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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1997
REGISTRATION NO. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
TRANSCEND SERVICES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0378756
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3353 PEACHTREE ROAD, N.E.
SUITE 1000
ATLANTA, GEORGIA 30326
(404) 364-8000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
LARRY G. GERDES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3353 PEACHTREE ROAD, N.E.
SUITE 1000
ATLANTA, GEORGIA 30326
(404) 364-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
HELEN T. FERRARO, ESQ.
SMITH, GAMBRELL & RUSSELL, LLP
3343 PEACHTREE ROAD, N.E.,SUITE 1800
ATLANTA, GEORGIA 30326
(404) 264-2620
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement. If the only
securities being registered on this form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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=========================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........... 1,557,346 $5.19 $8,082,626 $2,450
=========================================================================================================
</TABLE>
(1) The shares of Common Stock being registered hereby are for the account of
certain shareholders of the Company. No other shares of Common Stock are
being registered pursuant to this offering.
(2) Estimated solely for the purpose of calculating the filing fee pursuant to
Rule 457(c) under the Securities Act of 1933.
__________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
1,557,346 SHARES
TRANSCEND SERVICES, INC.
COMMON STOCK
The 1,557,346 shares of Common Stock (the "Common Stock") of Transcend
Services, Inc. (the "Company") offered hereby are being sold by certain holders
of the Common Stock of the Company named herein under "Selling Shareholders."
Unless the context otherwise requires, the holders of the Common Stock selling
shares hereunder are hereinafter collectively referred to as the "Selling
Shareholders." The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Shareholders. See "Selling Shareholders," "Plan of
Distribution" and "Use of Proceeds."
THE COMPANY HAS FILED THIS REGISTRATION STATEMENT IN ORDER TO FULFILL ITS
CONTRACTUAL OBLIGATIONS UNDER THE TERMS AND CONDITIONS OF DEMAND REGISTRATION
RIGHTS PROVIDED TO THE FORMER OWNERS OF TWO SMALL MEDICAL TRANSCRIPTION
COMPANIES ACQUIRED BY THE COMPANY IN JUNE 1996, IN STOCK FOR STOCK POOLING
TRANSACTIONS. AS PART OF THIS DEMAND REGISTRATION, A SMALL NUMBER OF
SHAREHOLDERS WHO PREVIOUSLY HAD BEEN GRANTED FULL PIGGYBACK REGISTRATION RIGHTS
(AS PART OF PREVIOUS TRANSACTIONS WITH THE COMPANY) HAVE ELECTED TO HAVE THEIR
OTHERWISE RESTRICTED SHARES REGISTERED. AS OF DECEMBER 20, 1996, THE COMPANY
HAD INQUIRED OF EACH SELLING SHAREHOLDER WHETHER SUCH SHAREHOLDER HAD THE
PRESENT INTENTION TO SELL THE SHARES BEING OFFERED HEREUNDER. AS OF DECEMBER
20, 1996, EACH SELLING SHAREHOLDER INDICATED NO PRESENT INTENTION TO SELL THE
SHARES BEING OFFERED HEREUNDER.
The Common Stock of the Company is listed on The Nasdaq Stock Market's
National Market under the symbol "TRCR." On December 31, 1996, the last sale
price of the Common Stock as reported on the Nasdaq National Market was
$5.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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==========================================================================================
OFFERING UNDERWRITING PROCEEDS TO PROCEEDS
PRICE TO DISCOUNTS AND SELLING TO
PUBLIC COMMISSIONS SHAREHOLDERS COMPANY
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. See Text See Text See Text See Text
Total.................. Below Below Below Below
==========================================================================================
</TABLE>
The Selling Shareholders have advised the Company that they may elect to
offer for sale and to sell the Common Stock from time to time in one or more
transactions through brokers in the over-the-counter market, in private
transactions, or otherwise, in each case at market prices then prevailing or
obtainable. Accordingly, sales prices and proceeds to the Selling Shareholders
will depend upon price fluctuations and the manner of sale. The Selling
Shareholders may effect such transactions by selling to or through one or more
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, brokerage commissions or similar fees in amounts which
may vary from transaction to transaction. Except for the payment of such
brokerage commissions and charges and the legal fees, if any, of the Selling
Shareholders, the Company will bear all expenses in connection with registering
the shares offered hereby, which expenses are estimated to total approximately
$23,450. See "Plan of Distribution."
This Prospectus also relates to such additional shares as may be issued to
the Selling Shareholders because of future stock dividends, stock distributions,
stock splits or similar capital readjustments.
________________
The date of this Prospectus is January 2, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Securities and Exchange Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a World Wide Web site, containing such reports, proxy and information
statements and other information regarding the Company, at http://www.sec.gov.
In addition, such reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006-1506.
The Company has filed a Registration Statement on Form S-3 (together with
all amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of documents
are necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to
the 1934 Act are hereby incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
2. The Company's Amendment No. 1 on Form 10-K/A dated August 7, 1996 to
its Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
4. The Company's Amendment No. 1 on Form 10-Q/A dated August 7, 1996 to
its Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
5. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996;
6. The Company's Amendment No. 1 on Form 10-Q/A dated August 16, 1996
to its Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
7. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996;
8. The Company's Current Report on Form 8-K dated May 2, 1995;
9. The Company's Amendment No. 1 on Form 8-K/A dated June 30, 1995
to its Current Report on Form 8-K dated May 2, 1995;
10. The Company's Amendment No. 2 on Form 8-K/A dated May 30, 1996 to its
Current Report on Form 8-K dated May 2, 1995; and
11. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A as filed with the
Commission on January 8, 1990.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
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statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been incorporated by reference in this
Prospectus (excluding exhibits unless such exhibits are specifically
incorporated by reference into such documents). Please direct such requests to
the Secretary of Transcend Services, Inc. at the Company's principal offices
located at 3353 Peachtree Road, N.E., Suite 1000, Atlanta, Georgia 30326,
telephone number (404) 364-8000.
THE COMPANY
The Company was incorporated in California in 1976 and was reorganized as
a Delaware corporation in 1988. On January 10, 1995, the Company, formerly
known as "TriCare, Inc.," acquired Transcend Services, Inc., then a Georgia
corporation, by the merger of Transcend Services, Inc. into First Western Health
Corporation ("First Western"), a subsidiary of the Company (the "Merger").
Prior to the Merger, Transcend Services, Inc., which was originally organized in
1984, provided consulting services for medical records management, quality and
utilization management, records coding and records management software. In
1992, the former Transcend Services, Inc. developed, tested and marketed new
lines of business intended to capitalize on the increasing need for the
outsourcing of medical records, and by the end of 1992 had entered into its
first long-term agreement for the management of a hospital's medical records
department. On May 31, 1995, Transcend Services, Inc. and Veritas Healthcare
Management ("Veritas"), another subsidiary of the Company, merged into the
Company, whose name was then changed to "Transcend Services, Inc." Inasmuch as
the Merger was treated for financial accounting purposes as the acquisition of
TriCare, Inc. by Transcend Services, Inc., following the merger, the historical
financial statements of the former Transcend Services, Inc. have become the
financial statements of the Company and include the businesses of both companies
after the effective date of the Merger. The Company has one wholly-owned
subsidiary, Sullivan Health and Rehabilitation Services, Inc. ("Sullivan").
When used in this Prospectus, the term "Company" or "Transcend" shall mean
Transcend Services, Inc. and Sullivan unless otherwise stated in this Prospectus
or unless the context otherwise requires.
The Company's executive offices are located at 3353 Peachtree Road, N.E.,
Suite 1000, Atlanta, Georgia 30326. Its telephone number is (404) 364-8000.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY.
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE SUGGESTED IN THE FORWARD-LOOKING STATEMENTS,
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC CONDITIONS, INTEREST
RATES, PRODUCT DEMAND, COMPETITIVE PRODUCTS AND OTHER RISKS DETAILED HEREIN AND
IN THE COMPANY'S OTHER FILINGS WITH THE COMMISSION. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OPERATING LOSSES
Although the Company has experienced revenue growth on an annual basis
since the fiscal year ended December 31, 1992, the Company has not operated
profitably during its last five fiscal years, and for the quarter ended
September 30, 1996, it continued to experience losses. At September 30, 1996,
the Company had an accumulated deficit of $13,365,000. In addition, the costs
incurred by the Company early in the terms of its outsourcing contracts exceed
the revenues received by the Company under such contracts and therefore, to
achieve profitability, the Company must develop operating efficiencies. There
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can be no assurance that the Company will be able to attain the required
operating efficiencies necessary to achieve profitability.
NEGATIVE CASH FLOWS
For the twelve months ended December 31, 1995, the Company had negative
cash flows from operations of $4,133,000, which included a payment of
approximately $500,000 of aged payables immediately following a merger of the
Company which occurred in January 1995 and $450,000 in merger costs. See "The
Company." There were also cash outlays for acquisitions totaling $1,232,000 and
capital expenditures of $1,221,000. Negative cash flows from continuing
operations was $2,534,000 and negative cash flow from discontinued operations
was $844,000 for the nine month period ending September 30, 1996, which
additionally included cash outlays of $1,110,000 for capital expenditures. There
can be no assurance that the Company will achieve positive cash flow.
MANAGEMENT OF GROWTH
The Company's business strategy includes an intention to grow through
acquisitions and strategic alliances with other companies. Such a strategy
involves significant risks. The process of integrating acquired businesses into
the Company's operations may result in unforeseen difficulties and may require a
disproportionate amount of resources and management's attention. There can be no
assurance that the Company will be able to expand its market presence in its
current locations or successfully enter other markets through acquisitions or
that any such expansion will be profitable. If the Company's management is
unable to manage growth effectively, the Company's business, results of
operations and financial condition could be materially and adversely affected.
MARKET ACCEPTANCE OF OUTSOURCING STRATEGY
The success of the Company will require acceptance by hospitals and other
healthcare providers of the concept of outsourcing their information management
departments. Such acceptance will depend on the ability of the Company to
alleviate outsourcing concerns of hospital management, including loss of
control, information quality and integrity concerns and a bias against
outsourcing due to previous poor experiences. There can be no assurance that the
Company will be successful in alleviating these concerns and in marketing its
services. Failure of the Company to achieve market acceptance of its services
could have a material adverse effect on the Company's business, financial
condition and results of operations.
NATURE OF CONTRACTS
The Company derives a substantial portion of its revenues from 20
outsourcing contracts which have remaining terms ranging from one to five years.
Revenues from the Company's outsourcing contracts amounted to 55.3% of total
1995 revenues and 52.8% of total revenues for the quarter ended September 30,
1996. At the end of each contract's duration, the Company must renegotiate a new
contract. Should the Company fail to retain an existing customer or fail to
adequately expand its base of contracts, the Company's future revenues could be
at substantial risk. There can be no assurance that the Company will be able to
renegotiate or renew its existing outsourcing contracts. With the exception of
one contract, the Company's existing outsourcing contracts are on a fixed
installment fee basis. In the early term of such a contract, the Company's
expenses in providing services frequently exceed the revenues received. For such
contracts to become profitable, the Company must be able to lower operating
expenses by achieving operating efficiencies and economies of scale. There can
be no assurance that the Company will be able to lower operating expenses
sufficiently to achieve profitability.
The Company is considering an alternative volume-based pricing structure
for pricing its contract management contracts based upon a hospital customer's
activity levels such as the weighted average number of annual patient discharges
or a "per member per month" capitated pricing option. Because these pricing
methods do not provide a fixed amount of contract revenues, they introduce an
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additional element of risk to the Company. The Company is also considering
pricing its contract management contracts, where possible, to provide for more
contingency sharing of either (i) the one-time cash flow savings that the
Company generates for its contract management customers through a reduction in
gross days receivables outstanding by processing bills being delayed in the
medical records department and/or (ii) increased revenues realized by hospital
customers as a result of the Company's favorable impact (through enhanced coder
and physician training) on the hospital's Case Mix Index (a measurement of the
hospital's severity/acuity level for DRG reimbursements under Medicare). Of its
20 contracts as of December 20, 1996, only 1 contract was priced under a
contingency sharing arrangement and there can be no guarantee that the Company
will be successful in pricing of its future contracts in this manner. There
can be no assurance that these pricing alternatives will be successful or that
they will generate sufficient revenues to operate profitably.
COMPETITION
The outsourcing or contract management of health information services
departments is still a relatively new concept in the hospital industry.
Management believes that the Company's greatest competition comes from existing,
internal medical records departments. To the Company's knowledge, there is
currently only one regional firm and one national firm engaged in the same
business. The Company expects that as the concept of outsourcing becomes more
widely accepted, it will encounter further competition from some or all of the
following sources: other traditional healthcare information management
consultants; coding consultants; multi-specialty healthcare services businesses
which currently provide contract management to clinical, housekeeping, dietary
or other non-medical services departments of hospitals; management information
services providers, particularly developers and vendors of management software;
and other parties in contract management businesses (for example, business or
financial management services) desiring to enter the healthcare field. The
Company expects that competitive factors will include reputation for expertise
in health information management, size and scope of referenceable accounts,
prior experience in outsourcing and pricing. Some of its potential competitors
are larger, better known and better capitalized than the Company, and such
factors could affect the Company's ability to withstand such competition over
the long term. There are also companies that operate in other areas of the
health information management spectrum, including admissions and the business
office. As the Company expands its scope of business into these other areas of
health information management, the Company will confront other, sometimes more
established competitors.
The Company also experiences significant competition with respect to its
transcription, consulting and case management businesses from a variety of
sources, including, in each case, both local and national businesses. The
markets both for medical transcription services and for medical records coding
and consultation services are highly fragmented, and no competitor or
identifiable group of competitors could be said to be dominant.
LITIGATION
On September 17, 1993, the Company and its healthcare subsidiaries and the
physician-owned medical groups which had contracts with the healthcare
subsidiaries initiated a lawsuit against 22 insurance carriers seeking $115
million in compensatory damages plus punitive damages. The claims arise out of
the Company's former business, which prior to the merger with Transcend
Services, Inc., included the business of providing medical/legal evaluations and
medical treatment services (in association with managed medical groups) in the
workers' compensation industry in California. See "The Company." In connection
with this lawsuit, seven of the insurance carriers have filed cross complaints
seeking restitution for funds previously paid by the defendants, disgorgement of
profits and punitive damages, based primarily upon allegations of illegal
corporate practice of medicine, illegal referral arrangements and related
improper conduct. The costs associated with the claims asserted against the
insurance companies and the defense of the cross complaints cannot be
ascertained with any certainty, but are expected to be substantial. There can
be no assurance as to the outcome of this litigation, including potential
recovery, if any, of the Company's claims or damages, if any. The cross
complaints expose the Company to risk of liability which, if the Company is
unsuccessful in the defense of such cross complaints, could have a materially
adverse impact on the Company's results of operations for a particular period.
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The Company believes that the cross complaints against the Company are without
merit and that the final resolution of the cross complaints will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity; however, there can be no assurance that the Company
will be successful in the defense of such cross complaints.
HEALTHCARE INDUSTRY AND UNCERTAINTY OF REFORM
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the outsourcing practices and other
operational aspects of hospitals in the Company's target market. The levels of
revenues and profitability of the Company may be affected by the continuing
efforts of government and third party payors to contain or reduce the costs of
healthcare through various means. In the United States there have been, and the
Company expects that there will continue to be, a number of federal and state
proposals to control healthcare costs. Substantial restructuring of the nation's
healthcare system could have an adverse impact on the Company's outsourcing
services, although the impact of such changes cannot be predicted with any
certainty. During the past several years, the healthcare industry has been
subject to an increase in governmental regulation of, among other things,
reimbursement rates and certain capital expenditures, and future proposals may
increase governmental involvement in healthcare, lower reimbursement rates, and
otherwise change the operating environment for the Company's healthcare provider
customers. Cost containment measures instituted by healthcare providers could
have an adverse effect on the Company's business if the Company is forced to
reduce the fees it charges for its services. In addition, the healthcare
industry is currently undergoing significant consolidation, resulting in a
smaller number of larger healthcare providers. The changing industry profile
produced by this consolidation could have an adverse impact on the Company's
margins and profitability due to increased competition, and could cause the
Company to lose existing customers. In July 1996, the Company lost one of its
outsourcing contracts principally due to the merger of its customer with another
hospital.
DEPENDENCE ON KEY PERSONNEL
The success of the Company has been largely dependent on the skills,
experience and efforts of its senior management and especially its President and
Chief Executive Officer, Larry G. Gerdes, its Chief Financial Officer, David W.
Murphy, its Executive Vice-President, Outsourcing Services, G. Scott Dillon and,
more recently, its Executive Vice-President, Services Group, Todd S. Mann. The
Company does not have an employment agreement with any of the foregoing persons.
The loss of the services of Messrs. Gerdes, Murphy, Dillon or Mann or other
members of the Company's senior management could have a material adverse effect
on the Company's business and prospects. The Company believes that its future
success will also depend in part upon its ability to attract, retain and
motivate qualified personnel. Competition for such personnel is intense. There
can be no assurance that the Company will be successful in attracting and
retaining such personnel. The loss of key personnel, or inability to hire or
retain qualified personnel, could have an adverse effect on the Company's
business, financial condition and results of operations. The Company does not
carry any "key-man" insurance on the life of any officer of the Company.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of up to 21,000,000 shares of Preferred Stock, issuable in series, the
relative rights and preferences of which may be designated by the Board of
Directors. The issuance of Preferred Stock could make it more difficult for a
third party to acquire a majority of the outstanding voting stock. Accordingly,
the issuance of Preferred Stock may be used as an "anti-takeover" device
without further action on the part of the shareholders of the Company. No shares
of Preferred Stock have been issued, and the Company has no present plans to
issue any shares of Preferred Stock. See "Description of Capital Stock."
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NO DIVIDENDS
The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to retain earnings to finance the development
and expansion of its business. Pursuant to the terms of certain financing
agreements, the Company is restricted from paying dividends to its shareholders.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors,
and there can be no assurance that the market price of the Common Stock will not
decline below the public offering price herein. In addition, the stock market
has from time to time experienced extreme price and volume volatility. These
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded and may adversely affect the market price of
the Common Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares
of the Common Stock by the Selling Shareholders. See "Selling Shareholders" for
a list of those persons who will receive the proceeds from such sales. Certain
of the shares of the Common Stock to be sold by the Selling Shareholders
represent Common Stock underlying warrants to purchase common stock and the
Company's 8% Convertible Subordinated Debentures (the "Debentures"). Although
the Company will not receive any proceeds from the sale of the Common Stock by
the Selling Shareholders, the Company will receive proceeds upon the exercise of
such warrants in an amount equal to the product of the number of warrants
exercised multiplied by their exercise price. In addition, for every 286 shares
of Common Stock issued upon conversion of the Debentures, the Company will
benefit in an amount equal to a $1,000 reduction in the indebtedness outstanding
under the Debentures. Such proceeds will be used for general corporate purposes
and working capital.
RECENT DEVELOPMENTS
On December 5, 1996, the Company signed a Marketing Agreement with VHA,
Inc. ("VHA") pursuant to which VHA agreed to promote and market the Company's
outsourcing services in HIM Contract Management, Patient Access, coding and
consulting and medical transcription. As compensation for VHA's performance
under the Marketing Agreement, the Company agreed to pay VHA a 1.6% commission
on revenue generated by VHA and to issue a total of 133,000 shares of restricted
Common Stock to VHA. The stock to be awarded to VHA under the Marketing
Agreement is to be issued to VHA in amounts based upon VHA's achievement of
certain performance goals outlined under the Marketing Agreement relating to the
timing and amount of sales revenue generated by VHA.
In addition to the 18 contract management/outsourcing contracts in place
as of September 30, 1996, the Company has signed two additional contracts worth
approximately $10.0 million. The contracts are for two and three year terms,
respectively. Also, the Company has signed two outsourcing contracts for
medical transcription services totaling approximately $2.7 million. One of the
contracts has a three year term and the other contract has a term of one year.
On October 24, 1996, the Company announced the signing of a Letter of
Intent with MedPlus, Inc. (Cincinnati, Ohio) to enter into a non-exclusive
marketing relationship that would incorporate MedPlus's Chartmaxx Electronic
Patient Record System into the Company's patient records department outsourcing
service offerings. Under the terms of this non-exclusive agreement, the Company
will offer MedPlus's Chartmaxx Electronic Patient Record System to its clients,
and MedPlus will make the Company's services available to customers interested
in outsourcing services. This relationship is consistent with the Company's
plan to create a paperless medical record environment across its client base.
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SELLING SHAREHOLDERS
Except as indicated otherwise, the following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock as
of December 30, 1996 by the shareholders of the Company who are offering
securities pursuant to this Prospectus (the "Selling Shareholders").
"Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both. All of the listed
persons have sole voting and investment power over the shares listed opposite
their names unless otherwise indicated in the notes below. Shares shown as
beneficially owned after the offering assumes that all shares offered hereby by
the Selling Shareholder are sold.
THE COMPANY HAS FILED THIS REGISTRATION STATEMENT IN ORDER TO FULFILL ITS
CONTRACTUAL OBLIGATIONS UNDER THE TERMS AND CONDITIONS OF DEMAND REGISTRATION
RIGHTS PROVIDED TO THE FORMER OWNERS OF TWO SMALL MEDICAL TRANSCRIPTION
COMPANIES ACQUIRED BY THE COMPANY IN JUNE 1996, IN STOCK FOR STOCK POOLING
TRANSACTIONS. AS PART OF THIS DEMAND REGISTRATION, A SMALL NUMBER OF
SHAREHOLDERS WHO PREVIOUSLY HAD BEEN GRANTED FULL PIGGYBACK REGISTRATION RIGHTS
(AS PART OF PREVIOUS TRANSACTIONS WITH THE COMPANY) HAVE ELECTED TO HAVE THEIR
OTHERWISE RESTRICTED SHARES REGISTERED. AS OF DECEMBER 20, 1996, THE COMPANY
HAD INQUIRED OF EACH SELLING SHAREHOLDER WHETHER SUCH SHAREHOLDER HAD THE
PRESENT INTENTION TO SELL THE SHARES BEING OFFERED HEREUNDER. AS OF DECEMBER
20, 1996, EACH SELLING SHAREHOLDER INDICATED NO PRESENT INTENTION TO SELL THE
SHARES BEING OFFERED HEREUNDER.
8
<PAGE>
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
------------------------ ------------------------
NUMBER AMOUNT OF NUMBER
BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED/(1)/ OF CLASS BE OFFERED OWNED OF CLASS
- ------------------------ ------------ -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Pamela S. Barkell.................................... 138,000 * 138,000 0 0%
Steven R. Barkell.................................... 92,000 * 92,000 0 0
Linda Greiner........................................ 43,903 * 43,903 0 0
Paul Greiner......................................... 43,903 * 43,903 0 0
VHA, Inc............................................. 133,000 /(2)/ * 133,000 0 0
Silicon Valley Bank.................................. 25,000 /(3)/ * 25,000 0 0
Wanda Jones and Howard Jones......................... 63,750 /(4)/ * 60,000 3,750 *
Richard M. Lucas Cancer Foundation................... 397,801 /(5)/ 2.03 172,850 224,951 1.15
Transylvania University.............................. 257,514 /(6)/ 1.31 114,400 143,114 *
Alex G. Campbell..................................... 128,757 /(7)/ * 57,200 71,557 *
James Lauritsen...................................... 156,000 /(8)/ * 143,000 13,000 *
W.L. Rouse IRA....................................... 28,600 /(9)/ * 28,600 0 0
Brendan Joseph Cassin and Isabel B. Cassin,
as Co-Trustees for the Cassin Family Trust......... 151,349 /(10)/ * 67,566 83,783 *
B.J. Cassin, Conservator for Robert Cassin........... 65,490 /(11)/ * 39,860 25,630 *
Monmouth College..................................... 214,614 /(12)/ 1.10 71,500 143,114 *
St. Mary's College................................... 11,260 /(13)/ * 11,260 0 0
Alexandra Ertola..................................... 22,260 /(13)/ * 11,260 11,000 *
Don Grierson......................................... 22,522 /(14)/ * 22,522 0 0
Paul Joas............................................ 94,758 /(14)/ * 22,522 72,236 *
Roy Kirkorian........................................ 100,280 /(15)/ * 45,044 55,236 *
RWI Group, LP........................................ 67,566 /(16)/ * 67,566 0 0
John Warren Lucas and Genevieve Marie Lucas,
as Co-Trustees of the Lucas Family Trust........... 22,522 /(14)/ * 22,522 0 0
Noel P. Rahn......................................... 25,897 /(14)/ * 22,522 3,375 *
Nancy Thibodeau...................................... 24,260 /(13)/ * 11,260 13,000 *
Greg Vaughn.......................................... 11,260 /(13)/ * 11,260 0 0
Gerald Down.......................................... 51,260 /(13)/ * 11,260 40,000 *
Charles Thoele....................................... 75,441 /(17)/ * 22,522 52,919 *
George Caldwell...................................... 135,289 /(18)/ * 45,044 90,245 *
----------
Total........................................... 1 ,557,346
==========
</TABLE>
- ---------------
*Less than 1%.
/(1)/ On August 15, 1995, the Company raised $2 million through the private
placement of 8% Subordinated Convertible Debentures (the "Debentures").
The Debentures are unsecured and subordinated to all other debt of the
Company. The interest rate on the Debentures is 8%, payable semi-annually,
and the principal amount is due in full on August 15, 2000. The Debentures
are convertible into Common Stock by the holder at any time prior to
August 15, 2000, at a rate of 286 shares of Common Stock for each $1,000
in principal amount and are convertible by the Company at any time when
the Common Stock trades at $10.50 per share for 30 consecutive trading
days. The Company may redeem the Debentures at any time upon 30 to 60 days
notice to the holder of a Debenture. On April 30, 1996, the Company
granted a warrant to purchase shares of its Common Stock to Silicon Valley
Bank, a California-chartered bank (the "Silicon Valley Warrant"), in
connection with two credit facilities the Company established with Silicon
Valley East, a Division of Silicon Valley Bank. The Silicon Valley Warrant
entitles the holder to purchase an aggregate of 25,000 shares of the
Company's Common Stock, subject to certain adjustments, at an exercise
price of $11.25 per share. The Silicon Valley Warrant expires on April 30,
2001. In addition, on September 5, 1996, the Company sold an aggregate of
522,000 warrants to purchase common stock (the "Warrants") in a private
placement (the "Private Placement"). The Warrants expire on September 5,
9
<PAGE>
2001 and are presently exercisable at an exercise price of $4.44 per
share. The Warrants are redeemable by the Company at any time with 30
days written notice. For the purpose of this Prospectus, it is assumed
that the holder exercises 100% of the Silicon Valley Warrant or Warrants
issued in the Private Placement or converts 100% of the Debentures, as
the case may be. "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment
power or both and also includes options which are exercisable within
sixty days of the date hereof. Beneficial ownership as reported in the
above table has been determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934. The percentages are based upon
19,468,992 shares outstanding, except for certain parties who hold
currently exercisable options to purchase shares. The percentages for
those parties who hold currently exercisable options are based upon the
sum of 19,468,992 shares plus the number of shares subject to currently
exercisable options held by them, as indicated in the following notes.
/(2)/ Represents shares to be sold upon issuance under the Marketing Agreement
entered into by and between the Company and VHA pursuant to which VHA
agreed to promote and market the Company's outsourcing services in HIM
Contract Management, Patient Access, coding and consulting and medical
transcription. As compensation for VHA's performance under the Marketing
Agreement, the Company agreed to pay VHA a commission on revenue
generated by VHA and to issue a total of 133,000 shares of Common Stock
to VHA, such stock to be issued to VHA over a three year period in
amounts based upon VHA's achievement of certain performance goals
relating to the amount of sales revenue generated by VHA. It is assumed
all performance goals will have been met, and the Company has issued all
133,000 shares pursuant to the terms of the VHA Marketing Agreement. See
"Recent Developments."
/(3)/ Represents 25,000 shares to be sold upon exercise of the Silicon Valley
Warrant.
/(4)/ Includes 3,750 shares subject to outstanding options to purchase Common
Stock that are exercisable within 60 days issued to Wanda Jones pursuant
to the Company's 1992 Stock Option Plan, as amended.
/(5)/ Includes 50,675 shares to be sold upon exercise of Warrants and 71,500
shares to be sold upon conversion of Debentures. Donald L. Lucas, the
chairman of the Board of Directors of the Company, is the trustee of the
Richard M. Lucas Cancer Foundation.
/(6)/ Includes 114,400 shares to be sold upon conversion of Debentures.
/(7)/ Includes 57,200 shares to be sold upon conversion of Debentures.
/(8)/ Includes 143,000 shares to be sold upon conversion of Debentures.
/(9)/ Includes 28,600 shares to be sold upon conversion of Debentures.
/(10)/ Includes 33,783 shares to be sold upon exercise of Warrants.
/(11)/ Includes 28,600 shares to be sold upon conversion of Debentures and 5,360
shares to be issued upon exercise of Warrants.
/(12)/ Includes 71,500 shares to be sold upon conversion of Debentures.
/(13)/ Includes 5,630 shares to be sold upon exercise of Warrants.
/(14)/ Includes 11,261 shares to be sold upon exercise of Warrants.
/(15)/ Includes 22,522 shares to be sold upon exercise of Warrants.
/(16)/ Includes 33,783 shares to be sold upon exercise of Warrants.
/(17)/ Includes 28,000 shares subject to outstanding options to purchase Common
Stock that are exercisable within 60 days under the Company's 1992 Stock
Option Plan, as amended, and 11,261 shares to be sold upon exercise of
Warrants. Mr. Thoele serves on the Board of Directors of the Company.
/(18)/ Includes 16,000 shares subject to outstanding options to purchase Common
Stock that are exercisable within 60 days under the Company's 1992 Stock
Option Plan, as amended, and 22,522 shares to be sold upon exercise of
Warrants. Mr. Caldwell serves on the Board of Directors of the Company.
10
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby for the benefit of the Selling
Shareholders represent either (i) shares underlying certain outstanding stock
purchase warrants issued to certain Selling Shareholders, (ii) shares underlying
the Debentures issued to certain of the Selling Shareholders, (iii) shares to be
issued to certain of the Selling Shareholders upon satisfaction of certain
vesting requirements and, (iv) shares of Common Stock held by certain of the
Selling Shareholders issued in private transactions. See "Selling
Shareholders." The Company has agreed to register such shares for resale by the
Selling Shareholders. The Company will not receive any of the proceeds from the
sale of such shares by the Selling Shareholders. See "Use of Proceeds."
The Selling Shareholders have advised the Company that they may elect to
offer for sale and to sell Common Stock from time to time in one or more
transactions through brokers in the over-the-counter market, in private
transactions, or otherwise, in each case at market prices prevailing at the time
of sale or at prices and terms then obtainable, in block transactions,
negotiated transactions, or otherwise. Accordingly, sales prices and proceeds
to the Selling Shareholders will depend upon market price fluctuations and the
manner of sale.
The Selling Shareholders may effect such transactions by selling to or
through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, brokerage commissions or
similar fees in amounts which may vary from transaction to transaction. The
Selling Shareholders will pay such brokerage commissions and charges, as well as
the fees and expenses of any counsel retained by them in connection with this
offering. The Company will bear all other expenses in connection with
registering the shares offered hereby, which expenses are estimated to total
approximately $23,450.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, $.01 par value per share, and up to 21,000,000 shares of Preferred Stock
$.01 par value per share.
COMMON STOCK
Subject to the rights of any holder of Preferred Stock, each holder of
Common Stock is entitled to one vote per share for the election of directors as
well as on other matters, to dividends as and when declared by the Company's
Board of Directors, and upon liquidation to share in the net assets of the
Company pro rata in accordance with his holdings. The Common Stock has no
preemptive, redemption, conversion or subscription rights, and all outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 21,000,000 shares of $.01 par
value Preferred Stock, none of which is outstanding. The Board of Directors has
the power, without further action by the shareholders, to divide any and all
shares of Preferred Stock into series and to fix and determine the relative
rights and preferences of the Preferred Stock, such as the designation of series
and the number of shares constituting such series, dividend rights, redemption
and sinking fund provisions, liquidating and dissolution preferences, conversion
or exchange rights and voting rights, if any. Issuances of Preferred Stock by
the Board of Directors may result in such shares having senior dividend and/or
liquidation preferences to the holders of shares of Common Stock and may dilute
the voting rights of such holders. Issuances of Preferred Stock, while providing
11
<PAGE>
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
rights of holders of the Common Stock. In addition, the issuance of Preferred
Stock could make it more difficult for a third party to acquire a majority of
the outstanding voting stock. Accordingly, the issuance of Preferred Stock may
be used as an "anti-takeover" device without further action on the part of the
shareholders of the Company. No shares of Preferred Stock have been issued and
the Company has no present plans to issue any shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
SunTrust Bank, Atlanta.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and schedule of Transcend Services,
Inc. and subsidiaries, incorporated by reference in this Prospectus and
elsewhere in the Registration Statement to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of Medical Transcription of Atlanta, Inc.,
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement to the extent and for the periods indicated in their report, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report thereto and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said reports.
12
<PAGE>
_______________________________________________________________________________
No dealer, representative or any other person has been authorized to give
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or by the Underwriters.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
_________________
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................ 3
Risk Factors........................... 3
Use of Proceeds........................ 7
Recent Developments.................... 7
Selling Shareholders................... 8
Plan of Distribution................... 11
Description of Capital Stock........... 11
Legal Matters.......................... 12
Experts................................ 12
</TABLE>
________________________________________________________________________________
________________________________________________________________________________
TRANSCEND SERVICES, INC.
1,557,346 Shares
COMMON STOCK
PROSPECTUS
January 2, 1997
3353 Peachtree Road, N.E.
Suite 100
Atlanta, Georgia 30326
(404) 364-8000
January 2, 1997
_______________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of issuance and distribution of the Common Stock, other
than underwriting discounts, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....$ 2,450
Legal Fees and Expenses................................ 7,500
Accounting Fees and Expenses........................... 5,000
Printing, Material, and Postage........................ 5,000
Transfer Agent Fees.................................... 1,000
Blue Sky Qualification Fees and Expenses............... 500
Miscellaneous.......................................... 2,000
------
TOTAL...............................................$23,450
======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws permit it to indemnify a director and officer who was or
is a party to any threatened, pending or completed action, suit or other type of
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or any right of the Company) by reason of the fact that he or she
is or was a director or officer or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding.
These indemnification rights apply if the director or officer acted in good
faith and in a manner in which he or she reasonably believed to be in or not
opposed to the best interest of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that a person did not act in a manner
which he or she reasonably believed to be in the best interests of the Company,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his or her conduct was unlawful.
In addition, under the Bylaws, the Company may indemnify an officer or
director who was or is a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he or she is or was an officer or director of another
corporation, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such proceeding. These
indemnification rights apply if the director or officer acted in good faith and
in a manner in which he or she reasonably believed to be in or not opposed to
the best interest of the Company, except no indemnification shall be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to have been liable to the Company unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances, such person is fairly and reasonably entitled
to indemnity for such expenses which such court shall deem proper.
The Company's Bylaws provide that indemnification of the costs and expenses of
defending any action is required to be made to any officer or director who is
successful (on the merits or otherwise) in defending an action of the type
referred to in the immediately preceding paragraphs. Except with regard to the
costs and expenses of successfully defending an action as may be ordered by a
II-1
<PAGE>
court, indemnification as described in the previous paragraph is only required
to be made to a director or officer if a determination is made that
indemnification is proper under the circumstances. Such determination shall be
made: (i) by the Company's Board by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding; or (ii) if
such quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors, by independent legal counsel in a written opinion, or (iii) by the
affirmative vote of a majority of shares entitled to vote.
The Bylaws of the Company further provide for the expenses (including
attorneys' fees) incurred by any officer or director in defending a civil or
criminal action, suit or proceeding to be paid in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
him or her to repay all amounts so advanced, if it shall ultimately be
determined that such officer or director is not entitled to be indemnified by
the Company as authorized in the proceeding paragraphs. No security shall be
required for such undertaking.
The Bylaws of the Company also permit the Company to purchase and maintain
insurance on behalf of any person who was or is a director or officer of the
Company, or is or was serving at the request of the Company as a officer or
director of another corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against the officer or director and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the Company would have the power to indemnify the
director or officer against such liability.
Limitation of Liability. The Certificate of Incorporation also provides that
directors of the Company shall not be liable to the Company or its shareholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability (i) for any breach of the Director's duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. This provision would have no
effect on the availability of equitable remedies or non-monetary relief, such as
an injunction or rescission for breach of the duty of care. In addition, the
provision applies only to claims against a director arising out of his role as a
director and not in any other capacity (such as an officer or employee of the
Company). Further, liability of a director for violations of the federal
securities laws will not be limited by this provision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
5 Opinion of Smith, Gambrell & Russell, LLP.
10.1 Letter Agreement dated December 5, 1996 by and between the
Registrant and VHA, Inc.
10.2 Services Agreement dated December 5, 1996 by and between the
Registrant and VHA, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Smith, Gambrell & Russell (contained in their opinion
filed as Exhibit 5).
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
Provided, however, that the undertakings set forth in paragraphs
(i) and (ii) above do not apply if the information required to
be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on this 31st day of
December, 1996.
Transcend Services, Inc.
By: /s/ Larry G. Gerdes
----------------------------------------
Larry G. Gerdes
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Larry G. Gerdes and David W. Murphy and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
Chairman of the Board of December , 1996
- --------------------- Directors
Donald L. Lucas
/s/ Larry G. Gerdes President, Chief December 31, 1996
- -------------------- Executive Officer
Larry G. Gerdes and Director (Principal
Executive Officer)
/s/ David W. Murphy Chief Financial Officer, December 31, 1996
- -------------------- Secretary and Treasurer
David W. Murphy (Principal Financial
Officer)
/s/ George B. Caldwell Director December 31, 1996
- -----------------------
George B. Caldwell
/s/ Walter S. Huff, Jr. Director December 31, 1996
- ------------------------
Walter S. Huff, Jr.
/s/ Charles E. Thoele Director December 31, 1996
- ----------------------
Charles E. Thoele
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
S-K REFERENCE
NUMBER DESCRIPTION PAGE
- ------------- ----------- ----
<C> <S> <C>
5 Opinion of Smith, Gambrell & Russell, LLP.
10.1 Letter Agreement dated December 5, 1996 by and
between the Registrant and VHA, Inc.
10.2 Services Agreement dated December 5, 1996 by and
between the Registrant and VHA, Inc.
23.1 Consent of Arthur Andersen LLP.
</TABLE>
<PAGE>
EXHIBIT 5.1
[SMITH, GAMBRELL & RUSSELL, LLP LETTERHEAD]
December 31, 1996
Board of Directors
Transcend Services, Inc.
3353 Peachtree Road, N.E.
Suite 1000
Atlanta, Georgia 30326
Re: Transcend Services, Inc.
Registration Statement on Form S-3
1,557,346 Shares of Common Stock
----------------------
Gentlemen:
We have acted as counsel for Transcend Services, Inc. (the "Company") in
connection with the proposed public offering by certain shareholders of the
Company of the shares of the Company's $.01 par value Common Stock (the "Common
Stock") covered by the above-described Registration Statement.
In connection therewith, we have examined the following:
(1) The Certificate of Incorporation of the Company, as amended, certified
by the Secretary of State of the State of Delaware;
(2) The Bylaws of the Company, certified as complete and correct by the
Secretary of the Company;
(3) The minute book of the Company, certified as correct and complete by
the Secretary of the Company;
(4) Certificate of Good Standing with respect to the Company, issued by
the Delaware Secretary of State; and
(5) The Registration Statement on Form S-3 to be filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Registration Statement").
<PAGE>
Based upon such examination and upon examination of such other instruments
and records as we have deemed necessary, we are of the opinion that:
(A) The Company has been duly incorporated under the laws of the State of
Delaware and is validly existing and in good standing under the laws
of that state.
(B) The 1,557,346 shares of Common Stock covered by the Registration
Statement have been legally authorized and when issued in accordance
with the terms described in said Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus. In giving this consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Sincerely,
SMITH, GAMBRELL & RUSSELL, LLP
/s/ Helen T. Ferraro
----------------------------------------
Helen T. Ferraro
<PAGE>
EXHIBIT 10.1
[VHA LETTERHEAD]
December 5, 1996
G. Scott Dillon
Executive Vice President and COO
Transcend Services, Inc.
3353 Peachtree Road, N.E., Ste. 1000
Atlanta, GA 30326
Dear Scott:
This letter refers to that certain Purchasing Agreement between Transcend
Services, Inc. ("Vendor") and VHA Inc. ("VHA"), dated as of December 5,
1996. Terms used in this letter that are defined in the Services Agreement have
the same meaning as in the Services Agreement.
VHA agrees to actively assist in selling and marketing of services to VHA
vendors and affiliates and HPPI members. Where such assistance (as further
defined in Attachment II Exhibit A) directly leads to the signing of a contract
for services vendor will pay VHA marketing fee as defined below:
SECTION 1. MARKETING FEE. Within twenty (20) days after the end of
-------------
each full or partial month during the term of the Agreement, Vendor will
pay VHA a marketing fee equal to one and six-tenths percent (1.6%) of all
net sales (as defined in this paragraph) of Services pursuant to the
Agreement during such month, with the exception that the fee will be one
percent (1.0%) of all first year net sales to Montana Deaconess Medical
Center and 5,000 shares of unrestricted Transcend Services common stock as
a retention bonus in each subsequent year those accounts are under
contract. The term "net sales" means the fees for each Service
(determined in accordance with the Agreement) delivered to VHA Members and
Affiliates and HPPI Members. The term "all net sales" means the sum of net
sales.
VHA will have the opportunity to earn equity in Transcend Services,
Inc. in accordance with the provisions of the Restricted Stock
Agreement(Exhibit A) to this letter) and the Registration Rights
Agreement(Exhibit B to this letter), as follows:
- 133,000 common stock options(Transcend common stock; TRCR/NASDAQ)
issued upon Agreement signing at cost $0.00 cost (exercise price) to
vest during the three year period of this Agreement based on the
following performance expectations:
- For any sales realized by Transcend up to $6.0 million in annual
revenue that are sold through VHA (as defined in paragraph one,
this section), VHA's options will vest at the time each Vendor
contract is signed at an accelerated rate of .0055 shares per $1.00
of annual revenue to Transcend sold through VHA or up to a maximum
of 33,000 options.
- For any sales realized by Transcend between $6.0 and $14.0
million in annual revenue that are sold through VHA (as defined in
paragraph one, this section), VHA's options will vest at the time
each Vendor contract is signed at an accelerated rate of .0042
shares per $1.00 of annual revenue to Transcend sold through VHA or
up to a maximum of 33,000 options.
<PAGE>
- For any sales realized by Transcend between $14.0 and $23.0
million in annual revenue that are sold through VHA (as defined in
paragraph one, this section), VHA's options will vest at the time
each Vendor contract is signed at an accelerated rate of .0036
shares per $1.00 of annual revenue to Transcend sold through VHA or
up to a maximum of 33,000 options.
- For any sales realized by Transcend between $23.0 and $35.0
million in annual revenue that are sold through VHA (as defined in
paragraph one, this section), VHA's options will vest at the time
each Vendor contract is signed at an accelerated rate of .0028
shares per $1.00 of annual revenue to Transcend sold through VHA or
up to a maximum of 34,000 options.
SECTION 2. MONTHLY REPORT. With each payment of a marketing fee,
--------------
Vendor will deliver to VHA separate reports ("Monthly Reports") for VHA
Members and Affiliates and HPPI Members, in form and substance reasonably
satisfactory to VHA, which set forth accurately:
(a) the name of Vendor, the month and year to which the
Monthly Report (and the enclosed marketing fee) relates and the
contract number (as provided Vendor by VHA),
(b) with respect to each VHA Member and Affiliate and HPPI
Member (described by LIC number, full name, city, state and zip code
as provided Vendor by VHA), the sum of net sales and the associated
marketing fees for all Services provided to each such VHA Member and
Affiliate and HPPI Member during such month,
(c) the sum of the net sales and the associated marketing
fees for all Services sold to all VHA Members and Affiliates and HPPI
Members during such month,
(d) the calculation used by Vendor to determine the
marketing fee, and
(e) such additional information as VHA may reasonably
request from time to time.
Monthly reports shall be delivered, with the marketing fee enclosed,
to:
VHA Inc.
220 East Las Colinas Boulevard
Irving, TX 75039-5500
(Mailing Address: P. O. Box 140909
Irving, TX 75014-0909)
Attn: Accounts Receivable
SECTION 3. REPORTING AND PAYMENT PENALTIES. In the event Vendor
-------------------------------
fails to pay the marketing fee in accordance with Section 1 and/or fails to
provide the reports described in Section 2 within the time and manner
stated, VHA may invoice Vendor for the marketing fees estimated by VHA to
be due, payable within ten (10) days of the date of such invoice. Invoice
by VHA or payment by Vendor shall not relieve Vendor of its payment
obligations under Section 1 or the reporting obligations under Section 2.
In addition, upon the occasion of the first failure to receive a payment or
report when due, Vendor shall receive a written warning. Upon the second
and any subsequent failure to provide payment or a report when due, Vendor
shall pay an administrative penalty in accordance with the following
schedule:
2nd Failure - $ 250
3rd Failure - $ 500
4th Failure - $ 1,250
<PAGE>
5th Failure - $ 2,500
6th Failure - $ 5,000
SECTION 4. ELECTRONIC DATA INTERCHANGE (EDI). The parties agree to
---------------------------------
facilitate the administration of this Agreement by transmitting and
receiving data electronically. The parties agree to all terms and
conditions stated in the Electronic Data Interchange Trading Partner
Exhibit attached to this Side Letter and incorporated herein by reference.
VHA understands that Vendor is not currently capable of providing data
electronically using EDI, but will do so not later than July 1, 1997.
If this Side Letter accurately and completely sets forth our agreement,
kindly sign the enclosed duplicate and return it to me.
Yours very truly,
/s/ Dwight Winstead
----------------------------------------
Dwight Winstead
Executive Vice President
AGREED:
Transcend Services ("Vendor")
- ------------------
By: /s/ G. Scott Dillon
-------------------------
Authorized Representative
<PAGE>
EXHIBIT 10.2
LGL.122
9-12-96
SERVICES AGREEMENT
------------------
This agreement ("Agreement"), made and entered into as of the fifth day of
December, 1996, by and between VHA Inc., a Delaware corporation ("VHA"), and
Transcend Services, Inc., a Delaware corporation ("Vendor"),
PRELIMINARY STATEMENTS:
A. VHA is, among other things, in the business of providing purchasing
opportunities with respect to high quality products and services to certain
health care providers who have appointed VHA as their agent ("VHA Members and
Affiliates") or have appointed HealthCare Purchasing Partners, Inc., as their
agent ("HPPI Members"), a current list of which has been provided to Vendor by
VHA;
B. Vendor is, among other things, the provider of the services listed on
Exhibit A ("Services"); and
C. Vendor and VHA desire to make the Services available for purchase by
VHA Members and Affiliates and HPPI Members from Vendor pursuant to this
Agreement;
In consideration of the premises, the representations and warranties of the
parties, and other good and valuable consideration, the adequacy, receipt and
sufficiency of which are acknowledged, the parties agree, subject to the
conditions, terms and provisions of this Agreement, as follows:
Section 1. Offer, Sale and Prices. During the term and for the duration
----------------------
of this Agreement, Vendor agrees to offer to sell and to sell the Services to
VHA Members and Affiliates or HPPI Members within the terms provided on Exhibit
A.
Vendor shall not offer to VHA Members and Affiliates or HPPI Members other
services and/or products in conjunction with the Services covered by this
Agreement under terms and conditions such that VHA Members and Affiliates or
HPPI Members have no real economic choice except to purchase Services with such
other services and/or products on a bundled basis, without the prior written
notice to VHA.
Section 2. Prompt Performance. Vendor agrees to promptly perform Services
------------------
ordered under this Agreement by the VHA Members and Affiliates or HPPI Members
in accordance with any schedule agreed to between Vendor and the VHA Member or
Affiliate or HPPI Member.
Section 3. Billing by and Payment to Vendor. Vendor agrees to direct its
--------------------------------
invoices for Services ordered under this Agreement to the VHA Members and
Affiliates or HPPI Members. Payment terms shall be no less favorable than net
by first of the month services are to be provided, with one and one-half
percent, or maximum allowable rate whichever is less, penalty after the tenth of
the month; however, Vendor and any VHA Member and Affiliate or HPPI Member may
mutually agree to other payment terms.
Section 4. Term and Duration. Subject to the termination provisions
-----------------
contained in Section 5, this Agreement shall remain in full force and effect
from December 1, 1996, through Dec ember 1, 1999.
Section 5. Termination. Notwithstanding anything to the contrary
-----------
contained in this Agreement, this Agreement may be terminated by either party
at any time, at will, and without cause or further liability upon not less than
ninety (90) days prior written notice to the other party.
Section 6. Business Review Meeting. The parties agree to meet, at the
-----------------------
request of either party, no less frequently than once in any ninety (90) day
period during the term of this Agreement to discuss the progress and performance
of this Agreement.
<PAGE>
Section 7. Favored Customer Pricing. Notwithstanding anything to the
------------------------
contrary contained in this Agreement, the price for each Service under this
Agreement will be no worse than the lowest price charged by Vendor during the
term of this Agreement for such Service or any service which is substantially
similar to such Service.
Section 8. Compliance with Laws. Vendor represents, warrants and
--------------------
guarantees that all Services performed under this Agreement are, as of the date
of such performance, in compliance with all federal, state and local laws,
statutes, ordinances, rules, regulations and orders.
Section 9. Books and Records, Audit. Vendor agrees to keep, maintain and
------------------------
preserve complete, current and accurate books, records and accounts of the
transactions contemplated by this Agreement and such additional books, records
and accounts related to VHA Members and Affiliates and/or HPPI Members business
as are necessary to establish and verify Vendor's compliance under this
Agreement. All such books, records and accounts shall be available for
inspection and audit by VHA and its authorized representatives at any time
during the term of this Agreement and for two (2) years thereafter, but no more
frequently than twice in any consecutive twelve (12) month period and only
during reasonable business hours and upon reasonable notice. The exercise by
VHA of the right to inspect and audit books and records related to VHA Members
and Affiliates and/or HPPI Members business is without prejudice to any other or
additional rights or remedies of either party.
Section 10. Indemnity and Insurance. Vendor agrees to protect, defend,
-----------------------
indemnify and to hold VHA, VHA Members and Affiliates and HPPI Members and their
respective subsidiaries, affiliates, directors, officers and employees
("Indemnitees") harmless from any loss, liability, damage, cost or expense
(including attorneys' fees and other expenses of litigation) because of (i)
personal/bodily injury, including death at any time resulting therefrom, or
damage to property, including loss of use thereof and downtime, caused by any
Service, act or omission by Vendor, or any of its employees, agents, or
subcontractors or (ii) any material misrepresentation, breach of warranty or
covenant or other breach or default by Vendor under this Agreement; provided,
however, that Vendor shall not be obligated under this Agreement to defend,
indemnify or hold harmless any Indemnitee from any such loss, liability, damage,
cost or expense which results solely from that Indemnitee's misconduct or
negligence. Without limiting the generality of the preceding sentence, Vendor
agrees to obtain and maintain, at its own expense, commercial general liability
insurance including blanket contractual liability coverage with minimum limits
of $2,000,000 per occurrence and $5,000,000 annual aggregate. Such insurance
shall include all Indemnitees as additional insureds. Within thirty (30) days
from the date of this Agreement, Vendor shall submit to VHA a certificate of
insurance attested by a duly authorized representative of the insurance carrier
or carriers, evidencing that the insurance required is in force and in effect
and that such insurance will not be canceled or materially changed without
giving VHA at least thirty (30) days prior written notice.
Furthermore, Vendor shall defend, indemnify and hold harmless Indemnitees
from and against any liability, damage, cost or expense arising out of any claim
of patent, trademark or copyright infringement made with respect to any Service.
VHA agrees to protect, defend, indemnify and to hold Transcend Services,
Inc. and its subsidiaries, affiliates, directors, officers and employees
(Indemnities") harmless from any loss, liability, damage, cost or expense
(including reasonable attorneys' fees and other reasonable expenses of
litigation) arising out of or resulting from any statements, claims,
representations or warranties made by VHA, its employees or agents, to and
reasonably relied upon by VHA Members and Affiliates and HPPI Members about
Transcend Services. The indemnification set forth in this Section is
conditioned upon: i) Indemnities providing VHA with prompt written notice of any
claim of indemnification hereunder; and ii) the Indemnities providing reasonable
assistance and cooperation to enable VHA to defend the action to claim
hereunder.
Section 11. Deletion. Notwithstanding anything to the contrary contained
--------
in this Agreement, VHA may delete any one or more of the Services from this
Agreement at any time, at will and without cause upon not less than sixty (60)
days prior written notice to Vendor.
Section 12. Independent Contractor. None of the provisions of this
----------------------
Agreement is intended to create, nor shall any provision in this Agreement be
deemed or construed to create, any relationship between Vendor and VHA other
than that of independent entities contracting with each other under this
<PAGE>
Agreement solely for the purpose of effecting the provisions of this Agreement.
Neither of the parties, nor any of their employees, shall be construed to be the
agent, the employer or representative of the other.
Section 13. Health Care Provider Consideration. Vendor agrees to provide
----------------------------------
notice and give equal consideration to VHA Members and Affiliates for the
delivery of health care services to Vendor's employees and their dependents
directly or through Vendor's contracting mechanism or insurer. The final
decision for the delivery of health care services to Vendor employees remains
that of Vendor.
The parties have caused this Agreement to be executed and delivered by
their respective authorized representatives as stated at the beginning of this
Agreement.
VHA Inc.
("VHA")
By: /s/ Dwight Winstead
------------------------------------
Dwight Winstead
Executive Vice President
/s/ G. Scott Dillon ("Vendor")
-------------------------
Transcend Services
By:
------------------------------------
Authorized Representative
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
December 27, 1996
