<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(MARK ONE)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the fiscal year ended                 December 31, 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 Identification No.)
      incorporation or organization)

 48 Monroe Turnpike, Trumbull, Connecticut                 06611
 (Address of principal executive offices)                (Zip Code)

                                (203) 459 - 6000
              (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 or any amendment to this
Form 10-K. [X]

As of February 12, 2001, there were 98,321,875 shares of common stock issued and
outstanding. The aggregate market value of such stock held by nonaffiliates, as
of that date, was approximately $3,424,819,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A (Part III)
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                                     PART I

ITEM 1.   BUSINESS

GENERAL

    Oxford Health Plans, Inc. ("Oxford" or the "Company"), incorporated under
the laws of the State of Delaware on September 17, 1984, is a health care
company currently providing health benefit plans primarily in New York, New
Jersey and Connecticut. The Company's product line includes its point-of-service
("POS") plans, the Freedom Plan and the Liberty Plan, health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"),
Medicare+Choice ("Medicare") plans and third-party administration of
employer-funded benefit plans ("self-funded health plans"). The Company's
principal executive offices are located at 48 Monroe Turnpike, Trumbull,
Connecticut 06611, and its telephone number is (203) 459-6000. Unless the
context otherwise requires, references to Oxford or the Company include its
subsidiaries.

    The Company currently offers its products through its HMO subsidiaries,
Oxford Health Plans (NY), Inc. ("Oxford NY"), Oxford Health Plans (NJ), Inc.
("Oxford NJ") and Oxford Health Plans (CT), Inc. ("Oxford CT") and through
Oxford Health Insurance, Inc. ("OHI"), the Company's health insurance
subsidiary. OHI currently does business under accident and health insurance
licenses granted by the Departments of Insurance of New York and Connecticut,
the Department of Banking and Insurance of New Jersey and the Commonwealth of
Pennsylvania.

    The Company is not dependent on any single employer or group of employers,
as the largest employer group contributed approximately 1% of total premiums
earned during 2000 and the ten largest employer groups contributed approximately
5% of total premiums earned during 2000. The Company's Medicare revenue under
its contracts with the federal Health Care Financing Administration ("HCFA")
represented approximately 17% of its premium revenue earned during 2000.

CAPITAL RESTRUCTURING

     In order to fund operating losses incurred in 1997 and 1998 and make
necessary capital contributions to its HMO and insurance subsidiaries, in May
1998, the Company raised a total of $700 million in capital (the "Financing")
through the following arrangements: (i) the Company sold $350 million of
preferred stock (originally issued as Series A and Series B and later exchanged
for Series D Cumulative Preferred Stock, par value $.01 per share (the "Series D
Preferred Stock") and Series E Cumulative Preferred Stock, par value $.01 per
share (the "Series E Preferred Stock", together with the Series D Preferred
Stock, the "Preferred Stock") to TPG Partners II, L.P. (formerly TPG Oxford LLC)
and certain of its affiliates and designees ("TPG Investors") under an
Investment Agreement, dated as of February 23, 1998, as amended, together with
Series A and Series B warrants (the "Warrants") to acquire up to 22,530,000
shares of the Company's common stock at an exercise price of $17.75; (ii) the
Company issued $200 million of 11% Senior Notes due 2005 (the "Senior Notes");
and (iii) the Company entered into a Term Loan Agreement, dated as of May 13,
1998 (the "Term Loan"), pursuant to which the Company borrowed $150 million in
the form of a senior secured term loan. Simultaneously with the aforementioned
transactions, Norman C. Payson, M.D., the Company's Chairman and Chief Executive
Officer, purchased 644,330 newly issued shares of Oxford common stock for a
purchase price of $10 million.


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     Commencing in May 1998, the Company implemented a major restructuring
effort (the "Turnaround Plan") designed to reduce medical and administrative
costs, strengthen computer systems, reduce claims payment delays, shed
unprofitable lines of business, exit businesses not related to its core
Tri-State market area and increase premium yields on its products. As a result
of the Turnaround Plan, the Company realized net income attributable to common
shares of $274.4 million in 1999 (including the recognition of deferred tax
assets of $225 million) and $191.3 million in 2000 (net of $61.4 million, after
tax, of charges related to recapitalization transactions), and produced
operating cash flow of $95 million in 1999 and $404.7 million in 2000. The
Company considers the Turnaround Plan to have been substantially completed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

     The results of the Turnaround Plan permitted the Company to effect several
capital restructuring transactions in 2000 that began in February 2000 with the
repurchase of (i) $130 million of Series D and E Preferred Stock and (ii) $19
million of loans outstanding under the Term Loan. In May 2000, the Company
prepaid the remaining $131 million balance of the Term Loan, including
pre-payment premiums, for a total amount of $134.3 million. Following several
open market purchases, in December 2000, the Company tendered for the remaining
$193.5 million of its Senior Notes, plus $22.4 million in tender and consent
premiums. On December 22, 2000, the Company consummated an exchange and
repurchase agreement pursuant to which, among other things, (i) the Company paid
$220 million to TPG Investors to repurchase certain of the shares of Preferred
Stock and certain of the Warrants and (ii) TPG Investors exchanged their
remaining shares of Preferred Stock and remaining warrants for 10,986,455 newly
issued shares of common stock (the "Recapitalization"). In connection with the
Recapitalization in the fourth quarter of 2000, the Company incurred costs of
approximately $38.5 million related to the write-off of unamortized Preferred
Stock discount and costs from the original issuance in 1998 and related
transaction fees.

     Simultaneously with the consummation of the Recapitalization, the Company
entered into new senior bank facilities totaling $250 million, $175 million of
which is a 5 -1/2 year term loan (the "New Term Loan") and $75 million of which
is a 5 year revolving credit facility (the "Revolver", together with the New
Term Loan, the "Senior Credit Facilities"). The proceeds of the New Term Loan
were used, along with available Company cash, to fund the Recapitalization. The
Company has not drawn on the Revolver. The results of the capital restructuring
were to decrease the Company's financing costs by reducing the amounts owed
under term loans and to eliminate dividend and interest payments on the Series D
and E Preferred Stock and Senior Notes. For a further description of the
Financing, the Recapitalization, Senior Notes, Term Loan and Senior Credit
Facilities, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources".

COMPANY'S FUTURE STRATEGY

     Having completed the capital restructuring which was identified as one of
the Company's goals for 2000 and 2001, the Company intends to focus its strategy
for the years 2001 and 2002 on three main areas: (1) expanding its business
through additional market penetration in the Tri-State market area or contiguous
markets, (2) continuing to increase administrative efficiencies by, among other
things, enhancing the functionalities of its Internet offerings, and (3)
continuing its efforts to make quality healthcare affordable.

PRODUCTS

Freedom Plan

    Oxford's Freedom Plan is a type of POS health care plan that combines the
benefits of Oxford's HMOs with some of the benefits of conventional indemnity
health insurance. Oxford's Freedom Plan gives members the option at any time of
using the network of providers under contract with Oxford's HMOs or exercising
their freedom to choose providers not under contract with Oxford, although
certain benefits are only available through network providers. In 2000, the
Company launched Freedom Plan Metro which features access to Oxford's largest
network of doctors and hospitals at lower monthly premium rates primarily
through higher copayments for certain services. The Freedom Plan had
approximately 1,086,600 members at December 31, 2000 compared with 1,187,400 at
the end of 1999. As a percentage of total premiums earned, Freedom Plan premiums
were 69.1% in 2000 and 67.9% in 1999. The largest employer group offering the
Freedom Plan accounted for approximately 1.3% of Freedom Plan premiums earned
during 2000, and the ten largest employer groups offering the Freedom Plan
accounted for 6.1% of Freedom Plan premiums earned in 2000.


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    Oxford has targeted small to medium-size employers (10 to 1,500 employees)
for the Freedom Plan. New York Freedom Plan enrollment accounts for almost 80%
of all Freedom Plan enrollment. In New York, each Freedom Plan member currently
receives two forms of coverage - HMO coverage through Oxford NY for in-network
coverage and indemnity insurance through OHI. In New Jersey and Connecticut,
each member receives Freedom Plan coverage through one contract. Oxford also
offers a similar plan design in New York which is provided only through OHI on a
pure indemnity basis.

    HMOs

    Oxford currently offers HMO plans in New York, New Jersey and Connecticut.
The largest HMO commercial employer group accounted for 5.3% of total HMO
premiums earned during 2000, while the ten largest HMO groups accounted for
22.4% of total HMO premiums earned in 2000. Commercial HMO membership was
approximately 221,600 members at December 31, 2000, compared with 235,400
members at the end of 1999. As a percentage of total premiums earned, group
commercial HMO revenues were 12.6% in 2000 and 11.9% in 1999.

    Liberty Plan

    The Company's Liberty Plan is a POS health care plan. This plan offers lower
premiums than the standard Freedom Plan by allowing member groups to choose from
a smaller network of in-network providers. The Company believes that the Liberty
Plan provider network, while smaller than the Freedom Plan network, is
competitive in size and quality with networks of certain other health plans in
the New York metropolitan area. Liberty Plan membership, which is included in
the Freedom Plan membership, was approximately 148,100 members at December 31,
2000, compared with 143,400 members at the end of 1999.

    Individual Plans

    New York requires HMOs doing business in the community-rated small group
market to offer POS and HMO coverage with mandated benefits to individuals (the
"New York Mandated Plans"). Oxford also continues to cover individuals in New
York under a grandfathered POS plan (together with the New York Mandated Plans,
the "New York Individual Plans"). The grandfathered plan is closed to new
membership. The New York Mandated Plans are served by the Liberty Plan network
of providers and the grandfathered plan is served by the Freedom Plan network.
The Company had approximately 53,600 members in the New York Individual Plans as
of December 31, 2000, as compared with 63,700 members as of December 31, 1999.
Membership amounts are included in the Freedom Plan and HMO Plan membership.

     The New York State Insurance Department ("NYSID") has created Market
Stabilization Pools (the "Pools"). Every HMO participating in the small group
insurance market in New York is required to contribute certain amounts to the
Pools. These amounts are later distributed to HMOs based upon the demographic
makeup of the HMO's membership base and the experience of the HMO's membership
with regard to certain special medical conditions, as defined in the regulations
implementing the Pools. The Company contributed $15.2 million and $13.9 million,
respectively, to the Pools for the years 1997 and 1998. Prior to 2000, the
Company received approximately $9 million in distributions from the 1997 Pools.
In the fourth quarter of 2000, the Company recorded distributions to be received
from the 1997 and 1998 Pools of approximately $4 million and $21.1 million,
respectively. These distributions were received in the first quarter of 2001.
The Company contributed $7 million to the Pools in 1999 and has established a
reserve of $13.8 million for 2000 related to the Pools. The Company may receive
funds from the 1999 and 2000 Pools in the future but the amount is not currently
quantifiable as the NYSID has not yet completed the determination of
reimbursement to particular HMO's. There can be no assurance that the Company
will receive any recoveries from the 1999 and 2000 Pool Years.

    The Company offers individual HMO and various individual indemnity plans in
New Jersey (the "New Jersey Mandated Plans"). The Company had approximately
4,000 members in the New Jersey Mandated Plans as of December 31, 2000, as
compared with 4,400 members as of December 31, 1999. Membership amounts are
included in the HMO Plan membership.


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    Medicare

    The Company offers a number of Medicare plans, as Oxford Medicare Advantage,
to Medicare eligible individuals through its New York, New Jersey and
Connecticut HMO subsidiaries.

     At December 31, 2000, the Company had approximately 92,000 members enrolled
in its Medicare plans compared with 97,700 members at the end of 1999. The
reduction in Medicare membership is primarily the result of exiting the Suffolk
County, New York market in January 2000. Medicare accounted for approximately
16.8% of total premiums earned for the year ended December 31, 2000 compared
with 17.6% in 1999. The Company expects its Medicare membership to be lower in
2001 as the result of withdrawal from Medicare in certain counties of New Jersey
affecting approximately 4,000 members. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a description of prior
operating losses incurred in the Company's Medicare programs.

    Under its Medicare contracts with HCFA, the Company receives a fixed per
member per month capitation amount established annually by HCFA. The Company
bears the risk that the actual costs of health care services may exceed the
capitation amounts received by the Company. See "Business - Government
Regulation - Federal Regulation". Medicare contracts provide revenues that are
generally higher per member than those for non-Medicare members. Such contracts,
however, also carry certain risks such as higher comparative medical costs per
member and additional regulatory and reporting requirements. The Company has
developed a network of physicians and other providers to serve its Medicare
enrollees. In an effort to control its costs associated with its Medicare
business, the Company has entered into agreements with a limited number of
hospitals and hospital systems covering approximately 33,800 Medicare members in
certain New York counties pursuant to which it has transferred the medical cost
risk for its Medicare business in these counties. Discussions regarding a
possible restructuring of two of these arrangements are currently ongoing. See
"Business - Cost-Containment Arrangements - Medicare".

    The Company believes that future Medicare premiums may not keep up with the
cost of health care increases. Given current public policy and the fact that
Medicare premiums are not scheduled to keep up with the cost of health care, it
is possible that the Company may decrease its Medicare membership by, among
other things, reducing benefits and exiting certain counties that it currently
serves.

    Medicaid

    The Company withdrew from the Medicaid program in Connecticut and New
Jersey, effective April 1, 1998 and July 1, 1998, respectively. In January 1999,
the Company completed the assignment of its New York Medicaid contract and
certain rights under its provider agreements to a third party for approximately
$13.5 million. In January 1999, the Company also concluded the sale of its
Pennsylvania HMO subsidiary, including the Pennsylvania Medicaid business, for
approximately $7.1 million. As of February 1, 1999, the Company ceased
participating in any state Medicaid programs.

    Other Products

    The Company currently has a PPO product in New Jersey and Pennsylvania. At
December 31, 2000, the Company had approximately 28,800 members enrolled in New
Jersey compared with 23,100 members at December 31, 1999. The current
Pennsylvania PPO membership is minimal. Beginning in January 2001, the Company
began offering the state mandated Healthy New York product that is a
streamlined, comprehensive benefit package for uninsured individuals working for
employers with 50 or fewer employees and individuals who have not offered health
care coverage to their employees for a specified period. The State of
Connecticut also requires the Company to offer a similar, lower cost streamlined
plan to small groups.

    Oxford also offers self-funded health plans pursuant to which the employer
self-insures, and Oxford processes, health care expenses. Oxford assumes no
insurance risk for the cost of health care for these contracts and receives a
monthly fee for its administrative services. As of December 31, 2000, the
Company was administering nineteen self-funded groups in New York and eleven
self-funded groups in New Jersey, covering approximately 62,400 members in total
as compared with nineteen self-funded groups in New York and eleven in New
Jersey, covering approximately 50,100 members in total as of December 31, 1999.


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MARKETING AND SALES

    Oxford distributes its products through several different internal channels,
including direct sales representatives, business representatives, the Internet,
telemarketing representatives and executive account representatives as well as
through external insurance agents, brokers and consultants.

    Internal Representatives

    The direct sales representatives sell the Company's HMO programs, point of
service plans including the Freedom Plan and the Liberty Plan, PPO plans and
self-funded plans directly to employers. The direct sales force is organized
into units in each of the Company's regions with sales executives responsible
for each direct sales unit. The Company also maintains a Medicare sales force
that sells directly to Medicare beneficiaries. The Company's marketing
department develops television and print advertising, as well as direct mail
programs and marketing collateral materials for use by the direct sales force,
the Medicare sales force and independent brokers, agents and consultants.

    The Company maintains regional executive account representatives who work
directly with employer groups generally exceeding 500 lives as well as accounts
maintained by noncommissioned consultants. The Company also maintains staff that
is responsible for business opportunities associated with inbound inquiries from
prospective members and group accounts. Account managers are responsible for
servicing employer accounts sold directly or through a broker or agent. These
account managers are the principal administrative contact for employers and
their benefit managers by, among other things, conducting on-site employee
meetings and by providing reporting and troubleshooting services.

    Independent Insurance Agents and Brokers

    The primary distribution system for the group health insurance industry in
the Company's service areas has been independent insurance agents and brokers.
Oxford markets its commercial products through approximately 10,900 independent
insurance agents and brokers as of December 31, 2000 (compared with 10,200 at
the end of 1999) who are paid a commission on sales. The Company maintains
regional broker business unit representatives who work directly with the
independent agents and brokers. Independent insurance agents and brokers have
been responsible for a significant portion of Oxford's Freedom Plan and Liberty
Plan enrollment, and the Company expects to continue using independent insurance
agents and brokers in its marketing system in the future. The Company believes
that the New York metropolitan market, in particular, is influenced
significantly by independent agents and brokers, and that utilization of this
distribution system is an integral part of a successful marketing strategy in
the region. However, no assurance can be given that the Company will continue to
be able to maintain as large a distribution system of independent insurance
agents and brokers as it has in the past.

    Oxfordhealth.com

    In March 2000, the Company launched its new website, www.oxfordhealth.com,
with new functionalities for members, brokers, employer groups and providers.
The Company anticipates that features such as its on-line provider directory and
the ability of employer groups and brokers to submit eligibility changes
directly into Oxford's databases, will provide added value to its constituents
and ease the administration of, streamline costs associated with and add
efficiencies to its products and services. The Company currently has 26 on-line
transaction or inquiry functions available. Through oxfordhealth.com,
prospective enrollees, benefit administrators and brokers can view, among other
things, possible benefit packages, obtain rate quotes and enroll members in
certain products. However, because of certain regulatory restrictions, not all
functions are available in all markets or for all products.

    The Company has entered into strategic relationships with vendors to provide
such services as group purchasing discounts for physicians and Internet - based
physician practice management services. The Company expects that these added
functionalities and relationships, in addition to other relationships and
services that it is currently pursuing, will simplify and streamline its
processes and provide added value to its members, benefit administrators,
brokers and providers. The Company has the opportunity to derive revenue


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from some of these Internet initiatives. Further, the Company has invested in
MedUnite, Inc., an independent company conceived and financed by seven major
health care payors. MedUnite, Inc. has been organized to provide claims
submission and payment, referrals, eligibility information and other Internet
provider connectivity services. Since its inception, the Company has invested
$4.2 million in MedUnite, Inc., including $1.9 million in the first quarter of
2001. There can be no assurance that the Company's investment in MedUnite will
be successful. For a description of the risks associated with doing business on
the Internet, see "Business - Cautionary Statement Regarding Forward-Looking
Statements".

PHYSICIAN NETWORK

    The Company's HMO and POS health care programs are designed around primary
care physicians, who generally coordinate the care of members and generally
determine or recommend the nature and extent of services provided to any given
member. Primary care physicians provide preventive and routine medical care and
are also responsible for making referrals to contracted specialist physicians,
hospitals and other providers. Medical care provided directly by primary care
physicians may include the treatment of illnesses not requiring referrals, as
well as periodic physical examinations, routine immunizations, maternity and
well child care and other preventive health services.

    Oxford maintains a network of approximately 55,000 physicians and other
providers that are under contract with the Company, of which approximately
32,000 are in New York, 15,000 are in New Jersey and 8,000 are in Connecticut.
The majority of Oxford's physicians have contracted individually and directly
with Oxford, although Oxford also has contracts with hospitals, physician
hospital organizations, individual practice associations ("IPAs") and physician
groups. The Company has an arrangement with a physician group (the "Physician
Group") covering approximately 28,000 members, 8,000 of which are Medicare
members, whereby the Physician Group assumes certain risks for medical costs and
can receive incentive payments upon achievement of certain benchmarks.

    Exclusive of the Physician Group and the risk-sharing arrangements for a
portion of the Company's Medicare business described below, Oxford compensates
its participating physicians primarily based upon a fixed fee schedule, under
which physicians receive payment for specific procedures and services.

    The Company continues to work to improve its relations with the physician
community and obtain physician input in its practices. Local physicians serve on
the board of directors of Oxford NY, Oxford NJ and Oxford CT and local specialty
colleges have been involved in the development of the Company's utilization
management policies. In addition, the Company has over 100 practicing physicians
from its service area participating on committees that advise the Company on the
development of treatment and payment policies.

HOSPITAL ARRANGEMENTS

    The Company has contracts with over 200 hospitals in its New York, New
Jersey and Connecticut service areas providing for inpatient and outpatient care
to the Company's members at prices usually discounted from the hospital's billed
charges. The Company believes that the rates in these contracts are generally
competitive. Many of these contracts may be terminated after a specified notice
period or have remaining terms of less than one year. In addition, there has
been significant consolidation among hospitals in the Company's service area,
which tends to enhance the combined entity's bargaining power with managed care
payors. As a result, the Company has the risk that certain hospitals may seek
higher rates or seek to impose limitations on the Company's utilization
management efforts. The Company is routinely engaged in negotiations with
various hospitals and hospital systems and, in connection therewith, such
hospitals and hospital systems may threaten to or, in fact, provide notice of
termination of their agreements with the Company as part of their negotiation
strategy. The Company has several multi-year agreements with hospitals and
hospital systems that are designed to reduce its future risk with respect to
hospital costs and is currently negotiating with other hospitals and hospital
systems for similar multi-year arrangements. See "Cautionary Statement Regarding
Forward - Looking Statements".


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    COST-CONTAINMENT ARRANGEMENTS

     Medicare

     In an effort to control increasing medical costs in its Medicare programs,
the Company has certain agreements in effect with a limited number of hospitals
and hospital systems pursuant to which it has transferred to such hospitals and
hospital systems the medical cost risk for approximately 33,800 of its members.
Premium revenues for the Medicare members covered under these agreements totaled
approximately $240 million in 2000. One such risk-sharing agreement is with
North Shore-Long Island Jewish Health Systems ("North Shore") for the Company's
approximately 23,400 Medicare members in certain New York counties. North Shore
has experienced certain operational and financial difficulties under the
agreements and the Company could be adversely affected by North Shore's
nonperformance or default. The Company and North Shore are currently in
discussions with respect to a possible restructuring of this arrangement. In
connection with these discussions, North Shore has sent a notice of mediation to
the Company and has asserted various claims of breach by the Company including a
claim for recission of the agreement. While the Company believes that it has
complied with the agreement and that the agreement is binding, there can be no
assurance that the Company's view will prevail. The Company also has a
risk-sharing agreement with Lenox Hill Hospital that is currently under
renegotiation. In connection with such renegotiation, Lenox Hill Hospital has
served notice of termination of this agreement at the end of its term on
December 31, 2001. Termination of these arrangements could have a material
adverse effect on the Company's Medicare results of operations.

     Implementing Medicare risk-sharing contracts involves various risks and
operational challenges, and there can be no assurance that these contracts will
be successful in reducing the Company's future costs. Moreover, cost savings
under these agreements are achieved in certain instances through fee reductions,
more rigorous utilization review and reductions in the size of the provider
networks, all of which may adversely affect member and provider satisfaction
with the Company's Medicare plans. These arrangements are also subject to
compliance with risk-sharing regulations adopted by HCFA and the States of New
York and New Jersey which require disclosure and reinsurance for specified
levels of risk-sharing. See "Cautionary Statement Regarding Forward - Looking
Statements".

     Ancillary Services

    In 1999, the Company entered into cost-containment agreements with various
entities that are structured to provide savings to the Company over the next
several years. With respect to laboratory and radiology services, the Company's
exposure for specified procedures is generally at a negotiated aggregate per
member per month cost which is generally less than the Company's historical
costs for such services. In the case of pharmacy costs, the vendor assumed,
subject to various qualifications, a portion of the Company's pharmacy cost
increases during the 1999 and 2000 years as a result of underlying pharmacy cost
trend guarantees that were lower than actual pharmacy cost trends. Under this
arrangement, the 2001 pharmacy cost trend guarantees are also lower than
expected national pharmacy cost trends. In the case of physical therapy
services, the Company has an agreement with an insurance company which, through
reinsurance, mitigates the Company's cost for physical therapy services. The
Company retains the risk for costs in excess of the reinsurance limit.

     In these agreements, the Company undertakes various obligations, including
changes to its medical management policies and internal business procedures,
some of which require computer programming, alteration of existing referral
patterns, as well as regulatory approvals, among other items. Because of the
complexity of its medical delivery system, disputes arise over the degree of the
Company's satisfaction of its various obligations under these cost-containment
agreements. Some of these disputes involve substantial amounts and one is in
arbitration. The Company also bears the risk of non-performance or default by
the parties to such cost-containment arrangements. The aggregate effect of such
cost-containment agreements in 2000 was to reduce the Company's costs for
covered services and to contribute in part to the Company's ability to constrain
the net increase in its total medical costs. The Company expects such agreements
to assist in constraining 2001 medical cost increases, but there can be no
assurances that all of these arrangements will persist throughout 2001.

INFLUENCING HEALTH CARE COSTS

    Oxford's medical review program attempts to measure and, in some cases,
influence inappropriate utilization of certain outpatient services, including
but not limited to pharmacy, radiology and physical therapy, elective surgeries
and hospitalizations provided to Oxford members. Under the medical review
program, for many of


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Oxford's plans, physicians and members are obligated to contact Oxford prior to
providing or receiving specified treatments. Utilizing standardized protocols on
a procedure-specific basis, Oxford's staff of registered nurses and physicians
may review the proposed treatment for consistency with established clinical
practice guidelines, community norms and other consensus guidelines or standards
as required.

    Oxford's outpatient cost control program is based on the primary care system
of health care coordination, which promotes consistency and continuity in the
delivery of health care. For most plans sold, each person who enrolls in an
Oxford plan must select a participating primary care physician who generally
coordinates the member's health care needs. Members generally see their primary
care physician for routine and preventive medical services. The primary care
physician either provides necessary services directly or authorizes referrals
for specialist physicians, diagnostic tests and hospitalizations. For
out-of-network non-emergency services, the member generally must obtain approval
directly from Oxford in order to receive the highest level of benefits.

    In connection with its review of certain claims, the Company may compare the
services rendered by its participating physicians to an independently developed
pattern of treatment standards to identify procedures that were not consistent
with a patient's diagnoses, as well as billing abuses and irregularities.
Separate claims auditing systems are utilized for certain hospital diagnosis
related group payments and other surgical payments. Oxford utilizes a hospital
bill audit program which has yielded savings with respect to hospital claims,
through pricing reviews, medical chart audits and on-site hospital reviews.
Oxford's claim auditing programs seek to identify aberrant physician billing
practices. In addition, regulatory considerations, the threat of litigation or
liability concerns, operational and systems issues and relationships and
arrangements with hospitals and physicians may limit the Company's ability to
apply all available cost control measures.

     To mitigate retrospective denial of inpatient payments for health care
services, improve communication and enhance customer service and improve
relationships with hospitals, the Company maintains the Day of Service-Decision
Making program (the "DOS Program"). The DOS Program involves the Company in
making payment certification decisions about continued hospital stays generally
at least a day in advance so the hospital is advised if additional hospital days
will likely be authorized and can, therefore, more appropriately manage
post-hospital care programs. As a result of the Day of Service-Decision Making
program, the Company's use of retrospective denials of hospital days has
generally ceased except in unusual circumstances, which generally has led to
better relationships with hospitals.

STATUS OF INFORMATION SYSTEMS

    In December 2000, the Company entered into an agreement to outsource certain
of its information technology services, including data center operations, help
desk services, desktop systems and network operations. The five-year agreement
with Computer Services Corporation ("CSC") provided for the transition of
approximately 150 of the Company's Information Technology staff to CSC. Under
the agreement, the Company sold certain computer-related equipment to CSC at its
estimated fair market value and recorded a loss on the sale of approximately
$5.4 million in the fourth quarter of 2000. The Company's Information Technology
department continues to support application development and maintenance, data
base administration, and quality assurance program management and architecture.
The Company expects this agreement to improve its internal information
technology capabilities while, at the same, maintaining appropriate levels of
administrative costs for such services. However, there can be no assurance that
the agreement will yield these expected results.

    The Company has resolved a majority of its software and hardware problems
that began in 1996 with the conversion of a significant part of its business
operations to a new computer system. The Company's claims payments and group and
individual billing operations are substantially current. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company continues to assess and make improvements relating to additional
integration and functionality for its information technology systems.

    There can be no assurance that the Company will be successful in preventing
future system problems that could result in payment delays and claims processing
errors. Operating and other issues can lead to data problems that affect
performance of important functions, including claims payment and group and
individual billing. Computer hardware is subject to unplanned downtime, as well
as natural disasters, which could adversely affect the Company's operations.


                                       9
<PAGE>   10
QUALITY MANAGEMENT

    The majority of Oxford's physicians in its commercial and Medicare rosters
are board certified in their specialty (by passing certifying examinations in
the specialty as recognized by the American Board of Specialties) or become
board certified within five years of becoming eligible. In certain limited
circumstances such as community need or academic affiliation, board
certification may be waived. Board certification is one measure of a physician's
expertise. Additionally, Oxford maintains a credentialing process consistent
with NCQA guidelines. All provider assessments consist of primary verification
of credentials; query of the National Practitioner Data Bank, state medical
boards and admitting hospitals for malpractice history, disciplinary actions
and/or restrictions of hospital privileges; and on-site office evaluation of
selected providers to determine compliance with Oxford standards. Oxford also
recredentials all providers every two years. The recredentialing review consists
of repeating select components of the initial credentialing process (as required
by NCQA) and a review of the provider's practice history with Oxford. This
process also includes evaluating the results of quality assurance reviews,
complaints from members concerning the provider, utilization patterns and the
provider's compliance with Oxford's administrative protocols.

    The Company's physician contracts require adherence to Oxford's Quality
Assurance and Utilization Management Programs. Oxford's Quality Management
Committees, which are composed of physicians from within Oxford's network of
providers, advise the Company's Chief Medical Officer concerning the development
of credentialing and other medical quality criteria. The Quality Management
Committees may elect to sanction providers based upon their review of a
provider's practice patterns or outcomes. The committees also provide oversight
of Oxford's Quality Assurance and Utilization Management Programs through peer
review and ongoing review of performance indicators.

    The Company seeks to evaluate the quality and appropriateness of medical
services provided to its members by performing member and physician satisfaction
studies. The Company also conducts on-site review of medical records at selected
physician offices facilitating retrieval of statistical information which allows
for problem resolution in the event of member or physician complaints and for
retrieval of data when conducting focused studies.

    In June 2000, the National Committee on Quality Assurance ("NCQA"), an
independent, non-profit organization dedicated to improving managed care quality
and service, conducted its regular periodic review of the Company's
accreditation and, in September 2000, upgraded the Company's status to
"Commendable" for its commercial and Medicare business, which is valid for two
years. There can be no assurance that the Company's accreditation will be
renewed or that the Company will achieve the same level of accreditation in the
future.

RISK MANAGEMENT

    The Company limits, in part, the risk of certain catastrophic losses by
maintaining high deductible reinsurance coverage. The Company does not consider
this coverage to be material as the cost is not significant and the likelihood
that coverage will be applicable is minimal. The Company's operating
subsidiaries also maintain insolvency coverage as required by the states in
which they do business.

    The Company also maintains general liability, property, employee fidelity,
directors and officers, and professional liability insurance coverage in amounts
the Company deems prudent. The Company requires contracting physicians,
physician groups and hospitals to maintain professional liability and
malpractice insurance in an amount consistent with industry standards.

     In the fourth quarter of 1999, the Company purchased new insurance policies
providing additional coverage of certain legal defense costs, including
judgments and settlements, if any, incurred by the Company and individual
defendants in certain pending lawsuits and investigations, including, among
others, the securities class action pending against the Company and certain of
its directors and officers and the pending stockholder derivative actions.
Subject to the terms of the policies, the insurers have agreed to pay 90% of the
amount, if any, by which covered costs exceed $175 million, provided that the
aggregate amount of insurance under these new policies is limited to $200
million and the aggregate amount of new insurance in respect of defense costs
other than judgments and settlements, if any, is limited to $10 million. The
policies do not cover taxes, fines or penalties imposed by law or the cost to
comply with any injunctive or other nonmonetary relief or any agreement to
provide any such relief. The coverage under the new policies is in addition to
approximately $35.5 million of


                                       10
<PAGE>   11
coverage remaining under preexisting insurance that is not subject to the $175
million retention applicable to the new policies. A charge of $24 million for
premiums and other costs associated with the new insurance coverage was included
in the Company's results of operations for 1999.

GOVERNMENT REGULATION

    The Company's HMO and insurance subsidiaries are subject to substantial
federal and state government regulation, including licensing and other
requirements relating to the offering of the Company's existing products in new
markets and offerings of new products, both of which may restrict the Company's
ability to expand its business. The failure of the Company's subsidiaries to
comply with existing or future laws and regulations could materially and
adversely affect the operations, financial condition and prospects of the
Company.

    Federal Regulation

    In order to be eligible to enter into Medicare contracts with HCFA, an HMO
must be a competitive medical plan ("CMP"). Oxford NY, Oxford NJ and Oxford CT
are qualified CMPs under HCFA's requirements. In order to maintain this status,
Oxford NY, Oxford NJ and Oxford CT must remain in compliance with certain
financial, reporting and organizational requirements under applicable federal
statutes and regulations in addition to meeting the requirements established
pursuant to applicable state law.

    The Company's health plans with Medicare contracts, Oxford NY, Oxford NJ and
Oxford CT, are subject to regulation by HCFA. HCFA has the right, directly and
through peer review organizations, to audit health plans operating under
Medicare contracts to determine each health plan's compliance with HCFA's
contracts and regulations and the quality of care being rendered to the health
plan's Medicare members. In addition, HCFA regulations prohibit HMOs with
Medicare contracts from including any direct or indirect payment to physicians
or groups as an inducement to reduce or limit medically necessary services to a
Medicare beneficiary. These regulations impose risk limitation disclosure and
other requirements relating to physician incentive plans that place physicians
participating in a Medicare plan at substantial financial risk. The Company's
ability to maintain compliance with these rules and regulations depends, in
part, on its receipt of timely and accurate information from its providers.

    Other federal laws which govern the Company's business and which
significantly affect its operations include, among others:

      -  The federal Health Insurance Portability and Accountability Act of 1996
         ("HIPAA") was promulgated to (i) ensure portability of health insurance
         to certain individuals, (ii) guarantee availability of health insurance
         to employees in the small group market (iii) prevent exclusion of
         individuals from coverage under group plans based on health status, and
         (iv) develop national standards for the electronic exchange of health
         information. In furtherance of the latter, the Department of Health &
         Human Services ("DHHS") was directed to develop rules for standardizing
         electronic transmission of health care information and to protect its
         security and privacy. On December 20, 2000, DHHS issued its final
         privacy rules that must be complied with by October 2002. Under these
         rules health plans, clearinghouses and providers will now be required
         to (a) comply with a variety of requirements concerning their use and
         disclosure of individuals' protected health information, (b) establish
         rigorous internal procedures to protect health information and (c)
         enter into business associate contracts with those companies to whom
         protected health information is disclosed. Violations of these rules
         will be subject to significant penalties. The final rules do not
         provide for complete federal preemption of state laws, but rather
         preempt all contrary state laws unless the state law is more stringent.
         HIPAA could expose the Company to additional liability for, among other
         things, violations by its business associates. Although the cost of
         complying with HIPAA is likely to be significant, at this time, the
         Company cannot predict the ultimate impact HIPAA will have on its
         business and results of operations in future periods;

      -  The Mental Health Parity Act of 1996 ("MHPA") prohibits group health
         plans and health insurance issuers providing mental health benefits
         from imposing lower aggregate annual or lifetime dollar-limits on
         mental health benefits than any such limits for medical or surgical
         benefits. MHPA's requirements do not apply to small employers who have
         between 2 and 50 employees or to any group health plan whose costs
         increase one percent or more due to the application of these
         requirements.


                                       11
<PAGE>   12
      -  The Women's Health and Cancer Rights Act of 1998 requires health
         insurance carriers of group and individual commercial policies that
         cover mastectomies to cover reconstructive surgery or related services
         following a mastectomy.

     -   The Newborn's and Mothers' Health Protection Act of 1996 generally
         prohibits group health plans and health insurance issuers from
         restricting benefits for a mother's or newborn child's hospital stay in
         connection with childbirth to less than 48 hours for a vaginal delivery
         and to less than 96 hours for a cesarean section.

     -   The Employee Retirement Income Security Act of 1974 ("ERISA") governs
         self-funded plans. There have been recent legislative attempts to limit
         ERISA's preemptive effect on state laws. If such limitations are
         enacted, they might increase the Company's exposure under state law
         claims that relate to self-funded plans administered by the Company and
         may permit greater state regulation of other aspects of those business
         operations.

      -  The Balanced Budget Act of 1997 (the "1997 Act") changed the way health
         plans are compensated for Medicare members by eliminating over five
         years amounts paid for graduate medical education, increasing the blend
         of national cost factors applied in determining local reimbursement
         rates over a six-year phase-in period and direct HCFA to implement a
         risk adjusted mechanism on its monthly member payment to Medicare plans
         over the same period. These changes have had the effect of reducing
         reimbursement in high cost metropolitan areas with a large number of
         teaching hospitals, such as the Company's service areas. Congress has
         subsequently lengthened this timetable to allow the risk adjusted
         mechanism to be fully implemented by 2007. In December 2000, Congress
         approved the Benefits Improvement and Protection Act that, among other
         things, enacted modest increases to the payment formula for Medicare
         plans. The Company believes that under the 1997 Act, future Medicare
         premiums will not keep up with the cost of health care increases. The
         Company cannot predict the effect of this result on its Medicare
         business and results of operations in future periods.

     -   The US Department of Labor published regulations that revise claims
         procedures for employee benefit plans governed by ERISA (insured and
         self-insured), effective for claims filed on or after January 1, 2002.
         Although the cost of complying with these regulations is likely to be
         significant, the Company cannot predict the ultimate impact on its
         business and results of operations in future periods.

    State Regulation

    Oxford's HMO subsidiaries are licensed to operate as HMOs by the insurance
departments, and, in some cases, health departments, in the states in which they
operate. Applicable state statutes and regulations require Oxford's HMO
subsidiaries to file periodic reports with the relevant state agencies and
contain requirements relating to operations, premium rates and covered benefits,
financial condition and marketing practices. In addition, state regulations
require the Company's HMO and insurance subsidiaries to maintain restricted cash
or available cash reserves and restrict their abilities to make dividend
payments, loans or other transfers of cash to the Company. For a description of
regulatory capital requirements, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources". State regulatory authorities exercise oversight regarding the
Company's HMOs' provider networks, medical care delivery and quality assurance
programs and reporting requirements, the formation of contracts, including
risk-sharing contracts, claims payment standards, compliance with benefit
mandates, utilization review standards, including internal and external appeals,
and financial condition. The Company's HMOs are also subject to periodic
examination by the relevant state regulatory authorities. For a description of
recent examinations, see "Legal Proceedings - State Insurance and Health
Departments".

    OHI is an accident and health insurance company licensed by the New York
State Insurance Department ("NYSID") and licensed as a foreign insurer by the
insurance departments of New Jersey, Pennsylvania and Connecticut. Applicable
state laws and regulations contain requirements relating to OHI's financial
condition, reserve requirements, premium rates, forming of contracts, and the
periodic filing of reports with the applicable insurance departments. OHI is
also subject to periodic examination by the applicable state regulatory
authorities. From time to time, the Company has disagreements with the NYSID on
the application of actuarial methodologies and is routinely discussing these
issues with the NYSID.


                                       12
<PAGE>   13
    Certain state regulations require that HMOs utilize standard "community
rates" in determining HMO premiums. Such community rates are generally revised
annually by the HMO and, in most cases, must be approved in advance by the
applicable state regulatory authorities. The methodology employed in determining
premiums for the Company's Freedom Plan products utilizing an HMO must also be
approved in advance by the applicable state regulatory authorities and combine
the relevant community rate with traditional indemnity insurance rating
criteria. The Company's ability to increase rates on its products is, in certain
instances, subject to prior approval of state insurance departments. For a
description of certain regulatory issues relating to the Company's rates, see
"Legal Proceedings - State Insurance and Health Departments".

    Applicable New York statutes and regulations require the prior approval of
the New York State Commissioner of Health and the New York State Superintendent
of Insurance for any change of control of Oxford NY or the Company and the prior
approval of the New York State Superintendent of Insurance for any change of
control of OHI or the Company. Similar laws in other states where the Company
has incorporated HMOs require insurance department approval of any change in
control of the Company or the relevant HMO subsidiary. For purposes of these
statutes and regulations, generally "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of an entity. Control is presumed to exist when a person, group of
persons or entity acquires the power to vote 10% or more of the voting
securities of another entity.

    During the past four years, New Jersey, Connecticut and New York implemented
significant pieces of legislation relating to managed care plans which contain
provisions relating to, among other things, consumer disclosure, utilization
review, removal of providers from the network, appeals processes for both
providers and members, mandatory benefits and products, state funding pools,
prompt payment and provider contract requirements. These states also all passed
legislation governing the prompt payment of claims that requires, among other
things, that health plans pay claims within certain prescribed time periods or
pay interest ranging from 10% to 15% per annum plus penalties. The NYSID has
established a policy of fining insurers $1,000 for each prompt payment
violation. Unless the New York legislature passes legislation that would create
an accuracy threshold, such proposed fines could have an adverse effect on the
Company's results of operations. The Company paid fines of approximately
$151,650 and $215,000 in 1999 and 2000, respectively, relating to prompt pay
issues, primarily related to claims incurred prior to 1999.

    Other recent state legislation which governs the Company's business and
which significantly affects its operations include, among others:

      -  The Health Care Reform Act of New York ("HCRA") governs health care
         financing policies in New York, including graduate medical education
         and bad debt and charity care ("BDCC") assessments. Among other things,
         the 1999 reauthorization of HCRA: (i) reduces the amount of graduate
         medical education funding financed by payors by a total of $90 million
         through June 2003; (ii) excludes certain laboratory services from the
         BDCC assessments effective October 1, 2000; (iii) provides a limited
         amount of stop loss insurance funds to cover 90% of certain of the paid
         claims for the New York Mandated Plans; and (iv) requires New York HMOs
         in 2001 to offer a health plan with limited benefits to certain small
         groups and individuals for which a limited amount of stop loss
         insurance will be available.

      -  Effective July 1, 1999, New York State enacted a law establishing a
         right for health care consumers to obtain an external review of
         determinations made by HMOs and insurers when coverage of health care
         has been denied on grounds that the service is not medically necessary
         or such service is experimental or investigational. The law also
         imposes other burdensome contractual and reporting requirements on New
         York health plans.

      -  In December 1999, the State of New Jersey announced a voluntary
         agreement by nine New Jersey HMOs, including Oxford NJ, to cover
         routine patient care costs, including but not limited to, physician
         fees and laboratory expenses associated with hospitalization of their
         members who qualify for enrollment in certain clinical trials.

      -  Both Connecticut and New Jersey have enacted changes to certain of
         their mental health coverage requirements generally to require health
         plans to provide coverage for mental health conditions generally at the
         same level of benefits as other medical conditions.


                                       13
<PAGE>   14
      -  In March 2000, the State of New Jersey enacted a law which includes an
         assessment on HMOs in the state proportionate to market share up to $50
         million over three years to help cover unpaid provider claims from two
         insolvent HMOs. The Company paid approximately $1.8 million in 2000 and
         is required to pay similar amounts in 2001 and 2002.

    Proposed Regulatory Developments

    Congress is considering significant changes to the Medicare program,
including changes to reimbursement of HMOs. In addition, long-term structural
changes to the Medicare program, including the addition of a prescription drug
benefit, are currently being considered by Congress and the Administration.

    State and federal government authorities are continually considering changes
to laws and regulations applicable to Oxford's HMO and insurance subsidiaries.
Over the past several years there has been significant controversy over claims
that payment for care has allegedly been inappropriately withheld or delayed by
managed care plans. This has led to significant public and political support for
reform of managed care regulation. The U.S. Congress and each of the states in
which Oxford operates are currently considering regulations or legislation
relating to mandatory benefits (such as mental health), provider compensation
arrangements, health plan liability to members who do not receive appropriate
care, disclosure and composition of physician networks, health plan solvency
standards and procedures dictating health plan utilization management and claim
payment standards, among other matters. In recent years, bills have been
introduced in the legislatures in New York, New Jersey and Connecticut including
some form of the so-called "Any Willing Provider" initiative which would require
HMOs to allow any provider or facility meeting their credentialing criteria to
join their network regardless of geographic need, hospital admitting privileges
and other important factors. Certain of these bills have also included
provisions relating to mandatory disclosure of medical management policies and
physician reimbursement methodologies. Numerous other health care proposals have
been introduced in the U.S. Congress and in state legislatures. These include
provisions which place limitations on premium levels, impose health plan
liability to members who do not receive appropriate care, increase minimum
capital and reserves and other financial viability requirements, prohibit or
limit capitated arrangements or provider financial incentives, mandate benefits
(including mandatory length of stay with surgery or emergency room coverage) and
an antitrust exemption to permit competing health care professionals to bargain
collectively with health plans and other entities.

       Congress is also considering significant changes to Medicare, including a
pharmacy benefit requirement and changes to payment of Medicare + Choice plans,
as well as proposals relating to health care reform, including a comprehensive
package of requirements on managed care plans called the "Patient Bill of
Rights" ("PBOR") legislation. On February 6, 2001, several federal legislators
introduced bipartisan PBOR legislation (the "Kennedy-McCain Bill") and on
February 7, 2001, President Bush issued a press release outlining his principles
for PBOR legislation (the "Bush Principles"). Although the Kennedy-McCain Bill
and the Bush Principles have significant differences, both seek to hold health
plans liable for claims regarding health care delivery and accusations of
improper denial of care, among other things. If PBOR legislation is passed, it
could expose the Company to significant litigation risk. Such litigation could
be costly to the Company and could have a significant affect on the Company's
results of operations. Although the Company could attempt to mitigate its
ultimate exposure from such costs through, among other things, increases in
premiums, there can be no assurance that the Company will be able to mitigate or
cover the costs stemming from such PBOR legislation or the other costs incurred
in connection with complying with such PBOR legislation.

    Recently enacted legislation and the proposed regulatory changes described
above, if enacted, could increase health care costs and administrative expenses,
reduce Medicare reimbursement rates and otherwise adversely affect the Company's
business, results of operations and financial condition.

COMPETITION

    HMOs and health insurance companies operate in a highly competitive
environment. The Company has numerous competitors, including for-profit and
not-for-profit HMOs, PPOs, and indemnity insurance carriers, some of which have
substantially larger enrollments than the Company. The Company competes with
independent HMOs, such as Health Insurance Plan of New York, which have
significant enrollment in the New York metropolitan area. The Company also
competes with HMOs and managed care plans sponsored by large health insurance
companies, such as CIGNA Corporation, Aetna Inc., UnitedHealth Group and Blue
Cross/Blue


                                       14
<PAGE>   15
Shield affiliated companies. These competitors have large enrollment in the
Company's service areas and, in some cases, greater financial resources than the
Company. Additional competitors, including emerging competitors in e-commerce
insurance or benefit programs, may enter the Company's markets in the future.
The Company believes that the network of providers under contract with Oxford is
an important competitive factor. However, the cost of providing benefits is in
many instances the controlling factor in obtaining and retaining employer
groups, and certain of Oxford's competitors have set premium rates at levels
below Oxford's rates for comparable products. Oxford anticipates that premium
pricing will continue to be highly competitive.

    To address rising health care costs, some large employer groups have
consolidated their health benefits programs and are offering fewer options to
their employees. Other employer groups have considered a variety of health care
options to encourage employees to use the most cost-effective form of health
care services. These options, which include traditional indemnity insurance
plans, HMOs, POS plans, and PPO plans, may be provided by third parties or may
be self-funded by the employer. The Company believes that employers will seek to
offer health plans, similar to the Company's Freedom and Liberty Plans, that
provide for "in plan" and "out-of-plan" options while encouraging members to use
the most cost-effective form of health care services through, among other
things, increased copayments, deductibles and coinsurance. Although the
Company's POS products, the Freedom Plan and Liberty Plan, offer this
alternative to employers, there is no assurance that the Company will be able to
continue to compete effectively for the business of employer groups.

EMPLOYEES

    At December 31, 2000, the Company had approximately 3,400 full-time
employees, none of whom is represented by a labor union. Effective January 7,
2001, approximately 150 full-time employees became employees of CSC under an
outsourcing agreement.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

       Certain statements contained in "Business", "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", including, but not limited to, 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 debt, future health care and administrative costs,
future premium rates and yields for commercial and Medicare business, the
employer renewal process, future growth of membership and development of new
lines of business, 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-transfer,
risk-sharing and other cost-containment agreements with health care providers
and related organizations of providers, future reinsurance coverage for
risk-transfer arrangements, future enrollment levels, future government
regulation such as, the Patient Bill of Rights legislation and HIPAA, 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 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, among other
factors, 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 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
benefit or adversely affect Oxford's results of operations in future periods.


                                       15
<PAGE>   16
       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,
risk-transfer 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, but not limited to: new
technologies and health care practices, hospital costs, changes in demographics
and trends, changes in laws or regulations, mandated benefits or practices,
selection biases, increases in unit costs paid to providers, termination of
provider arrangements, termination of, or disputes under risk-transfer or
risk-sharing arrangements, major epidemics, catastrophes, inability to establish
or maintain acceptable compensation arrangements with providers, operational and
regulatory issues which could delay, prevent or impede those arrangements, and
higher utilization of medical services, including, but not limited to, 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 the Company has reduced its administrative expenses to its
target levels, no assurance can be given that the Company will be able to
maintain such levels, especially since doing so has involved 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. The increased administrative costs of new laws or
regulations, such as the Health Insurance Portability and Accountability Act of
1996 ("HIPAA"), could adversely affect the Company's ability to maintain its
current levels of administrative expenses.

         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 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 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. Congress is
also considering significant changes to Medicare, including a pharmacy benefit
requirement and changes to payment of Medicare plans, as well as proposals
relating to health care reform, including a comprehensive package of
requirements on managed care plans called the "Patient Bill of Rights"
legislation. On February 6, 2001, several federal legislators introduced
bipartisan PBOR legislation (the "Kennedy-McCain Bill") and on February 7, 2001,
President Bush issued a press release outlining his principles for PBOR
legislation (the "Bush Principles"). Although the Kennedy-McCain Bill and the
Bush Principles have significant differences, both seek to hold health plans
liable for claims regarding health care delivery and accusations of improper
denial of care, among other items. If PBOR legislation is passed, it could
expose the Company to significant litigation risk. Such litigation could be
costly to the Company and could have a significant affect on the Company's
results of operations. Although the Company could attempt to mitigate its
ultimate exposure from such costs through, among other things, increases in
premiums, there can be no assurance that the Company will be able to mitigate or
cover the costs stemming from such PBOR legislation or the other costs incurred
in connection with complying with such PBOR legislation.


                                       16
<PAGE>   17
       Under the new HIPAA privacy rules, the Company will now be required to
(a) comply with a variety of requirements concerning their use and disclosure of
individuals' protected health information, (b) establish rigorous internal
procedures to protect health information and (c) enter into business associate
contracts with those companies to whom protected health information is
disclosed. Violations of these rules will be subject to significant penalties.
The final rules do not provide for complete federal preemption of state laws,
but rather preempt all contrary state laws unless the state law is more
stringent. HIPAA could expose the Company to additional liability for, among
other things, violations by its business associates. Although the cost of
complying with HIPAA is likely to be significant, at this time, the Company
cannot quantify the actual cost of compliance with the new HIPAA rules or
predict the ultimate impact HIPAA will have on its business and results of
operations in future periods; See "Business - Government Regulation - Federal
Regulation".


       National Committee on Quality Assurance ("NCQA") accreditation

       In September 2000, NCQA, an independent, non-profit organization
dedicated to improving managed care quality and service, upgraded the Company's
status to "commendable" for its commercial and Medicare business, which is valid
for two years. There can be no assurance that the Company will maintain its NCQA
accreditation, and the loss of this accreditation could adversely affect the
Company.

     Doing business on the Internet

       Federal and state laws and regulations directly applicable to
communications or commerce over the Internet such as HIPAA are becoming more
prevalent. For example, HCFA has prohibited the transmission of Medicare
eligibility information over the Internet unless certain encryption and other
standards are met. New laws and regulations could adversely affect, or increase
costs related to, the business of the Company on the Internet. The Company
relies on certain external vendors to provide content and services with respect
to maintaining oxfordhealth.com. Any failure of such vendors to abide by the
terms of their agreement with the Company or to comply with applicable laws and
regulations, could expose the Company to liability and could adversely affect
the Company's ability to provide services and content on the Internet.

     Matters Affecting Medicare Business

       Premiums for Oxford's Medicare programs are determined through formulas
established by HCFA for Oxford's Medicare contracts. Generally, since the
Balanced Budget Act of 1997 went into effect, annual health care premium
increases for Medicare members have not kept up with the increases in health
care cost. 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 and financial
challenges for the Company and could be adversely affected by regulatory actions
or by the failure of the Company or the risk contractor to comply with the terms
of such agreement, and failure under any such agreement could have a material
adverse effect on the Company's cost of providing benefits to Medicare members,
Medicare membership, the Company's Medicare results of operations and,
ultimately, the Company's ability to remain in Medicare programs. Oxford's
Medicare programs are subject to certain additional risks compared to commercial
programs, such as substantially higher comparative medical costs and higher
levels of utilization. There can be no assurances that the Company may not have
to substantially reduce or withdraw from its participation in the Medicare
business.

     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 satisfactorily 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 Company's recent agreement to outsource certain
informational


                                       17
<PAGE>   18
technology services will reduce technology risk or that the process of improving
existing systems, developing new 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. See "Business - Status of Information Systems".

         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 events, coupled with
proposed legislation which may provide physicians and other providers with
collective bargaining power, could have a material adverse effect on the
Company's ability to influence its medical costs and market its products and
service its membership. Cost-containment and risk-sharing arrangements entered
into by Oxford could be adversely affected by regulatory actions, contractual
disputes, or 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, (ii) by the
Connecticut Attorney General's office on similar claims, and (iii) in two
purported Connecticut class actions led by the Connecticut State Medical Society
and four individual physicians based on breach of contract, among other things.
For a discussion of these proceedings, as well as other lawsuits pending against
the Company, see "Legal Proceedings" herein. 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 and does not have a positive public perception. This publicity and
perception have 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 additional 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 approximately 80% of its Tri-State
commercial premium revenues received from New York business. In addition, the
Company's Medicare revenue represented approximately 16.8% of premiums earned
during the year 2000. As a result, changes in regulatory, market, or health care
provider conditions in any of these states, particularly New York, and changes
in the environment for the Company's Medicare business, could have a material
adverse effect on the Company's business, financial condition and results of
operations.


                                       18
<PAGE>   19
ITEM 2.  PROPERTIES

Summarized in the table below are the Company's major lease commitments for
currently occupied office space, excluding formerly occupied office space in
various cities which have been either subleased to new tenants or charged to the
Company's restructuring reserve.


<TABLE>
<CAPTION>
                                         TYPE                EARLIEST TERMINATION        CURRENT
            LOCATION                   OF SPACE                      DATE              SQUARE FEET
--------------------------------------------------------------------------------------------------

<S>                                 <C>                     <C>                        <C>
      Trumbull, CT                  Administrative          December-01                238,000
      Nashua, NH                    Administrative          June-04                    105,648
      Hooksett, NH                  Administrative          November-02                121,000
      Trumbull, CT                  Administrative          April-02                   115,000
      Milford, CT                   Administrative          February-02                 32,000
      White Plains, NY              Sales/Admin             November-05                 64,000
      Hidden River, FL              Administrative          January-04                  42,000
      Woodbridge, NJ                Administrative          March-02                    22,000
      New York, NY                  Sales/Admin             July-05                     27,000
      Melville, NY                  Sales/Admin             June-02                     27,000
      New York, NY                  Sales/Admin             May-03                      13,000
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

SECURITIES CLASS ACTION LITIGATION

    As previously reported by the Company, 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 in the United States District Courts for the Eastern
District of Arkansas, the Eastern District of New York, the Southern District of
New York and the District of Connecticut. By order dated April 29, 1998, the
Judicial Panel on Multidistrict Litigation ("JPML") transferred these actions
together with the federal shareholder derivative actions discussed below, for
coordinated or consolidated pretrial proceedings in the United States District
Court for the Southern District of New York before Judge Charles L. Brieant.
Judge Brieant consolidated the class actions for pretrial purposes under the
caption In re Oxford Health Plans, Inc. Securities Litigation, MDL-1222 (CLB).

    On October 2, 1998, the co-lead plaintiffs filed a Consolidated and Amended
Class Action Complaint ("Amended Complaint"). The Amended Complaint (which has
since been further amended by stipulation) names as defendants Oxford, Oxford
Health Plans (NY), Inc. ("Oxford NY"), KPMG LLP (which was Oxford's outside
independent auditor during 1996 and 1997) and several current or former Oxford
directors and officers. The Amended Complaint purports to be brought on behalf
of purchasers of Oxford's common stock during the period from November 6, 1996
through December 9, 1997 (the "Class Period"), purchasers of Oxford call options
or sellers of Oxford put options during the Class Period and on behalf of
persons who, during the Class Period, purchased Oxford's securities
contemporaneously with sales of Oxford's securities by one or more of the
individual defendants. The Amended Complaint: (i) alleges that defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
by making false and misleading statements and failing to disclose certain
allegedly material information regarding changes in Oxford's computer system and
the Company's membership, enrollment, revenues, medical expenses and ability to
collect on its accounts receivable, (ii) asserts claims against the individual
defendants alleging "controlling person" liability under Section 20(a) of the
Exchange Act, and (iii) alleges violations of Section 20A of the Exchange Act by
virtue of the individual defendants' sales of shares of Oxford's common stock
while the price of that common stock was allegedly artificially inflated by
allegedly false and misleading statements and omissions. The Amended Complaint
seeks unspecified damages, attorneys' and experts' fees and costs, and such
other relief as the court deems proper. On March 9, 2000, Judge Brieant issued
decisions denying the motions to dismiss previously filed on March 15, 1999 by
Oxford, the individual defendants and, separately, KPMG LLP.


                                       19
<PAGE>   20
     On February 28, 2000 and February 9, 2001, the Court issued decisions
granting plaintiffs' motion to certify a class action on behalf of purchasers of
Oxford common stock and call options, and sellers of Oxford put options, during
the Class Period and named five class representatives. The Company may appeal
these decisions. Meanwhile, the Court has approved a Case Management Plan which
provides, inter alia, that (1) the parties will attempt to complete all merits
discovery in the case by November 2, 2001, (2) summary judgment motions shall be
filed by May 20, 2002, and (3) the Court will hold a status conference after the
close of discovery to discuss the scheduling of a trial date.

     On September 22, 1999, the State Board of Administration of Florida (the
"SBAF") filed an Amended Complaint in the securities class action brought by it
individually (the "Amended SBAF Complaint"). The Amended SBAF Complaint asserts
claims that are substantially similar to those asserted in Amended Class Action
Complaint, with the addition of certain state and federal law claims. The
parties are negotiating a stipulation regarding a stay of the action that would
obviate the need for the defendants to respond to the Amended SBAF Complaint at
this time.

    The outcomes of these actions cannot be predicted at this time, although the
Company believes that it and the individual defendants have substantial defenses
to the claims asserted and intends to defend the actions vigorously.

STOCKHOLDER DERIVATIVE LITIGATION

    As previously reported by the Company, in the months following the October
27, 1997 decline in the price per share of the Company's common stock, ten
purported stockholder derivative actions were commenced on behalf of the Company
in Connecticut Superior Court (the "Connecticut derivative actions") and in the
United States District Courts for the Southern District of New York and the
District of Connecticut (the "federal derivative actions"). On April 28, 1998,
the JPML entered an order transferring all of these actions for consolidated or
coordinated pretrial proceedings, together with the securities class actions
discussed above, before Judge Brieant. A stipulation consolidating the federal
derivative actions under the caption In re Oxford Health Plans, Inc. Derivative
Litigation, MDL-1222-D, and appointing lead counsel for the federal derivative
plaintiffs, was entered and so ordered by Judge Brieant on September 26, 1998.

    On January 29, 1999, the federal derivative plaintiffs filed a second
amended derivative complaint (the "Amended Derivative Complaint"), which names
as defendants certain of Oxford's current and former directors and the Company's
former auditors KPMG LLP, together with the Company itself as a nominal
defendant. The Amended Derivative Complaint alleges that the individual
defendants breached their fiduciary obligations to the Company, mismanaged the
Company and wasted its assets in planning and implementing certain changes to
Oxford's computer system, by making misrepresentations concerning the status of
those changes to Oxford's computer system, by failing to design and implement
adequate financial controls and information systems for the Company and by
making misrepresentations concerning Oxford's membership, enrollment, revenues,
profits and medical costs in Oxford's financial statements and other public
representations. The Amended Derivative Complaint further alleges that certain
of the individual defendants breached their fiduciary obligations to the Company
by selling shares of Oxford common stock while the price of the common stock was
allegedly artificially inflated by their alleged misstatements and omissions.
The Amended Derivative Complaint seeks declaratory relief, unspecified damages,
attorneys' and experts' fees and costs and such other relief as the court deems
proper. The complaints in the Connecticut derivative actions are substantially
similar to the federal derivative actions, and are being coordinated with the
federal actions. On March 9, 2000, Judge Brieant issued a decision denying
Oxford's and the individual defendants' motion to dismiss the Amended Derivative
Complaint.

    Although the outcome of the federal and Connecticut derivative actions
cannot be predicted at this time, the Company believes that the defendants have
substantial defenses to the claims asserted in the complaints.

SECURITIES AND EXCHANGE COMMISSION

    The Company received an informal request on December 9, 1997 from the
Securities and Exchange Commission's Northeast Regional Office seeking
production of certain documents and information concerning a number of subjects,
including disclosures made in the Company's October 27, 1997 press release
announcing a


                                       20
<PAGE>   21
loss in the third quarter. Oxford has produced documents and has provided
information in response to this informal request.

    The Commission has served the Company and certain of its current and former
officers and directors with several subpoenae duces tecum requesting documents
concerning a number of subjects, including, but not limited to, the Company's
public disclosure of internal and external audits, uncollectible premium
receivables, timing of and reserves with respect to payments to vendors, doctors
and hospitals, payments and advances to medical providers, adjustments related
to terminations of group and individual members and for nonpaying group and
individual members, computer system problems, agreements with the New York State
Attorney General, employment records of former employees, and the sale of Oxford
securities by officers and directors. Oxford and certain of its current and
former officers and directors have produced and are continuing to produce
documents in response to these subpoenae. Certain of Oxford's present and former
directors, officers and employees have provided testimony to the Commission.

    Oxford intends to cooperate fully with the Commission and cannot predict the
outcome of the Commission's investigation at this time.

ERISA AND OTHER CLASS ACTIONS

A.  ERISA CLASS ACTIONS

       On September 7, 2000, the Connecticut Attorney General filed suit against
various HMOs, including Oxford Health Plans, Inc. and Oxford Health Plans (CT),
Inc. 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 "Connecticut AG action"). The suit alleges that the
named HMOs breached their disclosure obligations and fiduciary duties under
ERISA by, among other things, (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 Oxford Health Plans,
Inc., Oxford Health Plans (CT), Inc. and 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, which was brought under the caption Albert v. CIGNA Healthcare of
Connecticut, et al. (the "Albert action"), seeks the restitution of premiums
paid and/or the disgorgement of profits, in addition to injunctive relief. On
November 16, 2000, the complaint against the Company and its Connecticut
subsidiary was dismissed without prejudice to file another complaint.

       On November 30, 2000, the JPML issued a Conditional Transfer Order,
directing that both the Connecticut AG action and the Albert action be
transferred to the Southern District of Florida for consolidated pretrial
proceedings along with various other ERISA and RICO cases pending against other
HMOs. On December 15, 2000, Oxford filed its opposition to the transfer of the
Connecticut AG action. The Company also submitted a letter that stated it was no
longer a defendant in the Albert action, but reserved its rights to object to a
transfer in the event it was named in another purported ERISA class action
lawsuit.

       On December 28, 2000, the same group of plaintiffs' law firms that filed
the Albert action commenced another action in federal district court in
Connecticut against Oxford Health Plans, Inc. and Oxford Health Plans (CT), Inc.
on behalf of a putative national class consisting of all Oxford members who are
or have been enrolled in plans governed by ERISA within the past six years. The
complaint, which was brought under the caption Patel v. Oxford Health Plans of
Connecticut, Inc., is identical to the Albert complaint. It has been assigned to
Judge Goettel in New Haven. Pursuant to its obligations under the Federal Rules,
the Company has notified the JPML that it has been sued in the Patel case, and
that the new complaint involves the same subject matter as the Albert case.

B.  CT MEDICAL SOCIETY CLASS ACTIONS

     On February 14, 2001, the Connecticut State Medical Society ("CSMS"), and
four individual Oxford physicians, filed two separate but nearly identical
lawsuits against Oxford CT in Connecticut state court, on behalf of all members
of the CSMS who provided health care services pursuant to contracts with Oxford
during the period February 1995 through the present. The suit filed by the
individual physicians is styled as a class action complaint. The suits assert
claims for breach of contract, breach of the implied duty of good faith and fair
dealing, violation of the Connecticut Unfair Trade Practices Act and negligent
misrepresentation based on, among other things, Oxford's alleged (i) failure to
timely pay claims or interest; (ii) refusal to pay all or part of claims by
improperly "bundling" or "downcoding" claims, or by including unrelated claims
in "global rates"; (iii) use of inappropriate and arbitrary coverage guidelines
as the basis for denials; and (iv) failure to provide adequate staffing to
handle physician inquiries. The complaint filed by the CSMS seeks a permanent
injunction enjoining Oxford from pursuing the complained of acts and practices,
as well as attorneys fees and costs. The complaint filed by the individual
physicians seeks compensatory and punitive damages, as well as attorneys fees
and costs.

       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. In addition, several managed care organizations
have been sued in similar class action lawsuits asserting various causes of
action under

                                       21
<PAGE>   22
RICO, ERISA and state law. The potential exists for similar suits to be filed
against the Company. The financial and operational impact that such evolving
theories of recovery may have on the managed care industry generally, or Oxford
in particular, is presently unknown.

OTHER ACTIONS

A.  MAKASTCHIAN

       The Company has been the subject of a suit in New York State Supreme
Court brought by plaintiffs who by subsequent court order comprise certain
present and former members of the Company's New York Individual Freedom Plan.
The complaint primarily seeks (1) a declaration that Oxford may not
retroactively terminate any members for nonpayment and may only terminate after
a separate notice of termination upon 30 days notice and (2) monetary damages on
behalf of a subclass of all individuals previously terminated for nonpayment by
Oxford. The Court found that plaintiffs had established as a matter of law that
the old plan's contract was ambiguous and that Oxford had violated the old
contract by terminating individuals without 30 days notice. By decisions dated
March 8, 2000 and October 17, 2000, the Supreme Court denied plaintiffs' motions
to amend their complaint by expanding their existing causes of action and adding
a claim for punitive damages. These decisions have recently been appealed by the
plaintiffs. Trial on plaintiff's remaining claims is expected to occur in the
first half of 2001.

B.  FUKILMAN

    On October 26, 1998, Complete Medical Care, P.C. ("CMC") two related
entities, and Oscar Fukilman, M.D. commenced various actions in the Supreme
Court of the State of New York for New York County against Oxford and certain of
its officers which generally allege that the defendants: (i) breached certain
agreements with the plaintiffs for the delivery of health care services to
certain of Oxford's members; (ii) breached an implied covenant of good faith and
fair dealing; (iii) tortiously interfered with plaintiffs' current and
prospective contractual relations with certain physicians; and (iv) defamed the
plaintiffs. The complaints each seek at least $165 million in damages, at least
$500 million in punitive damages, unspecified interest and costs and
disbursements. The Company denies all liability and is vigorously defending
these cases. The Court has ordered arbitration of two of the cases and the
Company is also seeking to consolidate all cases into one arbitration
proceeding.

    In December 1999, the Heritage New Jersey Medical Group ("Heritage")
submitted a demand for arbitration of various disputes arising out of its August
3, 1998 agreements with Oxford, which agreements had delegated to Heritage the
responsibility for the delivery of medical services to the Company's New Jersey
Medicare membership. In July 1999, in view of the uncertainties in the
regulatory environment and other considerations, the


                                       22
<PAGE>   23
Company decided to wind down its network management agreements with Heritage.
The Heritage arbitration demand alleges that Oxford has violated its obligations
under the August 3, 1998 agreements, and demands an accounting and compensatory
damages for lost profits and administrative expenses, as well as punitive
damages and attorneys fees.

    Although the outcome of these actions cannot be predicted at this time, the
Company believes that it and the individual defendants have substantial defenses
to the claims asserted and intends to defend the actions vigorously.

STATE INSURANCE AND HEALTH DEPARTMENTS

    On August 10, 1998, the New York State Insurance Department ("NYSID")
completed its triennial examination and market conduct examination of Oxford's
New York HMO and insurance subsidiaries. In the Reports on Examination (the
"Reports") the NYSID, based on information available through July 1998,
determined that certain assets on the December 31, 1997 balance sheets of the
Company's New York subsidiaries should not be admitted for statutory reporting
purposes and NYSID actuaries recorded additional reserves totaling approximately
$81.3 million for both subsidiaries on the balance sheet as determined by the
examiners. The Company contributed $152 million to the capital of its New York
HMO and insurance subsidiaries in satisfaction of the issues raised in the
Reports relating to the subsidiaries' financial statements, and maintaining such
subsidiaries' compliance with statutory capital requirements as of June 30,
1998. The Reports also made certain recommendations relating to financial
record-keeping, settlement of intercompany accounts and compliance with certain
NYSID regulations. The Company agreed to address the recommendations in the
Reports. As previously reported, in December 1997, the Company made additions of
$164 million to the reserves of its New York subsidiaries at the direction of
the NYSID. The NYSID issued a Market Conduct Report identifying several alleged
violations of state law and NYSID regulations. On December 22, 1997, the NYSID
and Oxford entered into a Stipulation under which Oxford promised to take
certain corrective measures and to pay restitution and a $3 million fine. The
Stipulation provided that the NYSID would not impose any other fines for
Oxford's conduct up to November 1, 1997. The NYSID has continued to review
market conduct issues, including, among others, those relating to claims
processing, the level of commissions paid to brokers and the determination of
premium rates for commercial group customers. The Company agreed to take certain
other corrective actions with respect to certain of these market conduct issues,
including an independent outside review of its compliance with the Stipulation.
Ernst & Young has reviewed the Company's compliance for 1998 and 1999 and found
no significant violations; a review for 2000 is underway.

    On October 16, 2000, the NYSID also completed an examination which focused
on the findings and issues raised in its prior November 1, 1997 report. The
results of the examination indicated that Oxford had improved its business
processes and had implemented initiatives that have addressed many of the issues
raised in the previous NYSID report.

    In 1999 and 2000, the Company paid fines of $151,650 and $215,000,
respectively to the NYSID for ostensible violations of the New York Prompt Pay
law, primarily related to claims incurred prior to 1999, all of which have been
publicly announced by the NYSID as a part of increased enforcement against the
insurance industry generally.

    From time to time the Company has disagreements with the NYSID on actuarial
and underwriting methods employed in pricing its large group business as well as
other operating issues which are under review by the NYSID; the Company works
with the NYSID to resolve all of these issues as they arise and considers its
relationship with New York regulators to have normalized.

    The New Jersey Department of Health and Senior Services ("NJDHSS") and the
New Jersey Department of Banking and Insurance ("NJDBI") have completed their
1997/1998 audit, market conduct and financial examinations of the Company's New
Jersey HMO subsidiary. In early 2000, the Company accepted, without admitting
any violations, consent orders from the NJDHSS and NJDBI imposing fines of
$135,000 and $140,000, respectively, in connection with the alleged technical
violations of the New Jersey insurance law and associated regulations. In
addition, as part of the NJDBI examination, the Company agreed to collateralize
certain provider advances to assure their continued status as admitted assets.


                                       23
<PAGE>   24
    The Company is also subject to examinations from time to time with respect
to financial condition and market conduct for its HMO and insurance subsidiaries
in other states where it conducts business. The outcome of any such
examinations, if commenced, cannot be predicted at this time.

NEW YORK STATE ATTORNEY GENERAL

    As previously reported, on November 6, 1997, the New York State Attorney
General served a subpoena duces tecum on the Company requiring the production of
various documents, records and materials "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 in or from
the State of New York." Since then, Oxford has produced a substantial number of
documents in response to the subpoena, and expects to produce additional
documents. In addition, some of Oxford's present and former directors and
officers have provided testimony to the Attorney General's staff.

    The Attorney General served another subpoena duces tecum, dated July 20,
1999, on Oxford. This subpoena was served on Oxford and other New York health
care plans as part of an investigation by the Attorney General. The subpoena
seeks production of certain documents relating to Oxford's utilization review
process. Utilization review is the review undertaken by a health care plan to
determine whether a requested health care service that has been, will be or is
being provided to an Oxford member is medically necessary. Oxford has produced
documents and files in response to the subpoena.

    The Attorney General's Health Care Bureau also periodically inquires of the
Company with respect to hospital and provider payment issues and member
complaints.

    The Company intends to cooperate fully with the Attorney General's
inquiries, the outcome of which cannot be predicted at this time.


OTHER MATTERS

    The Company is also a party to various risk-transfer agreements for certain
categories of medical expense (e.g., pharmacy, physical therapy, laboratory,
etc.) and has risk arrangements with a limited number of hospitals and hospital
systems covering its Medicare members. From time to time, the Company is in
negotiation or arbitration over the reconciliations required under these
agreements and receives requests to renew or terminate such agreements. One such
negotiation involves a dispute with North Shore related to a Medicare risk
contract pursuant to which the Company has transferred to North Shore the
medical cost risk for approximately 22,000 Medicare members in certain New York
counties. In connection with this negotiation, North Shore has sent a notice of
mediation to the Company. North Shore has made various claims alleging breach by
the Company of the agreement and claims the right to rescind the agreement.
North Shore and the Company are in discussions with regard to resolving this
matter. The Company believes it has substantial defenses to the claims asserted
and will vigorously defend its interest in the mediation and subsequent
arbitration of this matter.

    Oxford, like HMOs and health insurers generally, excludes certain health
care services from coverage under its POS, HMO, PPO and other plans. In the
ordinary course of business, the Company is subject to legal claims asserted by
its members for damages arising from decisions to restrict reimbursement for
certain treatments. The loss of even one such claim, if it were to result in a
significant punitive damage award, could have a material adverse effect on the
Company's financial condition or results of operations. The risk of potential
liability under punitive damages theories may also significantly increase the
difficulty of obtaining reasonable settlements of coverage claims.

   In the ordinary course of its business, the Company also is subject to claims
and legal actions by members in connection with benefit coverage determinations
and alleged acts by network providers and by health care providers and others.


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

    No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2000.


                                       24
<PAGE>   25
                                     PART II

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

    The Company's common stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "OXHP". The following table sets forth
the range of high and low sale prices for the common stock for the periods
indicated as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                      2000                        1999
                                                           -----------------------        --------------------
                                                            HIGH            LOW              HIGH          LOW
                                                           -----          ------            ------        ------
<S>                                                        <C>            <C>               <C>          <C>
First Quarter...........................................   $15.97         $12.63            $20.02       $15.00
Second Quarter..........................................    24.25          13.88             21.25        13.88
Third Quarter ..........................................    33.06          21.69             17.88        12.50
Fourth Quarter..........................................    42.25          27.06             17.25         9.94
</TABLE>

    As of February 12, 2001, there were 1,117 shareholders of record of the
Company's common stock.

    The Company has not paid any cash dividends on its common stock since its
formation and does not intend to pay any cash dividends on common stock in the
foreseeable future. Additionally, the Company's ability to declare and pay
dividends to its shareholders may be dependent on its ability to obtain cash
distributions from its operating subsidiaries. The Company's ability to pay
dividends is also restricted by insurance and health regulations applicable to
its subsidiaries. See "Business - Government Regulation".

    For a discussion of the repurchase of certain of the Series D and Series E
Preferred Stock and warrants coupled with the exchange of all remaining
Preferred Stock and warrants for common stock of the Company, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".


                                       25
<PAGE>   26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    Revenues and Earnings, Financial Position and Per Common Share information
set forth below for each year in the five-year period ended December 31, 2000
have been derived from the consolidated financial statements of the Company. The
information below is qualified by reference to and should be read in conjunction
with the audited consolidated financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.


<TABLE>
<CAPTION>
(In thousands, except per share amounts and
operating statistics)                                   2000            1999             1998             1997            1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>              <C>              <C>              <C>
REVENUES AND EARNINGS:
  Operating revenues                               $  4,038,787    $  4,115,134     $  4,630,166     $  4,179,816     $  3,032,569
  Investment and other income, net                       73,015          82,632           89,245           71,448           42,620
  Net earnings (loss) before extraordinary items        285,419         319,940         (596,792)        (291,288)          99,623
  Net earnings (loss)                                   265,094         319,940         (596,792)        (291,288)          99,623
  Net earnings (loss) for common shares (1)             191,303         274,440         (624,460)        (291,288)          99,623

FINANCIAL POSITION:
  Working capital                                       298,175         442,693          209,443           85,790          451,957
  Total assets                                        1,444,610       1,686,888        1,637,750        1,390,101        1,356,397
  Long-term debt                                         28,000         350,000          350,000               --               --
  Redeemable preferred stock                                 --         344,316          298,816               --               --
  Common shareholders' equity (deficit)                 459,222          98,755         (181,105)         349,216          598,170

NET EARNINGS (LOSS) PER COMMON SHARE BEFORE
EXTRAORDINARY ITEMS(2):
  Basic                                            $       2.50    $       3.38     $      (7.79)    $      (3.70)    $       1.34
  Diluted                                          $       2.24    $       3.26     $      (7.79)    $      (3.70)    $       1.25
  NET EARNINGS (LOSS) PER COMMON
    SHARE (2):
  Basic                                            $       2.26    $       3.38     $      (7.79)    $      (3.70)    $       1.34
  Diluted                                          $       2.02    $       3.26     $      (7.79)    $      (3.70)    $       1.25
  Weighted-average number of
    common shares outstanding:
       Basic                                             84,728          81,273           80,120           78,635           74,285
       Diluted                                           94,573          84,231           80,120           78,635           79,662

OPERATING STATISTICS:
  Enrollment                                          1,491,400       1,593,700        1,881,400        2,008,100        1,535,500
  Fully insured member months                        17,345,500      19,326,700       23,081,900       21,584,700       15,604,400
  Self-funded member months                             708,400         625,600          765,500          602,900          474,200
  Medical loss ratio (3)                                   77.5%           82.1%            94.4%            94.0%            80.1%
  Administrative loss ratio (4)                            11.8%           14.6%            16.7%            17.6%            15.7%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Net earnings for common shares in 2000 includes $41,085 of costs associated
     with the redemption of preferred stock.

(2)  Per share amounts and weighted-average number of common share amounts have
     been restated to reflect the two-for-one stock split in 1996.

(3)  Defined as health care services expense as a percentage of premiums earned.

(4)  Defined as marketing, general and administrative expense as a percentage of
     operating revenues.


                                       26
<PAGE>   27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         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").
Revenues also include reimbursements under government contracts relating to its
Medicare+Choice ("Medicare") programs (and, prior to 1999, its Medicaid
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. 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.

    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 ("IBNR")
or paid claims. The Company estimates IBNR expense based on a number of factors,
including prior claims experience. The ultimate payment of unpaid claims
attributable to any period may be more or less than the amount of IBNR reported.
The Company's results for the year ended December 31, 1998 were adversely
affected by additions to the Company's reserves for IBNR in the second and
fourth quarters. See "Liquidity and Capital Resources".

    Results for 2000 were adversely affected by charges related to
recapitalization transactions. An extraordinary charge of $20.3 million, net of
income tax benefits of $13.9 million, was recorded in connection with the
prepayment of the Term Loan and the repurchase or tender of its $200 million
Senior Notes. The extraordinary charges include premiums paid, transaction costs
and the write-off of unamortized original issuance debt costs. In addition, the
Company completed an exchange and repurchase agreement for all of its
outstanding Preferred Stock and incurred costs of approximately $41.1 million
related to the write-off of unamortized Preferred Stock discount and costs from
the original issuance in 1998 and related transaction fees. The Company's
results for 1999 and 1998 were adversely affected by significant restructuring
charges, and results for 1998 were adversely affected by write-downs of
strategic investments. Additionally, 1999 includes a charge of $24 million for
the purchase of insurance policies for litigation matters. Net income for 1999
was favorably affected by the reversal of $225 million of deferred tax valuation
allowances.

RESTRUCTURING CHARGES AND WRITE-DOWNS OF STRATEGIC INVESTMENTS

    During the third quarter of 1999, the Company recorded pretax restructuring
charges totaling $19.9 million ($11.3 million after income tax benefits, or
$0.13 per diluted share) in connection with additional steps taken under the
Company's plan to improve operations and restore the Company's profitability
(the "Turnaround Plan"). These charges included estimated costs related to work
force reductions; additional consolidation of the Company's office facilities
inclusive of the net write-off of fixed assets, consisting primarily of
leasehold improvements; write-off of certain computer equipment; and leases for
equipment no longer used in operations. These charges were partially offset by a
pretax gain of $2.5 million related to the disposal of the Company's minority
investment in Ralin Medical, Inc., which was written down in value as part of
the Company's 1998 restructuring charge.

    During the first half of 1998, the Company recorded restructuring charges
totaling $123.5 million ($114.8 million after income tax benefits, or $1.43 per
share). These charges resulted from the Company's actions to better align its
organization and cost structure as part of the Company's Turnaround Plan. These
charges included estimated costs related to the disposition or closure of
noncore businesses; the write-down of certain property and equipment; severance
and related costs; and operations consolidation, including long-term lease
commitments. The ending reserves for these charges were generally classified in
the Company's balance sheet as accounts payable and accrued expenses with the
exception of property and equipment, which were written down to their estimated
net realizable values.


                                       27
<PAGE>   28
    The tables below present the activity for the restructuring charge reserves
established in 1999 and 1998 as part of the Turnaround Plan.


<TABLE>
<CAPTION>
                                           Provisions     Write down of
                                          for loss on     property and      Severance and       Costs of
                                            noncore        equipment        related costs     consolidating
                                           businesses                                           operations          Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>               <C>               <C>                  <C>
Restructuring charges                       $ 55,700         $  29,272         $   24,800        $  13,728         $ 123,500
Cash used                                    (9,827)                --            (4,246)            (548)          (14,621)
Noncash activity                            (18,725)          (28,267)           (11,200)               --          (58,192)
Changes in estimate                         (13,343)           (1,005)                 --            4,505           (9,843)
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                  13,805                --              9,354           17,685            40,844
Cash received (used)                           4,343                --           (10,380)         (14,272)          (20,309)
Noncash activity                            (14,493)                --                 --               --          (14,493)
Restructuring charges                             --                --              8,750            3,003            11,753
Changes in estimate                          (1,590)                --                 --            1,590                --
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                   2,065                --              7,724            8,006            17,795
Cash used                                      (219)                --            (2,133)          (3,667)           (6,019)
Noncash activity                                (17)                --                 --               --              (17)
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                $  1,829            $   --          $   5,591        $   4,339         $  11,759
============================================================================================================================
</TABLE>



    The Company believes that the remaining restructuring reserves as of
December 31, 2000 are adequate and that no revisions of estimates are necessary
at this time.

    Provisions for loss on noncore business

    As part of its Turnaround Plan, the Company decided to withdraw from noncore
markets by selling or closing its HMO and insurance businesses in Pennsylvania,
Illinois, Florida and New Hampshire. Total premium revenue for these businesses
in 1998 was approximately $170.4 million, with operating losses totaling
approximately $37 million. In addition, the Company decided to close its
specialty management initiatives and to sell or close certain other health care
services operations and investments in noncore businesses. Restructuring
reserves were established relating to estimated losses associated with premium
deficiencies in the HMO and insurance subsidiaries to be sold or closed, the net
book value of noncore investments was reduced to their estimated recoverable
value, and accruals were recorded for incremental disposition and closing costs
associated with the Turnaround Plan. The Company substantially completed the
disposition of all of the property and equipment in 1999. In addition,
approximately 250 employees in the noncore businesses were terminated between
June 30, 1998 and December 31, 1998.

    As of December 31, 2000, the ending reserve of $1.8 million represents a
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.

    Severance and related costs

    The Company's Turnaround Plan contemplated significant changes in the
Company's senior management and, in connection therewith, fifteen members of
senior management were replaced and certain members of the former management
team were granted severance arrangements. As a result, the Company recorded
restructuring charges related to severance costs of $24.8 million in 1998. In
the third quarter of 1999, the Company recorded an additional $8.8 million for
severance and related costs as a result of an additional reduction in force in
which approximately 650 employees were terminated. The reduction in the reserve
for severance and related costs in 2000 reflects contractual payments of
approximately $2.1 million to former employees of the Company in accordance with
their respective severance agreements. The December 31, 2000 balance represents
contracted amounts payable through 2002 related to individuals who are no longer
employed by the Company at year-end.


                                       28
<PAGE>   29
    Costs of consolidating operations

    During 1998, the costs of consolidating operations reserve was established
for $13.7 million of estimated costs associated with future rental obligations
(net of estimated sublease revenues), commissions, legal costs, penalties and
other expenses relating to disposition of excess space in various locations. The
Company recorded an additional restructuring charge of approximately $4.5
million in the fourth quarter of 1998 as a change in estimate because the
Company's experience in negotiating subleases and lease cancellations through
the fourth quarter indicated that costs would exceed previous estimates.

    During the third quarter of 1999, the Company recorded an increase of $3
million to this reserve for the net costs associated with relocating its
corporate headquarters and the cessation of operations at its Ireland facility.
Additionally, as a result of revisions in the estimates related to the 1998
reserves, $1.6 million was added to the reserves in the fourth quarter of 1999.
The Company's related lease obligations for these properties extend to July
2005.

    The remaining costs of operations consolidations reserve is comprised of the
following estimated costs associated with the disposition of leased space no
longer used in operations:

<TABLE>
<CAPTION>
(In millions)                                         2000                   1999                 1998
-------------------------------------------------------------------------------------------------------
<S>                                                <C>                     <C>                  <C>
Gross future minimum rentals                       $  18.0                 $ 16.6               $ 26.1
Sublease income                                     (14.3)                 (12.9)               (14.0)
Lease termination penalties                              -                    3.4                  2.5
Other costs                                            0.6                    0.9                  3.1
-------------------------------------------------------------------------------------------------------
  Total operations consolidation reserve            $  4.3                 $  8.0               $ 17.7
</TABLE>


    Write downs of strategic investments

    During the second quarter of 1998, the Company sold 540,000 shares of common
stock of FPA Medical Management, Inc. ("FPAM") and recognized a loss of $8.1
million. In July 1998, FPAM filed for protection under Chapter 11 of the U.S.
Bankruptcy Code and the market value per share of its common stock fell below
one dollar. The Company wrote down its remaining investment in FPAM to nominal
value and recognized a loss in the second quarter of 1998 of $30.2 million. The
total 1998 recognized loss and write down of $38.3 million, or $.49 per share,
has been recognized as write downs of strategic investments in the accompanying
1998 financial statements.

    Write down of property and equipment

    During the third quarter of 1999, the Company recorded an additional
restructuring charge of $10.7 million related to costs associated with the
continued consolidation of the Company's office facilities. The majority of
these costs were associated with the relocation of its corporate headquarters
and the cessation of operations at its Ireland facility. The charges were
comprised of the net write-off of $6.4 million in fixed assets (primarily
leasehold improvements) and $4.3 million for the write-off of computer equipment
no longer used in operations.

    During 1998, in connection with the Company's attempts to reduce
administrative costs under the Turnaround Plan, the Company decided to
consolidate operations and reduce its occupied square footage from approximately
2 million square feet under lease to approximately 1.2 million square feet. The
Company has attempted to dispose of property and equipment as it vacated the
facilities. The 1998 estimate for write down of property and equipment included
provisions for the estimated losses related to vacating certain facilities in
connection with the Company's Turnaround Plan. The 1998 charge included an
estimated provision for loss related to leasehold improvements ($12.5 million),
office furniture ($11.8 million), computers and office equipment ($4 million)
and software ($1 million). In determining the estimated fair values, the Company
reviewed detailed asset listings for each location to be vacated. Based on the
asset classification, acquisition date and anticipated net proceeds, if any,
upon disposition, as determined by the Company, the assets were written down to
their estimated fair value. The fair values were determined based on the best
information available in the circumstances, including prior experience in
disposing of similar assets and discussions with potential purchasers of the
assets. The Company completed the disposition or sale of these assets during
1999.


                                       29
<PAGE>   30
Additionally, the Company anticipated and experienced a reduction in workforce
     of over 1,000 employees as a result of this consolidation and its
     administrative expense reduction plan.

    As a consequence of the charges described in the previous paragraphs,
comparisons of operating results for 1999 and 1998 may not be meaningful.

                                    * * * * *

    The Company's results of operations are dependent, 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,
risk-transfer and risk-sharing and payment arrangements with providers) while
providing members with coverage for the health care benefits provided under
their contracts. However, the Company's ability to contain such costs may be
adversely affected by various factors, including, but not limited to: new
technologies and health care practices, hospital costs, changes in demographics
and trends, changes in laws and regulations, mandated benefits or practices,
selection biases, increases in unit costs paid to providers, termination of
provider arrangements, termination of, or disputes under risk-transfer or
risk-sharing arrangements, major epidemics, catastrophes, inability to establish
or maintain acceptable compensation agreements with providers, higher
utilization of medical services, including, without limitation, higher
out-of-network utilization under point-of-service plans, operational and
regulatory issues and numerous other factors may affect the Company's ability to
control such costs. The Company attempts to use its medical cost-containment
capabilities, such as claim auditing systems, with a view to reducing the rate
of growth in health care service expense.


                                       30
<PAGE>   31
RESULTS OF OPERATIONS

    Year Ended December 31, 2000 Compared with Year Ended December 31, 1999

    Total revenues for the year ended December 31, 2000 were $4.1 billion, down
2% from $4.2 billion in the prior year. Net income attributable to common stock
in 2000 totaled $191.3 million, or $2.02 per diluted common share (including the
effect of recapitalization charges in 2000) compared with $274.4 million, or
$3.26 per diluted common share in 1999, which included a $225 million tax
benefit. During 2000, the Company recorded an extraordinary charge of $20.3
million, net of income tax benefits of $13.9 million, in connection with the
prepayment of the Term Loan and the repurchase or tender of its $200 million
Senior Notes. The extraordinary charges include premiums paid, transaction costs
and the write-off of unamortized original issuance debt costs. In addition, the
Company completed an exchange agreement for all of its outstanding Preferred
Stock and incurred costs of approximately $41.1 million related to the write-off
of unamortized preferred stock discount and costs from the original issuance in
1998 and related transaction fees. Results of operations in 1999 were adversely
affected by net restructuring charges of $19.9 million related to additional
steps taken in the Company's Turnaround Plan and a charge of $24 million for
litigation insurance coverage. See "Liquidity and Capital Resources" and
"Overview".

    The following tables show plan revenues earned and membership by product:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                               2000             1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
REVENUES:
    Freedom, Liberty and Other
    Plans                                                                         $2,839,999        $2,848,931
    HMOs                                                                             505,946           500,888
--------------------------------------------------------------------------------------------------------------
      Commercial                                                                   3,345,945         3,349,819
--------------------------------------------------------------------------------------------------------------
    Medicare                                                                         677,452           737,754
    Medicaid                                                                           -                11,983
--------------------------------------------------------------------------------------------------------------
      Government programs                                                            677,452           749,737
--------------------------------------------------------------------------------------------------------------
    Total premium revenues                                                         4,023,397         4,099,556
    Third-party administration, net                                                   15,390            15,578
    Investment and other income                                                       73,015            82,632
--------------------------------------------------------------------------------------------------------------
    Total revenues                                                                $4,111,802        $4,197,766
==============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                      As of December 31,
                                                                                     2000             1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>
MEMBERSHIP:
    Freedom, Liberty and Other
    Plans                                                                          1,115,400         1,210,500
    HMOs                                                                             221,600           235,400
--------------------------------------------------------------------------------------------------------------
    Commercial                                                                     1,337,000         1,445,900
    Medicare                                                                          92,000            97,700
--------------------------------------------------------------------------------------------------------------
    Total fully insured                                                            1,429,000         1,543,600
    Third-party administration                                                        62,400            50,100
--------------------------------------------------------------------------------------------------------------
      Total membership                                                             1,491,400         1,593,700
==============================================================================================================
</TABLE>






    Total commercial premiums earned for the year ended December 31, 2000 were
basically unchanged at $3.3 billion compared with the prior year. A 9.8%
decrease in member months in the Company's commercial health care programs,
primarily due to a 10.3% member month decrease in the Freedom Plan, was offset
by average premium yield increases in commercial programs of 10.7% when compared
with 1999. The Company experienced attrition of commercial members in its core
commercial markets beginning in 1999 through the third quarter of 2000,
adversely affecting revenue. The majority of the attrition in commercial members
was concentrated in the small group market, where the Company's switch to 4-tier
pricing contributed to the decline in membership. Although commercial membership
declined 7.5% year over year, overall commercial membership increased from the
third to fourth quarter of 2000.


                                       31
<PAGE>   32
    Premiums earned from the Company's Medicare programs decreased 8.2% to
$677.5 million in 2000 compared with $737.8 million in 1999. The overall
decrease was attributable to a 16.9% decrease in member months of Medicare
programs, due to the withdrawal from Suffolk County, New York in January 2000,
partially offset by an 8.7% increase in premium yields. The Company expects its
Medicare membership to be lower in 2001 as the result of withdrawals from
Medicare in certain counties in New Jersey. Reimbursement levels for the
Company's 2001 Medicare business are expected to be approximately five percent
higher than 2000 (net of the applicable HCFA user fee), reflecting minimum HCFA
mandated increases as well as a change in the Company's county-specific mix of
business. The Company believes that future Medicare premiums may not keep up
with the cost of health care increases. Given current public policy and the fact
that Medicare premiums are not scheduled to keep up with the cost of health
care, it is possible that the Company may decrease its Medicare membership by,
among other things, reducing benefits and exiting additional counties. See
"Business - Government Regulations - Federal Regulation".

    Net investment and other income for the year ended December 31, 2000
decreased 11.6% to $73 million from $82.6 million in the prior year. Net
investment income increased $15.3 million or 24.7% to $77.4 million in 2000
compared with $62.1 million in 1999. The improvement is due primarily to an
increase in interest income due to higher investment yields and invested
balances and a $5 million increase in capital gains realized during the year.
Included in other income (expense) for the year ended December 31, 2000 are
losses on the sale of fixed assets of approximately $5.4 million, investment
valuation losses of approximately $1.5 million and gains on asset disposals of
$1.6 million. In 1999, other income includes a $13.5 million gain on the sale of
the Company's New York Medicaid business and a $7 million gain on the sale of
the business and certain assets of the Company's wholly-owned mail order
pharmacy subsidiary, Direct Script, Inc. See "Liquidity and Capital Resources".

    Health care service expense stated as a percentage of premium revenues (the
"medical loss ratio") was 77.5% for 2000 compared with 82.1% for 1999. Overall
per member per month revenue in 2000 increased 9.4% to $231.96 from $212.12 in
1999 due primarily to a 10.7% increase in premium yields for the Company's
commercial products and lesser increases for the Company's Medicare programs.
Overall per member per month health care services expenses increased 3.2% to
$179.67 in 2000 from $174.13 in 1999. For the year ended December 31, 2000,
health care services expense benefited from favorable development of prior
period estimates of medical costs of approximately $47.7 million, claim
recoveries of approximately $13.2 million and additional New York Stabilization
Pool recoveries applicable to 1997 and 1998 of approximately $25.1 million.
Excluding these items, the medical loss ratio was 79.6% for 2000. Health care
services expense benefited from initiatives to improve health care utilization
and reduce costs as well as a change in membership mix whereby government
program membership was reduced. Health care services expense in 1999 included
the favorable development of prior period estimates of medical costs and claim
recoveries of approximately $28.6 million. Excluding favorable development and
claims recoveries in 1999, the 1999 medical loss ratio was 82.8%.

    In 2000 and 1999, the Company expensed a total of $63 million and $73.9
million, respectively, for graduate medical education and a total of $38.9
million and $41.9 million, respectively, for hospital bad debt and charity care.
See "Liquidity and Capital Resources".

    Marketing, general and administrative expenses decreased $122.7 million or
20.5% to $476.4 million for 2000 compared with $599.2 million for 1999.
Marketing, general and administrative expenses as a percent of operating revenue
were 11.8% in 2000 compared with 14.6% in 1999. Significant expense reductions
in 2000 compared to 1999 include $44.9 million in payroll and employee related
expenses, $20.3 million in occupancy and depreciation costs, $15.1 million in
operating costs (primarily equipment rental and maintenance, telephone, postage
expense and other services), $8.7 million in marketing and outside services and
$24 million in other general and administrative costs, representing a charge in
1999 for the purchase of insurance policies for litigation matters. Included in
marketing, general and administrative expenses for 2000 are severance charges of
approximately $7.5 million. Although the Company experienced lower levels of
administrative costs in 2000 as compared with 1999, such costs in future periods
may also be adversely affected by costs associated with responding to regulatory
inquiries, investigations and defending pending securities class actions,
shareholder derivative and other litigation, including fees and disbursements of
counsel and other experts to the extent such costs are not reimbursed under
existing policies of insurance. See "Legal Proceedings".

    The Company incurred interest and other financing charges of $29.4 million
and $38.3 million in 2000 and 1999, respectively, related to bank debt. Interest
on bank debt decreased during 2000 due to the repayment in


                                       32
<PAGE>   33
full of the Term Loan during the second quarter of 2000. During December 2000,
the Company completed a capital restructuring whereby all outstanding Senior
Notes were repurchased or tendered and replaced with a $175 million senior
secured term loan and a $75 million revolving credit facility. See "Liquidity
and Capital Resources - Financing". Interest expense on capital leases
aggregated $0.9 million in 2000 and $2 million in 1999. Interest expense on
delayed claims totaled $4 million in 2000 compared with $9.2 million in 1999,
reflecting a more timely payment of claims and lower levels of older claims
outstanding.

    During the second quarter of 1998, the Company incurred a net loss of $507.6
million. At that time, the Company evaluated the deferred tax assets arising
from the net loss and established a valuation allowance pending the results of
its Turnaround Plan. During 1998, the Company performed detailed analyses to
assess the realizability of the Company's deferred tax assets. These analyses
included an evaluation of the results of operations for 1998 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. Based on
these analyses, management concluded that it was not more likely than not that
all of its deferred tax assets would be fully realized. In that regard, the
Company established a valuation allowance of $282.6 million as of December 31,
1998.

    In light of the Company's progress during 1999 and 2000 in its Turnaround
Plan, estimates of future earnings and the expected timing of the reversal of
other net tax deductible temporary differences, management concluded that a
valuation allowance was no longer necessary for its federal net operating loss
carryforwards and certain other temporary differences. The income tax expense
(benefit) recorded for the years ended December 31, 2000 and 1999 includes the
reversal of $10 million and $225 million, respectively, of deferred tax
valuation allowances. The Company adjusted its net deferred tax assets during
2000 to reflect anticipated tax rates relating to the periods when the net
deferred tax assets are expected to reverse. The impact was to increase the
current year income tax expense by approximately $11.8 million. The remaining
valuation allowance at December 31, 2000 of $24.1 million relates primarily to
capital loss carryforwards and certain state net operating loss carryforwards.
Management believes that the Company will obtain the full benefit of the net
deferred tax assets recorded at December 31, 2000.

    As of December 31, 2000, the Company has federal net operating loss
carryforwards for tax purposes of approximately $202 million, which, if unused,
will begin to expire in 2012.


                                       33
<PAGE>   34
    Year Ended December 31, 1999 Compared with Year Ended December 31, 1998

    Total revenues for the year ended December 31, 1999 were $4.2 billion, down
11.1% from $4.7 billion in the prior year. Net income attributable to common
stock in 1999 totaled $274.4 million, or $3.26 per diluted share, compared to a
net loss of $624.4 million, or $7.79 per share, in 1998. Results of operations
in 1999 were adversely affected by net restructuring charges of $19.9 million
related to additional steps taken in the Company's Turnaround Plan and a charge
of $24 million for litigation insurance coverage. Net income for 1999 was
favorably affected by the reversal of $225 million of deferred tax valuation
allowances. Results of operations in 1998 were adversely affected by
significantly higher medical costs in the Company's commercial group business,
Medicare, Medicaid and New York Individual Plans. Additionally, 1998 included
approximately $113.7 million of restructuring charges, a $31.8 million premium
deficiency reserve for losses on government contracts and $38.3 million of
write-downs of strategic investments. See "Liquidity and Capital Resources" and
"Overview".

    The following tables show plan revenues earned and membership by product:





<TABLE>
<CAPTION>
(Dollars in thousands)                                                               1999             1998
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
REVENUES:
    Freedom, Liberty and Other
    Plans                                                                          $2,848,931       $2,813,712
    HMOs                                                                              500,888          542,835
--------------------------------------------------------------------------------------------------------------
      Commercial                                                                    3,349,819        3,356,547
--------------------------------------------------------------------------------------------------------------
    Medicare                                                                          737,754        1,010,831
    Medicaid                                                                           11,983          244,950
--------------------------------------------------------------------------------------------------------------
      Government programs                                                             749,737        1,255,781
--------------------------------------------------------------------------------------------------------------
    Total premium revenues                                                          4,099,556        4,612,328
    Third-party administration, net                                                    15,578           17,838
    Investment and other income                                                        82,632           89,245
--------------------------------------------------------------------------------------------------------------
    Total revenues                                                                 $4,197,766       $4,719,411
==============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                       As of December 31,
                                                                                   ---------------------------
                                                                                     1999             1998
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
MEMBERSHIP:
    Freedom, Liberty and Other
    Plans                                                                           1,210,500        1,318,100
    HMOs                                                                              235,400          260,700
--------------------------------------------------------------------------------------------------------------
      Commercial                                                                    1,445,900        1,578,800
--------------------------------------------------------------------------------------------------------------
    Medicare                                                                           97,700          148,600
    Medicaid                                                                            -               97,800
--------------------------------------------------------------------------------------------------------------
      Government programs                                                              97,700          246,400
--------------------------------------------------------------------------------------------------------------
    Total fully insured                                                             1,543,600        1,825,200
    Third-party administration                                                         50,100           56,200
--------------------------------------------------------------------------------------------------------------
      Total membership                                                              1,593,700        1,881,400
==============================================================================================================
</TABLE>

    Total commercial premiums earned for the year ended December 31, 1999
decreased 0.2% to $3.3 billion compared with $3.4 billion in the prior year.
This decrease is primarily attributable to a 7.9% decrease in member months in
the Company's commercial health care programs, primarily due to a 7.2% member
months decrease in the Freedom Plan. Average premium yields of commercial
programs were 8.4% higher in 1999, when compared with 1998. In response to
higher medical costs incurred in 1998 in the Company's core commercial business,
the Company increased its premium rates based on estimates of future medical
costs. The Company's 1999 commercial revenue as compared to 1998 was adversely
affected by the Company's disposition or withdrawal from noncore commercial
markets in Pennsylvania, Illinois, Florida and New Hampshire. In addition, the
Company experienced attrition of commercial members in its core commercial
markets in 1999. The majority of the attrition in commercial members was due to
the Company's continued


                                       34
<PAGE>   35
efforts to rationalize its product lines and not renew groups or products where
underwriting margins were unacceptable.

    Premiums earned from government programs decreased 40.3% to $0.7 billion in
1999 compared with $1.26 billion in 1998. The overall decrease was attributable
to the complete withdrawal from the Company's New York and Pennsylvania Medicaid
markets in January 1999 and a 34.7% decrease in member months of Medicare
programs.

    Net investment and other income for the year ended December 31, 1999
decreased 7.4% to $82.6 million from $89.2 million in the prior year. Net
investment income decreased $17.7 million or 22.2% to $62.1 million in 1999
compared with $79.8 million in 1998. The decline is due primarily to a $22.8
million decline in capital gains realized during the year, partially offset by
higher average invested balances. In 1999, other income includes a $13.5 million
gain on the sale of the Company's New York Medicaid business and a $7 million
gain on the sale of the business and certain assets of the Company's
wholly-owned mail order pharmacy subsidiary, Direct Script, Inc. In 1998, other
income includes $5.1 million related to the sale of the Company's New Jersey
Medicaid business. See "Liquidity and Capital Resources".

    Health care service expense stated as a percentage of premium revenues (the
"medical loss ratio") was 82.1% for 1999 compared with 94.4% for 1998. Overall
per member per month revenue in 1999 increased 6.2% to $212.12 from $199.82 in
1998 due primarily to a 9.1% increase in premium yields for the Company's
Freedom and Liberty Plans and lesser increases for the Company's Medicare
programs. Overall per member per month health care services expenses decreased
7.7% to $174.10 in 1999 from $188.61 in 1998. Health care service expenses
benefited from initiatives to improve health care utilization and reduce costs
as well as a change in membership mix whereby government program membership was
reduced. Health care service expense in 1999 included the favorable development
of prior period estimates of medical costs of approximately $28.7 million in
1999. Excluding this favorable development, the medical loss ratio was 82.8% for
1999.

    In 1999 and 1998, the Company expensed a total of $73.9 million and $76.4
million, respectively, for graduate medical education and a total of $41.9
million and $54.8 million, respectively, for hospital bad debt and charity care.
Health care services expense in 1998 included a provision of $25 million related
to valuation reserves established in respect of provider advances. See
"Liquidity and Capital Resources".

    Marketing, general and administrative expenses decreased $172.8 million or
22.4% to $599.2 million for 1999 compared with $772.0 million for 1998.
Marketing, general and administrative expenses as a percent of operating revenue
were 14.6% in 1999 compared with 16.7% in 1998. Significant expense reductions
in 1999 compared to 1998 include $66.5 million in payroll and employee related
expenses, $24.7 million in occupancy and depreciation costs, $22.2 million in
operating costs (primarily telephone and postage expenses) and $18.3 million in
marketing and outside services. Substantially all of these cost reductions were
a result of the Company's Turnaround Plan. Marketing, general and administrative
expenses in 1998 included $35.2 million related to provisions for uncollectible
notes and accounts receivable as a result of increases in termination of
nonpaying commercial members and groups, the exiting of noncore markets and the
exiting and restructuring of Medicaid and Medicare programs, which made it more
difficult for the Company to collect amounts due on notes and accounts
receivable.

    The Company incurred interest and other financing charges of $38.3 million
and $41.6 million in 1999 and 1998, respectively, related to debt issued in
1998. Interest expense on capital leases entered into during 1998 aggregated $2
million in 1999 and $1.4 million in 1998. Interest expense on delayed claims
totaled $9.2 million in 1999 compared to $14.1 million in 1998. Interest
payments were made in accordance with the Company's interest payment policy and
applicable law.

    During the second quarter of 1998, the Company incurred a net loss of $507.6
million. At that time, the Company evaluated the deferred tax assets arising
from the net loss and established a valuation allowance pending the results of
its Turnaround Plan. During 1998, the Company performed detailed analyses to
assess the realizability of the Company's deferred tax assets. These analyses
included an evaluation of the results of operations for 1998 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. Based on
these analyses, management concluded that it was not more likely than not that
all of its deferred tax assets would be fully


                                       35
<PAGE>   36
realized. In that regard, the Company established a valuation allowance of
$282.6 million as of December 31, 1998.

    In light of the Company's progress during 1999 in its Turnaround Plan,
estimates of future earnings and the expected timing of the reversal of other
net tax deductible temporary differences, management concluded that a valuation
allowance was no longer necessary for its federal net operating loss
carryforwards and certain other temporary differences. Management believes that
the Company will obtain the full benefit of the net deferred tax assets recorded
at December 31, 1999. The income tax benefit recorded for 1999 includes the
reversal of $225 million of deferred tax valuation allowances. The remaining
valuation allowance at December 31, 1999 of $42.5 million relates primarily to
capital loss carryforwards and state net operating loss carryforwards.

INFLATION

    Although the rate of inflation has remained relatively stable in recent
years, health care costs have generally been rising at a significantly higher
rate than the consumer price index. Through 1998, the Company experienced
significant increases in medical costs in its commercial, Medicare and New York
Individual Plans. The Company employs various means to reduce the negative
effects of inflation. The Company has increased overall commercial premium rates
when practicable in order to attempt to maintain margins. The Company's
cost-control measures and risk-sharing and cost-containment arrangements with
various health care providers as well as its withdrawal from participation in
state Medicaid programs may mitigate the effects of inflation on its operations.
There is no assurance that the Company's efforts to reduce the impact of
inflation will be successful or that the Company will be able to increase
premiums to offset cost increases associated with providing health care.

LIQUIDITY AND CAPITAL RESOURCES

    Cash provided by operations was $404.7 million in 2000 compared with $35.5
million in 1999. The improvement is primarily attributable to reductions in
deferred tax assets due to the utilization of tax loss carryforwards and the
stabilization of claims inventory aging.

    Cash used for capital expenditures totaled $12.8 million during 2000. This
amount was used primarily for computer equipment and software. The Company
currently anticipates that capital expenditures in 2001 will be approximately
$16 million, a significant portion of which will be devoted to management
information systems. In addition, the Company has committed, under an outsource
agreement, to make payments of approximately $25 million in 2001 for capital
equipment purchases (see Note 10 to the consolidated financial statements).

    During 2000, the Company retired its $150 million term loan and its $200
million senior notes, including premiums of approximately $26.4 million. In
addition, the Company consummated two transactions, including an exchange and
repurchase agreement during the fourth quarter, whereby the Company paid a total
of $350 million to repurchase certain of the shares of Preferred Stock and
approximately 11.5 million of the outstanding warrants. The Company entered into
new senior credit facilities that includes a term loan of $175 million and a
revolving credit facility of $75 million, which has not been drawn. Under the
terms of the new senior credit facilities, the Company must make scheduled
payments and reductions in the revolving credit facility and must prepay the
term loan or reduce the revolving credit facility based on Company excess cash
flow, as defined, and in certain other circumstances. Additional reductions in
indebtedness will depend on the availability of cash at the parent company,
which will depend in part on its ability to receive dividends from its
subsidiary companies. See "Liquidity and Capital Resources - Financing". The
Company paid cash dividends on the then outstanding Preferred Stock of
approximately $13.8 million during 2000. Proceeds from the exercise of stock
options were approximately $64.6 million during 2000 compared with $18.2 million
and $2.7 million in 1999 and 1998, respectively.

     Cash and investments aggregating $57.2 million at December 31, 2000 have
been segregated as restricted investments to comply with state regulatory
requirements. With respect to the Company's HMO subsidiaries, the minimum amount
of surplus required is based on formulas established by the state insurance
departments. These statutory surplus requirements amounted to approximately $176
million and $163 million at December 31, 2000 and 1999, respectively. In
addition, the Company's subsidiaries are subject to certain


                                       36
<PAGE>   37
restrictions on their ability to make dividend payments, loans or other
transfers of cash to the parent company. These restrictions limit the ability of
the Company to use cash generated by subsidiary operations to pay the
obligations of the parent, including debt service and other financing costs.
During 2000, the Company's HMO subsidiaries paid dividends to the parent company
of approximately $317.6 million, and the Company made cash contributions to its
HMO and insurance subsidiaries of approximately $6 million and $4.5 million
during 2000 and 1999, respectively. The capital contributions were made to
ensure that each subsidiary had sufficient surplus under applicable regulations
after giving effect to operating results and reductions to surplus resulting
from the non-admissibility of certain assets. In addition, New York State
regulatory authorities authorized the repayment in 2000 of a $38 million surplus
note plus $6 million in accrued interest by Oxford NY to the parent company.
Although the Company received dividends from its HMO subsidiaries in 2000, there
can be no assurances that such dividend payments will be made in future periods.

    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 2000 annual
financial statements. Neither New York nor New Jersey has enacted similar
legislation. In addition, the New Jersey Department of Banking and Insurance
("NJDBI") published solvency regulations in June 1999 that resulted in an
additional $1.5 million solvency deposit by Oxford NJ. NYSID has announced an
intention to strengthen current solvency regulations to allow NYSID to take over
failing health plans without a court order; however, capitalization requirements
continue to be subject to state interpretation from time to time. The Company
believes that the current capitalization of the subsidiaries is sufficient to
meet these requirements.

    The New Jersey State legislature has passed legislation that includes a $50
million assessment on HMOs in the state proportionate to market share to be
collected over a three-year period. The Company paid $1.8 million in 2000
related to this assessment and is required to pay similar amounts in 2001 and
2002.

    The Company's medical costs payable was $612.9 million (including $519.3
million of IBNR) as of December 31, 2000 compared with $699.6 million (including
$570.7 million for IBNR) as of December 31, 1999, before netting advance claim
payments of $43.6 million in 1999. The Company estimates the amount of its IBNR
reserves using standard actuarial methodologies based upon historical data,
including the average intervals 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 liability is also
affected by shared risk arrangements, including arrangements relating to the
Company's Medicare business in certain counties and Physician Groups. 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
the experience of risk-sharing 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
Physician Group programs and has terminated most of its 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.

    Outstanding provider advances aggregated approximately $23.5 million at
December 31, 2000, and are fully reserved. The Company continues its efforts to
recover outstanding advance payments, either through repayment by the provider
or application against future claims; however, such recovery can not be assured
as many of these advances are in excess of three years old.

     The Company has risk-sharing agreements with a limited number of hospitals
and hospital systems covering approximately 33,800 Medicare members. Premium
revenues for the Medicare members covered under these agreements totaled
approximately $240 million in 2000. North Shore Long Island Jewish Health
Systems ("North Shore") and the Company are in discussions with regard to a
possible restructuring of their agreement. In connection with these discussions,
North Shore has sent a notice of mediation to the Company and has asserted
various claims of breach by the Company, including a claim for recission of this
agreement. The Company's agreement with Lenox Hill Hospital ("Lenox") is also
under renegotiation. In connection with such


                                       37
<PAGE>   38
renegotiation, Lenox has served notice of termination of the agreement. The
failure of these arrangements could have a material adverse effect on the
Company's Medicare results of operations.

     Financing

    In order to fund operating losses incurred in 1997 and 1998 and make
necessary capital contributions to its HMO and insurance subsidiaries, in May
1998, the Company raised a total of $700 million in capital (the "Financing")
through the following arrangements: (i) the Company sold $350 million of
preferred stock (originally issued as Series A and Series B and later exchanged
for Series D Cumulative Preferred Stock, par value $.01 per share (the "Series D
Preferred Stock"), and Series E Cumulative Preferred Stock, par value $.01 per
share (the "Series E Preferred Stock", together with the Series D Preferred
Stock, the "Preferred Stock")) to TPG Partners II, L.P. (formerly TPG Oxford
LLC) and certain of its affiliates and designees ("TPG Investors") under an
Investment Agreement, dated as of February 23, 1998, as amended (the "Investment
Agreement"), together with Series A and Series B warrants to acquire up to
22,530,000 shares of the Company's common stock at an exercise price of $17.75;
(ii) the Company issued $200 million of 11% Senior Notes due 2005 (the "Senior
Notes") and (iii) the Company entered into a Term Loan Agreement, dated as of
May 13, 1998 (the "Term Loan"), pursuant to which the Company borrowed $150
million in the form of a senior secured term loan. Simultaneously with these
transactions, Norman C. Payson, M.D., the Company's Chairman and Chief Executive
Officer, purchased 644,330 newly issued shares of Oxford common stock for a
purchase price of $10 million.

    In February 2000, the Company commenced a capital restructuring with the
repurchase of (i) $130 million of Series E Preferred Stock and Series D
Preferred Stock and (ii) $19 million of loans outstanding under its existing
Term Loan. In May 2000, the Company prepaid the remaining $131 million balance
of the Term Loan, including pre-payment premiums, for a total amount of $134.3
million. During the second half of 2000, the Company repurchased or tendered all
of its $200 million Senior Notes and paid $22.4 million in tender and consent
premiums. The purchase price for each $1,000 principal amount of the remaining
Senior Notes validly tendered and accepted was determined based on a fixed
spread of 0.5% over the yield to maturity of the 7.5% U.S. Treasury Note due May
15, 2002. All of the outstanding Senior Notes were tendered with consent. The
total purchase price, including tender and consent premiums, was approximately
$215.9 million, or $1,115.50 per $1,000 principal amount. In addition, in
December 2000, the Company consummated an exchange and repurchase agreement
pursuant to which, among other things, (i) the Company paid $220 million to TPG
Investors to repurchase certain of the shares of Preferred Stock and certain of
the warrants and (ii) TPG Investors exchanged their remaining shares of
Preferred Stock and remaining warrants for 10,986,455 newly issued shares of
common stock (the "Recapitalization"). The TPG Investors agreed not to sell the
newly issued shares of common stock prior to February 15, 2001. In connection
with the Recapitalization in the fourth quarter of 2000, the Company incurred
costs of approximately $38.5 million related to the write-off of unamortized
Preferred Stock discount and costs from the original issuance in 1998 and
related transaction fees. Accordingly, as of the end of 2000, the Company had no
warrants, Preferred Stock or Senior Notes remaining outstanding.

     During 2000, the Company recorded an extraordinary charge of $20.3 million,
net of income tax benefits of $13.9 million, in connection with the prepayment
of the Term Loan and the repurchase or tender of its $200 million Senior Notes.
The extraordinary charges include premiums paid, transaction costs and the
write-off of unamortized original issuance debt costs.

     Simultaneously with the consummation of the Recapitalization and the tender
offer for the Senior Notes, the Company entered into new senior bank facilities
totaling $250 million, $175 million of which is a 5 -1/2 year term loan (the
"New Term Loan") and $75 million of which is a 5 year revolving credit facility
(the "Revolver", together with the New Term Loan, the "Senior Credit
Facilities"). The proceeds of the New Term Loan were used, along with available
Company cash, to fund the Recapitalization. The Company has not drawn on the
Revolver. The only Company debt outstanding as of December 31, 2000 was the $175
million New Term Loan and $5.7 million of capital leases.

     The agreement governing the Senior Credit Facilities (the "Credit
Agreement"), provides for scheduled quarterly repayments of principal of the New
Term Loan in annual amounts with a final maturity of June 2006. The Credit
Agreement provides for voluntary prepayments of principal and voluntary
reductions in commitments under the Revolver without penalty of a minimum amount
of $5 million and mandatory prepayments of principal from proceeds upon the
occurrence of certain events. Mandatory prepayments of principal and/or
reductions in the Revolver are required from (1) the net proceeds from the sale
of assets, subject to certain exceptions; (2) 50% of the net proceeds from
certain equity issuances; (3) the net proceeds from the issuance of debt
securities; and (4) 50% of excess cash flow, as defined, beginning with the
quarter ending June 30, 2001. The Credit Agreement also provides for mandatory
prepayment of the entire amount


                                       38
<PAGE>   39
outstanding under the Senior Credit Facilities at a 1% premium upon the
occurrence of a change in control (as defined). Based on financial projections
for 2001 and 2002, including anticipated dividends from the regulated
subsidiaries, subsequent mandatory prepayments of principal primarily from
excess cash flow, as well as scheduled repayments, the Company expects to repay
the New Term Loan prior to its scheduled maturity.

     The commitment under the Revolver shall be reduced to $50 million plus the
then outstanding amount upon the settlement of certain securities litigation,
and $50 million on January 1, 2005, with the expiration of all commitments under
the Revolver on December 31, 2005.

    Borrowings under the Senior Credit Facilities bear interest, subject to
periodic resets, at either a base rate ("Base Rate Borrowings") or LIBOR plus an
applicable margin based on the Company's credit ratings. Interest on Base Rate
Borrowings is calculated as the higher of (a) the prime rate or (b) the federal
funds effective rate plus 0.5% and is payable quarterly. As of December 31,
2000, the interest rate on the New Term Loan, utilizing the Base Rate Borrowing
option, was 12%. As a result of a decline in the prime rate, the Base Rate
option applicable to borrowings under the Senior Credit Facilities decreased to
11.5% on January 4, 2001. On January 12, 2001, the New Term Loan was converted
to a LIBOR basis. Currently interest is being calculated based on an $87 million
tranche at a rate of 9.26125% through March 12, 2001 and an $88 million tranche
at a rate of 8.96875% through July 12, 2001. The average interest rate is
approximately 9.1% through March 12, 2001. Commitment fees of 0.5% per annum are
payable on the unused portion of the Revolver.

     The Senior Credit Facilities grant a first priority lien to the Lenders on
all property of the Company and material non-regulated subsidiaries and all
capital stock of its material subsidiaries, require the Company to maintain
certain financial ratios and prohibit certain restricted payments, as defined.


                                       39
<PAGE>   40
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's consolidated balance sheet as of December 31, 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, generally averaging 2 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
policies are subject to revision based upon market conditions and the Company's
cash flow and tax strategies, among other factors. The Company's investment in
equity securities as of December 31, 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. Convexity further adjusts the estimated price change 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 December
31, 2000 by approximately $20.6 million and $40.9 million, respectively
(compared to $20.6 million and $40.5 million as of December 31 1999,
respectively). Hypothetical immediate decreases of 100 and 200 basis points in
market interest rates would increase the fair value of the Company's investment
in debt securities as of December 31, 2000 by approximately $20.7 million and
$41.9 million, respectively (compared to $21.2 million and $42.3 million as of
December 31, 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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    See Index to Consolidated Financial Statements and Schedule on page 43.


                                       40
<PAGE>   41

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.          EXECUTIVE COMPENSATION
ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Items 10 through 13 is incorporated by
reference to Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, within 120
days after December 31, 2000.

                                     PART IV

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

(a)  Exhibits and Financial Statement Schedule

     1.   All financial statements - see Index to Consolidated Financial
          Statements and Schedule on page 43.

     2.   Financial statement schedule - see Index to Consolidated Financial
          Statements and Schedule on page 43

     3.   Exhibits - see Exhibit Index beginning on page 72.

(b)  Reports on Form 8-K

    In a report on Form 8-K dated October 25, 2000 and filed on October 26,
2000, the Company reported, under Item 5. "Other Events", its earnings press
release for the third quarter of 2000.

    In a report on Form 8-K dated December 22, 2000 and filed on December 27,
2000, the Company reported, under Item 5. "Other Events", the completion of the
$220 million TPG Exchange and Repurchase Agreement and related senior bank
facilities.


                                   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 20th day of
February, 2001.

                                         OXFORD HEALTH PLANS, INC.

                                         By:     /s/ NORMAN C. PAYSON, M.D.
                                            -----------------------------------
                                                  NORMAN C. PAYSON, M.D.
                                            Chairman and Chief Executive Officer

                                       41
<PAGE>   42
         Pursuant to the requirements of the Securities Act of 1933, this Report
has been signed by the following persons on behalf of the Registrant on February
20, 2001 in the capacities indicated.


<TABLE>
<CAPTION>
Signature                                         Title
---------                                         -----
<S>                                      <C>
/s/  NORMAN C. PAYSON, M.D.              Principal Executive Officer,
---------------------------
Norman C. Payson, M.D.                   and Chairman of the Board


/s/ KURT B. THOMPSON                     Principal Financial Officer
---------------------------
 Kurt B. Thompson


/s/ MARC M. KOLE                         Principal Accounting Officer
---------------------------
Marc M. Kole


/s/ FRED F. NAZEM                        Director
---------------------------
Fred F. Nazem


/s/ DAVID BONDERMAN                      Director
---------------------------
David Bonderman


/s/ JONATHAN J. COSLET                   Director
---------------------------
Jonathan J. Coslet

                                         Director
---------------------------
James G. Coulter


/s/ ROBERT B. MILLIGAN, JR.              Director
---------------------------
Robert B. Milligan, Jr.


/s/  BENJAMIN H. SAFIRSTEIN, M.D.        Director
---------------------------------
Benjamin H. Safirstein, M.D.


/s/  THOMAS A. SCULLY                    Director
---------------------------
Thomas A. Scully

                                         Director
---------------------------
Kent J. Thiry


/s/ JOSEPH W. BROWN                      Director
---------------------------
Joseph W. Brown
</TABLE>

                                       42
<PAGE>   43
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
                                                                                                  Page
<S>                                                                                               <C>
Independent Auditors' Report ..................................................................     44
Consolidated Balance Sheets as of December 31, 2000 and 1999 ..................................     45
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 ....     46
Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Earnings (Loss)
     for the years ended December 31, 2000, 1999 and 1998 .....................................     47
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 ....     48
Notes to Consolidated Financial Statements ....................................................     50

Financial Statement Schedule:
I    Condensed Financial Information of Registrant ............................................     69
</TABLE>


All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission that are not included with
this additional financial data have been omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
Notes thereto.

                                       43
<PAGE>   44
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Oxford Health Plans, Inc.:

    We have audited the accompanying consolidated balance sheets of Oxford
Health Plans, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity (deficit) and comprehensive earnings (loss) and cash flows for each of
the three years in the period ended December 31, 2000. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Oxford Health Plans, Inc. and subsidiaries as of December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.


                                        Ernst & Young LLP

New York, New York
January 26, 2001



                                       44
<PAGE>   45
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                      (In thousands, except share amounts)


<TABLE>
<CAPTION>
                                     ASSETS

Current assets:                                                                                 2000                 1999
---------------                                                                                 ----                 ----
<S>                                                                                          <C>                 <C>
    Cash and cash equivalents                                                                $   198,632         $   332,882
    Investments - available-for-sale, at fair value                                              868,380             829,054
    Premiums receivable, net                                                                      56,694              64,071
    Other receivables                                                                             80,994              32,588
    Prepaid expenses and other current assets                                                      4,761               3,862
    Deferred income taxes                                                                         46,102              68,266
                                                                                             -----------         -----------
        Total current assets                                                                   1,255,563           1,330,723

Property and equipment, net                                                                       19,779              49,519
Deferred income taxes                                                                            102,133             231,512
Restricted investments - held-to-maturity, at amortized cost                                      57,194              61,603
Other noncurrent assets                                                                            9,941              13,531
                                                                                             -----------         -----------
        Total assets                                                                         $ 1,444,610         $ 1,686,888
                                                                                             ===========         ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Medical costs payable                                                                    $   612,930         $   656,063
    Current portion of long term debt                                                            147,000                --
    Trade accounts payable and accrued expenses                                                  103,459             122,345
    Unearned premiums                                                                             88,299              97,155
    Current portion of capital lease obligations                                                   5,700              12,467
                                                                                             -----------         -----------
        Total current liabilities                                                                957,388             888,030

Long-term debt                                                                                    28,000             350,000
Obligations under capital leases                                                                    --                 5,787
Redeemable preferred stock                                                                          --               344,316

Shareholders' equity:
    Preferred stock, $.01 par value, authorized 2,000,000 shares;
      none issued and outstanding                                                                   --                  --
    Common stock, $.01 par value, authorized 400,000,000 shares;
      issued and outstanding 98,304,384 in 2000 and 81,986,457 in 1999                               983                 820
    Additional paid-in capital                                                                   561,857             488,030
    Accumulated deficit                                                                         (107,256)           (372,350)
    Accumulated other comprehensive earnings (loss)                                                3,638             (17,745)
                                                                                             -----------         -----------
        Total shareholders' equity                                                               459,222              98,755
                                                                                             -----------         -----------
        Total liabilities and shareholders' equity                                           $ 1,444,610         $ 1,686,888
                                                                                             ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       45
<PAGE>   46
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                         2000            1999            1998
                                                                                         ----            ----            ----
<S>                                                                                   <C>            <C>             <C>
Revenues:
    Premiums earned                                                                   $4,023,397     $ 4,099,556     $ 4,612,328
    Third-party administration, net                                                       15,390          15,578          17,838
    Investment and other income, net                                                      73,015          82,632          89,245
                                                                                      ----------     -----------     -----------
      Total revenues                                                                   4,111,802       4,197,766       4,719,411
                                                                                      ----------     -----------     -----------
Expenses:
    Health care services                                                               3,116,544       3,365,340       4,353,537
    Marketing, general and administrative                                                476,422         599,151         772,015
    Interest and other financing charges                                                  34,332          49,626          57,090
    Restructuring charges                                                                      -          19,963         113,657
    Write-downs of strategic investments                                                       -               -          38,341
                                                                                      ----------     -----------     -----------
      Total expenses                                                                   3,627,298       4,034,080       5,334,640
                                                                                      ----------     -----------     -----------

Operating earnings (loss) before income
   taxes and extraordinary items                                                         484,504         163,686        (615,229)
Income tax expense (benefit)                                                             199,085        (156,254)        (18,437)
                                                                                      ----------     -----------     -----------
Net earnings (loss) before extraordinary items                                           285,419         319,940        (596,792)
Extraordinary items - Loss on early retirement of
debt, net of income tax benefits of $13,916                                              (20,325)              -               -
                                                                                      ----------     -----------     -----------
Net earnings (loss)                                                                      265,094         319,940        (596,792)
Less preferred dividends and amortization                                                (73,791)        (45,500)        (27,668)
                                                                                      ----------     -----------     -----------
Net earnings (loss) attributable to common shares                                      $ 191,303        $274,440      $ (624,460)
                                                                                      ==========     ===========     ===========
Earnings (loss) per common share - basic:
      Earnings (loss) before extraordinary items                                           $2.50         $  3.38      $    (7.79)
      Extraordinary items                                                                  (0.24)              -               -
                                                                                      ----------     -----------     -----------
      Net earnings (loss) per common share                                                 $2.26         $  3.38      $    (7.79)
                                                                                      ==========     ===========     ===========
Earnings (loss) per common share - diluted:
       Earnings (loss) before extraordinary items                                       $   2.24           $3.26       $   (7.79)
       Extraordinary items                                                                 (0.22)              -               -
                                                                                      ----------     -----------     -----------
       Net earnings (loss) per common share                                             $   2.02           $3.26        $  (7.79)
                                                                                      ==========     ===========     ===========
Weighted-average common stock and common stock equivalents outstanding:
      Basic                                                                               84,728          81,273          80,120
      Effect of dilutive securities:
      Stock options                                                                        4,779           2,958               -
      Warrants                                                                             5,066               -               -
                                                                                      ----------     -----------     -----------
      Diluted                                                                             94,573          84,231          80,120
                                                                                      ==========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       46
<PAGE>   47
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                        AND COMPREHENSIVE EARNINGS (LOSS)
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                          Common Stock
                                                          ------------
                                                                                                                         Accumulated
                                                                                                                            Other
                                                                                                            Compre-        Compre-
                                                                                Additional    Retained      hensive        hensive
                                                     Number of        Par        Paid-In      Earnings      Earnings       Earnings
                                                      Shares         Value       Capital      (Deficit)      (Loss)         (Loss)
                                                      ------         -----       -------      ---------      ------         ------
<S>                                                  <C>           <C>          <C>           <C>           <C>          <C>
Balance at January 1, 1998                              79,474     $     795    $ 437,653     $ (95,498)    $      --     $   6,266
Exercise of stock options                                  397             4        2,651            --            --          --
Proceeds from sale of common stock                         645             6        9,994            --            --          --
Issuance of warrants                                        --            --       67,000            --            --          --
Compensatory stock grants under executive
  stock agreements                                          --            --       16,613            --            --          --
Preferred stock dividends and amortization of
  discount                                                  --            --      (26,103)           --            --          --
Amortization of preferred stock issuance costs              --            --       (1,565)           --            --          --
Net loss                                                    --            --           --      (596,792)    $(596,792)         --
Depreciation in value of available-for-sale
  securities, net of deferred taxes                         --            --           --            --        (2,129)       (2,129)
                                                                                                            ---------
Comprehensive loss                                                                                          $(598,921)
                                                     ---------     ---------    ---------     ---------     =========     ---------
Balance at December 31, 1998                            80,516           805      506,243      (692,290)                      4,137

Exercise of stock options                                1,470            15       18,171            --            --          --
Tax benefit realized on exercise of stock options           --            --        2,648            --            --          --
Compensatory stock grants under executive
  stock agreements                                          --            --        6,468            --            --          --
Preferred stock dividends and amortization of
  discount                                                  --            --      (43,136)           --            --          --
Amortization of preferred stock issuance costs              --            --       (2,364)           --            --          --
Net income                                                  --            --           --       319,940     $ 319,940          --
Depreciation in value of available-for-sale
  securities, net of deferred taxes                         --            --           --            --       (21,882)      (21,882)
                                                                                                            ---------
Comprehensive earnings                                                                                      $ 298,058
                                                     ---------     ---------    ---------     ---------     =========     ---------
Balance at December 31, 1999                            81,986           820      488,030      (372,350)                    (17,745)

Exercise of stock options                                5,332            53       64,537            --            --          --
Issuance of common shares                               10,986           110      194,900            --            --          --
Tax benefit realized on exercise of stock options           --            --       27,665            --            --          --
Repurchase of warrants                                      --            --     (141,408)           --            --          --
Compensatory stock grants under executive
  stock agreements                                          --            --        1,924            --            --          --
Preferred stock dividends and amortization of
  discount                                                  --            --      (30,978)           --            --          --
Amortization of preferred stock issuance costs              --            --       (1,728)           --            --          --
Write-off of preferred stock discount and costs             --            --      (41,085)           --            --          --
Net income                                                  --            --           --       265,094     $ 265,094          --
Appreciation in value of available-for-sale
  securities, net of deferred taxes                         --            --           --            --        21,383        21,383
                                                                                                            ---------
Comprehensive earnings                                                                                      $ 286,477
                                                     ---------     ---------    ---------     ---------     =========     ---------
Balance at December 31, 2000                            98,304     $     983    $ 561,857     $(107,256)                  $   3,638
                                                     =========     =========    =========     =========                   =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       47
<PAGE>   48
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (In thousands)


<TABLE>
<CAPTION>
Cash flows from operating activities:                                                2000             1999              1998
-------------------------------------                                                ----             ----              ----
<S>                                                                              <C>               <C>               <C>
    Net earnings (loss)                                                          $   265,094       $   319,940       $  (596,792)
    Adjustments to reconcile net earnings (loss) to net cash
      provided by operating activities:
        Depreciation and amortization                                                 34,229            54,542            67,141
        Deferred income taxes                                                        190,596          (159,563)          (18,437)
        Extraordinary items                                                           20,325              --                --
        Realized loss (gain) on sale of investments                                     (111)            5,181           (10,695)
        Loss (gain) on sale of assets                                                  5,365            (9,500)             --
        Non-cash restructuring charges and write-downs
           of strategic investments                                                     --               8,355           101,547
        Provision (credit )for doubtful accounts and advances                           --              (4,200)           60,209
        Other, net                                                                      --               6,468            13,289
        Changes in assets and liabilities:
           Premiums receivable                                                         7,377            46,183           130,183
           Other receivables                                                         (48,406)            7,290             2,679
           Prepaid expenses and other current assets                                    (899)            2,526               351
           Medical costs payable                                                     (43,133)         (189,934)           62,238
           Trade accounts payable and accrued expenses                               (19,853)          (39,995)           33,802
           Income taxes payable/refundable                                              --                --             121,102
           Unearned premiums                                                          (8,856)           (8,838)          (18,610)
           Other, net                                                                  2,976            (2,927)            5,511
                                                                                 -----------       -----------       -----------
             Net cash provided (used) by operating activities                        404,704            35,528           (46,482)
                                                                                 -----------       -----------       -----------
Cash flows from investing activities:
    Capital expenditures                                                             (12,774)           (8,987)          (40,045)
    Purchases of available-for-sale securities                                      (466,999)         (868,655)       (1,353,403)
    Sales and maturities of available-for-sale securities                            450,082           919,940           996,988
    Proceeds from sale of assets                                                       2,734            12,450              --
    Acquisitions, net of cash acquired                                                  --                --              (1,312)
    Investments in and advances to unconsolidated affiliates                            --                --              (5,410)
    Other, net                                                                         7,730             3,237              (307)
                                                                                 -----------       -----------       -----------
             Net cash provided (used) by investing activities                        (19,227)           57,985          (403,489)
                                                                                 -----------       -----------       -----------
Cash flows from financing activities:
    Proceeds from exercise of stock options                                           64,590            18,186             2,655
    Payments under capital leases                                                    (12,554)          (16,534)           (5,463)
    Proceeds of notes and loans payable                                              175,000              --             550,000
    Redemption of notes and loans payable                                           (376,050)             --            (200,000)
    (Redemption of) proceeds from preferred stock, net of issuance expenses         (208,592)             --             271,148
    (Redemption of) proceeds from warrants                                          (142,122)             --              67,000
    Cash dividends paid on preferred stock                                           (13,792)             --                --
    Proceeds from issuance of common stock                                              --                --              10,000
    Debt issuance expenses                                                            (6,207)             --             (11,793)
                                                                                 -----------       -----------       -----------
             Net cash provided (used) by financing activities                       (519,727)            1,652           683,547
                                                                                 -----------       -----------       -----------
Net increase (decrease) in cash and cash equivalents                                (134,250)           95,165           233,576
Cash and cash equivalents at beginning of year                                       332,882           237,717             4,141
                                                                                 -----------       -----------       -----------
Cash and cash equivalents at end of year                                         $   198,632       $   332,882       $   237,717
                                                                                 ===========       ===========       ===========
</TABLE>

                                       48
<PAGE>   49
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (In thousands)
                                   (Continued)

<TABLE>
<CAPTION>
                                                                             2000          1999            1998
                                                                             ----          ----            ----
<S>                                                                        <C>           <C>            <C>
Supplemental schedule of non-cash investing and financing activities:
    Unrealized appreciation (depreciation) of investments                  $ 23,911      $(21,882)      $ (4,255)
    Capital lease obligations incurred                                         --            --           40,251
    Preferred stock dividends paid in-kind                                    4,565        30,486         18,548
    Amortization of preferred stock discount                                 12,619        12,650          7,555
    Amortization of preferred stock issuance expenses                         1,728         2,364          1,565
    Tax benefit realized on exercise of stock options                        27,665         2,648           --
    Exchange of warrants for common stock                                   195,008          --             --
    Write-off of preferred stock discount and costs                          40,373          --             --
</TABLE>


See accompanying notes to consolidated financial statements.

                                       49
<PAGE>   50
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  ORGANIZATION

    Oxford Health Plans, Inc. ("Oxford" or the "Company") is a regional health
care company providing health care coverage primarily in New York, New Jersey
and Connecticut. Oxford was incorporated on September 17, 1984 and began
operations in 1986. Oxford owns and operates three health maintenance
organizations ("HMOs"), which are qualified as Competitive Medical Plans, and an
accident and health insurance company and offers a health benefits
administrative service.

    Oxford's HMOs, Oxford Health Plans (NY), Inc. ("Oxford NY"), Oxford Health
Plans (NJ), Inc. ("Oxford NJ") and Oxford Health Plans (CT), Inc. ("Oxford CT"),
have each been granted a certificate of authority to operate as a health
maintenance organization by the appropriate regulatory agency of the state in
which it operates. Oxford Health Insurance, Inc. ("OHI") currently does business
under accident and health insurance licenses granted by the Department of
Insurance in the states of New York and Connecticut, the Department of Banking
and Insurance of New Jersey and the Commonwealth of Pennsylvania.

    Oxford maintains a health care network of physicians and ancillary health
care providers who have entered into formal contracts with Oxford. These
contracts set reimbursement at either fixed levels or pursuant to certain
risk-sharing arrangements and require adherence to Oxford's policies and
procedures for quality and cost-effective treatment.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    (a) Principles of consolidation. The consolidated financial statements are
presented in accordance with accounting principles generally accepted in the
United States ("GAAP") and include the accounts of Oxford Health Plans, Inc. and
all majority-owned subsidiaries. All intercompany balances have been eliminated
in consolidation.

    (b) Premium revenue. Membership contracts are generally established on a
yearly basis subject to cancellation by the employer group or Oxford upon 30
days written notice. Premiums, including premiums from both commercial and
governmental programs, are due monthly and are recognized as revenue during the
period in which Oxford is obligated to provide services to members, and are net
of estimated terminations of members and groups. The Company receives premium
payments from the federal Health Care Financing Administration ("HCFA") on a
monthly basis for its Medicare membership. In 2000, premiums received from HCFA
represented approximately 16.8% of the Company's total premium revenue earned.
Membership and category eligibility are periodically reconciled with HCFA and
could result in revenue adjustments. The Company is not aware of any material
claims, disputes or settlements relating to revenues it has received from HCFA.
Premiums receivable are presented net of valuation allowances for estimated
uncollectible amounts of $10 million in 2000 and 1999, respectively and
retroactive billing adjustments of approximately $18.6 million and $30.9 million
in 2000 and 1999, respectively. Operations include net write-off's and other
adjustments of approximately $1.1 million and $26.1 million in 2000 and 1999,
respectively, net of the changes in the valuation allowances. Unearned premiums
represent the portion of premiums received for which Oxford is not obligated to
provide services until a future date. All other material revenue is generated
from investments, as described in (f) below.

    (c) Health care services cost recognition. The Company contracts with
various health care providers for the provision of certain medical care services
to its members and generally compensates those providers on a fee-for-service
basis or pursuant to certain risk-sharing arrangements. Costs of health care and
medical costs payable for health care services provided to enrollees are
estimated by management based on evaluations of providers' claims submitted and
provisions for incurred but not reported or paid claims ("IBNR"). The Company
estimates the provision for IBNR using standard actuarial methodologies based
upon historical data including the period between the date services are rendered
and the date claims are received and paid, denied claim 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. Adjustments to prior period estimates,
if any, are included in the current period. Medical costs payable also reflects
surplus or deficit experience for physicians participating in risk-sharing
arrangements and payments

                                       50
<PAGE>   51
     required by public policy initiatives. Advances to providers for delayed
claims amounting to $23.5 million and $43.6 million, net of valuation reserves
of $23.5 million and $30.8 million, as of December 31, 2000 and 1999,
respectively, have been applied against medical claims payable in the
accompanying consolidated balance sheets. Reductions to provider advance
reserves of approximately $7.3 million and $4.2 million in 2000 and 1999,
respectively, as a result of better than expected recoveries, were credited to
operations. Management believes that the Company's reserves for medical costs
payable are adequate to satisfy its ultimate claim liabilities.

     Losses, if any, are recognized when it is probable that the expected future
health care cost of a group of existing contracts (and the costs necessary to
maintain those contracts) will exceed the anticipated future premiums,
investment income and reinsurance recoveries on those contracts. Groups of
contracts are defined as commercial, individual and government contracts
consistent with the method of establishing premium rates. The Company recognizes
premium deficiency reserves based upon expected premium revenue, medical expense
and administrative expense levels and remaining contractual obligations using
the Company's historical experience. Anticipated investment income is not
included in the determination of premium deficiency reserves since its effect is
deemed to be immaterial. The Company evaluates the need for premium deficiency
reserves on a quarterly basis. Premium deficiency reserves aggregated
approximately $9.8 million and $26.6 million as of December 31, 2000 and 1999,
respectively. Such reserves are included in medical costs payable in the
accompanying consolidated balance sheets.

    (d) Reinsurance. Reinsurance premiums are reported as health care services
expense, while related reinsurance recoveries are reported as deductions from
health care services expense. The Company limits, in part, the risk of
catastrophic losses by maintaining high deductible reinsurance coverage. The
Company does not consider this coverage to be material as the cost is not
significant and the likelihood that coverage will be applicable is low.

    (e) Cash equivalents. The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.

    (f) Investments. Investments are classified as either available-for-sale or
held-to-maturity. Investments that the Company has the intent and ability to
hold to maturity are designated as held-to-maturity and are stated at amortized
costs. The Company has determined that all other investments might be sold prior
to maturity to support its investment strategies. Accordingly, these other
investments are classified as available-for-sale and are stated at fair value
based on quoted market prices. Unrealized gains and losses on available-for-sale
investments are excluded from earnings and are reported in accumulated other
comprehensive earnings (loss), net of income tax effects where applicable.
Realized gains and losses are determined on a specific identification basis and
are included in results of operations. Investment income is recognized in
accordance with GAAP, accrued when earned and included in investment and other
income.

    (g) Property and equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of the lease terms or the estimated
useful lives of the assets.

    (h) Computer software costs. Internal and external direct and incremental
costs of $3.3 million and $3.1 million incurred in developing or obtaining
computer software for internal use were capitalized for the years ended December
31, 2000 and 1999, respectively. These costs are presented in property and
equipment and are being amortized using the straight-line method over their
estimated useful lives, generally two years. Prior to 1999, computer software
costs were expensed as incurred.

    (i) Income taxes. The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Accordingly, deferred tax liabilities
and assets are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation reserve against the estimated amounts of
deferred taxes that it believes do not meet the more likely than not recognition
criteria.

                                       51
<PAGE>   52
    (j) Impairment of long-lived assets and assets to be disposed of. The
Company reviews assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
estimated costs to sell.

    (k) Earnings per share. Basic earnings per share is calculated on the
weighted-average number of common shares outstanding. Diluted earnings per share
is calculated on the weighted-average number of common shares and common share
equivalents resulting from options and warrants outstanding.

     (l) Stock option plans. The Company has adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which permits entities to continue to apply the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and provide pro forma net earnings and pro forma
earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS 123 had been applied (see Note 8). With
respect to the independent contractor grants, it is the Company's policy to
record such grants and re-issuance grants issued after December 15, 1995, based
on the fair market value measurement criteria of SFAS 123.

    (m) Marketing costs.  Marketing and other costs associated with the
acquisition of plan member contracts are expensed as incurred.

    (n) Use of estimates. The accompanying consolidated financial statements
have been prepared in accordance with GAAP. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

    (o) Reporting comprehensive income. The changes in value of
available-for-sale securities as reported in the consolidated statements of
shareholders' equity (deficit) and comprehensive earnings (loss) include
unrealized holding gains (losses) on available-for-sale securities of $6.2
million, $(27.1) million and $6.4 million in 2000, 1999 and 1998, respectively,
reduced by the tax effects of $2.5 million in 2000 and $1.6 million in 1998 and
reclassification adjustments of $17.7 million, $5.2 million and $(10.7) million
in 2000, 1999 and 1998, respectively.


                                       52
<PAGE>   53
(3)    INVESTMENTS

    The following is a summary of marketable securities as of December 31, 2000
and 1999:

<TABLE>
<CAPTION>
                                                                        Gross         Gross
(In thousands)                                          Amortized     Unrealized    Unrealized     Fair
December 31, 2000:                                        Cost          Gains         Losses       Value
------------------                                        ----          -----         ------       -----
    Available-for-sale:
<S>                                                     <C>           <C>           <C>           <C>
      U.S. government obligations                       $385,871      $  5,157      $  1,517      $389,511
      Corporate obligations                              456,079         4,238         2,045       458,272
      Municipal bonds                                     20,264           333             -        20,597
                                                        --------      --------      --------      --------
          Total investments                             $862,214      $  9,728      $  3,562      $868,380
                                                        ========      ========      ========      ========
    Held-to-maturity - U.S. government obligations      $ 57,194      $    890      $     11      $ 58,073
                                                        ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
December 31, 1999:                                        Cost          Gains        Losses        Value
------------------                                        ----          -----        ------        -----
    Available-for-sale:
<S>                                                     <C>           <C>           <C>           <C>
      U.S. government obligations                       $385,529      $      -      $  7,556      $377,973
      Corporate obligations                              435,910           309        10,137       426,082
      Municipal bonds                                     25,360             -           361        24,999
                                                        --------      --------      --------      --------
          Total investments                             $846,799      $    309      $ 18,054      $829,054
                                                        ========      ========      ========      ========
    Held-to-maturity - U.S. government obligations      $ 61,603      $      -      $    346      $ 61,257
                                                        ========      ========      ========      ========
</TABLE>

    The amortized cost and estimated fair value of marketable debt securities at
December 31, 2000, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because the issuers of securities may
have the right to prepay such obligations without prepayment penalties.

<TABLE>
<CAPTION>
                                              Available-for-Sale          Held-to-Maturity
                                              ------------------          ----------------
                                            Amortized       Fair        Amortized       Fair
(In thousands)                                Cost          Value          Cost         Value
--------------                                ----          -----          ----         -----
<S>                                         <C>           <C>           <C>           <C>
Due in one year or less                     $ 76,315      $ 76,222      $ 19,254      $ 19,254
Due after one year through five years        744,639       749,996        37,940        38,819
Due after five years through ten years        41,260        42,162            --            --
                                            --------      --------      --------      --------
    Total                                   $862,214      $868,380      $ 57,194      $ 58,073
                                            ========      ========      ========      ========
</TABLE>


Certain information related to marketable securities is as follows:

<TABLE>
<CAPTION>
(In thousands)                                                               2000            1999            1998
--------------                                                               ----            ----            ----
<S>                                                                       <C>             <C>             <C>
Proceeds from sale or maturity of available-for-sale securities           $ 430,682       $ 916,231       $ 993,488
Proceeds from maturity of held-to-maturity securities                        19,400           3,709           3,500
                                                                          ---------       ---------       ---------
Total proceeds from sale or maturity of marketable securities             $ 450,082       $ 919,940       $ 996,988
                                                                          =========       =========       =========

Gross realized gains on sale of available-for-sale securities             $   2,192       $   2,474       $  19,986
Gross realized losses on sale of available-for-sale securities               (2,081)         (7,655)         (9,291)
                                                                          ---------       ---------       ---------
Net realized gains (losses) on sale of marketable securities              $     111       $  (5,181)      $  10,695
                                                                          =========       =========       =========

Net unrealized gain (loss) on available-for-sale securities included
    in comprehensive earnings (loss)                                      $  23,911       $ (21,882)      $  (4,255)
Deferred income tax benefit (expense)                                        (2,528)           --             2,126
                                                                          ---------       ---------       ---------
Other comprehensive earnings (loss)                                       $  21,383       $ (21,882)      $  (2,129)
                                                                          =========       =========       =========
</TABLE>

                                       53
<PAGE>   54
    Net investment income in 2000, 1999 and 1998 was $77.4 million, $62.1
million and $79.8 million, respectively. Other income includes a $5.4 million
loss on the sale of fixed assets, a $1.5 million investment valuation loss, and
a gain on disposition of assets of $1.6 million in 2000, a $13.5 million gain on
the sale of the New York Medicaid business and a $7 million gain on the sale of
the assets of the Company's wholly-owned subsidiary, Direct Script, Inc. in
1999, and a $5.1 million gain related to the sale of the New Jersey Medicaid
business in 1998.

(4)    INCOME TAXES

Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
(In thousands)                         Current        Deferred         Total
--------------                         -------        --------         -----
Year ended December 31, 2000:
<S>                                   <C>            <C>             <C>
    Federal                           $      --      $ 155,257       $ 155,257
    State and local                       1,180         42,648          43,828
                                      ---------      ---------       ---------
      Total                           $   1,180      $ 197,905       $ 199,085
                                      =========      =========       =========

Year ended December 31, 1999:
    Federal                           $      --      $(150,406)      $(150,406)
    State and local                          --         (5,848)         (5,848)
                                      ---------      ---------       ---------
      Total                           $      --      $(156,254)      $(156,254)
                                      =========      =========       =========

Year ended December 31, 1998:
    Federal                           $      --      $ (14,371)      $ (14,371)
    State and local                        --           (4,066)         (4,066)
                                      ---------      ---------       ---------
      Total                           $      --      $ (18,437)      $ (18,437)
                                      =========      =========       =========
</TABLE>

    Cash paid (received) for income taxes was approximately $8.6 million, $3
million and $(113) million for 2000, 1999 and 1998, respectively. Cash paid for
income taxes in 2000 and 1999 principally represents estimated federal
alternative minimum taxes.

    Income tax expense differed from the amounts computed by applying the
federal income tax rate of 35% to earnings (loss) before income taxes and
extraordinary items as a result of the following:

<TABLE>
<CAPTION>
(In thousands)                                                          2000           1999             1998
--------------                                                          ----           ----             ----
<S>                                                                  <C>             <C>             <C>
Income tax expense (benefit) at statutory tax rate                   $ 169,576       $  57,290       $(215,330)
State and local income taxes, net of federal income tax benefit         27,719          11,746         (47,143)
Change in valuation allowance                                          (10,000)       (225,002)        245,702
Effect of future tax rates on deferred state and local tax assets       11,790              --              --
Other, net                                                                --              (288)         (1,666)
                                                                     ---------       ---------       ---------
  Income tax expense (benefit)                                       $ 199,085       $(156,254)      $ (18,437)
                                                                     =========       =========       =========
</TABLE>


                                       54
<PAGE>   55
    The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at December 31, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
(In thousands)                                                                      2000            1999
--------------                                                                      ----            ----
<S>                                                                               <C>             <C>
Deferred tax assets:
    Net operating loss carryforwards                                              $  85,340       $ 238,122
    Medical costs payable                                                            12,548          18,363
    Allowance for doubtful accounts                                                  13,630          17,174
    Unearned premiums                                                                 7,191           8,194
    Trade accounts payable and accrued expenses                                       9,593           8,426
    Write-down of investment in affiliate                                            12,960          13,422
    Property and equipment                                                           11,249          11,495
    Restructuring related                                                             5,668           8,929
    Unrealized (appreciation) depreciation of available for sale investments         (2,528)          7,469
    Other                                                                            16,718          10,653
                                                                                  ---------       ---------
      Total gross deferred assets                                                   172,369         342,247
    Less valuation allowances                                                       (24,134)        (42,469)
                                                                                  ---------       ---------
      Total deferred tax assets                                                   $ 148,235       $ 299,778
                                                                                  =========       =========
</TABLE>

    During the second quarter of 1998, the Company incurred a net loss of $507.6
million. At that time, the Company evaluated the deferred tax assets arising
from the net loss and established a full valuation allowance pending the results
of its Turnaround Plan. During 1998, the Company performed detailed analyses to
assess the realizability of the Company's deferred tax assets. These analyses
included an evaluation of the results of operations for 1998 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. Based on
these analyses, management concluded that it was not more likely than not that
all of its deferred tax assets would be fully realized. The Company established
a valuation allowance of $282.6 million as of December 31, 1998.

    In light of the Company's progress during 1999 and 2000 in its Turnaround
Plan, estimates of future earnings and the expected timing of the reversal of
other net tax deductible temporary differences, management concluded that a
valuation allowance was no longer necessary for its federal net operating loss
carryforwards and certain other temporary differences. The income tax expense
(benefit) recorded for the years ended December 31, 2000 and 1999 includes the
reversal of $10 million and $225 million, respectively, of deferred tax
valuation allowances. The remaining valuation allowance at December 31, 2000 of
$24.1 million relates primarily to capital loss carryforwards and certain state
net operating loss carryforwards. The Company adjusted its net deferred tax
assets during 2000 for the effects of changes in tax rates relating to the
periods when the net deferred state and local tax assets are expected to
reverse. The impact was to increase the current year income tax expense by
approximately $11.8 million. Management believes that the Company will obtain
the full benefit of the net deferred tax assets recorded at December 31, 2000.

    As of December 31, 2000, the Company has federal net operating loss
carryforwards of approximately $202 million, which, if unused, will begin to
expire in 2012.

                                       55
<PAGE>   56
(5)    PROPERTY AND EQUIPMENT

     Property and equipment, net of accumulated depreciation is as follows:

<TABLE>
<CAPTION>
                                                   As of December 31,
                                                   ------------------
(In thousands)                                    2000           1999
--------------                                    ----           ----
<S>                                            <C>             <C>
Land and buildings                             $      40       $      40
Furniture and fixtures                            11,075          11,732
Equipment                                         65,446         135,551
Leasehold improvements                            33,572          35,291
                                               ---------       ---------
    Property and equipment, gross                110,133         182,614
Accumulated depreciation and amortization        (90,354)       (133,095)
                                               ---------       ---------
    Property and equipment, net                $  19,779       $  49,519
                                               =========       =========
</TABLE>

     Depreciation and amortization of property and equipment aggregated $32.8
million, $49.8 million and $63.7 million during the years ended December 31,
2000, 1999 and 1998, respectively.

     As part of an agreement to outsource certain information technology
operations (see Note 10), during the fourth quarter of 2000 the Company sold
certain computer-related equipment, with a cost of approximately $79.6 million
and a net book value of approximately $7.9 million, at its estimated fair market
value and recognized a loss on disposal of approximately $5.4 million, which is
included in investment and other income, net.

(6)    DEBT

Debt consists of the following:

<TABLE>
<CAPTION>
                                   As of December 31,
                                   ------------------
(In thousands)                    2000           1999
--------------                    ----           ----
<S>                            <C>             <C>
Senior Secured Term Loan       $ 175,000       $    --
Revolving Credit Facility             --            --
11% Senior Notes                      --         200,000
Term Loan                             --         150,000
                               ---------       ---------
                               $ 175,000       $ 350,000
Less current portion            (147,000)           --
                               ---------       ---------
Long-term debt                 $  28,000       $ 350,000
                               =========       =========
</TABLE>


     The Company entered into a Credit Agreement, dated as of December 22, 2000
(the "Credit Agreement"), that provides for a senior secured term loan ("New
Term Loan") and a revolving credit facility ("Revolver", together with the New
Term Loan, the "Senior Credit Facilities"), with several financial institutions
("Lenders") that provides for maximum borrowings under the New Term Loan of $175
million and $75 million under the Revolver. The proceeds of the New Term Loan,
along with available Company cash, were used to fund the Recapitalization
described in Note 7. The Company has not drawn on the Revolver.

     The New Term Loan provides for scheduled quarterly repayments of principal
in annual amounts ranging from $21.9 million to $39.4 million with a final
maturity in June 2006.


                                       56
<PAGE>   57
     The Credit Agreement provides for voluntary prepayments of principal and
voluntary reductions in commitments under the Revolver without penalty of a
minimum amount of $5 million and mandatory prepayments of principal from
proceeds upon the occurrence of certain events. Mandatory prepayments of
principal and/or reductions in the Revolver are required from (1) the net
proceeds from the sale of assets, subject to certain exceptions; (2) 50% of the
net proceeds from certain equity issuances; (3) the net proceeds from the
issuance of debt securities; and (4) 50% of excess cash flow, as defined,
beginning with the quarter ending June 30, 2001. The Credit Agreement also
provides for mandatory prepayment of the entire amount outstanding under the
Senior Credit Facilities at a 1% premium upon the occurrence of a change in
control (as defined). Based on the Company's current estimates of available cash
flow for 2001 and 2002 as well as scheduled repayments, the Company expects the
New Term Loan to be repaid prior to maturity. A portion of the debt has been
classified as current based on these estimates.

     The commitment under the Revolver shall be reduced to $50 million plus the
then outstanding amount upon the settlement of certain securities litigation
(see Note 16), and $50 million on January 1, 2005, with the expiration of all
commitments under the Revolver on December 31, 2005.

    Borrowings under the Senior Credit Facilities bear interest, subject to
periodic resets, at either a base rate ("Base Rate Borrowings") or LIBOR plus an
applicable margin based on the Company's credit ratings. Interest on Base Rate
Borrowings is calculated as the higher of (a) the prime rate or (b) the federal
funds effective rate plus 0.5% and is payable quarterly. As of December 31,
2000, the interest rate on the New Term Loan, utilizing the Base Rate Borrowing
option, was 12%. As a result of a decline in the prime rate, the interest rate
applicable to borrowings under the Senior Credit Facilities decreased to 11.5%
on January 4, 2001. On January 12, 2001, the New Term Loan was converted to a
LIBOR basis. Currently, interest is being calculated based on an $87 million
tranche at a rate of 9.26125% through March 12, 2001 and an $88 million tranche
at a rate of 8.96875% through July 12, 2001. The average interest rate is
approximately 9.1% through March 12, 2001. Commitment fees of 0.5% per annum are
payable on the unused portion of the Revolver.

     The Senior Credit Facilities grant a first priority lien to the Lenders on
all property of the Company and material non-regulated subsidiaries, and all
capital stock of its material subsidiaries and provides that the Company
maintain certain financial ratios and prohibits certain restricted payments, as
defined.

     The costs incurred in connection with the issuance of the New Term Loan and
Revolver, aggregating approximately $4.3 million and $1.9 million, respectively,
have been capitalized and are being amortized over periods of 18 months to 60
months.

     During the second half of 2000, the Company repurchased or tendered all of
its $200 million 11% Senior Notes due 2005 (the "Senior Notes") and paid $22.4
million in premiums. The purchase price for each $1,000 principal amount of the
remaining Senior Notes validly tendered and accepted was determined based on a
fixed spread of 0.5% over the yield to maturity of the 7.5% U.S. Treasury Note
due May 15, 2002. All of the outstanding Senior Notes were tendered with
consent. The total purchase price, including tender and consent premiums, was
approximately $215.9 million, or $1,115.50 per $1,000 principal amount.

     During 2000, the Company redeemed $150 million outstanding under the Term
Loan Agreement due 2003 ("Term Loan") prior to maturity. Proceeds from dividend
and surplus note repayments received from the Company's HMO subsidiaries were
used to redeem the Term Loan. The Term Loan bore interest at a rate equal to the
administrative agent's reserve adjusted LIBOR rate plus 4.25%. As of December
31, 1999, the interest rate on the Term Loan was 10.7125%. Interest was payable
semi-annually on May 15 and November 15.

     As a result of the redemption of the Senior Notes and the Term Loan in 2000
as discussed above, the Company recorded an extraordinary charge of $20.3
million, or $0.22 per diluted share, net of income tax benefits of $13.9
million. The extraordinary charge represents the payment of redemption premiums,
transaction costs and the write off of deferred finance costs, net of related
tax benefits.

     The Company made cash payments for interest expense on indebtedness and
delayed claims of approximately $35.5 million, $53 million and $38.7 million in
2000, 1999 and 1998, respectively.

                                       57
<PAGE>   58
(7)    REDEEMABLE PREFERRED STOCK

Activity for redeemable preferred stock is as follows: (in thousands):

<TABLE>
<CAPTION>
(In thousands)                                         2000            1999
--------------                                         ----            ----
<S>                                               <C>             <C>
Beginning balance                                 $ 344,316       $ 298,816
Accrued  in-kind dividends                            4,565          30,486
Accrued cash dividends                               13,792            --
Cash dividends paid                                 (13,792)           --
Redemption of principal in cash                    (208,592)           --
Redemption of principal to exercise warrants       (195,008)           --
Write-off preferred stock discount and costs         40,373            --
Amortization of discount                             12,619          12,650
Amortization of issuance expenses                     1,727           2,364
                                                  ---------       ---------
Ending balance                                    $      --       $ 344,316
                                                  =========       =========
</TABLE>


    In order to fund operating losses incurred in 1997 and 1998 and necessary
capital contributions to its HMO and insurance subsidiaries, in May 1998, the
Company raised a total of $700 million in a series of capital transactions
including the sale of $350 million of preferred stock (originally issued as
Series A and Series B and later exchanged for Series D Cumulative Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") and Series E
Cumulative Preferred Stock, par value $.01 per share (the "Series E Preferred
Stock", together with the Series D Preferred Stock, the "Preferred Stock")) to
TPG Partners II, L.P. (formerly TPG Oxford LLC) and certain of its affiliates
and designees ("TPG Investors") under an Investment Agreement, dated as of
February 23, 1998, as amended, together with Series A and Series B warrants to
acquire up to 22,530,000 shares of the Company's common stock at an exercise
price of $17.75.

    In February 2000, the Company commenced a capital restructuring with the
repurchase of approximately $130 million of Series E Preferred Stock and Series
D Preferred Stock and in December 2000, the Company consummated an exchange and
repurchase agreement pursuant to which, among other things, (i) the Company paid
$220 million to TPG Investors to repurchase certain of the shares of Preferred
Stock and certain of the warrants and (ii) TPG Investors exchanged their
remaining shares of Preferred Stock and remaining warrants for 10,986,455 newly
issued shares of common stock (the "Recapitalization"). Accordingly, as of the
end of 2000, the Company had no warrants or Preferred Stock outstanding.

     As a result of the Recapitalization in the fourth quarter of 2000, and the
repurchase of the preferred shares in the first quarter of 2000, the Company
recorded a charge against earnings available to common shareholders of
approximately $41.1 million of unamortized preferred stock original issue
discount, issuance expenses and transaction costs during 2000.

(8)    STOCK OPTION PLANS

     The Company grants fixed stock options under its 1991 Stock Option Plan, as
amended (the "Employee Plan"), to certain key employees and consultants, under
its 1997 Independent Contractor Stock Option Plan (the "Independent Contractor
Plan") to certain independent contractors who materially contribute to the
long-term success of the Company and under its Nonemployee Directors' Stock
Option Plan, as amended (the "Nonemployee Plan"), to outside directors to
purchase common stock at a price not less than 100% of quoted market value at
date of grant.

     The Employee Plan provides for granting of nonqualified stock options and
incentive stock options which vest as determined by the Company and expire over
varying terms, but not more than seven years from date of grant. The Employee
Plan is administered by a compensation committee currently comprised of four
members of the Board of Directors, selected by the Board. The committee
determines the individuals to whom awards shall be granted as well as the terms
and conditions of each award, the grant date and the duration of each award. All
options are initially granted at fair market value on date of grant. The
Company's previous nonqualified employee stock option plan terminated in 1991,
except as to options theretofore granted.

                                       58
<PAGE>   59
     The Independent Contractor Plan provides for granting of nonqualified stock
options which vest as determined by the Company and expire over varying terms,
but not more than seven years from the date of grant. The Employee Plan and the
Independent Contractor Plan are administered by a committee consisting of four
members of the Board of Directors, selected by the Board. The committee
determines the individuals to whom awards shall be granted as well as the terms
and conditions of each award, the grant date and the duration of each award. All
options are granted at fair market value on the date of the grant.

     The Nonemployee Plan provides for granting of nonqualified stock options to
eligible nonemployee directors of the Company. The plan provides that each year
on the first Friday following the Company's annual meeting of stockholders, each
individual elected, re-elected or continuing as a nonemployee director will
automatically receive a nonqualified stock option for 5,000 shares of common
stock with an exercise price at the fair market value on that date. The plan
further 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 second, third and fourth
annual meeting of stockholders following the date of such grant.

     Stock option activity for all fixed option plans, adjusted for all stock
splits, is summarized as follows:

<TABLE>
<CAPTION>
                                                        Weighted-Average
                                         Shares         Exercise Prices
                                         ------         ---------------
<S>                                    <C>              <C>
Outstanding at January 1, 1998         10,206,829       $     37.06
Granted                                11,810,173             12.95
Exercised                                (397,103)             6.67
Cancelled                              (6,319,168)            46.41
                                       ----------
Outstanding at December 31, 1998       15,300,731             15.40
Granted                                 3,634,141             16.74
Exercised                              (1,470,585)            12.35
Cancelled                              (2,201,930)            22.51
                                       ----------
Outstanding at December 31, 1999       15,262,357             15.04
Granted                                 3,512,223             13.75
Exercised                              (5,321,694)            12.11
Cancelled                              (3,058,887)            15.22
                                       ----------
Outstanding at December 31, 2000       10,393,999             16.03
                                       ==========       ===========
Exercisable at December 31, 2000        3,933,287       $     19.13
                                       ==========       ===========
</TABLE>

     As of December 31, 2000, there were 17,877,740 shares of common stock
reserved for issuance under the plans, including 7,483,741 shares reserved for
future grant. As of October 1, 1998, the Company offered certain option holders
the right to exchange unexercised options granted subsequent to January 10, 1995
and prior to December 2, 1997 for options equal to one-half the number of
unexercised shares exchanged. Exercise prices of options granted during that
period ranged from $21.22 per share to $85.812 per share. The options received
in exchange were granted at the then current market value of $9.875 per share
and vest over a period of three years. A total of 1,234,464 original option
shares were exchanged. The Directors, the Chairman, the President, the Chief
Executive Officer and certain Executive Vice Presidents were not permitted to
participate in this exchange.

     Under the terms of an employment agreement, Norman C. Payson, M.D., the
Chief Executive Officer of the Company, was granted on February 23, 1998 a
nonqualified stock option (the "Option") to purchase 2,000,000 shares of common
stock at an exercise price of $15.52 per share and, in August 1998, a
nonqualified stock option (the "Additional Option") was granted to purchase an
additional 1,000,000 shares of Company common stock under the 1991 Stock Option
Plan. The Option generally provides that 800,000 shares will vest on February
23, 1999, and that the remaining 1,200,000 shares will vest ratably on a monthly
basis over the 36 month period ending February 23, 2002, provided in each case
that Dr. Payson is employed by the Company on the applicable vesting date. The
Option also provides for acceleration of vesting and extended exercisability
periods in certain circumstances, including certain terminations of employment
and a change in control (as defined in the Employee Plan) of the Company. The
difference between the exercise price and the fair market value of the shares
subject to the Option on the date of issuance has been accounted for as unearned
compensation and is being amortized to expense over the period restrictions
lapse. Unearned compensation charged to operations in 2000, 1999 and 1998 was
approximately $1.9 million, $2.2 million and $3.2 million,


                                       59
<PAGE>   60
respectively. The Additional Option has an exercise price equal to $6.0625,
vests ratably over the four years from the date of grant, and is otherwise
subject to the terms and conditions of the Employee Plan. The Additional Option
also provides for accelerated vesting following a change in control (as defined
in the Employee Plan).

     In the fourth quarter of 1999, terms of the option agreements between the
Company and two former executives were amended to allow for an extension of the
exercise period. As a result, the Company recorded additional compensation
expense of $4.2 million ($2.5 million net of deferred tax benefits) during 1999.

     Information about fixed stock options outstanding at December 31, 2000, is
summarized as follows:

<TABLE>
<CAPTION>
                                                                      Weighted -
                                                Weighted -             Average
   Range of                 Number               Average              Remaining
Exercise Prices           Outstanding         Exercise Price       Contractual Life
<S>                       <C>                 <C>                  <C>
$5.01 - $10.00              1,806,109              $   6.38              2.7 Years
10.01 -  15.00              3,101,589                 13.10              6.1 Years
15.01 -  20.00              4,666,570                 16.63              5.8 Years
20.01 -  25.00                315,000                 23.02              2.4 Years
25.01 -  50.00                249,731                 44.02              1.5 Years
50.01 -  74.00                255,000                 72.85              2.0 Years
                           ----------
 5.01 -  74.00             10,393,999                 16.03              5.0 Years
 ====    =====             ==========                 =====
</TABLE>



     Information about fixed stock options exercisable at December 31, 2000, is
summarized as follows:

<TABLE>
<CAPTION>
                                                   Weighted -
   Range of               Number                     Average
Exercise Prices         Exercisable            Exercise Price
---------------         -----------            --------------
<S>                     <C>                    <C>
$5.01 - $10.00             625,437                 $   6.40
10.01 -  15.00             670,521                    13.17
15.01 -  20.00           1,969,748                    15.89
20.01 -  25.00             235,000                    23.67
25.01 -  50.00             217,581                    45.66
50.01 -  74.00             215,000                    72.64
                         ---------
 5.01 -  74.00           3,933,287                    19.13
 ====    =====           =========                 ========
</TABLE>

                                       60
<PAGE>   61
     The Company applies APB Opinion No. 25 and related interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans other than for modifications of option terms
that result in new measurement dates. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for grants under these plans consistent with the methodology of SFAS 123, the
Company's net earnings (loss) and earnings (loss) per share for the years ended
December 31, 2000, 1999 and 1998, would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
(In thousands, except per share amounts)                                  2000           1999            1998
----------------------------------------                                  ----           ----            ----
<S>                                                                     <C>            <C>           <C>
Net earnings (loss) for common shares                As reported        $191,303       $274,440      $(624,460)
                                                     Pro forma          $164,495       $244,422      $(711,311)

Basic earnings (loss) per share                      As reported           $2.26          $3.38         $(7.79)
                                                     Pro forma             $1.94          $3.01         $(8.88)

Diluted earnings (loss) per share                    As reported           $2.02          $3.26         $(7.79)
                                                     Pro forma             $1.74          $2.90         $(8.88)
</TABLE>

     The per share weighted-average fair value of stock options granted was
$6.91, $8.21 and $9.00 during 2000, 1999, and 1998, respectively, estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants: no dividend yield for
any year; expected volatility of 75.87%, 73.67% and 72.94%, risk-free interest
rates of 6.37%, 5.66% and 5.33% in 2000, 1999 and 1998, respectively, and
expected lives of four years for all years.

     In January 2001, the Company granted options to purchase approximately 3
million shares of common stock to employees at the then current market value of
$37.06 per share. The options vest ratably over a period of four years.

 (9)   LEASES

     Oxford leases office space and equipment under capital and operating
leases. Rent expense under operating leases for the years ended December 31,
2000, 1999, and 1998 was approximately $12.5 million, $14.8 million and $31
million, respectively. The Company's lease terms range from one to five years
with certain options to renew. Certain lease agreements provide for escalation
of payments based on fluctuations in certain published cost-of-living indices.

     Property held under capital leases is summarized as follows and is included
in property and equipment:

<TABLE>
<CAPTION>
(In thousands)                         2000             1999
-----------------------------        --------         --------
<S>                                  <C>              <C>
Computer equipment                   $ 35,471         $ 35,471
Other equipment                           671              671
                                     --------         --------
    Gross                              36,142           36,142
Less accumulated amortization         (31,572)         (19,543)
                                     --------         --------
 Net capital lease assets            $  4,570         $ 16,599
                                     ========         ========
</TABLE>

                                       61
<PAGE>   62
     Future minimum lease payments required under capital and operating leases
that have initial or remaining noncancelable lease terms in excess of one year
at December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                    Capital        Operating
(In thousands)                                       Leases          Leases
--------------                                       ------          ------
<S>                                                 <C>            <C>
2001                                                 $5,913         $ 11,500
2002                                                      -            9,100
2003                                                      -            7,600
2004                                                      -            5,000
2005                                                      -            2,200
Thereafter                                                -            1,100
                                                     ------         --------
Total minimum future rental payments                  5,913          $36,500
                                                                     =======
Less amount representing interest                      (213)
                                                      -----
Present value of minimum lease payments               5,700
Less current maturities                              (5,700)
                                                      -----
Long-term obligations under capital leases            $   -
                                                      =====
</TABLE>

     The above amounts for operating leases are net of estimated future minimum
subrentals aggregating approximately $14.3 million.

(10)     OUTSOURCING AGREEMENT

     In December 2000, the Company entered into an agreement to outsource
certain of its information technology operations, including data center, help
desk services, desktop systems and network operations. The five-year agreement
with Computer Services Corporation ("CSC") provides for the transition of
approximately 150 of the Company's information system staff to CSC. Under the
agreement, the Company sold certain computer-related equipment to CSC at its
estimated fair market value and recognized a loss of approximately $5.2 million,
which is included in investment and other income for the year ended December 31,
2000.

     CSC is expected to invoice the Company for operating and capital costs
under the agreement totaling approximately $195 million over the agreement term.
Costs for equipment purchased by CSC that will be used for the Company's
operations will be capitalized as leased assets and amortized over periods
ranging from three to five years based on estimated useful lives, providing that
all such equipment is to be fully amortized by the end of the agreement.

     As part of the outsourcing agreement, the Company has committed to make
payments related to capital equipment purchases estimated as follows:

<TABLE>
<CAPTION>
                   (in thousands)
                   --------------
                   <S>                         <C>
                   2001                        $25,100
                   2002                          5,300
                   2003                          2,100
                   2004                          6,100
                   2005                          5,200
                                               -------
                   Total                       $43,800
                                               =======
</TABLE>


(11) RESTRUCTURING CHARGES

     During the third quarter of 1999, the Company recorded pretax restructuring
charges totaling $19.9 million ($11.3 million after income tax benefits, or
$0.13 per diluted share) in connection with additional steps taken under the
Company's plan (the "Turnaround Plan") to improve operations and restore the
Company's profitability. These charges included estimated costs related to work
force reductions, additional consolidation of the Company's office facilities
inclusive of the net write-off of fixed assets, consisting primarily of
leasehold

                                       62
<PAGE>   63
improvements; write-off of certain computer equipment; and leases for equipment
no longer used in operations. These charges were partially offset by a pretax
gain of $2.5 million related to the disposal of the Company's minority
investment in Ralin Medical, Inc., which was written down in value as part of
the Company's 1998 restructuring charge.

     During the first half of 1998, the Company recorded restructuring charges
totaling $123.5 million ($114.8 million after income tax benefits, or $1.43 per
share). These charges resulted from the Company's actions to better align its
organization and cost structure as part of the Company's Turnaround Plan. These
charges included estimated costs related to the disposition or closure of
noncore businesses; the write-down of certain property and equipment; severance
and related costs; and operations consolidation, including long-term lease
commitments. The ending reserves for these charges were generally classified in
the Company's balance sheet as accounts payable and accrued expenses with the
exception of property and equipment, which were written down to their estimated
net realizable values.

     The tables below present the activity for the restructuring charge reserves
established in 1999 and 1998 as part of the Turnaround Plan.


<TABLE>
<CAPTION>
                                          Provisions
                                         for loss on     Write down of                           Costs of
                                           noncore        property and      Severance and      consolidating
                                          businesses       equipment        related costs        operations        Total
                                         -----------     -------------      -------------      -------------      --------
<S>                                     <C>             <C>                <C>                <C>                <C>
Restructuring charges                      $55,700          $29,272            $24,800            $13,728         $123,500
Cash used                                   (9,827)               -             (4,246)              (548)         (14,621)
Noncash activity                           (18,725)         (28,267)           (11,200)                 -          (58,192)
Changes in estimate                        (13,343)          (1,005)                 -              4,505           (9,843)
                                           -------          -------            -------            -------         --------
Balance at December 31, 1998                13,805                -              9,354             17,685           40,844
Cash received (used)                         4,343                -            (10,380)           (14,272)         (20,309)
Noncash activity                           (14,493)               -                  -                  -          (14,493)
Restructuring charges                            -                -              8,750              3,003           11,753
Changes in estimate                         (1,590)               -                  -              1,590                -
                                           -------          -------            -------            -------         --------
Balance at December 31, 1999                 2,065                -              7,724              8,006           17,795
Cash used                                     (219)               -             (2,133)            (3,667)          (6,019)
Noncash activity                               (17)               -                  -                  -              (17)
                                           -------          -------            -------            -------         --------
Balance at December 31, 2000                $1,829               $-             $5,591             $4,339          $11,759
                                            ======          =======             ======             ======          =======
</TABLE>

     The Company believes that the remaining restructuring reserves as of
December 31, 2000 are adequate and that no revisions of estimates are necessary
at this time.

     Provisions for loss on noncore business

     As part of its Turnaround Plan, the Company decided to withdraw from
noncore markets by selling or closing its HMO and insurance businesses in
Pennsylvania, Illinois, Florida and New Hampshire. Total premium revenue for
these businesses in 1998 was approximately $170.4 million, with operating losses
totaling approximately $37 million. In addition, the Company decided to close
its specialty management initiatives and to sell or close certain other health
care services operations and investments in noncore businesses. Restructuring
reserves were established relating to estimated losses associated with premium
deficiencies in the HMO and insurance subsidiaries to be sold or closed, the net
book value of noncore investments was reduced to their estimated recoverable
value, and accruals were recorded for incremental disposition and closing costs
associated with the Turnaround Plan. The Company substantially completed the
disposition of all of the property and equipment in 1999. In addition,
approximately 250 employees in the noncore businesses have been terminated since
June 30, 1998.

    As of December 31, 2000, the ending reserve of $1.8 million represents a
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.

                                       63
<PAGE>   64
     Severance and related costs

     The Company's Turnaround Plan contemplated significant changes in the
Company's senior management and, in connection therewith, fifteen members of
senior management were replaced and certain members of the former management
team were granted severance arrangements. As a result, the Company recorded
restructuring charges related to severance costs of $24.8 million in 1998. In
the third quarter of 1999, the Company recorded an additional $8.8 million for
severance and related costs as a result of an additional reduction in force in
which approximately 650 employees were terminated. The cash activity during 2000
reflects payments to former employees in accordance with their respective
severance arrangements. The December 31, 2000 balance represents contracted
amounts payable through 2002 and is related to individuals who are no longer
employed by the Company at year-end.

     Costs of consolidating operations

     During 1998, the costs of consolidating operations reserve was established
for $13.7 million of estimated costs associated with future rental obligations
(net of estimated sublease revenues), commissions, legal costs, penalties and
other expenses relating to disposition of excess space in various locations. The
Company recorded an additional restructuring charge of approximately $4.5
million in the fourth quarter of 1998 as a change in estimate as the Company's
experience in negotiating subleases and lease cancellations through the fourth
quarter indicated that costs would exceed previous estimates.

     During the third quarter of 1999, the Company recorded an increase of $3
million to this reserve for the net costs associated with relocating its
corporate headquarters and the cessation of operations at its Ireland facility.
Additionally, as a result of revisions in the estimates related to the 1998
reserves, $1.6 million was added to the reserves in the fourth quarter of 1999.
The Company's related lease obligations for these properties extend to July
2005.

     The remaining costs of the operations consolidations reserve is comprised
of the following estimated costs associated with the disposition of leased space
no longer used in operations:

<TABLE>
<CAPTION>
      (In millions)                              2000          1999          1998
      -------------                              ----          ----          ----
<S>                                             <C>           <C>           <C>
Gross future minimum rentals                    $18.0         $16.6         $26.1
Sublease income                                 (14.3)        (12.9)        (14.0)
Lease termination penalties                        --           3.4           2.5
Other costs                                       0.6           0.9           3.1
                                                -----         -----         -----
  Total operations consolidation reserve        $ 4.3         $ 8.0         $17.7
                                                =====         =====         =====
</TABLE>

     Write down of property and equipment

     As discussed above during the third quarter of 1999, the Company recorded
an additional restructuring charge which included $10.7 million of costs
associated with the continued consolidation of the Company's office facilities.
The majority of these costs were associated with relocating its corporate
headquarters and the cessation of operations at its Ireland facility. The
charges were comprised of the net write-off of $6.4 million in fixed assets
(primarily leasehold improvements) and $4.3 million for the write-off of
computer equipment no longer used in operations.

     During 1998, in connection with the Company's attempts to reduce
administrative costs under the Turnaround Plan, the Company decided to
consolidate operations and reduce its occupied square footage from approximately
2 million square feet under lease to approximately 1.2 million square feet. The
Company attempts to dispose of property and equipment as it vacates the
facilities. The 1998 estimate for write down of property and equipment included
provisions for the estimated losses related to vacating certain facilities in
connection with the Company's Turnaround Plan. The 1998 charge included an
estimated provision for loss related to leasehold improvements ($12.5 million),
office furniture ($11.8 million), computers and office equipment ($4 million)
and software ($1 million). Additionally, the Company anticipated and experienced
a reduction in workforce of over 1,000 employees as a result of this
consolidation and its administrative expense reduction plan. The Company
completed the disposition or sale of these assets during 1999.

(12)   WRITE DOWNS OF STRATEGIC INVESTMENTS

                                       64
<PAGE>   65
     During the second quarter of 1998, the Company sold 540,000 shares of
common stock of FPA Medical Management, Inc. ("FPAM") and recognized a loss of
$8.1 million. In July 1998, FPAM filed for protection under Chapter 11 of the
U.S. Bankruptcy Code and the market value per share of its common stock fell
below one dollar. The Company wrote its remaining investment in FPAM down to
nominal value and recognized a loss in the second quarter of 1998 of $30.2
million. The total 1998 recognized loss and write down of $38.3 million, or $.49
per share, has been recognized as write downs of strategic investments in the
accompanying consolidated financial statements.

(13)   DEFINED CONTRIBUTION PLAN

     The Company has a qualified defined contribution plan (the "Savings Plan")
that covers all employees with six months of service and at least a part-time
employment status as defined. The Savings Plan also provides that the Company
make matching contributions, up to certain limits, of the salary contributions
made by the participants. The Company's contributions to the Savings Plan were
approximately $1.7 million, $2.1 million and $2.8 million in 2000, 1999 and
1998, respectively.

(14)   REGULATORY AND CONTRACTUAL CAPITAL REQUIREMENTS

    Certain restricted investments at December 31, 2000 and 1999 are held on
deposit with various financial institutions to comply with federal and state
regulatory capital requirements. As of December 31, 2000, approximately $57.2
million was so restricted and is shown as restricted investments in the
accompanying consolidated balance sheet. With respect to the Company's HMO
subsidiaries, the minimum amount of surplus required is based on formulas
established by the state insurance departments. These statutory surplus
requirements amounted to approximately $176 million and $163 million at December
31, 2000 and 1999, respectively.

     In addition to the foregoing requirements, the Company's HMO and insurance
subsidiaries are subject to certain restrictions on their abilities to make
dividend payments, loans or other transfers of cash to Oxford. Such restrictions
limit the use of any cash generated by the operations of these entities to pay
obligations of Oxford and limit the Company's ability to declare and pay
dividends.

     During 2000, the Company's HMO subsidiaries paid dividends to the parent
company of approximately $317.6 million and the Company made cash contributions
to its HMO and insurance subsidiaries of approximately $6 million and $4.5
million during 2000 and 1999, respectively. The capital contributions were made
to ensure that each subsidiary had sufficient surplus under applicable
regulations after giving effect to operating results and reductions to surplus
resulting from the non-admissibility of certain assets. In addition, New York
State regulatory authorities authorized the repayment in 2000 of a $38 million
surplus note plus $6 million in accrued interest by Oxford NY to the parent
company.

     During the past year, the states of New York, New Jersey and Connecticut
have all enacted legislation adopting the NAIC Accounting Practices and
Procedures Manual, which is composed of statutory accounting guidelines referred
to as Statements of Statutory Accounting Principles ("SSAP"), effective January
1, 2001. The SSAP established a comprehensive basis of accounting to be used by
insurance departments and insurers. The Company does not expect the new
guidelines to have a material impact on the results of operations, financial
condition or statutory net worth of the insurance subsidiaries.

                                       65
<PAGE>   66
(15)   CONCENTRATIONS OF CREDIT RISK

    Concentrations of credit risk with respect to premiums receivable are
limited due to the large number of employer groups comprising the Company's
customer base. As of December 31, 2000 and 1999, the Company had no significant
concentrations of credit risk. Financial instruments which potentially subject
the Company to concentrations of such credit risk consist primarily of
obligations of the United States government, certain state governmental entities
and high-grade corporate bonds and notes. These investments are managed by
professional investment managers within the guidelines established by the Board
of Directors, which, as a matter of policy, limit the amounts which may be
invested in any one issuer and prescribe certain minimum investee company
criteria. The Company's commercial and Medicare business is concentrated in New
York, New Jersey and Connecticut, with more than 80% of its tri-state 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 or results of operations. In addition, the Company's revenue
under its contracts with HCFA represented approximately 17% of its premium
revenue earned during 2000.

(16)   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 actions and
purported federal derivative actions are now all consolidated before Judge
Charles L. Brieant of the United States District Court for the Southern District
of New York. 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. 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.

     In the fourth quarter of 1999, the Company purchased new insurance policies
providing additional coverage of certain legal defense costs, including
judgments and settlements, if any, incurred by the Company and individual
defendants in certain pending lawsuits and investigations, including, among
others, the securities class action pending against the Company and certain of
its directors and officers and the pending stockholder derivative actions.
Subject to the terms of the policies, the insurers have agreed to pay 90% of the
amount, if any, by which covered costs exceed $175 million, provided that the
aggregate amount of insurance under these new policies is limited to $200
million and the aggregate amount of new insurance in respect of defense costs
other than judgments and settlements, if any, is limited to $10 million. The
policies do not cover taxes, fines or penalties imposed by law or the cost to
comply with any injunctive or other nonmonetary relief or any agreement to
provide any such relief. The coverage under the new policies is in addition to
approximately $35.5 million of coverage remaining under preexisting insurance
that is not subject to the $175 million retention applicable to the new
policies. A charge of $24 million for premiums and other costs associated with
the new insurance coverage was included in the Company's results of operations
for 1999.

     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.
Also, on

                                       66
<PAGE>   67
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 this
complaint was dismissed without prejudice as to the Oxford defendants, another
identical complaint against the Company was filed on December 28, 2000 in the
federal district court in Connecticut.

    On February 14, 2001, the Connecticut State Medical Society ("CSMS"), and
four individual Oxford physicians, filed two separate but nearly identical
lawsuits against Oxford CT in Connecticut state court, on behalf of all members
of the CSMS who provided health care services pursuant to contracts with Oxford
during the period February 1995 through the present. The suit filed by the
individual physicians is styled as a class action complaint. The suits assert
claims for breach of contract, breach of the implied duty of good faith and fair
dealing, violation of the Connecticut Unfair Trade Practices Act and negligent
misrepresentation based on, among other things, Oxford's alleged (i) failure to
timely pay claims or interest; (ii) refusal to pay all or part of claims by
improperly "bundling" or "downcoding" claims, or by including unrelated claims
in "global rates"; (iii) use of inappropriate and arbitrary coverage guidelines
as the basis for denials; and (iv) failure to provide adequate staffing to
handle physician inquiries. The complaint filed by the CSMS seeks a permanent
injunction enjoining Oxford from pursuing the complained of acts and practices,
as well as attorneys fees and costs. The complaint filed by the individual
physicians seeks compensatory and punitive damages, as well as attorneys fees
and costs.

    Although the outcome of these ERISA actions and the CSMS action 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 is also 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. The outcome of any such examinations,
if commenced, cannot be predicted at this time.

    The Company 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.

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:

    Cash and cash equivalents: The carrying amount approximates fair value based
on the short-term maturities of these instruments.

    Investments: Fair values for fixed maturity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained form independent pricing
services.

    Long-term debt: The carrying amount of long-term debt, including the current
portion, approximates fair value as the interest rates of outstanding debt are
similar to like borrowing arrangements at December 31, 2000.

(18)  GOVERNMENT PROGRAMS

    As a contractor for Medicare programs, the Company is subject to regulations
covering operating procedures. During 2000, 1999 and 1998, the Company earned
premiums of $677.5 million, $750 million and $1.26 billion, respectively,
associated with Medicare and Medicaid.

    The Company has executed an agreement with a third party to transfer a
substantial portion of the risk of providing health care and administrative
services to certain of the participants in its Medicare programs. However, the
Company remains liable to pay the cost of covered services provided to its
Medicare members.

    The laws and regulations governing risk contractors are complex and subject
to interpretation. HCFA monitors the Company's operations to ensure compliance
with the applicable laws and regulations. There can be no assurance that
administrative or systems issues or the Company's current or future provider
arrangements will not result in adverse actions by HCFA.

                                       67
<PAGE>   68
(19)  QUARTERLY INFORMATION (UNAUDITED)

    Tabulated below are certain data for each quarter of 2000 and 1999.

<TABLE>
<CAPTION>
                                                                                                Quarter Ended
                                                                                                -------------
(In thousands, except membership and per share amounts)                     March 31       June 30         Sept. 30       Dec. 31
-------------------------------------------------------                     --------       -------         --------       -------
<S>                                                                       <C>            <C>             <C>            <C>
YEAR ENDED DECEMBER 31, 2000:
    Net operating revenues                                                $ 1,004,395    $   994,772     $ 1,016,836    $ 1,022,784
    Operating expenses                                                        939,134        921,165         878,483        854,184
    Net income before extraordinary items                                      41,635         48,143          88,234        107,407
    Net income                                                                 41,635         44,519          88,234         90,706
    Net income for common shares                                               28,800         37,003          80,596         44,904

    Per common and common equivalent share before extraordinary items:
      Basic                                                               $      0.35    $      0.48     $      0.94    $      0.70
      Diluted                                                             $      0.34    $      0.45     $      0.81    $      0.59

    Per common and common equivalent share:
      Basic                                                               $      0.35    $      0.44     $      0.94    $      0.51
      Diluted                                                             $      0.34    $      0.41     $      0.81    $      0.43

    Membership at quarter-end                                               1,520,000      1,491,600       1,485,900      1,491,400



YEAR ENDED DECEMBER 31, 1999:
    Net operating revenues                                                $ 1,030,196    $ 1,037,761     $ 1,029,937    $ 1,017,240
    Operating expenses                                                      1,021,610      1,042,046         971,760        949,038
    Net income (loss)                                                          14,295         (1,999)         39,834        267,810
    Net income (loss) for common shares                                         3,213        (13,376)         28,331        256,272

    Per common and common equivalent share:
      Basic                                                               $      0.04    $     (0.16)    $      0.35    $      3.13
      Diluted                                                             $      0.04    $     (0.16)    $      0.34    $      3.05

    Membership at quarter-end                                               1,691,000      1,668,700       1,629,100      1,593,700
</TABLE>

    Net operating revenues include premiums earned and third-party
administration fees, net. Operating expenses include health care services and
marketing, general administrative expenses, and restructuring charges and
write-downs of strategic investments and credits.

    As discussed in Note 7, the first quarter of 2000 includes a charge of $2.6
million relating to the Company's repurchase of $130 million of preferred stock.
The second quarter of 2000 includes $3.6 million of extraordinary charges, net
of income tax benefits of $2.6 million, in connection with the redemption of the
Term Loan (see Note 6). The fourth quarter of 2000 includes $16.7 million of
extraordinary charges, net of income tax benefits of $11.3 million, in
connection with the redemption of the remaining Senior Notes (see Note 6), a
charge of $38.5 million relating to the exchange and repurchase of the remaining
preferred shares (see Note 7) and New York Stabilization Pool recoveries from
1997 and 1998 of approximately $25.1 million.

    Restructuring charges related to severance and operations consolidation
costs increased operating expenses by $20 million in the third quarter of 1999
(see Note 11). The fourth quarter of 1999 includes $24 million in expenses
related to premiums and other costs associated with certain new insurance
coverage (see Note 16) and $225 million related to reductions in deferred tax
valuation allowances (see Note 4).

                                       68

<PAGE>   69
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                                 (In thousands)


<TABLE>
<CAPTION>
Current assets:                                                          2000            1999
---------------                                                          ----            ----
<S>                                                                   <C>             <C>
   Cash and cash equivalents                                          $  87,902       $ 246,366
   Investments - available-for-sale                                       3,079          13,340
   Receivables, net                                                       5,869           1,624
   Deferred income taxes                                                 18,151          36,221
   Other current assets                                                   4,461           3,864
                                                                      ---------       ---------
     Total current assets                                               119,462         301,415

Property and equipment, net                                              19,772          49,488
Investments in and advances to subsidiaries, net                        480,929         561,703
Deferred income taxes                                                    71,860          44,807
Other assets                                                              9,941          15,707
                                                                      ---------       ---------
     Total assets                                                     $ 701,964       $ 973,120
                                                                      =========       =========

Current liabilities:
   Accounts payable, accrued expenses and medical claims payable      $  62,042       $ 161,795
   Current portion of long-term debt                                    147,000            --
   Current portion of capital lease obligations                           5,700          12,467
                                                                      ---------       ---------
     Total current liabilities                                          214,742         174,262
                                                                      ---------       ---------

Long-term debt                                                           28,000         350,000
Obligations under capital leases                                           --             5,787
Redeemable preferred stock                                                 --           344,316

Shareholders' equity:
   Common stock                                                             983             820
   Additional paid-in capital                                           561,857         488,030
   Retained earnings (deficit)                                         (107,256)       (372,350)
   Accumulated other comprehensive income (loss)                          3,638         (17,745)
                                                                      ---------       ---------
     Total shareholders' equity                                         459,222          98,755
                                                                      ---------       ---------
     Total liabilities and shareholders' equity                       $ 701,964       $ 973,120
                                                                      =========       =========
</TABLE>


                                       69
<PAGE>   70
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
                       CONDENSED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                    2000           1999            1998
                                                                    ----           ----            ----
<S>                                                              <C>             <C>             <C>
Revenues-management fees and investment and
   other income, net                                             $ 396,549       $ 566,209       $ 696,119
                                                                 ---------       ---------       ---------

Expenses:
   Health care services                                            (12,674)          2,939          34,627
   Marketing, general and administrative                           373,884         488,666         713,021
   Interest and other financing charges                             24,311          40,407          43,038
   Restructuring charges                                              --            19,963         113,657
                                                                 ---------       ---------       ---------
     Total expenses                                                385,521         551,975         904,343
                                                                 ---------       ---------       ---------

Operating earnings (loss)                                           11,028          14,234        (208,224)

Equity in net earnings (losses) of subsidiaries                    281,530         308,683        (401,160)
                                                                 ---------       ---------       ---------
Earnings (loss) before income taxes and extraordinary items        292,558         322,917        (609,384)
Income tax expense (benefit)                                         7,139           2,977         (12,592)
                                                                 ---------       ---------       ---------
Net earnings (loss) before extraordinary items                     285,419         319,940        (596,792)
Extraordinary items, net of income tax benefits                    (20,325)           --              --
                                                                 ---------       ---------       ---------
Net earnings (loss)                                                265,094         319,940        (596,792)
Less preferred dividends and amortization                          (73,791)        (45,500)        (27,668)
                                                                 ---------       ---------       ---------
Net earnings (loss) attributable to common shares                $ 191,303       $ 274,440       $(624,460)
                                                                 ---------       ---------       ---------
</TABLE>

     During 1998, the Registrant received a cash dividend from one consolidated
     subsidiary aggregating $9.6 million.

     During 2000, the Registrant received cash dividends from its consolidated
     subsidiaries aggregating $317.6 million.

     Income tax expense (benefit) includes the tax on a separate-company basis
     plus the net effects of the tax sharing agreements with its subsidiaries.

                                       70
<PAGE>   71
                   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, 2000, 1999 AND 1998
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                     2000            1999            1998
                                                                     ----            ----            ----
<S>                                                               <C>             <C>             <C>
Net cash provided by operating activities                         $ 318,030       $  50,840       $  88,212
                                                                  ---------       ---------       ---------
Cash flows from investing activities:
   Capital expenditures                                             (12,774)         (8,987)        (34,895)
   Sale or maturity of available-for-sale securities                 10,400           2,600            --
   Purchase of available-for-sale investments                           (11)        (11,587)         (4,563)
   Proceeds on the sale of assets                                     2,734            --              --
   Acquisitions and other investments                                  --              --            (1,312)
   Other, net                                                        10,884             299          20,675
                                                                  ---------       ---------       ---------
Net cash provided (used) by investing activities                     11,233         (17,675)        (20,095)
                                                                  ---------       ---------       ---------
Cash flow from financing activities:
   Proceeds from issuance of common stock                              --              --            10,000
   Proceeds from exercise of stock options                           64,590          18,186           2,655
   Proceeds (redemption) of preferred stock, net of issuance
     expenses                                                      (208,592)           --           271,148
   Proceeds (Redemption) of warrants                               (142,122)           --            67,000
   Proceeds of notes and loans payable                              175,000            --           550,000
   Redemption of notes and loans payable                           (376,050)           --          (200,000)
   Cash dividends paid on preferred stock                           (13,792)           --              --
   Debt issuance expenses                                            (6,207)           --           (11,793)
   Proceeds of surplus note                                          38,000            --              --
   Investments in and advances to subsidiaries, net                  (6,000)        (13,699)       (528,073)
   Payments under capital lease obligations                         (12,554)        (16,534)         (5,463)
                                                                  ---------       ---------       ---------
Net cash provided (used) by financing activities                   (487,727)        (12,047)        155,474
                                                                  ---------       ---------       ---------

Net increase (decrease) in cash and cash equivalents               (158,464)         21,118         223,591
Cash and cash equivalents at beginning of year                      246,366         225,248           1,657
                                                                  ---------       ---------       ---------
Cash and cash equivalents at end of year                          $  87,902       $ 246,366       $ 225,248
                                                                  =========       =========       =========
</TABLE>


                                       71
<PAGE>   72
                                  EXHIBIT INDEX

EXHIBIT NO.                   DESCRIPTION OF DOCUMENT
-----------                   -----------------------

     3(a)     --Second Amended and Restated Certificate of Incorporation, as
                    amended, of the Registrant, previously filed with and
                    incorporated by reference to the Registrant's Form 10-Q/A
                    for the quarterly period ended September 30, 2000 (File No.
                    0-19442)

     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)     --Form of Stock Certificate, incorporated by reference to Exhibit
                    4 of the Registrant's Registration Statement on Form S-1
                    (File No. 33-40539)

     4(b)     --Certificate of Designations for the Series D Cumulative
                    Preferred Stock of Oxford Health Plans, Inc., incorporated
                    by reference to Exhibit 4(b) of the Registrant's Form 10-K
                    for the year ended December 31, 1999 (File No. 33-40539)

     4(c)     --Certificate of Designations for the Series E Cumulative
                    Preferred Stock of Oxford Health Plans, Inc., incorporated
                    by reference to Exhibit 3(a) of the Registrant's Annual
                    Report on form 10-K/A for the period ended December 31, 1998
                    (File No. 0-19442)

     10(a)    --Employment Agreement, dated as of February 23, 1998, between the
                    Registrant and Dr. Norman C. Payson, incorporated by
                    reference to Exhibit 10(t) of the Registrant's Annual Report
                    on Form 10-K/A for the period ended December 31, 1997 (File
                    No. 0-19442)

     10(b)    --Oxford Health Plans, Inc. Stock Option Agreement, dated February
                    23, 1998, by and between Dr. Norman C. Payson and the
                    Registrant, previously filed with and incorporated by
                    reference to Exhibit

                                       72
<PAGE>   73
                    10(u) of the Registrant's Annual Report on Form 10-K/A for
                    the period ended December 31, 1997 (File No. 0-19442)


     10(c)    --Amendment Number 1 to Employment Agreement, dated as of December
                    9, 1998, by and between the Registrant and Norman C. Payson,
                    M.D., previously filed with and incorporated by reference to
                    the Registrant's Form 10-K for the year ended December 31,
                    1998, filed on March 19, 1999 (File No. 0-19442)

     10(d)    --Amendment, dated April 13, 1999, to Employment Agreement between
                    Registrant and Norman C. Payson, previously filed with and
                    incorporated by reference to the Registrant's report on Form
                    10-Q for the quarterly period ended March 31, 1999.

     10(e)    --Employment Agreement, dated as of December 31, 1999, between the
                    Registrant and Charles M. Schneider, incorporated by
                    reference to Exhibit 10(e) of the Registrant's Form 10-K for
                    the year ended December 31, 1999 (File No. 33-40539)

     10(f)    --Oxford Health Plans, Inc. Stock Option Agreement, dated as of
                    December 30, 1999, by and between the Registrant and Charles
                    M. Schneider, included as Exhibit A to the Employment
                    Agreement filed as Exhibit 10(e) hereto.

     10(g)    --Amendment to Employment Agreement, dated as of December 31,
                    2000, by and between the Registrant and Charles M.
                    Schneider.*

     10(h)    --Employment Agreement, dated as of April 1, 1998, between the
                    Registrant and Alan Muney, M.D., M.H.A., incorporated by
                    reference to Exhibit 10(d) of the Registrant's Form 10-Q for
                    the quarterly period ended June 30, 1998 (File No. 0-19442)

     10(i)    --Employment Agreement, dated April 13, 1998, by and between the
                    Registrant and Jon S. Richardson, incorporated by reference
                    to Exhibit 10(h) of the Registrant's Form 10-K for the year
                    ended December 31, 1999 (File No. 33-40539)

     10(j)    --Amendment No. 1, dated as of December 14, 1999, to Employment
                    Agreement by and between the Registrant and Jon S.
                    Richardson, incorporated by reference to Exhibit 10(i) of
                    the Registrant's Form 10-K for the year ended December 31,
                    1999 (File No. 33-40539)

     10(k)    --Amendment No. 2, dated as of March 7, 2000, to Employment
                    Agreement by and between the Registrant and Jon S.
                    Richardson, incorporated by reference to Exhibit 10(j) of
                    the Registrant's Form 10-K for the year ended December 31,
                    1999 (File No. 33-40539)


                                       73
<PAGE>   74
                            EXHIBIT INDEX (CONTINUED)


EXHIBIT NO.                   DESCRIPTION OF DOCUMENT
-----------                   -----------------------

     10(l)    --Letter Agreement, dated September 28, 1998, between the
                    Registrant and Fred F. Nazem, incorporated by reference to
                    Exhibit 10(a) of the Registrant's Form 10-Q for the
                    quarterly period ended September 30, 1998 (File No. 0-19442)

     10(m)    --Letter Agreement, dated July 24, 1998, between the Registrant
                    and Benjamin Safirstein, M.D., incorporated by reference to
                    Exhibit 10(b) of the Registrant's Form 10-Q for the
                    quarterly period ended September 30, 1998 (File No. 0-19442)

     10(n)    --Letter Agreement, dated October 12, 1999, to Letter Agreement,
                    dated July 24, 1998, between the Registrant and Benjamin
                    Safirstein, M.D., incorporated by reference to Exhibit 10(a)
                    of the Registrant's Form 10-Q for the quarterly period ended
                    September 30, 1999 (File No. 0-19442)

     10(o)    --Retirement, Consulting and Non-Competition Agreement, dated as
                    of February 23, 1998, between the Registrant and Stephen F.
                    Wiggins, incorporated by reference to Exhibit 10(y) of the
                    Registrant's Annual Report on Form 10-K/A for the period
                    ended December 31, 1997 (File No. 0-19442)

     10(p)    --Employment Agreement, dated as of September 1, 2000, as amended,
                    by and between the Registrant and Daniel N. Gregoire*

     10(q)    --Oxford Health Plans, Inc. Stock Option Agreement, dated as of
                    December 1, 2000, by and between the Registrant and Daniel
                    N. Gregoire*

     10(r)    --Letter Agreement, dated as of July 22, 1998, by and between the
                    Registrant and Kurt B. Thompson, incorporated by reference
                    to the Exhibit 10(y) of the Registrant's Form 10-K for the
                    year ended December 31, 1999 (File No. 0-19442)

     10(s)    --Employment Agreement, dated March 15, 2000, by and between the
                    Registrant and Kurt B. Thompson, incorporated by reference
                    to Exhibit 10(z) of the Registrant's Form 10-K for the year
                    ended December 31, 19999 (File No. 0-19442)

     10(t)    --1991 Stock Option Plan, as amended*

     10(u)    --1997 Independent Contractor Stock option plan, incorporated by
                    reference to the Registrant's Form S-8 filed on September
                    16, 1997 (File No. 0-19442)

     10(v)    --Oxford Health Plans, Inc. 401(k) Plan, as amended*

     10(w)    --Non-Employee Directors Stock Option Plan, as amended,
                    incorporated by reference to Exhibit 10(l)(ii) of the
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1994 (File No. 0-19442)

     10(x)    --Oxford Health Plans, Inc. Special Salary Continuation Plan,
                    previously filed with and incorporated by reference to
                    Exhibit 10(c) of the Registrant's report on Form 10-Q for
                    the quarterly period ended March 31, 1999 (File No. 0-19442)

     10(y)    --Investment Agreement, dated as of February 23, 1998, between TPG
                    Oxford LLC and the Registrant., incorporated by reference to
                    Exhibit 10(r) of the Registrant's Annual Report on Form
                    10-K/A for the period ended December 31, 1997 (File No.
                    0-19442)

     10(z)    --Amendment Number 1 to Investment Agreement, dated as of May 13,
                    1998 between TPG Oxford LLC and the Registrant, incorporated
                    by reference to the Registrant's Form 10-K for the year
                    ended December 31, 1998, filed on March 19, 1999 (File No.
                    0-19442)

     10(aa)   --Amendment Number 2 to Investment Agreement, dated as of August
                    27, 1998, by and between TPG Partners II, L.P. and the
                    Registrant, incorporated by reference to the Registrant's
                    Form 10-K for the year ended December 31, 1998, filed on
                    March 19, 1999 (File No. 0-19442)

     10(bb)   --Amendment Number 3 to Investment Agreement, dated as of November
                    19, 1998, by and between TPG Partners II, L.P. and the
                    Registrant, incorporated by reference to the Registrant's
                    Form 10-K for the year ended December 31, 1998, filed on
                    March 19, 1999 (File No. 0-19442)

     10(cc)   --Registration Rights Agreement, dated as of February 23, 1998,
                    between TPG Oxford LLC and the Registrant, incorporated by
                    reference to Exhibit 10(s) of the Registrant's Annual Report
                    on Form 10-K/A for the period ended December 31, 1997 (File
                    No. 0-19442)

     10(dd)   --Share Exchange Agreement, dated as of February 13, 1999 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. and the DLJ Entities listed therein,
                    incorporated by reference to Exhibit 10(rr) of the
                    Registrant's Annual Report on Form 10-K/A for the fiscal
                    year ended December 31, 1998 (File No. 0-19442)

                                       74
<PAGE>   75
                            EXHIBIT INDEX (CONTINUED)


EXHIBIT NO.                   DESCRIPTION OF DOCUMENT
-----------                   -----------------------

     10(ee)   --Share Repurchase Agreement, dated as of February 29, 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. and the DLJ Entities listed therein
                    incorporated by reference to the Registrant's Form 10-K for
                    the year ended December 31, 1999 (File No. 0-19442)

     10(ff)   --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, incorporated by reference to Exhibit 10
                    of the Registrant's Form 10-Q for the quarterly period ended
                    September 30, 2000 (File No. 0-19442)

     10(gg)   --Indenture of Registrant, dated May 13, 1998, between Registrant
                    and the Chase Manhattan Bank, as Trustee, including for of
                    11% Senior Notes, incorporated by reference to Exhibit 10(c)
                    of the Registrant's Form 10-Q for the quarterly period ended
                    March 31, 1998 (File No. 0-19442)

     10(hh)   --Term Loan Agreement, dated May 13, 1998, among Registrant,
                    Lenders listed therein, DLJ Capital Funding, Inc. and IBJ
                    Schroder Bank & Trust Company, including exhibits,
                    incorporated by reference to Exhibit 10(d) of the
                    Registrant's Form 10-Q for the quarterly period ended March
                    31, 1998 (File No. 0-19442)

     10(ii)   --Credit Agreement, dated as of December 22, 2000, among the
                    Registrant, the financial institutions listed therein as
                    Lenders, Credit Suisse First Boston, as Administrative Agen,
                    and the other parties thereto, incorporated by reference to
                    Exhibit 10.3 of the registration Statement on Form S-3,
                    filed January 10, 2001 (File No. 0-19442)

     21       --Subsidiaries of the Registrant*

     23(a)    --Consent of Ernst & Young LLP*



         *  Filed herewith.


                                       75