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.
The operating data and balance sheet information set forth below for each year in the five-year period ended December 31, 1999 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.
(1) During the first quarter of 2000, the Company repurchased approximately $14 million of principal outstanding under its Term Loan.
(2) During the first quarter of 2000, the Company repurchased shares of its redeemable preferred stock for approximately $130 million.
(5) In July 1995, the Company completed a merger with OakTree Health Plan, Inc. ("OakTree") whereby OakTree was merged into a subsidiary of the Company. The merger was accounted for as a pooling of interests and, accordingly, all prior period consolidated financial statements have been restated as if the merger took place at the beginning of such periods.
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: (i) $55.7 million associated with the disposition or closure of noncore businesses; (ii) $29.3 million for the write-down of certain property and equipment; (iii) $24.8 million for severance and related costs; and (iv) $13.7 million for net costs of 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.
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 estimated the net recovery of its investments in these entities by evaluating the assets and operations for impairment. This evaluation included an assessment of asset recoverability for these entities, premium deficiency analysis assuming timely exit of these noncore markets and the establishment of premium deficiency reserves, estimated incremental disposition and closing costs, including professional services and anticipated proceeds related to the disposition of assets. In determining the estimated fair values, the Company reviewed detailed asset listings for each location to be vacated. Based upon the asset classification, acquisition date and anticipated net proceeds, if any, upon disposition, as determined by the Company, the assets were written down to 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 substantially completed the disposition of all of the property and equipment in 1999. The Company calculated premium deficiency reserves based upon expected premium revenue, medical expense and administrative expense levels and remaining contractual obligations using the Company's historical experience. Of the $55.7 million originally recorded as provision for loss on noncore businesses in 1998, $25.2 million related to premium deficiency reserves, $27.9 million related to asset valuation write-downs and reserves, $2.2 million related to legal fees to be incurred in connection with preparation of agreements for sale or disposition of assets, accounting fees to be incurred for final statutory audits and brokerage costs and $0.4 million related to defined severance arrangements for employees of these entities. Approximately 250 employees in the noncore businesses were terminated between June 30, 1998 and December 31, 1998.
The cash activity during 1999 is comprised of proceeds of $7.1 million related to the sale of the Company's Pennsylvania subsidiary, partially offset by $2.8 million in cash payments for medical and other costs as the operations were disposed of or shut down. The non-cash activity represents the specific write-off of the net assets of the noncore businesses. Due to greater than anticipated recoveries, the Company has revised its estimate of the remaining costs associated with the final disposition or closure of these operations and investments. Reserves of $1.6 million were re-allocated to costs of consolidating operations in the fourth quarter of 1999. As of December 31, 1999, the ending reserve of $2.1 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.
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 1999 reflects payments to former employees in accordance with their respective severance arrangements. The December 31, 1999 balance represents contracted amounts payable through the first half of 2001 related to individuals who are no longer employed by the Company at year end.
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. The Company vacated its leased space located in Philadelphia, Pennsylvania; Edison, New Jersey; Chicago, Illinois; Sarasota, Florida; Norwalk, Connecticut; and one of two facilities in Milford, CT. In addition, the amount of leased space located in New York, New York and White Plains, New York was reduced. 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.
The Company disposed of its 47% interest in Health Partners, Inc. ("Health Partners") in October 1997, and received 2,090,109 shares of common stock of FPA Medical Management, Inc. ("FPAM") stock with a market value of approximately $76.4 million, resulting in a pretax gain of approximately $63.1 million. As of December 31, 1997, the market value of the FPAM stock had dropped to approximately $38.4 million. At year-end 1997, the Company wrote down its investment in FPAM by $38 million, thereby reducing the 1997 pretax gain on the sale of Health Partners to approximately $25.2 million ($20.5 million after taxes, or $.26 per share).
During the second quarter of 1998, the Company sold 540,000 shares of 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 financial statements.
As a consequence of the charges described in the previous paragraphs, comparisons of operating results for 1999, 1998 and 1997 may not be meaningful.
The Company's results of operations are dependent, in part, on its ability to predict and maintain effective control over health care costs (through, among other things, appropriate benefit design, utilization review and case management programs and its risk sharing and cost containment agreements with providers) while providing members with coverage for the health care benefits provided under their contracts. Factors such as new technologies, health care practices, hospital costs, changes in demographics and trends, selection biases, increases in unit costs paid to providers, major epidemics, catastrophes, inability to establish acceptable compensation agreements with providers, higher utilization of medical services, including higher out-of-network utilization under POS 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 and utilization review protocols, with a view to reducing the rate of growth in health care service expense.
expects such attrition to continue, although to a lesser extent in 2000, adversely affecting revenue. The majority of the attrition in commercial members was due to the Company's continued 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. The Company expects its Medicare revenue to be lower in 2000 as the result of withdrawals from Medicare in certain counties and net losses in membership due to changes in provider arrangements and changes in benefit plans in other counties in 1999 and 1998. Reimbursement levels for the Company's 2000 Medicare business are expected to be approximately 2.0% higher than 1999 (net of the applicable HCFA user fee). The Company believes that future Medicare premiums may be adversely affected by the implementation of risk adjustment mechanisms announced by HCFA. See "Business - Government Regulations - Recent Regulatory Developments".
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. Although the Company experienced lower levels of administrative costs in 1999 as compared to 1998, 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 and exceed existing accruals. There can be no assurance that ultimate costs will not exceed those estimates. See "Legal Proceedings".
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 have been made in accordance with the Company's interest payment policy and applicable law. The Company's future results will continue to reflect interest payments on delayed claims, although the Company believes such interest payments will be less in the future than they were in 1999, as will interest expense on outstanding indebtedness.
As of December 31, 1999, the Company has federal net operating loss carryforwards of approximately $538 million, which will begin to expire in 2012.
Total revenues for the year ended December 31, 1998 were $4.7 billion, up 11.0% from $4.3 billion in the prior year. The net loss attributable to common stock for 1998 totaled $624.4 million, or $7.79 per share, compared with a net loss of $291.3 million, or $3.70 per share, for 1997. Results of operations for the year 1998 were adversely affected by significantly higher medical costs in the Company's commercial group business, Medicare, Medicaid and New York Individual Plans as well as 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. Results of operations for 1998 included interest and financing expense of $57.1 million relating primarily to debt issuance costs and interest on claims for medical services. Results of operations for 1997 were adversely affected by a pretax charge of approximately $173.5 million relating to accounts receivable write-offs and additions to accounts receivable reserves, write downs of strategic investments of approximately $41.6 million relating to write downs of certain investments and a pretax charge of approximately $327 million relating to increased reserves for medical costs payable. See "Liquidity and Capital Resources" and "Overview".
Total commercial premiums earned for the year ended December 31, 1998 increased 14.5% to $3.4 billion compared with $2.9 billion in the prior year. This increase is primarily attributable to a 11.2% increase in member months in the Company's commercial health care programs, including a 10.8% member months increase in the Freedom Plan. Average premium yields of commercial programs were 2.9% higher in 1998 when compared with 1997. Medical costs incurred in 1998 in the Company's core commercial business were higher than estimates used in establishing rates for groups sold and renewing in late 1997 and early 1998. As a consequence, premium rates were insufficient and the Company incurred losses.
Premiums earned from government programs increased 1.6% to $1.26 billion in 1998 compared with $1.24 billion in 1997. The overall increase was attributable to an 8.3% increase in member months of Medicare programs offset, in part, by a 28.0% decline in member months of Medicaid programs due primarily to the withdrawal from the Connecticut and New Jersey Medicaid markets during 1998. Additionally, the Company's New York Medicaid contract was assigned to a third party in January 1999, and the Company's Pennsylvania subsidiary, including its Pennsylvania Medicaid business, was sold in January 1999. As of February 1, 1999, the Company had no Medicaid members and had limited Medicaid revenue in 1999.
Net investment and other income for the year ended December 31, 1998 increased 24.9% to $89.2 million from $71.4 million in the prior year primarily due to higher investment income as a result of an increase in average invested balances in 1998 resulting from the Company's May 1998 Financing. Investment income also benefited from the movement from low yield municipal bonds and equity securities to high quality government and corporate fixed income investments. This increase in interest income during 1998 more than offset a $10.6 million decrease in net capital gains from 1997. In addition, the Company recognized income of approximately $5.1 million in the second quarter of 1998 related to the sale of its New Jersey Medicaid business. See "Liquidity and Capital Resources".
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. The Company evaluated the necessity for premium deficiency reserves in periods prior to 1998 and concluded that no reserves were required since, at that time, the Company was projecting marginal profits or immaterial losses on these businesses based on normalized premiums and medical and administrative expense levels. The projections that had previously shown marginal profits or immaterial losses on these businesses contemplated growth in the underlying business to support administrative expense levels, premium increases, reductions in medical costs resulting from improved medical management, systems and operational improvements and revised provider contracts.
Results in the fourth quarter of 1998 were affected by the establishment of an additional $49 million in medical claims reserves for disputed claims, a $27 million provision for anticipated losses on individual products and net accruals of $30 million for certain other medical expense liabilities, partially offset by favorable medical reserve adjustments of $92 million arising from recent claims experience which showed better than expected medical costs during 1998, principally in the Company's Medicare business. The establishment of an additional $49 million in claims reserves for disputed claims was made based on experience in reconciling provider accounts receivables as part of a settlement process designed to assist in the recovery of advances. These settlements are not associated with specific dates of service. The $27 million provision for losses on individual products reflected an expected premium deficiency arising from the Company's decision to seek an approximately 9% increase in premium on its New York individual products, instead of seeking a higher increase which would involve uncertainties associated with the requirement of a public rate hearing. Net accruals of $30 million, primarily for 1998, were made for New York hospital bad debt and charity care, demographic pool charges and graduate medical education charges based on internal assessments and reconciliation of liabilities under these programs.
The Company's paid and received claims data and revised estimates showed significant increases in medical costs in 1996, 1997 and 1998 for the Company's commercial, Medicare, Medicaid and New York Individual Plans. These increases resulted primarily from higher expenses for hospital and specialist physician services and increases in per member per month pharmacy costs. Results for 1998 continued to reflect high costs in these areas. The Company's Turnaround Plan was designed to address the operating losses incurred in these lines of business. Moreover, improvement of results in the New York Mandated plans will require increases in rates or additional cost control measures that require NYSID approval. The Company expects to continue to experience losses in these plans.
Marketing, general and administrative expenses increased 4.7% to $772 million during the year 1998 compared with $737.4 million during the year 1997. The increase in 1998 was primarily attributable to a $20 million rise in payroll and benefits due to higher average staffing levels through the first half of 1998 and an $8 million increase in consulting fees primarily related to enhancements to management information systems offset, in part, by significantly lower marketing expenses for advertising and member acquisition. Marketing, general and administrative expenses as a percent of operating revenue were 16.7% during 1998 compared with 17.6% during 1997. Marketing, general and administrative expenses included $35.2 million and $15 million in 1998 and 1997, respectively, related to provisions for uncollectible notes and accounts receivable. The increase in 1998 was primarily 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 make it more difficult for the Company to collect amounts due on notes and accounts receivable. The Company's Turnaround Plan called for significant reductions in administrative costs. The Company expects that results for 1999 may continue to be adversely affected by high administrative costs. Moreover, the Company may decide to increase certain administrative costs to attempt to improve service levels. Administrative 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 and exceed existing accruals. There can be no assurance that ultimate costs will not exceed those estimates. See "Legal Proceedings". The Company's ability to control administrative costs could also be adversely affected by a continuation of the high level of employee attrition that the Company has experienced over the last several quarters.
Effective January 1, 1997, the Health Care Reform Act of New York ("HCRA") required that the Company make payments to state funding pools to finance hospital bad debt and charity care, graduate medical education and other state programs under HCRA. Previously, hospital bad debt and charity care and graduate medical education were financed by surcharges on payments to hospitals for inpatient services. In 1998 and 1997, the Company expensed a total of $76.4 million and $72.5 million, respectively, for graduate medical education, and the Company expensed a total of $54.8 million and $23.9 million, respectively, for hospital bad debt and charity care. Because these payment obligations were not offset by corresponding reductions in payments to hospitals and others, the Company believes its costs have increased. It is not possible to determine the precise impact, however, due to changes made in the Company's hospital contracts and the effect of overall changes in hospital costs during the period.
The Company incurred interest and other financing charges of $41.6 million in 1998 related to the issuance of $200 million in bridge financing in the first quarter of 1998 and $350 million of long-term debt in May 1998. Interest expense on capital leases entered into in 1998 aggregated $1.4 million. No such interest was incurred in 1997. Interest expense on delayed claims totaled $14.1 million in 1998, compared with $11.1 million in 1997. Interest payments have been made in accordance with the Company's interest payment policy and applicable law. The Company's future results will continue to reflect interest payments by the Company on delayed claims as well as interest expense on outstanding indebtedness incurred in 1998.
Cash used for capital expenditures totaled $9 million during 1999. This amount was used primarily for computer equipment and software. The Company currently anticipates that capital expenditures and payments under capital leases for 2000 will be approximately $23 million, a significant portion of which will be devoted to
management information systems. Except for anticipated capital expenditures, the Company currently does not have a commitment for use of material cash. During the first quarter of 2000, the Company repurchased shares of its Series D and Series E Preferred Stock for an aggregate amount of $130 million and repurchased $14 million of loans outstanding under its existing Term Loan. 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".
In September 1998, the National Association of Insurance Commissioners ("NAIC") adopted new minimum capitalization requirements, known as risk-based capital rules, for health care coverage provided by HMOs and other risk-bearing health care entities. Depending on the nature and extent of the new minimum capitalization requirements ultimately adopted by each state, there could be an increase in the capital required for certain of the Company's regulated subsidiaries. The Connecticut Department of Insurance has promulgated regulations based on the NAIC model which are applicable to its 1999 annual financial statements. Neither New York nor New Jersey has enacted similar legislation; however, risk-based capital legislation has been introduced in New York. In addition, the New Jersey Department of Banking and Insurance ("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.
As a result of delays in claims payments in prior periods, the Company experienced a significant increase in medical claims payable. The increase in medical costs payable was mitigated by progress in paying backlogged claims, by making advance payments to providers and through reductions in IBNR relating to the Company's exit from certain businesses during the first quarter of 1998 and thereafter. Outstanding provider advances amounted to $43.6 million, net of a $30.8 million valuation reserve, at December 31, 1999 and are netted against medical costs payable in the Company's consolidated balance sheet. The Company believes that it will be able to recover the net outstanding advance payments, either through repayment by the provider or application against future claims.
The Company's medical costs payable was $699.6 million (including $570.7 million of IBNR) as of December 31, 1999, before netting advance claim payments of $43.6 million compared with $989.7 million (including $864.5 million for IBNR) as of December 31, 1998, before netting advance claim payments of $139.5 million. 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 Private Practice Partnerships ("Partnerships"). In determining the liability for medical costs payable, the Company accounts for the financial impact of the transfer of risk for certain Medicare members and the experience of risk-sharing Partnership providers (who may be entitled to credits from Oxford for favorable experience or subject to deductions for accrued deficits). In the case of the North Shore Medicare risk arrangement described below, the Company no
longer records a reserve for claims liability since the payment obligation has been transferred to North Shore. The Company has reviewed its Partnership program and has terminated most of its Partnership arrangements as a result of difficulties and expense associated with administering the program as well as other considerations. The Company believes that its reserves for medical costs payable are adequate to satisfy its ultimate claim liabilities. However, the Company's prior rapid growth, delays in paying claims, paying or denying claims in error and changing speed of payment may affect the Company's ability to rely on historical information in making IBNR reserve estimates.
The Company made $4.5 million and $537.5 million in capital contributions to its operating subsidiaries in 1999 and 1998, respectively. These contributions were made to ensure that each subsidiary had sufficient surplus as of December 31, 1999 and 1998 under applicable regulations after giving effect to operating losses and reductions to surplus resulting from the non-admissibility of certain assets.
Pursuant to an Investment Agreement, dated as of February 23, 1998 (the "Investment Agreement"), between the Company and TPG Oxford LLC ("TPG", together with the investors thereunder, the "Investors"), the Investors, on May 13, 1998, purchased $350 million in redeemable Preferred Stock with Warrants to acquire up to 22,530,000 shares of common stock. The Preferred Stock and Warrants were issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act, which provides an exemption for transactions not involving any public offering. In determining that such exemption was available, the Company relied on, among other things, the facts that the Preferred Stock and Warrants were being issued through direct communication only to a limited number of sophisticated investors having knowledge and access to information regarding the Company and that the certificates evidencing such Preferred Stock and Warrants bear a legend restricting transfer in non-registered transactions. The Warrants have an exercise price of $17.75, which represented a 5% premium over the average trading price of Oxford shares for the 30 trading days ended February 20, 1998.
Simultaneously with the consummation of the Investment Agreement, the Company issued $200 million principal amount of 11% Senior Notes due 2005. The Senior Notes were issued in a private placement to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), the initial purchasers, who agreed to sell the Senior Notes only to "qualified institutional buyers", as defined in Rule 144A under the Securities Act in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A, or outside the United States in accordance with Regulation S under the Securities Act. DLJ received $6 million in discounts and commissions in connection with the initial purchase of the Senior Notes. The Senior Notes are senior unsecured obligations of the Company and rank pari passu in right of payment with all current and future senior indebtedness of the Company. The Company's obligations under the Senior Notes are effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all existing and future indebtedness, if any, of the Company's subsidiaries. Interest is payable semi-annually on May 15 and November 15 of each year commencing November 15, 1998. At any time on or before May 15, 2001, the Company may redeem for cash up to 33 1/3% of the original aggregate principal amount of the Senior Notes at a redemption price of 111% of the principal amount thereof, in each case, plus any accrued and unpaid interest thereon to the redemption date, with the net proceeds of a public equity offering provided that at least 66 2/3% of the original aggregate principal amount of the Senior Notes remains outstanding immediately after the occurrence of such redemption. After May 15, 2002, the Senior Notes will be subject to redemption for cash at the option of the Company, in whole or in part, at a redemption prices ranging from 105.5% of face amount beginning May 15, 2002 to 100% on and after May 15, 2004.
At the same time, the Company entered into a Term Loan Agreement pursuant to which the Company borrowed $150 million in the form of a senior secured term loan (the "Term Loan") with a final maturity in 2003 at which time all outstanding amounts will be due and payable. Prior to the final maturity of the Term Loan there are no scheduled principal payments. The Term Loan provides for mandatory prepayments in certain circumstances. The Term Loan bears interest at a rate per annum equal to the administrative agent's reserve adjusted LIBO rate plus 4.25%.
Also simultaneously with the transactions described above, Norman C. Payson, M.D., the Company's Chief Executive Officer, purchased 644,330 shares of Oxford common stock for an aggregate purchase price of $10 million pursuant to his employment agreement. The common stock issued to Dr. Payson was issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act, which provides an exemption for transactions not involving any public offering.
The aggregate proceeds of the above Financing of $710 million were utilized, in part, to retire the Bridge Notes, make capital contributions to certain regulated subsidiaries, pay fees and expenses approximating $39 million related to the transactions and fund operating losses and restructuring charges in 1998.
Pursuant to the provisions of the Series D Preferred Stock and Series E Preferred Stock, on May 13, 1999, the Company issued (a) a dividend in the amount of $13.2988 per share of Series D Preferred Stock in the form of shares of such Series D Preferred Stock to the holders of record as of April 28, 1999 and (b) a dividend in the amount of $36.4730 per share of Series E Preferred Stock in the form of shares of such Series E Preferred Stock to the holders of record as of April 28, 1999.
On February 29, 2000, the Company repurchased 28,780 shares of Series D Preferred Stock for approximately $30 million and 89,616 shares of Series E Preferred Stock for approximately $100 million.
Under certain circumstances, the Company has the right to exchange the Series D Preferred Stock or the Series E Preferred Stock on any dividend payment date for junior subordinated debentures issued pursuant to an indenture. The indenture that would govern the junior subordinated debentures would have terms comparable to the terms of the series of Preferred Stock that is exchanged, including an interest rate that is the same as the dividend rate on that series of Preferred Stock.
In September 1999, the privately-placed Senior Notes were exchanged for an equal amount of substantially identical Senior Notes registered under the Securities Act.
In the first quarter of 2000, the Company repurchased approximately $14 million principal amount of the Term Loan.
The Company incurred expenses of approximately $4 million in 1999 and $9.8 million in 1998 related to its Year 2000 compliance efforts. The Company does not expect Year 2000 costs to be material in 2000.