<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
TRANSCEND SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
TRANSCEND SERVICES, INC.
3353 PEACHTREE ROAD, N.E., SUITE 1000
ATLANTA, GEORGIA 30326
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 1996
To the Stockholders:
The Special Meeting of Stockholders (the "Special Meeting") of Transcend
Services, Inc. will be held on June 5, 1996 at the offices of Smith, Gambrell &
Russell, 3343 Peachtree Road, 18th Floor, Atlanta, Georgia 30326 at 10:00 a.m.
local time for the following purposes:
1. To approve an amendment to the Company's 1992 Stock Option Plan, as
amended, to increase the number of shares for issuance under such Plan by
400,000 shares from 1,600,000 shares to 2,000,000 shares; and
2. To transact such other business as may properly come before the
Special Meeting or any postponement or adjournment thereof.
Only stockholders of record at the close of business on May 16, 1996 shall
be entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
You are cordially invited to attend the Special Meeting. Whether or not you
plan to attend the Special Meeting, please complete, sign, date and mail the
enclosed proxy card promptly in the enclosed postage-paid envelope.
By order of the Board of Directors,
/s/ David W. Murphy
DAVID W. MURPHY
Secretary
May 17, 1996
<PAGE> 3
TRANSCEND SERVICES, INC.
3353 PEACHTREE ROAD, N.E., SUITE 1000
ATLANTA, GEORGIA 30326
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 5, 1996
GENERAL
This proxy statement and the accompanying form of proxy are being furnished
to the stockholders of Transcend Services, Inc. (the "Company") on or about May
17, 1996 in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Special Meeting of Stockholders to be
held on June 5, 1996 at 10:00 a.m. local time at the offices of Smith, Gambrell
& Russell, 3343 Peachtree Road, 18th Floor, Atlanta, Georgia 30326 and any
adjournment thereof. Any stockholder who executes and delivers a proxy may
revoke it at any time prior to its use by (i) giving written notice of
revocation to the Secretary of the Company; (ii) executing a proxy bearing a
later date; or (iii) appearing at the meeting and voting in person.
Unless otherwise specified, all shares represented by effective proxies
will be voted in favor of amending the Company's 1992 Stock Option Plan, as
amended. The Board of Directors does not know of any other business to be
brought before the meeting, but as to any such other business, proxies will be
voted upon any such matters in accordance with the best judgement of the person
or persons acting thereunder.
The cost of soliciting proxies will be borne by the Company. In addition to
use of the mails, proxies may be solicited in person or by telephone or telegram
by directors and officers of the Company who will not receive additional
compensation for such services. Brokerage houses, nominees, custodians and
fiduciaries will be requested to forward soliciting material to beneficial
owners of stock held of record by them, and the Company will reimburse such
persons for their reasonable expenses in doing so.
Only holders of record of outstanding shares of Common Stock of the Company
at the close of business on May 16, 1996 are entitled to notice of, and to vote
at the meeting. Each stockholder is entitled to one vote for each share held on
the record date. There were 18,401,403 shares of Common Stock outstanding and
entitled to vote on May 16, 1996.
When a quorum is present at the meeting, the vote of the holders of a
majority of the stock having voting power present in person or by proxy shall
decide the action proposed in each matter listed in the accompanying Notice of
Special Meeting of Stockholders. Abstentions and broker "non-votes" will be
counted as present in determining whether the quorum requirement is satisfied. A
"non-vote" occurs when a nominee holding shares for a beneficial owner votes on
one proposal pursuant to discretionary authority or instructions from the
beneficial owner, but does not vote on another proposal because the nominee has
not received instruction from the beneficial owner, and does not have
discretionary power. The aggregate number of votes entitled to be cast by all
stockholders present in person or represented by proxy at the meeting, whether
those stockholders vote "For," "Against" or abstain from voting, will be counted
for purposes of determining the minimum number of affirmative votes required for
approval of such proposals, and the total number of votes cast "For" each of
these proposals will be counted for purposes of determining whether sufficient
affirmative votes have been cast. An abstention from voting by a stockholder on
a proposal has the same effect as a vote "Against" such proposal. Broker
"non-votes" are not counted for purposes of determining whether a proposal has
been approved.
2
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1996, certain information with
respect to all stockholders known to the Company to beneficially own more than
five percent of the Company's Common Stock, and information with respect to the
Company's Common Stock beneficially owned by each director of the Company and
the executive officers included in the Summary Compensation Table set forth
under the caption "EXECUTIVE COMPENSATION" and all directors and executive
officers of the Company as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the Common Stock owned by them.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(1)
- --------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Gerdes Huff Investments........................................ 3,500,001(2) 19.02%
Donald L. Lucas................................................ 533,145(3) 2.90%
Larry G. Gerdes................................................ 4,796,146(4) 26.06%
George C. Caldwell............................................. 60,989(5) *
Walter S. Huff, Jr............................................. 4,268,315(6) 23.20%
Charles E. Thoele.............................................. 35,658(7) *
Julian L. Cohen................................................ 32,034(8) *
David W. Murphy................................................ 15,154(9) *
All Directors and Officers as a group (8 persons).............. 6,241,440(11) 33.92%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Unless otherwise indicated, each person has sole voting and dispositive
power with respect to all shares listed opposite his name.
(2) Such shares are owned of record by Gerdes Huff Investments, a general
partnership the sole general partners of which are Messrs. Gerdes and Huff.
As a result, each of Messrs. Gerdes and Huff is deemed the beneficial owner
of all of such shares.
(3) Includes 410,664 shares with respect to which Mr. Donald L. Lucas is
trustee of the Donald L. Lucas and Lygia S. Lucas Trust dated December 3,
1984; 45,000 shares with respect to which Mr. Lucas is Successor Trustee of
the Donald L. Lucas Profit Sharing Trust; 21,481 shares held by the Donald
L. Lucas Remuneration Account dated July 7, 1993; and 56,000 shares which
Mr. Lucas has the right to acquire pursuant to presently exercisable stock
options.
(4) Includes 3,500,001 shares held by Gerdes Huff Investments, a general
partnership of which Mr. Gerdes is a general partner; 93,600 shares held by
Mr. Gerdes' spouse and 94,155 shares held by Mr. Gerdes as custodian for
his minor children; and 549,334 shares purchasable pursuant to presently
exercisable stock options and 166,666 options exercisable within the next
60 days.
(5) Includes 10,000 shares purchasable pursuant to presently exercisable
options.
(6) Includes 3,500,001 shares held by Gerdes Huff Investments, a general
partnership of which Mr. Huff is a general partner; 62,650 shares held by
Laumar Corporation which is wholly owned by Mr. Huff, 22,000 shares
purchasable pursuant to presently exercisable options; and 56,300 shares
held by the Larry G. Gerdes Trust of which Mr. Huff is the trustee.
(7) Includes 22,000 shares purchasable pursuant to presently exercisable stock
options.
(8) Includes 1,250 shares purchasable pursuant to presently exercisable
options.
(9) Includes 12,500 shares purchasable pursuant to presently exercisable
options.
(10) Includes 6,241,440 shares purchasable pursuant to presently exercisable
stock options and shares held by all current directors and officers.
3
<PAGE> 5
EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth certain information as
to the Chief Executive Officer, and the two other most highly compensated
individuals whose cash compensation exceeded $100,000 who served as executive
officers of the Company during the twelve month period ended December 31, 1995
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
PERIOD ANNUAL COMPENSATION SECURITIES
ENDED ------------------- UNDERLYING
PRINCIPAL POSITION (1) SALARY $ BONUS $ OPTIONS/SAR'S
- ------------------------------------------------ -------- -------- ------- -------------
<S> <C> <C> <C> <C>
Larry G. Gerdes(2).............................. 12/31/95 $205,376 -- --
President and Chief Executive Officer 12/31/94 116,700 -- --
5/31/94 200,000 -- --
Julian L. Cohen(3).............................. 12/31/95 $193,756 -- --
Chief Operating Officer 12/31/94 39,600 -- 145,000
5/31/94 -- -- --
David W. Murphy(4).............................. 12/31/95 $100,130 $22,675 60,000
Chief Financial Officer, Treasurer & Secretary 12/31/94 28,385 -- --
5/31/94 -- -- --
</TABLE>
- ---------------
(1) Information relates to the fiscal years ended May 31, 1993 and December 31,
1994 and 1995. The fiscal year ended December 31, 1994 was for a seven
month period.
(2) Mr. Gerdes served as a non-officer director from June 1985 until he became
President and Chief Executive Officer on May 26, 1993. Mr. Gerdes'
annualized compensation (excluding bonus) for the period ended December 31,
1995 was $200,000.
(3) Mr. Cohen joined the Company on October 15, 1994. Mr. Cohen's annualized
compensation (excluding bonus) for the period ended December 31, 1995 was
$190,000.
(4) Mr. Murphy joined the Company on September 1, 1994. Mr. Murphy's annualized
compensation (excluding bonus) for the period ending December 31, 1995 was
$100,000.
4
<PAGE> 6
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding individual grants of
options for the Company's Common Stock during the twelve months ended December
31, 1995 to each of the Named Executive Officers. All such grants were made
pursuant to the Company's 1992 Stock Option Plan, as amended. In accordance with
the rules of the Commission, the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
ten-year terms based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end of
the respective option terms. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market condition. There can be no assurance that the potential realizable values
shown in this table will be achieved.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS/SAR'S RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
OPTIONS/SAR'S IN FISCAL BASE PRICE EXPIRATION ------------------
NAME GRANTED(#)(1) YEAR(2) ($/SHARE) DATE 5% 10%
- ------------------------------ ------------- ------------ ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Gerdes............... -- -- -- -- -- --
Julian L. Cohen(4)............ 25,000 16.5% $3.3125 3/21/05 $52,000 $132,000
20,000 5.00 12/20/05 63,000 159,000
David W. Murphy(5)............ 30,000 14.6 2.25 02/23/05 43,000 108,000
10,000 5.00 12/20/05 31,000 80,000
</TABLE>
- ---------------
(1) Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock on date of grant.
(2) The Company granted options to purchase 273,000 shares to employees in the
twelve months ended December 31, 1995.
(3) The 5% and 10% assumed rates of annual compound stock appreciation are
mandated by rules of the Commission and do not represent the Company's
estimate or projection of future prices for the Company's Common Stock.
(4) Mr. Cohen was granted an option to purchase 25,000 shares on March 21, 1995
and an option to purchase 20,000 shares on December 20, 1995 which vest
annually in equal increments beginning on the first anniversary of the date
of grant over the following four years.
(5) Mr. Murphy was granted an option to purchase 30,000 shares on February 23,
1995 and an option to purchase 10,000 shares on December 20, 1995 which
vest annually in equal increments beginning on the first anniversary of the
date of grant over the following four years.
5
<PAGE> 7
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the
unexercised stock options of the Named Executive Officers. During the twelve
months ended December 31, 1995, only one of the Named Executive Officers
exercised any options. Larry G. Gerdes exercised a Non-Qualified Stock Option to
purchase 50,000 shares on December 1, 1995. The exercise price was $1.9380 and
the market value was $5.1250 per share on the date of exercise.
<TABLE>
<CAPTION>
NUMBER VALUE OF UNEXERCISED(1)
OF SECURITIES IN-THE-MONEY OPTIONS
SHARES UNDERLYING UNEXERCISED AT FY-END($)
ACQUIRED VALUE OPTIONS AT FY-END(#) IN-THE-MONEY
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Larry G. Gerdes.................... 50,000 $159,350 549,333/166,666 $2,065,069/$635,330
Julian L. Cohen.................... -- -- 25,000/120,000 96,875/ 366,562
David W. Murphy.................... -- -- 5,000/ 55,000 19,375/ 170,625
</TABLE>
- ---------------
(1) Computed based upon the difference between the price of the Company's Common
Stock at December 31, 1995, which was $5.750 and the aggregate exercise
price of the options.
Change In Control Arrangements. The Company has one compensatory
arrangement with Mr. Gerdes which will result from a "Change in Control" of the
Company. Under the terms of Mr. Gerdes' stock option agreement ("Option
Agreement"), in the event there is a Change of Control, Mr. Gerdes shall have
the immediate right to exercise the option with respect to all shares granted
pursuant thereto at any time whether or not then exercisable. See "Aggregated
Option/SAR Exercises In Last Fiscal Year and Fiscal Year-End Option/SAR Values."
A "Change of Control" shall have occurred (i) if any person acquires 30% or more
of the outstanding shares of the Company's Common Stock and at any time
thereafter, Mr. Gerdes' employment as President and Chief Executive Officer is
involuntarily terminated (a "Termination") or (ii) if during any period of two
consecutive years, individuals who at the beginning of such period constitute
the directors of the Company cease for any reason to constitute at least a
majority thereof and at any time thereafter a Termination occurs; provided,
however, that for such purposes each director who is first elected, or first
nominated for election by the Company's stockholders, by a vote of at least
two-thirds of the directors of the Committee (or a committee thereof) then still
in office who were directors of the Company at the beginning of any such period
will be deemed to have been a director of the Company at the beginning of such
period.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September, 1994, the Company loaned the sum of $80,000 to Julian L.
Cohen, the Chief Operating Officer of the Company, which was used by Mr. Cohen
to purchase his residence. The loan to Mr. Cohen was in the form of a promissory
note for the principal sum of $80,000, bearing interest at 7 3/4% per annum,
payable on each January 1, April 1, July 1 and October 1, commencing on January
1, 1995, with the principal due in one lump sum on September 30, 1999. As of May
1, 1996, $80,000 remained outstanding under the note. The note is secured by Mr.
Cohen's right to purchase shares of the Company's Common Stock pursuant to the
1992 Stock Option Plan, as amended, and the shares of Common Stock underlying
such rights.
REPORT OF STOCK OPTION AND COMPENSATION COMMITTEE
STOCK OPTION AND COMPENSATION COMMITTEE PHILOSOPHY
The Stock Option and Compensation Committee (the "Committee") establishes
the general compensation policy for all executives of the Company. The Committee
administers the incentive plans, including the 1992 Stock Option Plan, and the
bonus program for executive officers. The Committee believes that the Company
must pay competitively to attract and retain qualified executives. The Committee
also believes that the Chief Executive Officer ("CEO") and the Company's other
executive officers should be significantly influenced by the Company as well as
individual performance. In accordance with such philosophy, a portion
6
<PAGE> 8
of the executives' compensation is contingent upon corporate performance and
adjusted where appropriate, based on an executive's performance against personal
performance objectives. Stock options are granted to increase retention of the
executives and link their long-term compensation to the Company's long-term
corporate performance thereby aligning their interests with those of the
Company's stockholders.
CASH COMPENSATION
The Committee establishes base salary levels and potential bonuses at or
near the beginning of each fiscal year. The Committee did not establish a bonus
nor increase the base compensation of Mr. Gerdes at the beginning of the twelve
month period ended December 31, 1995 inasmuch as the Company was continuing to
reposition its business and the Committee did not believe it could establish
meaningful performance criteria since it was in the midst of a merger, an
acquisition and a divestiture of one of the Company's subsidiaries. Subsequent
to this period, the Committee determined not to pay Mr. Gerdes a bonus for the
twelve month period ended December 31, 1995.
The other executive officers of the Company during the twelve month period
ended December 31, 1995 were Mr. Cohen, Chief Operating Officer, and Mr. Murphy,
Chief Financial Officer. Mr. Cohen's base compensation for the twelve months
ended December 31, 1995 was determined by negotiation with Mr. Gerdes and
approved by the Committee. Mr. Murphy's base compensation was increased from
$90,000 to $100,000 effective March 1, 1995 due to his becoming Chief Financial
Officer and due the Committee's subjective evaluation of his contributions in
connection with the restructuring of the Company's business. Mr. Murphy received
a total of $22,675 in cash and stock bonus as part of an agreed upon incentive
plan related to acquisitions made by the Company.
STOCK BASED COMPENSATION
Mr. Cohen joined the Company in October 1994 and the Company awarded him
stock options as part of his compensation package. The number of options granted
was initially determined by negotiation with Mr. Gerdes and was approved by the
Committee and reflected the Committee's consideration of the Company's financial
difficulties. The options were granted at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant.
Mr. Murphy joined the Company in September 1994 (not as an Officer) and the
Company awarded him stock options as part of his compensation package. The
number of options granted was initially determined by negotiation with Mr.
Gerdes and was approved by the Committee and reflected the Committee's
consideration of the Company's financial difficulties. The options were granted
at an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant.
Mr. Dillon joined the Company in August 1995 and the Company awarded him
stock options as part of his compensation package. The number of options granted
was initially determined by negotiation with Mr. Gerdes and was approved by the
Committee and reflected the Committee's consideration of the Company's financial
difficulties. The options were granted at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant.
The Committee made no other awards to existing officers during the twelve
months ended December 31, 1995.
7
<PAGE> 9
TRANSCEND COMMON STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock from January 26, 1990 (the date of the Company's initial
public offering) to December 31, 1995 with the cumulative return on the NASDAQ
Composite Index and the NASDAQ Health Services Index over the same period
(assuming investment of $100 in the Company's Common Stock and each of the other
Indexes on January 26, 1990, and reinvestment of all dividends).
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
<S> <C> <C> <C> <C> <C> <C>
Transcend Services, Inc. 100.0 260.0 74.4 62.5 33.8 115.0
Nasdaq Stock Market (US Companies) 100.0 160.6 186.9 214.5 209.7 296.3
Nasdaq Health Services Stocks 100.0 222.6 230.6 266.0 285.6 364.9
SIC 8000-8099 US & Foreign
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to 100.0 on January 26, 1990.
8
<PAGE> 10
AGENDA ITEM ONE
PROPOSAL TO AMEND 1992 STOCK OPTION PLAN
In March 1992, the Company adopted the 1992 Stock Option Plan, as amended
(the "Plan"). The purpose of the Plan is to advance the interest of the Company
and its stockholders by affording selected employees and directors who are not
employed by the Company ("Non-Employee Directors") an opportunity to acquire or
increase their proprietary interests in the Company through the grant of stock
options. Under the Plan, the Company may grant both incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and non-qualified stock options. The Company initially reserved
1,285,000 shares of its $.01 par value Common Stock to cover options to be
granted under the Plan during its ten-year term. On May 26, 1993, the Board of
Directors adopted an amendment to the Plan authorizing an additional 315,000
shares for issuance pursuant to the exercise of options granted under the Plan,
which amendment was approved by the stockholder, on October 12, 1993. The Plan
currently has 1,600,000 shares reserved for issuance pursuant to the exercise of
options under the Plan.
There are currently approximately 950 employees and 4 Non-Employee
Directors eligible for participation in the Plan. As of May 1, 1996, the market
value of the Common Stock of the Company underlying the options which may be
granted under the Plan was $11.875 per share.
As of May 1, 1996, the Company had granted options to purchase shares of
Common Stock pursuant to the Plan as follows: (i) each Named Executive Officer
(Larry G. Gerdes: 788,500 shares, Julian L. Cohen: 145,000 shares, and David W.
Murphy: 60,000 shares); (ii) all current executive officers as a group:
1,053,500 shares; (iii) all current directors who are not executive officers as
a group: 174,500 shares; and (iv) all employees, including all current officers
who are not executive officers, as a group: 158,500 shares.
THE PROPOSED AMENDMENT
The Board of Directors believes it to be in the best interest of the
Company and its stockholders to increase the number of shares available for
issuance pursuant to the exercise of options granted under the Plan. As of May
1, 1996, there remained 37,250 shares available for issuance upon the exercise
of stock options to be granted under the Plan. On April 30, 1996, the Board of
Directors approved, subject to stockholder approval at the Special Meeting of
Stockholders, an amendment to the Plan to increase the number of shares
available for issuance under the plan by 400,000 shares, from 1,600,000 shares
to 2,000,000. The proposed increase in the number of authorized shares would
ensure the uninterrupted continuation of the Plan.
A copy of the proposed amendment to the Plan is attached to this Proxy
Statement as Exhibit A and incorporated herein by reference. The Board of
Directors of the Company recommends that stockholders vote FOR the foregoing
amendment. The amendment must be approved by a majority of all votes present at
the meeting and entitled to vote on the matter.
DESCRIPTION OF THE PLAN
General. The Plan is administered by the Stock Option and Compensation
Committee (the "Committee") of the Board of Directors. Prior to the recent
amendment to the Plan, the maximum number of shares of Common Stock reserved and
made available for sale under the Plan was 1,600,000. That number includes
945,000 shares not previously authorized for distribution, plus an additional
655,000 shares which are available for issuance only to the extent that
outstanding options awarded under the TriCare, Inc. 1986 Incentive Stock Option
Plan, as amended, expire, terminate or are cancelled without having been
exercised under such plan.
The Plan provides for adjustment of the number of shares issuable
thereunder in certain events such as mergers, consolidations, recapitalizations,
stock splits, stock dividends and similar events. In the event of dissolution or
liquidation of the Company or a merger or combination in which the Company is
not a surviving corporation (other than with a wholly owned subsidiary), each
option granted under the Plan shall terminate but the optionee shall have the
right immediately prior thereto to exercise his option to the extent it is then
presently exercisable.
9
<PAGE> 11
The Board may at any time, upon recommendation of the Committee, terminate
the Plan. The Board may also amend the Plan, provided, however, that without
approval of the stockholders of the Company, the Board may not adopt any
amendment which would (i) increase the number of shares issuable pursuant to the
Plan (except as contemplated in the immediately preceding paragraph); (ii)
materially increase the benefits accruing to participants in the Plan; or (iii)
materially modify the requirements as to eligibility to participate in the Plan.
Notwithstanding the foregoing, the Board shall not terminate, amend or modify
the Plan in any manner so as to affect the price of shares subject to an option
without the consent of the optionee.
No option is transferable otherwise than by will or the laws of descent and
distribution. During the lifetime of an optionee, an option is exercisable only
by the optionee.
Options are exercisable upon notice of exercise and payment in full of the
option exercise price in cash. In addition, to the extent provided in the stock
option agreement, in lieu of cash, the optionee may deliver shares of Common
Stock owned by him having a fair market value equal to the option exercise price
or a combination of cash and shares.
Employee Options. Under the terms of the Plan, the Committee may determine
the employees to whom options will be granted, the time or times of exercise,
the number of shares subject to an option and the terms and conditions of each
stock option agreement. The Committee has authority to interpret the Plan with
respect to employee options.
The Committee also determines whether an option is an incentive stock
option or a non-qualified stock option. The price per share of stock subject to
an incentive stock option must equal the fair market value thereof on the date
of grant. The price per share of stock subject to a non-qualified stock option
shall be determined by the Committee and may be less than fair market value. The
exercise period for an incentive stock option cannot exceed 10 years, while
there is no limitation with respect to non-qualified stock options. The
Committee cannot grant an incentive stock option to any person who owns at least
10% of the outstanding Common Stock unless the price is 110% of fair market
value and the option expires within five years.
In the event of termination by reason of death or disability, an option may
be exercised, to the extent exercisable at the time of death or disability, by
the optionee or his legatees or personal representatives within twelve months
following such termination. In all other events of termination, the Plan
provides that the option may be exercised beyond such date only to the extent
provided in the stock option agreement but not beyond the earlier of the
expiration date of the option or twelve (12) months from the date of
termination.
Non-Employee Director Options. The Plan provides for non-discretionary or
automatic grants of options to Non-Employee Directors. Each Non-Employee
Director serving on the Board on the effective date of the Plan, March 16, 1992,
received an option to purchase 10,000 shares of Common Stock, except that the
Chairman of the Board received an option to purchase 20,000 shares. Each
Non-Employee Director appointed or newly elected to the Board in the future will
also receive an option to purchase 10,000 shares. In addition, on the date of
each annual meeting of stockholders of the Company, each Non-Employee Director
elected to the Board who has served on the Board for at least six months prior
thereto will receive an option to purchase 6,000 shares except for the Chairman
who shall receive an option to purchase 9,000 shares. The price of Common Stock
subject to a Non-Employee Director option is the fair market value on the date
of grant, except that the price of Common Stock subject to options granted on
March 16, 1992 was the fair market value on October 14, 1992, the date the Plan
was approved by the stockholders of the Company.
Each Non-Employee Director option must conform to the provisions of the
Plan. Non-Employee Director options become exercisable six months from the date
of grant and expire ten (10) years from the date of grant. In the event a
Non-Employee Director terminates membership on the Board for any reason, an
option held by him may be exercised until the earlier of the expiration of the
option or twelve (12) months from the date of termination.
10
<PAGE> 12
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. All incentive stock options granted or to be
granted under the Plan which are designated as incentive stock options are
intended to be incentive stock options as defined in Section 422 of the Code.
Under the provisions of Section 422, neither the holder of an incentive
stock option nor the Company will recognize income, gain, deduction or loss upon
the grant or exercise of an incentive stock option. An optionee will be taxed
only when the stock acquired upon exercise of his incentive stock option is sold
or otherwise disposed of in a taxable transaction. If at the time of such sale
or disposition the optionee has held the shares for the required holding period
(two years from the date the option was granted and one year from the date of
the transfer of the shares to the optionee), the optionee will recognize
long-term capital gain or loss, as the case may be, based upon the difference
between his exercise price and the net proceeds of the sale. However, if the
optionee disposes of the shares before the end of such holding period, the
optionee will recognize ordinary income on such disposition in an amount equal
to the lesser of:
(a) gain on the sale or other disposition; or
(b) the amount by which the fair market value of the shares on the
date of exercise exceeded the option exercise price, with any excess gain
being capital gain, long-term or short-term, depending on whether or not
the shares had previously been held for more than one year on the date of
sale or other taxable disposition.
The foregoing discussion and the reference to capital gain or loss
treatment therein assume that the option shares are a capital asset in the hands
of the optionee. A sale or other disposition which results in the recognition of
ordinary income to the optionee will also result in a corresponding income tax
deduction for the Company.
The Plan permits an optionee to pay all or part of the purchase price for
shares acquired pursuant to exercise of an incentive stock option by
transferring to the Company other shares of the Company's Common Stock owned by
the optionee. Section 422 of the Code provides that an option will continue to
be treated as an incentive stock option even if an optionee exercises such
incentive stock option with previously acquired stock of the corporation
granting the option. Accordingly, except as noted below with respect to certain
"statutory option stock," an optionee who exercises an incentive stock option in
whole or in part by transferring to the Company shares of the Company's Common
Stock will recognize no gain or loss upon such exercise. The optionee's basis in
the shares so acquired will be equal to the optionee's cost basis in the shares
surrendered (plus, in the case of payment of the purchase price in a combination
of cash and surrendered shares, the amount of any cash paid).
Section 424(c)(3) of the Code provides that if "statutory option stock" is
transferred in connection with the exercise of an incentive stock option, and if
the holding period requirements under Section 422(a)(1) of the Code are not met
with respect to such statutory option stock before such transfer, then ordinary
income will be recognized as a result of the transfer of statutory option stock.
However, the incentive stock option stock acquired through the exchange of
statutory option stock will still qualify for favorable tax treatment under
Section 422 of the Code.
Incentive stock options offer two principal tax benefits: (1) the
possibility of converting ordinary income into capital gain to the extent of the
excess of fair market value over option price at the time of exercise, and (2)
the deferral of recognition of gain until disposition of the stock acquired upon
the exercise of the option.
At present, the maximum tax rate on capital gains is 28%, while the maximum
tax rate on ordinary income is 39.6%. Thus, the conversion of ordinary income
into capital gain produces some tax benefit for certain taxpayers. However, the
benefit of income deferral generally provided by incentive stock options is
reduced for some taxpayers since the excess of the fair market value of shares
acquired through the exercise of an incentive stock option over the exercise
price is taken into account in computing an individual taxpayer's alternative
minimum taxable income. Thus, the exercise of an incentive stock option could
result in the imposition of an alternative minimum tax liability.
11
<PAGE> 13
In general, an option granted under the Plan which is designated as an
incentive stock option will be taxed as described above. However, in some
circumstances an option which is designated as an incentive stock option will be
treated as a non-qualified stock option and the holder taxed accordingly. For
example, a change in the terms of an option which gives the employee additional
benefits may be treated as the grant of a new option. Unless all the criteria
for treatment as an incentive stock option are met on the date the "new option"
is considered granted (such as the requirement that the exercise price of the
option be not less than the fair market value of the stock as of the date of the
grant), the option will be treated and taxed as a non-qualified stock option.
Non-Qualified Stock Options. All options granted or to be granted under
the Plan which do not qualify as incentive stock options are non-statutory
options not entitled to special tax treatment under Section 422 of the Code.
A participant in the Plan will recognize taxable income upon the grant of a
non-qualified stock option only if such option has a readily ascertainable fair
market value as of the date of the grant. In such a case, the recipient will
recognize taxable ordinary income in an amount equal to the excess of the fair
market value of the option as of such date over the price, if any, paid for such
option. No income would then be recognized on the exercise of the option, and
when the shares obtained through the exercise of the option are disposed of in a
taxable transaction, the resulting gain or loss would be capital gain or loss
(assuming the shares are a capital asset in the hands of the optionee). However,
under the applicable Treasury Regulations, the non-qualified stock options
issued under the Plan will not have a readily ascertainable fair market value
unless at the time such options are granted similar options of the Company are
actively traded on an established market. The Company presently has no such
actively traded options.
Upon the exercise of a non-statutory option not having a readily
ascertainable fair market value, the optionee recognizes ordinary income in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option exercise price for those shares. The Company is not
entitled to an income tax deduction with respect to the grant of a non-statutory
stock option or the sale of stock acquired pursuant thereto. The Company
generally is permitted a deduction equal to the amount of ordinary income the
optionee is required to recognize as a result of the exercise of a non-statutory
stock option.
The Plan permits the Committee to allow an optionee to pay all or part of
the purchase price for shares acquired pursuant to an exercise of a
non-statutory option by transferring to the Company other shares of the
Company's Common Stock owned by the optionee. If an optionee exchanges
previously acquired Common Stock pursuant to the exercise of a non-qualified
stock option, the Internal Revenue Service has ruled that the optionee will not
be taxed on the unrealized appreciation of the shares surrendered in the
exchange. In other words, the optionee is not taxed on the difference between
his or her cost basis for the old shares and their fair market value on the date
of the exchange, even though the previously acquired shares are valued at the
current market price for purposes of paying all or part of the option price.
General. The Plan is not qualified under Section 401(a) of the Code and is
not subject to the provisions of the Employee Retirement Income Security Act of
1974.
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the statutory provisions of the Code, its legislative
history and related income tax regulations. Furthermore, the foregoing is only a
general discussion of the federal income tax consequences of the Plan and does
not purport to be a complete description of all federal income tax aspects of
the Plan. Option holders may also be subject to state and local taxes in
connection with the grant or exercise of options granted under the Plan and the
sale or other disposition of shares acquired upon exercise of the options. Each
employee receiving a grant of options should consult with his or her personal
tax advisor regarding federal, state and local consequences of participating in
the Plan.
12
<PAGE> 14
PROPOSALS BY STOCKHOLDERS
Proposals by stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders (to be held in the Spring of 1997) must be forwarded in
writing and received at the principal executive office of the Company no later
than December 31, 1996 directed to the attention of the Secretary, for
consideration for inclusion in the Company's proxy statement for the Annual
Meeting of Stockholders to be held in 1997. Any such proposals must comply in
all respects with the rules and regulations of the Commission.
OTHER MATTERS
The Company's Board is not aware of any matter to be presented for action
at the Special Meeting other than the approval of the proposed amendment to the
Company's 1992 Stock Option Plan, as amended. If any other matter comes before
the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matter in accordance with their best
judgment.
13
<PAGE> 15
EXHIBIT A
AMENDMENT NO. 2
1992 STOCK OPTION PLAN, AS AMENDED
TRANSCEND SERVICES, INC.
WHEREAS, the Board of Directors of Transcend Services, Inc. (the
"Corporation") has previously adopted, and the shareholders of the Corporation
have approved, the 1992 Stock Option Plan, as amended (the "Plan") pursuant to
which options to purchase stock of the Corporation may be issued to eligible
directors and employees of the Corporation; and
WHEREAS, the Board of Directors of the Corporation deems it desirable to
amend the Plan so as to increase the number of shares available for issuance
pursuant to the exercise of options granted under the Plan.
NOW, THEREFORE, the Plan is amended upon the terms, and subject to the
conditions, set forth herein:
ARTICLE I
AMENDMENT TO PLAN
1.1 Section 5.1 of Article V of the Plan shall be amended by deleting the
first sentence of such section in its entirety and substituting therefor the
following:
"5.1 LIMITATIONS. Subject to adjustments pursuant to the provisions
of Section 5.2 hereof, the maximum number of shares of Stock that may be
issued and sold hereunder shall not exceed, in the aggregate, 2,000,000.
ARTICLE II
EFFECTIVE DATE OF AMENDMENT
2.1 The amendment effected hereby shall be effective on the date that such
amendment is approved by a majority of all votes present and entitled to vote at
the Special Meeting of Stockholders to be held on June 5, 1996.
A-1
<PAGE> 16
APPENDIX A
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF TRANSCEND SERVICES, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1996
The undersigned hereby appoints Larry G. Gerdes and David W. Murphy, or
either of them, will full power of substitution as proxyholders to represent
and to vote, as designated on the reverse hereof, the common stock of the
undersigned at the Special Meeting of Stockholders of the Company to be held on
June 5, 1996 and any adjournment thereof.
(Continued on reverse side)
- --------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
<PAGE> 17
<TABLE>
<S> <C>
Please mark
your votes as /X/
indicated in
this example.
FOR AGAINST ABSTAIN
1. To approve an amendment to the Company's 1992 Stock Option Plan, As Amended, to [ ] [ ] [ ]
increase the number of shares for issuance under such Plan by 400,000 shares from
1,600,000 Shares to 2,000,000 Shares; and
The shares represented by this proxy card will be
voted as directed above. IF NO DIRECTION IS GIVEN AND
_______ THE PROXY CARD IS VALIDLY EXECUTED, THE SHARES WILL BE
| VOTED FOR ALL LISTED PROPOSALS. IN THEIR DISCRETION, THE
| PROXYHOLDERS ARE AUTHORIZED TO VOTE UPON SUCH OTHER
| BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature(s) of Stockholder_____________________________________________________________ Dated:_____________________________ 199___
IMPORTANT: Sign exactly as your name appears above. Give full title of executor, trustee, guardian, etc.
Joint owners should each sign personally.
- ------------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
</TABLE>
