<PAGE> 4
an attorney with the law firm Akin, Gump, Strauss, Hauer & Feld.
Stephen F. Wiggins, the founder of the Company, served as Chairman of the
Board of Directors and Chief Executive Officer of the Company since its
formation in 1984 until August 1997. He retained the title of Chairman of the
Board until February 1998. Since February 1998 Mr. Wiggins has been a Director
of the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
its Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the National
Association of Securities Dealers, Inc. Officers, directors and greater than ten
percent stockholders are required by the Commission to furnish the Company with
copies of all Section 16(a) forms that they file.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no reports on Form 5 were
required for those persons, the Company believes all filing requirements
applicable to its officers, directors and greater than ten percent stockholders
were complied with, except as follows: (i) Mr. Cassidy - two Form 4s for six
gifts of the Company's securities to his daughters and one Form 4 for three
subsequent sales of the Company's securities by his daughters, all prior to
1997; (ii) Dr. Safirstein - five Form 4s for eleven gifts of the Company's
securities and one transfer of the Company's securities from direct to indirect
beneficial ownership in 1994, 1995, 1996 and 1997; (iii) Mr. Snow - one Form 4
for one sale of the Company's securities prior to 1997; (iv) Mr. Sullivan -
five Form 4s for thirteen gifts of the Company's securities in 1995, 1996 and
1997; (v) Dr. Thomas Travers - two Form 4s for four gifts of the Company's
securities prior to 1997; and (vi) Ms. Jeanne Wisniewski - two Form 5 for eight
gifts of the Company's securities prior to 1997. The appropriate Form 4s have
been filed.
4
<PAGE> 5
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table sets forth the cash compensation
and certain other components of the compensation of Stephen F. Wiggins and
William M. Sullivan, each of whom served as Chief Executive Officer of the
Company during 1997, and the five most highly compensated executive officers of
the Company in 1997.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPEN- ALL OTHER
NAME AND PRINCIPAL ------------------------------------------------- SATION AWARDS- COMPENSA-
POSITION YEAR SALARY BONUS OTHER OPTIONS(2) TION(3)
- - ------------------ ---- -------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
STEPHEN F. WIGGINS 1997 $623,077 $ -- $56,343 70,000 $2,673
CHAIRMAN AND CHIEF 1996 600,000 1,080,000 57,641 100,000 3,958
EXECUTIVE OFFICER (4) 1995 600,000 161,540 47,323 200,000 4,465
WILLIAM M. SULLIVAN 1997 492,692 -- 32,085 35,000 2,375
PRESIDENT AND CHIEF 1996 259,616 250,000 32,048 100,000 1,915
EXECUTIVE OFFICER (5) 1995 247,981 67,810 25,973 60,000 2,316
JEFFERY H. BOYD 1997 320,567 250,000 32,827 70,000 3,971
EXECUTIVE VICE PRESIDENT 1996 259,616 130,000 32,835 35,000 4,113
AND GENERAL COUNSEL 1995 171,126 42,550 29,780 180,000 --
DAVID B. SNOW, JR
EXECUTIVE VICE PRESIDENT, 1997 303,308 -- 32,273 70,000 3,896
MEDICAL DELIVERY SYSTEMS 1996 259,616 130,000 32,085 35,000 4,750
AND GOVERNMENT PROGRAMS(6) 1995 250,000 67,310 25,973 60,000 4,620
ROBERT M. SMOLER
EXECUTIVE VICE PRESIDENT, 1997 295,000 -- 32,373 60,000 3,136
AND CHIEF EXECUTIVE 1996 259,616 130,000 34,963 35,000 3,393
OFFICER - NEW YORK REGION(7) 1995 250,000 67,310 25,973 60,000 3,300
ANDREW B. CASSIDY 1997 286,923 -- 31,598 60,000 3,988
EXECUTIVE VICE PRESIDENT 1996 259,616 130,000 32,085 35,000 3,988
AND CHIEF FINANCIAL OFFICER(8) 1995 189,177 51,340 25,793 60,000 3,850
PAUL RICKER 1997 281,154 -- 37,468 60,000 1,381
VICE PRESIDENT AND CHIEF 1996 259,616 130,000 29,780 45,000 --
INFORMATION OFFICER(9) 1995 -- -- -- -- --
</TABLE>
(1) Amounts shown include payments by the Company to the named officers
pursuant to the Company's Incentive Compensation Plan. Includes amounts of
compensation deferred by the named officers pursuant to the Company's
qualified defined contribution plan (the "Savings Plan").
(2) All option grants have been adjusted for the Company's two-for-one stock
splits effected in March 1995 and March 1996.
(3) Matching contributions made by the Company pursuant to the Savings Plan.
(4) Mr. Wiggins served as Chief Executive Officer until August 1997. Mr.
Wiggins resigned from his position as Chairman effective February 23,
1998.
(5) Mr. Sullivan was elected Chief Executive Officer in August 1997.
(6) Mr. Snow resigned from his position with the Company effective April 10,
1998.
(7) Mr. Smoler resigned from his position with the Company effective April 10,
1998.
(8) Mr. Cassidy resigned from his position with the Company effective December
22, 1997.
(9) Mr. Ricker resigned from his position with the Company effective March 17,
1998
5
<PAGE> 6
Options Granted in 1997
The following table sets forth certain information regarding stock options
granted in 1997 to the seven individuals named in the Summary Compensation
Table. In addition, in accordance with the Commission's rules, the table also
shows a hypothetical potential realizable value of such options based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the date
the options were granted over the full option term. The assumed rates of growth
were selected by the Commission for illustrative purposes only, and are not
intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance and prospects. In addition, the
closing price of the Company's common stock on December 31, 1997 was $15.562.
Based on that price and assumed stock price appreciation of 10% per year over
the option term, the potential realized value for such options over their term
would be zero. Based upon the closing stock price and the number of common
shares outstanding at the end of 1997, an assumed annual stock price
appreciation of 10% would produce a corresponding aggregate pretax gain over the
full option term of approximately $755,092,000 for the Company's common
shareholders.
<TABLE>
<CAPTION>
Number of Potential Realized Value at Assumed
Securities Annual Rates of Stock Price
Underlying % of Total Options Per Share Appreciation For Option Term
Options Granted to Employees Exercise Expiration -----------------------------------
Name Granted(1) In Fiscal Year Price(2) Date 5% 10%
- - ------------------ ----------- -------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STEPHEN F. WIGGINS 70,000 2.1% $74.00 8/8/2002 $1,431,000 $3,162,000
WILLIAM M. SULLIVAN 100,000 3.1% $74.00 8/8/2002 $2,044,000 $4,518,000
JEFFERY H. BOYD 70,000 2.1% $74.00 8/8/2002 $1,431,000 $3,162,000
DAVID B. SNOW, JR 70,000 2.1% $74.00 8/8/2002 $1,431,000 $3,162,000
ROBERT M. SMOLER 60,000 2.1% $74.00 8/8/2002 $1,227,000 $2,711,000
ANDREW B. CASSIDY 60,000 1.8% $74.00 8/8/2002 $1,227,000 $2,711,000
PAUL E. RICKER 60,000 1.8% $74.00 8/8/2002 $1,227,000 $2,711,000
</TABLE>
(1) All options granted and reported in this table were made pursuant to the
Oxford Health Plans, Inc. 1991 Stock Option Plan, as amended (the "1991 Stock
Option Plan"), and have the following material terms: options may be either (i)
"incentive stock options" under Section 422 of the Internal Revenue Code of 1986
or (ii) nonqualified stock options; all options expire not more than seven years
from the date of grant, or not more than five years from the date of grant in
the case of incentive stock options granted to an employee holding 10% or more
of the voting stock of the Company; the aggregate fair market value (determined
at the time of grant) of shares issuable pursuant to incentive stock options
which become exercisable in any calendar year by an employee may not exceed
$100,000. For all of the above-named executive officers, 25% of options granted
under the 1991 Stock Option Plan vest on each of the first four anniversaries
following the date of grant. The Committee may provide for accelerated
exercisability of options upon the optionee's death, retirement, disability (or
other events), upon a Change in Control (as defined in the 1991 Stock Option
Plan) or the reasonable possibility of a Change in Control during the succeeding
six-month period. The Committee has determined that all of the above named
officers' options shall vest upon a Change of Control. Pursuant to the terms of
Mr. Wiggins' Retirement, Consulting and Non-Competition Agreement (described
below), all of Mr. Wiggins' options vested effective February 23, 1998.
(2) Exercise price is the fair market value of the common stock at the date of
grant.
6
<PAGE> 7
Aggregate Option Exercises in 1997
and Option Values at December 31, 1997
The following table sets forth certain information concerning stock option
exercises by the seven individuals named in the Summary Compensation Table
during 1997, including the aggregate value of gains on the date of exercise. In
addition, this table includes the number of shares covered by both exercisable
and non-exercisable stock options as of December 31, 1997. Also reported are the
values for "in-the-money" options which represent the excess of the closing
market price of the common stock at December 31, 1997 over the exercise price of
any such existing stock options. All exercises have been adjusted for the
Company's two-for-one stock splits effected in 1993, 1995 and 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
Shares Acquired Value At December 31, 1997(#) At December 31, 1997($)
Name On Exercise Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- - -------------------- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
STEPHEN F. WIGGINS 420,000 $30,053,000 1,063,608 / 305,000(1) $ 7,223,000 / $ --
WILLIAM M. SULLIVAN 12,568 $ 865,000 342,382 / 186,250 $ 2,573,000 / $ --
JEFFERY H. BOYD 4,176 $ 206,000 68,898 / 186,250 $ -- / $ --
DAVID B. SNOW, JR 35,000 $ 2,496,000 307,218 / 244,240 $ 1,543,000 / $ 978,780
ROBERT M. SMOLER 122,568 $ 6,588,000 124,790 / 146,250 $ 285,000 / $ --
ANDREW B. CASSIDY 68,000 $ 1,682,000 63,750 / 141,250 $ -- / $ --
PAUL E. RICKER -- $ -- 18,748 / -- $ -- / $ --
</TABLE>
- - ----------
(1) Pursuant to the terms of Mr. Wiggins' Retirement, Consulting and
Non-Competition Agreement (described below), all of Mr. Wiggins' options
vested effective February 23, 1998.
Directors' Compensation
Each non-employee director of the Company receives an annual retainer of
$38,000. In addition, each non-employee director is entitled to receive $1,000
plus expenses for each meeting of the Board of Directors and for each committee
meeting attended and $500 for each meeting attended by telephone. Directors who
are not employees of the Company may participate in the Non-Employee Directors
Stock Option Plan, as amended (the "Plan") and be awarded nonqualified stock
options. The Plan currently provides that each year, on the first Friday
following the Company's Annual Meeting of Stockholders, each individual elected,
reelected or continuing as a Non-Employee Director will automatically receive a
nonqualified stock option for 5,000 shares of the Company's Common Stock. The
exercise price for such options is either the average of the high and low prices
at which the common stock traded on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System on the date of
grant or the last sale price of Common Stock on the NASDAQ on the date of grant,
whichever is higher. The Plan provides that one-fourth of the options granted
under the Plan vest on each of the date of grant and the Friday prior to the
first, second and third Annual Meeting of Stockholders following the date of
grant. Pursuant to the Plan, on April 25, 1997, Dr. Radosevich and Messrs.
Nazem, Adamson, Milligan and Scully were each granted options to purchase 5,000
shares at an exercise price of $59.375 per share.
In January 1998, the Board of Directors established an Executive Committee
to supervise certain aspects of the Company's operations the members of which
were James B. Adamson, Fred F. Nazem and Stephen F. Wiggins, with Mr. Nazem
acting as Chairman of the Committee. The Executive Committee was disbanded in
February 1998. In recognition of the responsibilities assumed by Mr. Adamson and
Mr. Nazem in serving on the Executive Committee, the Compensation Committee
recommended, and the Board determined, that Mr. Adamson and Mr. Nazem be awarded
cash compensation of $100,000 and $125,000, respectively, and options to acquire
20,000 and 75,000 shares, respectively, of the Company's common stock. In the
first quarter of 1998, Mr. Milligan, Mr. Scully and Dr. Radosevich each
received a payment of $30,000 in lieu of Board and Committee meeting fees for a
substantial number of meetings and telephone conferences held through February
1998. Mr. Milligan received an additional payment of $70,000 as compensation
for substantial time devoted by Mr. Milligan in recruiting new management
personnel and preparation and negotiations relating to agreements with
management personnel. Effective February 23, 1997, Mr. Nazem agreed to serve
as Chairman of the Board of Directors. As compensation for his service as such,
7
<PAGE> 8
the Board of Directors approved payment of an annual retainer of $250,000 and on
March 30, 1998 Mr. Nazem was granted options to acquire 250,000 shares of the
Company's common stock. These options vest in two tranches of 100,000 and
150,000. The first tranche vests immediately upon the closing of the Company's
currently anticipated financing and the second tranche vests upon the earlier
of (i) the average closing price for any 20 day period preceding the second
anniversary of the grant being equal to or greater than twice the exercise
price or (ii) March 30, 2003. The vesting of these options would be accelerated
upon a change of control (as defined in the agreements) or upon Mr. Nazem's
ceasing to act as Chairman.
Employment Agreements
In 1996, Mr. Sullivan and Mr. Boyd entered into employment agreements with
the Company both of which were amended in February 1998. The agreements are for
initial two-year terms and automatically renew for an additional two years upon
each second anniversary of their effective dates, unless prior notice to not
renew is given. Upon a Change in Control of the Company (as defined in the
agreements), the agreements automatically extend to a two-year term. Mr.
Sullivan's annual base salary is $600,000. In addition, Mr. Sullivan is eligible
to receive an annual bonus which is set at a target level equal to 100% of his
base salary (subject to the Compensation Committee's discretion) and shall be
payable in the event certain performance criteria are met. Under the terms of
the February 1998 amendment, Mr. Sullivan received a cash payment of $250,000 on
March 31, 1998 and is entitled to a payment of $250,000 on May 31, 1998. Mr.
Boyd's base salary is subject to annual review by the Company's Compensation
Committee, and may be increased at the discretion of the Compensation Committee.
In addition, under the terms of the February 1998 amendment, on March 31, 1998,
Mr. Boyd received a cash payment of $250,000. If prior to (or more than two
years following) a Change in Control, Mr. Boyd or Mr. Sullivan is terminated
without "Cause" or terminates employment for "Good Reason" (as such terms are
defined in the agreements), or if Mr. Boyd's or Mr. Sullivan's agreement is not
renewed, then Mr. Boyd would receive a lump sum payment equal to the sum of his
highest annual bonus earned in respect of the two fiscal years prior to the
date of termination and his base salary during the prior twelve months, and Mr.
Sullivan would receive a cash payment equal to two times the sum of his target
bonus for the year in which his employment is terminated plus his base salary
for the twelve month period prior to the date of termination. In addition, if
such an event were to occur in 1998, Mr. Boyd would receive a lump sum payment
of $1,200,000 and Mr. Sullivan would receive a lump sum payment of $2,400,000
and all of his outstanding stock options would vest immediately.
If during the two-year period following a Change in Control, Mr. Boyd or
Mr. Sullivan is terminated without Cause or terminates employment for Good
Reason, he would receive a lump sum payment equal to two times the sum of his
highest annual rate of base salary during the thirty-six-month period
immediately prior to the date of termination and his highest annual bonus earned
during the three fiscal years immediately preceding the date of termination, and
continued welfare benefits for two years.
If any payments made to Mr. Boyd or Mr. Sullivan pursuant to the
agreements or otherwise would be subject to any excise tax under Section 4999 of
the Internal Revenue Code, the Company will provide him with an additional
payment such that he retains a net amount equal to the payments he would have
retained if such excise tax had not applied.
Each of Mr. Boyd and Mr. Sullivan is subject to a one-year non-compete
provision if he voluntarily terminates employment prior to the end of the
employment term, unless such termination is approved by the Board of Directors
or is within the two-year period following a Change in Control. If Mr.
Sullivan's agreement terminates prior to a Change in Control or following the
two-year period immediately subsequent to a Change in Control as the result of
termination for Good Reason, termination without Cause or the Company's failure
to renew his agreement, Mr. Sullivan is subject to a two-year non-compete
provision.
On February 23, 1998 Mr. Wiggins and the Company entered into a three year
Retirement, Consulting and Non-Competition Agreement (the "Retirement
Agreement") pursuant to which Mr. Wiggins retired from his position as Chairman
of the Board and agreed to continue to act as a consultant to the Company for a
period of three years. Under the terms of the Retirement Agreement, the Company
agreed to pay Mr. Wiggins a lump sum cash payment of $3,600,000 and, during the
term of the Retirement Agreement, an annual amount of $1,800,000, payable
monthly. In addition, the Retirement Agreement provides that all of Mr. Wiggins'
options vested immediately upon the effective date of the Retirement Agreement
and that the expiration dates of the options are extended and shall continue to
be exercisable until February 2002. In addition, Mr. Wiggins agreed to a three
year non-compete and non-solicitation provision.
Following disclosure of the terms of the Retirement Agreement, certain
regulators, including the New York State Insurance Department, expressed
concern that the cost of the Retirement Agreement would raise costs for the
Company's policyholders. The Company has confirmed that the cost of the
Retirement Agreement will be paid by the Company and will not be allocated
directly to its regulated subsidiareies and will have no impact on premiums
for employer groups and members. The Company has suspended payments under the
Retirement Agreement pending further discussions with these officials.
The above notwithstanding, the Board of Directors carefully considered
the need for a smooth management transition (including Mr. Wiggins' standing
with employees as founder of the Company), Mr. Wiggins' pre-existing
contractual rights and the value of an ongoing non-competition and
non-solicitation agreement with Mr. Wiggins. The Board's assessment, with the
advice of outside experts, was that the aforementioned agreements were
reasonable. These agreements were structured not to affect the regulated
subsidiaries and individual consumers and were in the best interests of the
Company, its policyholders and its shareholders.
8
<PAGE> 9
In December 1997, Mr. Cassidy resigned from his position with the Company.
Upon his resignation, the Company agreed to pay him an amount equal to his base
salary during the twelve months preceding the date of his resignation in twelve
equal monthly installments. Contemporaneous with Mr. Cassidy's resignation, he
entered into a service agreement with the Company pursuant to which the Company
will pay him on a per diem basis for consulting services for a period of twelve
months. Unless the services agreement is terminated for cause or Mr. Cassidy
voluntary terminates the agreement, Mr. Cassidy's outstanding stock options will
vest immediately upon the termination of the services agreement.
Mr. Snow resigned from his position with the Company effective April 10,
1998. Pursuant to the terms of his severance agreement, the Company agreed to
pay Mr. Snow, in twelve equal monthly installments, the sum of his base salary
earned during the twelve month period immediately preceding date of his
resignation plus a bonus equal to 50% of his base salary on December 31, 1997.
Mr. Snow also agreed to continue to act as a consultant to the Company on an as
needed basis at a per diem rate for a period of twelve months. Mr. Snow's
options will continue to vest during this consulting period.
Mr. Smoler resigned from his position with the Company effective April 10,
1998. Pursuant to the terms of his severance agreement, the Company agreed to
pay Mr. Smoler, in twelve equal monthly installments, the sum of his base salary
earned during the twelve month period immediately preceding the date of his
resignation plus a bonus equal to 50% of his base salary on December 31, 1997.
Mr. Smoler also agreed to continue to act as a consultant to the Company on an
as needed basis at a per diem rate for a period of twelve months. Mr. Smoler's
options will continue to vest during this consulting period.
9
<PAGE> 10
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock of the Company as of April 22, 1998,
unless otherwise indicated, by (i) each stockholder who is known by the Company
to beneficially own in excess of 5% of the outstanding shares of Common Stock,
(ii) each director and the nominees for director, (iii) each of the executive
officers named in the Summary Compensation Table and (iv) the directors and all
executive officers as a group.
<TABLE>
<CAPTION>
Ownership(1)
-----------------
Name Shares Percent
- - ---- ------ -------
<S> <C> <C>
TPG Partners II L.P., et. al.(2)
201 Main Street
Fort Worth, TX 76102 15,800,000 16.2%
Franklin Resources, Inc.(3)
777 Mariners Island Boulevard
San Mateo, CA 94404-7777 4,331,300 4.4%
William M. Sullivan(4) 610,167 *
Jeffery H. Boyd(5) 109,904 *
James B. Adamson(6) 6,250 *
Robert B. Milligan, Jr.(7) 4,375 *
Fred F. Nazem(8) 115,750 *
Marcia J. Radosevich, Ph.D.(9) 33,750 *
Benjamin H. Safirstein, M.D.(10) 106,819 *
Thomas A. Scully(11) 52,750 *
Stephen F. Wiggins(12) 3,005,840 3.1%
All Executive Officers and Directors as a Group
(13 persons)(13) 4,128,105 4.2%
</TABLE>
- - -----------
*Less than one percent.
10
<PAGE> 11
(1) Includes shares which such persons have the right to acquire beneficial
ownership of within 60 days from the date hereof.
(2) All information is as of December 31, 1997 and is furnished in reliance on
the Schedule 13D filed by TPG Partners II, L.P., TPG Oxford LLC, TPG
Parallel II, L.P. and TPG Investors II, L.P. ("TPG") with the Securities
and Exchange Commission in March 1998.
(3) All information is as of December 31, 1997 and is furnished in reliance on
the Schedule 13G filed by Franklin Resources, Inc. with the Securities and
Exchange Commission in February 1998. Without giving effect to TPG's
right to acquire 15,800,000 shares within 60 days,
Franklin Resources, Inc. would have beneficial ownership of 4.4%.
(4) Includes 351,132 shares issuable upon exercise of stock options. Mr.
Sullivan currently holds unvested options to purchase 177,500 additional
shares of common stock.
(5) Includes 102,648 shares of common stock issuable upon exercise of options.
Mr. Boyd currently holds unvested options to purchase 152,500 additional
shares of common stock.
(6) Includes 6,250 shares issuable upon exercise of stock options. Mr. Adamson
currently holds unvested options to purchase 3,750 additional shares of
common stock.
(7) Includes 4,375 shares of common stock issuable upon exercise of options.
Mr. Milligan currently holds unvested options to purchase 6,250 additional
shares of common stock.
(8) Includes 113,750 shares of common stock issuable upon exercise of options.
Mr. Nazem currently holds unvested options to purchase 6,250 additional
shares of common stock.
(9) Includes 33,750 shares of common stock issuable upon exercise of options.
Dr. Radosevich currently holds unvested options to purchase 6,250
additional shares of common stock.
(10) Includes 80,000 shares of common stock issuable upon exercise of options
and 18,937 shares of common stock held by Dr. Safirstein's spouse and
children. Dr. Safirstein disclaims beneficial ownership of the shares of
common stock held by his spouse and children. Dr. Safirstein currently
holds unvested options to purchase 35,000 additional shares of common
stock.
(11) Includes 52,750 shares of common stock issuable upon exercise of options.
Mr. Scully currently holds unvested options to purchase 6,250 additional
shares of common stock.
(12) Includes 1,356,040 shares of common stock issuable upon exercise of
options. Without giving effect to TPG's right to acquire 15,800,000
shares within 60 days, Mr. Wiggins would have beneficial ownership of
3.7%.
(13) Includes 2,184,831 shares of common stock issuable upon exercise of
options. Without giving effect to TPG's right to acquire 15,800,000
shares within 60 days, all Executive Officers and Directors as a Group
would have beneficial ownership of 4.2%.
11
<PAGE> 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Report of Compensation Committee
The Compensation Committee of the Board is responsible for reviewing the
Company's executive compensation program and policies each year and determining
the compensation of the Company's executive officers. The Company's compensation
programs and policies are designed to provide incentives that account for value
delivered to the Company's stockholders and that attract and retain individuals
of outstanding ability in key positions. The Company recognizes individual
performance and the performance of the Company relative to the performance of
other companies of comparable size, complexity and quality, and performance that
supports both the short-term and long-term goals of the Company. In addition to
exercising its business judgment, the Committee has also sought the advice of
nationally recognized consultants in developing its executive compensation
policies and agreements. The executive compensation program includes elements
which, taken together, constitute a flexible and balanced method of
establishing total compensation for senior management.
Compensation paid to the Company's executive officers for 1997 consisted
primarily of base salary, amounts deferred and matching contributions by the
Company under a long-term deferred compensation plan, and awards of stock
options pursuant to the Company's 1991 Stock Option Plan. Compensation under the
Company's 1991 Stock Option Plan constitutes a principal component of
compensation for senior executives, reflecting the Committee's desire to align
the interests of management with those of the Company's stockholders. Awards
under the 1991 Stock Option Plan were based upon individual executive
performance and contributions to the Company's performance. Stock options were
granted under the 1991 Stock Option Plan to all employees of the Company in
August 1997 with an exercise price of $74.00 per share. Subsequent to this
grant, the market price of the Company's common stock suffered a significant
decline as the result of financial losses announced by the Company. In order to
ensure that the options granted in August would provide a meaningful incentive
to motivate and retain employees, Company employees (except Messrs. Wiggins,
Sullivan, Boyd, Cassidy, Snow and Smoler) were given the opportunity to cancel
such options and receive in exchange a like number of options granted as of
January 2, 1998 with an exercise price of $17.125.
As a consequence of the losses incurred by the Company in 1997, executive
officers of the company received no cash bonus or cash incentive compensation,
except for Mr. Boyd, the Company's General Counsel, relating to his efforts in
connection with the Company's response to legal and regulatory inquiries and
proceedings affecting the Company.
In connection with ongoing compensation plans and recent changes to the
Company's senior management, the Committee intends to continue to promote
compensation structures which, in the Committee's opinion, provide features
which properly align the Company's executive compensation with corporate
performance and the interest of its stockholders and which offer competitive
compensation relevant to comparable opportunities in the marketplace.
The Compensation Committee
Robert B. Milligan, Jr.
Thomas A. Scully
James B. Adamson
12
<PAGE> 13
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1997, the Company disposed of its 47% interest in Health
Partners, Inc. ("Health Partners"), a physician management company. The Company
received 2,090,109 shares of FPA Medical Management, Inc. ("FPAM") stock with a
market value of approximately $76,400,000, resulting in a pretax gain at the
time of closing of approximately $63,200,000. As of December 31, 1997, the
market value of the FPAM stock had been reduced to approximately $38,400,00. Mr.
Wiggins owned 6.25% of the common stock of Health Partners. The Company
contracts with provider groups managed by Health Partners in the Company's
service area. Any significant agreements between the Company and Health Partners
have been subject to review by the independent committee or its designee.
Pursuant to the terms of Marvin P. Rich's employment agreement, the
Company agreed to loan Mr. Rich $600,000 upon the following terms: (i) interest
at the lowest rate to avoid imputed income; (ii) four (4) year term; (iii)
interest only annually; and (iv) principal only at the end of four (4) year term
or earlier at Mr. Rich's option or upon termination of Mr. Rich's employment
with the Company.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
April, 1998.
OXFORD HEALTH PLANS, INC.
By: /s/ WILLIAM M. SULLIVAN
-------------------------------
William M. Sullivan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and, in the capacities indicated on April 29, 1998.
Signature Title
--------- -----
/s/ WILLIAM M. SULLIVAN Principal Executive Officer
- - -------------------------------
William M. Sullivan
/s/ ALBERT A. KOCH Principal Financial Officer
- - -------------------------------
Albert A. Koch
/s/ BRENDAN R. SHANAHAN Principal Accounting Officer
- - -------------------------------
Brendan R. Shanahan
/s/ JAMES B. ADAMSON Director
- - -------------------------------
James B. Adamson
/s/ ROBERT B. MILLIGAN, JR Director
- - -------------------------------
Robert B. Milligan, Jr.
/s/ FRED F. NAZEM Director
- - -------------------------------
Fred F. Nazem
/s/ MARCIA J. RADOSEVICH Director
- - -------------------------------
Marcia J. Radosevich, Ph.D.
/s/ BENJAMIN H. SAFIRSTEIN Director
- - -------------------------------
Benjamin H. Safirstein, M.D.
/s/ THOMAS A. SCULLY Director
- - -------------------------------
Thomas A. Scully
/s/ STEPHEN F. WIGGINS Director
- - -------------------------------
Stephen F. Wiggins
<PAGE> 15
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Oxford Health Plans, Inc.:
Under date of February 23, 1998, except as to the last paragraph of note 15,
which is as of March 30, 1998, we reported on the consolidated balance sheets
of Oxford Health Plans, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1997, which are included in the annual report on Form 10-K/A. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedule in the
annual report on Form 10-K/A No. 2. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 23, 1998
<PAGE> 16
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets
December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,657 1,556
Short-term investments - available-for-sale 38,442 110,642
Receivables, net 3,844 3,051
Refundable income taxes 120,439 --
Deferred income taxes 38,092 23,429
Other current assets 5,409 3,362
--------- ---------
Total current assets 207,883 142,040
Property and equipment, net 131,606 99,017
Investments in and advances to subsidiaries,
net 51,089 395,759
Deferred income taxes 86,406 5,700
Other assets 21,853 27,490
--------- ---------
Total assets $ 498,837 670,006
========= =========
Current liabilities:
Accounts payable and accrued expenses $ 140,562 52,277
Income taxes payable -- 9,901
Deferred income taxes 9,059 9,658
--------- ---------
Total current liabilities 149,621 71,836
--------- ---------
Shareholders' equity:
Common stock 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 $ 498,837 670,006
========= =========
</TABLE>
1
<PAGE> 17
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I - Condensed Financial Information of Registrant (continued)
Condensed Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues-management fees and investment
and other income, net $ 697,426 494,500 282,377
--------- --------- ---------
Expenses:
Marketing, general and administrative 702,136 474,215 306,853
Unusual charges - write-off of assets 41,618 --
--------- --------- ---------
Total expenses 743,754 474,215 306,853
--------- --------- ---------
Operating earnings (loss) (46,328) 20,285 (24,476)
Equity in net earnings (losses) of subsidiaries (265,439) 91,214 69,266
Equity in net loss of affiliate (1,140) (4,600) (3,873)
Gain of sale of affiliate 25,168 -- --
--------- --------- ---------
Earnings (loss) before income taxes (287,739) 106,899 40,917
Income tax expense (benefit) 3,549 7,276 (11,481)
--------- --------- ---------
Net earnings (loss) $(291,288) 99,623 52,398
========= ========= =========
</TABLE>
2
<PAGE> 18
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I - Condensed Financial Information of Registrant (continued)
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net cash provided (used) by operating activities $ (92,956) 99,321 54,539
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (89,846) (45,820) (82,407)
Sale or maturity of available-for-sale securities 275,872 78,923 79,888
Purchase of available-for-sale investments (143,873) (127,442) (45,177)
Acquisitions and other investments (33,876) (10,295) (8,243)
Other, net (2,437) (3,078) (2,928)
--------- --------- ---------
Net cash provided (used) by investing activities 5,840 (107,712) (58,867)
--------- --------- ---------
Cash flow from financing activities:
Proceeds from public offerings, net -- 220,539 --
Investments in and advances to subsidiaries, net 65,953 (233,423) (5,782)
Proceeds from exercise of stock options 21,264 21,215 10,491
--------- --------- ---------
Net cash provided by financing activities activities 87,217 8,331 4,709
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 101 (60) 381
Cash and cash equivalents at beginning of year 1,556 1,616 1,235
--------- --------- ---------
Cash and cash equivalents at end of year $ 1,657 1,556 1,616
========= ========= =========
</TABLE>
3
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statements
(Nos. 33-92006 and 333-2464) on Form S-3 and the registration statements (Nos.
33-70908, 33-49738, 33-94242 and 333-988) on Form S-8 of Oxford Health Plans,
Inc. of our report dated February 23, 1998, relating to the financial
statements schedule of Oxford Health Plans, Inc. and subsidiaries as of December
31, 1997 and 1996 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended DEcember 31, 1997, which report appears in the December 31, 1997
annual report on Form 10-K/A No.2 of Oxford Health Plans, Inc.
KPMG Peat Marwick LLP
Stamford, Connecticut
April 30, 1998
