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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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:
[_] 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 (S) 240.14a-11(c) or (S) 240.14a-12
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] No fee required.
[_] 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:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
TRANSCEND SERVICES, INC.
3353 Peachtree Road, N.E., Suite 1000
Atlanta, Georgia 30326
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 9, 2000
To the Stockholders:
The annual meeting of stockholders (the "Annual Meeting") of Transcend
Services, Inc. will be held on May 9, 2000 at the offices of Smith, Gambrell &
Russell, LLP, Suite 3100, Promenade II, 1230 Peachtree Street, N.E., Atlanta,
Georgia 30309-3592 at 10:00 a.m. local time for the following purposes:
1. To elect a Board of Directors consisting of six members to hold office
until the next annual meeting of stockholders or until their successors
are elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants to audit the accounts of the Company and it's subsidiaries
for the year ending December 31, 2000.
3. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
Only stockholders of record at the close of business on March 15, 2000 shall
be entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
A Proxy Statement and a proxy solicited by the Board of Directors are enclosed
herewith. You are cordially invited to attend the Annual Meeting. Whether or
not you plan to attend the Annual Meeting, please complete, sign, date and mail
the enclosed proxy card promptly in the enclosed postage-paid envelope. If you
attend the meeting, you may, if you wish, withdraw your proxy and vote in
person.
By order of the Board of Directors,
/s/ Doug Shamon
DOUG SHAMON
Secretary
Atlanta, Georgia
April 14, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, YOU ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING POSTAGE PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU
MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
TRANSCEND SERVICES, INC.
3353 Peachtree Road, N.E.,
Suite 1000
Atlanta, Georgia 30326
PROXY STATEMENT
For Annual Meeting Of Stockholders To Be Held May 9, 2000
GENERAL
This Proxy Statement and the accompanying form of Proxy are being furnished to
the stockholders of Transcend Services, Inc. (the "Company" or "Transcend") on
or about April 14, 2000 in connection with the solicitation of proxies by the
Board of Directors of the Company for use at the Annual Meeting of Stockholders
to be held on May 9, 2000 at the offices of Smith, Gambrell & Russell, LLP,
Suite 3100, Promenade II, 1230 Peachtree Street, N.E., Atlanta, Georgia 30309-
3592 at 10:00 a.m. local time 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. The address of the principal executive offices of the
Company is 3353 Peachtree Road, N.E., Suite 1000, Atlanta, Georgia 30326 and the
Company's telephone number is (404) 836-8000.
Unless otherwise specified, all shares represented by effective proxies will
be voted in favor of (i) election of the six nominees as Directors; (ii) the
ratification of the selection of Arthur Andersen LLP to serve as the independent
public accountants for the Company and it's subsidiaries for fiscal 2000; and
(iii) the transaction of such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof. 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
as to what is in the best interests of the Company.
The cost of soliciting proxies will be borne by the Company. In addition to
use of the mail, 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.
Holders of record of outstanding shares of the Common Stock, Series A
Convertible Preferred Stock, and Series B Convertible Preferred Stock of the
Company, at the close of business on March 15, 2000 are entitled to notice of
and to vote at the meeting. As of March 15, 2000, there were approximately 574
holders of record of Transcend Common Stock. Each holder of Common Stock is
entitled to one vote for each share held on the record date. Each holder of
Series A Preferred Stock is entitled to 7.4 votes per share on each preferred
share held. Each holder of Series B Preferred Stock is entitled to 6.9 votes per
share on each preferred share held. On March 15, 2000 there were 4,325,243
shares of Common Stock outstanding and entitled to vote, 212,800 shares of
Series A Convertible Preferred Stock outstanding and entitled to vote, and
60,000 shares of Series B Convertible Preferred Stock outstanding and entitled
to vote.
When a quorum is present at the meeting, the affirmative vote of the holders
of a majority of the shares having voting power present in person or by proxy
shall decide the action proposed in each matter listed in the accompanying
Notice of Annual Meeting of Stockholders except the election of Directors, who
are elected by a plurality of the votes of the shares present in person or by
proxy and entitled to vote. 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. 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, which also has the
same effect as a vote against such proposal.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 15, 2000, certain information with
respect to all stockholders known to Transcend to beneficially own more than
five percent of the Company's Common Stock or Preferred Stock, and information
with respect to Transcend Common Stock or Preferred Stock beneficially owned by
each Director of Transcend, each nominee for election as Director, the Executive
Officers included in the Summary Compensation Table set forth under the caption
"Executive Compensation", and all Directors and executive officers of Transcend
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 or
Preferred Stock owned by them.
<TABLE>
<CAPTION>
Common Stock Series A Preferred Stock Series B Preferred Stock
----------------------------------------------------------------------------------------
Amount and Nature Percent Amount and Nature Percent Amount and Nature Percent
Name and Address of of Beneficial Of of Beneficial Of of Beneficial Of
Directors and Executive Officers Ownership/(1)/ Class Ownership/(11)/ Class Ownership/(16)/ Class
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Gunderson 20,000 9.40%
101 East 5th Street, Suite 201
St. Paul, Minnesota 55101
Laumar Investors Limited Partnership 40,000 18.80%
3353 Peachtree Road, Suite 1000
Atlanta, Georgia 30326
MMI Companies, Inc. 60,000 28.20%
540 Lake Cook Road
Deerfield, Illinois 60015-5290
Monmouth College 20,000 9.40%
700 East Broadway
Monmouth, Illinois 61462
Transylvania University 20,000 9.40%
300 N. Broadway
Lexington, Kentucky 40508
Richard M. Lucas Foundation 3,120 5.20%
3000 Sand Hill Rd., Bldg. 3, Ste 210
Menlo Park, CA 94025
Donald L. Lucas 141,693 /(2)/ 3.24% 10,000/(12)/ 4.70% 4,680/(17)/ 7.80%
Larry G. Gerdes 647,377 /(3)/ 14.40% 12,000 5.64% 22,200 37.00%
3353 Peachtree Road, N.E. Suite 1000
Atlanta, Georgia 30326
B. Frederick Becker 1,891 /(4)/ *% /(13)/ -
George B. Caldwell 22,317 /(5)/ *% 2,000/(14)/ *%
Walter S. Huff, Jr. 946,730 /(6)/ 20.42% 40,000/(15)/ 18.80% 30,000 50.00%
3353 Peachtree Road, N.E. Suite 1000
Atlanta, Georgia 30326
Charles E. Thoele 14,483 /(7)/ *% 2,000 *%
David W. Murphy 15,625 /(8)/ *%
Douglas A. Shamon 14,322 /(9)/ *%
All Directors and Executive Officers
as a group 1,804,438 /(10)/ 36.90% 31.00% 94.80%
</TABLE>
* Represents less than 1%
2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
/(1)/ "Beneficial Ownership" includes shares for which an individual, directly or indirectly, has or shares voting or investment
power or both and also includes shares of Common Stock underlying options and warrants to purchase Common Stock 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 4,325,243 shares of Common
Stock outstanding as of March 15, 2000, except for certain parties who hold presently exercisable options, convertible
preferred stock or warrants to purchase Common Stock. The percentages for those parties who hold presently exercisable
options, convertible preferred stock or warrants are based upon the sum of 4,325,243 shares plus the number of shares
subject to presently exercisable options or warrants held by them, as indicated in the following notes. Unless otherwise
indicated, each person has sole voting and dispositive power with respect to all shares listed opposite his name.
/(2)/ Includes 88,503 shares held by the Donald L. Lucas and Lygia S. Lucas Trust dated December 3, 1984, of which Mr. Donald L.
Lucas is trustee; 4,297 shares held by the Donald L. Lucas Remuneration Account dated July 7, 1993; 14,815 shares held by
the Donald L. Lucas, Successor Trustee, Donald L. Lucas Profit Sharing Trust which may be by acquired in connection with the
Company's November 1997 offering of Series A Convertible Preferred Stock; and 32,278 shares held by Donald L. Lucas,
Successor Trustee, Donald L. Lucas Profit Sharing Trust which may be acquired in connection with the Company's January 2000
offering of Series B Convertible Preferred Stock. Excludes certain shares and shares underlying warrants with respect to
which Mr. Lucas disclaims beneficial ownership which were purchased by the Richard M. Lucas Cancer Foundation, of which Mr.
Lucas is the Chairman, in the Company's private placement dated September 5, 1996; 14,300 shares which may be acquired upon
the conversion of an 8% Convertible Debenture also held by the Richard M. Lucas Cancer Foundation; 14,815 shares; also held
by the Richard M. Lucas Cancer Foundation, which may be acquired in connection with the Company's November 1997 offering of
Series A Convertible Preferred Stock, and 21,519 shares also held by the Richard M. Lucas Cancer Foundation, which may be
acquired in connection with the Company's January 2000 offering of Series B Convertible Preferred Stock.
/(3)/ Includes 18,720 shares held by Mr. Gerdes' spouse; 18,831 shares held by Mr. Gerdes as custodian for his minor children;
10,000 shares held by the Gerdes Family Partnership LP of which Mr. Gerdes is the General Partner; 17,778 shares which may
be acquired in connection with the Company's November 1997 offering of Series A Convertible Preferred Stock; and 153,103
shares which may be acquired in connection with the Company's January 2000 offering of Series B Convertible Preferred Stock.
/(4)/ Includes 1,771 shares held by The Becker Family Foundation; 40 shares held by Mr. Becker's spouse; and 60 shares held by Mr.
Becker's minor children. Excludes 88,889 shares which may be acquired by MMI Companies, Inc., of which Mr. Becker is Chairman
and Chief Executive Officer and to which Mr. Becker disclaims beneficial ownership, in connection with the Company's November
1997 offering of Series A Convertible Preferred Stock. Voting and investment power related to such shares rests with the
investment committee of the Board of Directors of MMI Companies, Inc., of which Mr. Becker is not a member.
/(5)/ Includes 4,505 shares subject to presently exercisable warrants to purchase Common Stock; and 2,963 shares held by George B.
Caldwell, TTEE of The George B. Caldwell Trust which may be acquired in connection with the Company's November 1997 offering
of Series A Convertible Preferred Stock. Excludes 88,889 shares which may be acquired by MMI Companies, Inc., of which Mr.
Caldwell is a member of the Board of Directors and to which Mr. Caldwell disclaims beneficial ownership, in connection with
the Company's November 1997 offering of Series A Convertible Preferred Stock. Voting and investment power related to such
shares rests with the investment committee of the Board of Directors of MMI Companies, Inc., of which Mr. Caldwell is not a
member.
/(6)/ Includes 32,530 shares held by Laumar Investors Limited Partnership, a limited partnership of which Mr. Huff is the General
Partner; 45,045 shares subject to presently exercisable warrants to purchase Common Stock; 11,260 shares held by the Larry G.
Gerdes Trust of which Mr. Huff is the trustee; 59,259 shares held by Laumar Investors Limited Partnership of which Mr. Huff
is the General Partner which may be acquired in connection with the Company's November 1997 offering of Series A Convertible
Preferred Stock; and 206,896 shares held by Mr. Huff which may be acquired in connection with the Company's January 2000
offering of Series B Convertible Preferred Stock. Excludes 11,400 shares with respect to which Mr. Huff disclaims beneficial
ownership and which may be acquired upon the conversion of an 8% Convertible Debenture held by the Walter S. Huff, Jr.
Charitable Foundation, of which Mr. Huff's adult children are trustees.
/(7)/ Includes 2,252 shares subject to presently exercisable warrants to purchase Common Stock; and 2,963 shares which may be
acquired in connection with the Company's November 1997 offering of Series A Convertible Preferred Stock.
/(8)/ Include 14,200 shares purchasable pursuant to presently exercisable options.
/(9)/ Includes 600 shares held by Mr. Shamon's minor children, 580 shares held by Mr. Shamon's spouse and 9,000 shares subject to
presently exercisable stock options.
/(10)/ Includes 23,200 shares subject to presently exercisable stock options, 51,802 shares subject to presently exercisable
warrants; 97,777 shares which may be acquired in connection with the Company's November 1997 offering of Series A Convertible
Preferred Stock; and 392,277 shares which may be acquired in connection with the January 2000 offering of Series B
Convertible Preferred Stock.
/(11)/ The shares of Series A Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder.
3
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The total shares of Common Stock convertible from Series A Preferred Stock are accounted for in the Common Stock Beneficial
Ownership column of the above table. The percentages are based upon 212,800 shares of Series A Preferred Stock outstanding as
of March 15, 2000.
/(12)/ Includes 2,000 shares held by Donald L. Lucas, SUCC TTE Donald L. Lucas Profit Sharing Trust . Excludes 2,000 shares, with
respect to which Mr. Lucas disclaims beneficial ownership, which are held by the Richard M. Lucas Cancer Foundation, of which
Mr. Lucas is the Chairman.
/(13)/ Excludes 12,000 shares held by MMI Companies, Inc., of which Mr. Becker is Chairman and Chief Executive Officer and to which
Mr. Becker disclaims beneficial ownership.
/(14)/ Includes 400 shares held by George B. Caldwell, TTEE of The George B. Caldwell Trust. Excludes 12,000 shares held by MMI
Companies, Inc., of which Mr. Caldwell is a member of the board of Directors and to which Mr. Caldwell disclaims beneficial
ownership.
/(15)/ Includes 8,000 shares held by Laumar Investors Limited Partnership, of which Mr. Huff is the General Partner.
/(16)/ The shares of Series B Preferred Stock are convertible into shares of Common Stock at any time at the option of the holder.
The total shares of Common Stock convertible from Series B Preferred Stock are accounted for in the Common Stock Beneficial
Ownership column of the above table. The percentages are based upon 60,000 shares of Series B Preferred Stock outstanding as
of March 15, 2000.
/(17)/ Includes 4,680 shares held by the Donald L. Lucas Profit Sharing Trust, of which Mr. Lucas is Successor Trustee. Excludes
3,120 shares held by the Richard M. Lucas Foundation, of which Mr. Lucas is the chairman, of which Mr. Lucas disclaims
beneficial ownership.
</TABLE>
4
<PAGE>
AGENDA ITEM ONE
ELECTION OF DIRECTORS
The Bylaws of Transcend currently provide that the Board of Directors shall
consist of not less than one Director, subject to increase or decrease in such
number within legal limits by action of the Board of Directors or Stockholders.
There are presently six Directors. Each of the nominees presently serves as a
Director of Transcend. Directors shall be elected to serve until the next
annual meeting of stockholders or until their successors are elected and
qualified.
Each of the nominees has consented to being named in this Proxy Statement and
to serve as a Director of the Company if elected. In the event that any nominee
withdraws, or for any reason is unable to serve as a Director, the proxies will
be voted for such other person as may be designated by the Board of Directors as
substitute nominee, but in no event will proxies be voted for more than six
nominees. Management of the Company has no reason to believe that any nominee
will not continue to be a candidate or will not serve if elected.
Each of the following persons has been nominated by management for election to
the Board of Directors to succeed themselves for a term of one year and until
their successors are elected and qualified:
Donald L. Lucas........ Mr. Lucas (age 70) has served as a Director of the
Company since December 1985 and has served as Chairman
since August 1989. Mr. Lucas has been a private
investor for more than 35 years. Mr. Lucas also serves
on the Board of Directors of Cadence Design Systems,
Inc.; Coulter Pharmaceutical, Inc.; Macromedia, Inc.;
Oracle Corporation; Preview Systems, Inc.; and Tricord
Systems, Inc.
B. Frederick Becker.... Mr. Becker (age 53) has served as a Director of the
Company since December 1997. Since 1985, Mr. Becker
has been Chairman and Chief Executive Officer of MMI
Companies, Inc., a company engaged in the business of
healthcare risk management for more than 20 years. Mr.
Becker was initially Vice President, then President and
CEO of Ideal Mutual Insurance Company and Optimum
Companies from 1982 through 1984; and President of
McDonough Caperton Benefits Group from 1977 to 1982.
Mr. Becker has also served as Assistant Tax
Commissioner and Workers' Compensation Commissioner for
the State of West Virginia from 1974 to 1977, following
his experience as a practicing lawyer.
George B. Caldwell..... Mr. Caldwell (age 69) has served as a Director of the
Company since May 1995. Since 1989, Mr. Caldwell has
served as the Chairman of the Collier Company, a
healthcare consulting company in Chicago, Illinois.
Prior to 1989, Mr. Caldwell served as President and
Chief Executive Officer of Lutheran General
HealthSystem in Park Ridge, Illinois from 1979 to 1989;
and as President and Chief Executive Officer of The
Greater Southeast Community Hospital Foundation of
Washington, D.C. from 1972 to 1979. From 1961 to 1972,
Mr. Caldwell served as President and Chief Executive
Officer of Lake Forest Hospital, Lake Forest, Illinois.
Mr. Caldwell is a Director of MMI Companies, Inc.
Larry G. Gerdes........ Mr. Gerdes (age 51) has served as a Director of the
Company since June 1985 and as its President and Chief
Executive Officer since May 1993. From 1991 to 1993,
Mr. Gerdes was a private investor and from May 1992
until January 1995, Mr. Gerdes was the Chairman of the
Board of Directors of the former Transcend Services,
Inc. For the five years prior to 1991, Mr. Gerdes held
various executive positions with HBO & Company,
including Chief Financial Officer and Executive Vice
President. Mr. Gerdes also serves as a Director of
EBIX.Com, Inc.
5
<PAGE>
Walter S. Huff, Jr. ... Mr. Huff (age 65) has served as a Director of the
Company since October 1993. Mr. Huff was the founder of
HBO & Company and served as its Chairman from 1974
until 1990 and Chief Executive Officer from 1974 to
1984 and from 1986 until 1989. Since 1990, Mr. Huff has
been a private investor.
Charles E. Thoele...... Mr. Thoele (age 64) has served as a Director of the
Company since October 1993. Mr. Thoele has been a
consultant to Sisters of Mercy Health Systems since
February 1991. From 1986 to February 1991, he served as
a Director and the Chief Operating Officer of Sisters
of Mercy Health Systems. Mr. Thoele is Past Chairman of
the Catholic Hospital Association.
No Director or Executive Officer of Transcend is related to any other Director
or Executive Officer of Transcend.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE ABOVE NOMINEES.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company to file with the Securities and Exchange
Commission reports of changes in ownership of the Common Stock of the Company
held by such persons. Officers, Directors and greater than 10% stockholders are
also required to furnish the Company with copies of all forms they file under
this regulation. To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and representations that no
other reports were required, during the year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, Directors and
greater than 10% stockholders were complied with.
Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
Assistant Secretary of the Company as to whether any transactions in the
Company's securities occurred during the previous month.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Company's Board of Directors has two standing committees: the Audit and
Finance Committee, and the Stock Option and Compensation Committee. The Board
of Directors does not have a standing Nominating Committee, such function being
reserved to the full Board of Directors. The Audit and Finance Committee (the
"Audit Committee") of the Board of Directors, comprised of Messrs. Lucas and
Caldwell, reviews Transcend's audit procedures and reports from Transcend's
independent public accountants. The Stock Option and Compensation Committee
(the "Compensation Committee"), comprised of Messrs. Becker, Huff and Thoele,
acts as administrator of Transcend's stock option plan and makes recommendations
concerning the establishment of additional employee benefit plans and
compensation for Transcend's executive officers. The Audit Committee held one
meeting in the twelve months ended December 31, 1999. The Compensation
Committee held six meetings and acted six times by unanimous consent in the
twelve months ended December 31, 1999.
The Board of Directors held eleven meetings and acted by unanimous consent on
seven occasions during the twelve months ended December 31, 1999. During
fiscal 1999, each Director attended more than 75% of the total number of
meetings of the Board of Directors and committees on which he served.
6
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Larry G. Gerdes........... 51 President, Chief Executive Officer and Director
David W. Murphy (1)....... 42 Executive Vice President, Co-Sourcing and Coding
Operations
Douglas A. Shamon......... 38 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
(1) Mr. Murphy has announced his resignation from Transcend effective
April 14, 2000.
Executive officers are chosen by and serve at the discretion of the Board of
Directors of the Company. Executive officers will devote their full time to the
affairs of the Company. See "Election of Directors" for information with
respect to Larry G. Gerdes.
Mr. Murphy has served as Executive Vice President since May 1997. Mr. Murphy
joined the Company in September 1994 as Vice-President of Acquisitions and
served as Chief Financial Officer from May 1995 to July 1997. Prior to joining
the Company, Mr. Murphy was a founder and General Partner of an investment
company, Spectra Partners, Inc., from 1988 to 1994. Prior to 1988, Mr. Murphy
served in various financial, operating and mergers and acquisition positions
with companies such as Hutchinson SA (France) from 1984 to 1988, First Boston in
1983 and International Paper Company from 1980 to 1982.
Mr. Shamon has served as Executive Vice President and Chief Financial Officer
since July 1997, and as Secretary and Treasurer since September 1997. From 1992
until joining the Company in July, 1997, Mr. Shamon held various senior
financial management positions with Per-Se Technologies, Inc. (formerly Medaphis
Corporation), including Executive Vice President/Chief Financial Officer for the
Physician Services Division. Mr. Shamon, who is also a CPA, began his career in
public accounting with positions at Peat, Marwick Mitchell & Company and Arthur
Andersen & Co.
EXECUTIVE COMPENSATION
The table below provides certain summary information for the fiscal years
ended December 31, 1999, 1998 and 1997 concerning compensation paid or accrued
by the Company to or on behalf of the Company's Chief Executive Officer and the
other executive officers of the Company whose total annual salary and bonus
exceeded $100,000 during the year ended December 31, 1999 (the "Named Executive
Officers.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES UNDERLYING
--------------------------- ---------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SAR'S (#)
- --------------------------- ---- ---------- --------- ---------------------
<S> <C> <C> <C> <C>
Larry G. Gerdes.............................. 1999 $220,000 $ -- --
President and Chief Executive 1998 $220,000 $ -- 4,400
Officer 1997 $220,089 $ -- --
David W. Murphy.............................. 1999 $190,000 $ -- 10,000
Executive Vice President, Operations 1998 $170,000 $ -- 3,400
1997 $141,333 $ -- 4,000
Douglas A. Shamon (1)........................ 1999 $160,000 $25,000 6,000
Executive Vice President, Chief Financial 1998 $150,000 $ -- 3,400
Officer, Secretary and Treasurer 1997 $ 60,229 $ -- 15,000
</TABLE>
(1) Mr. Shamon joined the Company in July 1997.
7
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding individual grants of
options for Transcend Common Stock during the twelve months ended December 31,
1999 to each of the Named Executive Officers in the Summary Compensation Table
above. All such grants were made pursuant to the Transcend Services, Inc. 1992
Stock Option Plan, as amended (the "1992 Stock Option Plan"). 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 Transcend 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>
Option/SAR Grants in Last Fiscal Year Potential Realizable
--------------------------------------------------------- Value At
% of Total Assumed Annual Rates
Number of Options/SAR's of Stock Price
Securities Granted to 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>
David W. Murphy (4) 10,000 3.6% $6.5625 01/11/09 $46,616 $121,611
Douglas A. Shamon (5) 6,000 2.2% $6.5625 01/11/09 $27,970 $ 72,966
- ---------------
</TABLE>
(1) Stock options are granted with an exercise price equal to the fair market
value of the Transcend Common Stock on date of grant.
(2) Transcend granted options to purchase a total of 278,000 shares to
Directors, officers, and employees in the twelve months ended December 31,
1999.
(3) The 5% and 10% assumed rates of annual compound stock appreciation are
mandated by rules of the Commission and do not represent Transcend's
estimate or projection of future prices for Transcend Common Stock.
(4) Mr. Murphy was granted 10,000 options on January 11, 1999. These options
are fully vested after 4 years.
(5) Mr. Shamon was granted 6,000 options on January 11, 1999. These options are
fully vested after 4 years.
The following table presents information regarding options exercised, options
canceled that were previously held by the Named Executive Officers during fiscal
1999, and the value of options outstanding at December 31, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR END OPTION VALUES
There were no options exercised by the Named Executive Officers during fiscal
1999.
During the year 22,900 options were cancelled when Mr. Cooper resigned from
the company on 12/15/99. On December 30, 1999 44,479 shares were cancelled by
Mr. Gerdes, 3,200 shares were cancelled by Mr. Becker, 5,600 shares were
cancelled by Mr. Caldwell, 8,000 shares were cancelled by Mr. Huff, 14,800
shares were cancelled by Mr. Lucas and 8,000 shares were cancelled by Mr. Thoele
in order to make options available to grant to other key employees of the
company.
<TABLE>
<CAPTION>
FY-End Option/SAR Values
------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's Options/SAR's
Name at FY-End at FY-End
---- ------------- -------------
<S> <C> <C> <C>
Larry G. Gerdes Exercisable - $0
Unexercisable - $0
David W. Murphy Exercisable 14,200 $0
Unexercisable 17,200 $0
Douglas A. Shamon Exercisable 9,000 $0
Unexercisable 15,400 $0
</TABLE>
8
<PAGE>
Compensation of Directors
The Company paid cash fees to each Director who is not an executive officer of
Transcend in fiscal 1999 in the amount of $5,000. Each person who first becomes
a non-employee Director is granted, as of the date such person becomes a
Director of Transcend, options to purchase 2,000 shares of Transcend's Common
Stock at the current market price.
Each non-employee Director also will be granted options to purchase 1,200
shares of the Transcend's Common Stock, except the Chairman, who will be granted
options to purchase 1,800 shares, upon election or re-election at the annual
stockholders' meeting, provided they have served on the board a minimum of six
months. The options have an exercise price equal to the fair market value on
the date of grant and a term of 10 years. No options were granted to the
Directors during fiscal 1999.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors for 1999 was comprised of
Walter S. Huff, Jr., Charles E. Thoele, and B. Frederick Becker. None of the
members of the Compensation Committee served as an officer or employee of the
Company or any of its subsidiaries during fiscal 1999.
In August 1999, certain Directors and accredited investors, of the Company,
including Walter S. Huff, Jr. loaned an aggregate of $1.5 million to the Company
for the purpose of interim financing. The unsecured promissory notes provided
for a maturity date of January 15, 2000 and bore interest at the rate of 10%
annually. On November 10, 1999, the Company executed an agreement with these
Directors and investors providing that, at the option of the Company, the
promissory notes could be converted at any time prior to the maturity date of
January 15, 2000, into a new class of convertible preferred stock. The Company's
shareholders approved the conversion on December 31, 1999, and the conversion
was effected on January 15, 2000. The new class of preferred stock, Series B
Convertible Preferred Stock, does not pay dividends, and will have voting rights
with the common stockholders equal to the number of shares of common stock into
which the preferred stock may be converted from time to time. The preferred
stock is convertible into common stock at a price of $3.625 per share of common
stock.
Insider Participation in Series B Convertible Preferred Stock
-------------------------------------------------------------
Number of Shares of
Director Loan Amount Series B Convertible Preferred Stock
- -------- ----------- ------------------------------------
Walter S. Huff, Jr. $750,000 30,000
Larry G. Gerdes $555,000 22,200
Donald L. Lucas $117,000 4,680
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding transactions between the Company and Walter S. Huff,
Jr. or Charles E. Thoele or B. Frederick Becker, see "Executive Compensation --
Compensation Committee Interlocks and Insider Participation."
On March 23, 1999 the Company sold 100,000 unregistered shares of Transcend
Common Stock to Executive Officers of the Company; 20,000 shares to E. Leo
Cooper, 40,000 shares to David W. Murphy, and 20,000 shares to Douglas A.
Shamon. All such sales were at the then current market value. In connection
with the sales, the executive officers issued promissory notes to the Company
and with the unregistered shares pledged to secure the notes. On December 30,
1999, in full satisfaction of the promissory notes, the Company exchanged the
promissory notes due from the executive officers for the pledged securities .
9
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Report of
Compensation Committee on Executive Compensation and the Stockholder Return
Performance Graph shall not be incorporated by reference into any such filings.
REPORT OF STOCK OPTION AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
During fiscal 1999, the Stock Option and Compensation Committee of the Board
of Directors was comprised of three non-employee members of the Board: Walter S.
Huff, Jr., Charles E. Thoele and B. Frederick Becker. The Stock Option and
Compensation Committee establishes the general compensation policy for all
executive officers of the Company and administers the incentive plans, including
the 1992 Stock Option Plan, and the bonus program for executive officers. The
Stock Option and Compensation Committee also is responsible for reviewing
executive officer compensation levels and evaluating management performance.
The discussion set forth below is a report submitted by the Stock Option and
Compensation Committee regarding the Company's compensation policies and
programs for executive officers for 1999.
Stock Option and Compensation Committee Philosophy
The Company's executive compensation program is designed to reward outstanding
performance and results. The Stock Option and Compensation Committee believes
the Company must pay competitively to attract, motivate and retain qualified
executives. Moreover, in order to align their interests with the stockholders
of the Company and maximize stockholder value, the Stock Option and Compensation
Committee also believes that the Chief Executive Officer and the Company's other
executive officers should be significantly incented by Transcend's as well as
individual performance.
In support of this philosophy, the executive compensation program is designed
to reward performance that is directly relevant to the Company's short-term and
long-term success. As such, the Company attempts to provide both short-term and
long-term incentive compensation that varies based on corporate and individual
performance.
To accomplish these objectives, the Stock Option and Compensation Committee
has structured the executive compensation program with three primary underlying
components: base salary, performance incentives and long-term incentives (such
as stock options). The following sections describe these elements of
compensation and discuss how each component relates to the Company's overall
compensation philosophy.
Base Salary Program
The Company's base salary program is based on a philosophy of providing base
pay levels that are competitive with similarly situated companies in the
healthcare industry. The Company periodically reviews its executive pay levels
to assure consistencies with the external market. Annual salary adjustments are
based on several factors including the general level of market salary increases,
individual performance and long-term value to the Company, competitive base
salary levels and the Company's overall financial and operating results. During
1999, Mr. Gerdes did not receive an increase in base pay.
Performance Bonuses
Performance bonuses are intended to (i) reward executive officers based on
Company and individual performance, (ii) motivate executive officers, and (iii)
provide pay-for-performance cash compensation opportunities to executive
officers of the Company. Accordingly, a portion of the executives' compensation
is contingent upon corporate performance and adjusted where appropriate, based
on an executives' performance against personal performance objectives. In 1999,
Douglas A. Shamon was awarded a $25,000 bonus for his efforts in assisting the
Company to restructure its business and pursue its new strategy. No other
bonuses were paid to executive officers in 1999.
10
<PAGE>
Long-Term Incentives
Long-term incentives are designed to focus the efforts of executive officers
on the long-term goals of the Company and to maximize total return to the
stockholders of the Company. The Stock Option and Compensation Committee has
relied solely on stock option awards to provide long-term incentive
opportunities. Stock options align the interest of executive officers with the
stockholders of the Company by providing value to the executive officers through
stock price appreciation only. Stock options issued by the Company generally
have a ten-year term before expiration, are exercisable over a number of years
from the date of grant, and executives must be employed by the Company at the
time of vesting in order to exercise the options. The Compensation Committee
believes that dependence on stock options for a portion of executives'
compensation more closely aligns such executives' interests with those of the
Company's stockholders, since the ultimate value of such compensation is linked
directly to stock price.
On December 30, 1999 Mr. Gerdes cancelled all of his outstanding stock options
to make such options available for grant to other key employees. The
Compensation Committee believes that Mr. Gerdes long-term incentives are
adequate given his level of ownership interest in the company.
Fiscal 1999 Actions
The compensation for the Chief Executive Officer for fiscal 1999 was
determined in the manner described above and no particular quantitative measures
were used by the Stock Option and Compensation Committee in determining his
compensation except as so described.
In fiscal 1999, the following executive officers of the Company were granted
incentive stock options. The stock options were granted at fair market value on
the date of grant.
Number of
Executive Officer Options Granted
----------------- ---------------
David W. Murphy 10,000
Douglas A. Shamon 6,000
------
16,000
These options vest annually at 25%, and are fully vested after 4 years.
The Stock Option and Compensation Committee continually evaluates the
Company's compensation policies and procedures with respect to executives.
Although the Stock Option and Compensation Committee believes that current
compensation policies have been successful in aligning the financial interests
of executive officers with those of the Company's stockholders and with Company
performance, it continues to examine what modifications, if any, should be
implemented to further link executive compensation with both individual and
Company performance.
Walter S. Huff, Jr.
Charles E. Thoele
B. Frederick Becker
11
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the Nasdaq Composite Index and the Nasdaq Health
Services Index for the period commencing on December 31, 1994 and ending
December 31, 1999. The graph assumes that the value of the investment in the
Company's Common Stock in each index was $100 on December 31, 1994. The Company
has not paid any cash dividends on Common Stock.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Transcend Services, Inc.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1994 12/1995 12/1996 12/1997 12/1998 12/1999
- ---------------------------- ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Transcend Services, Inc. 100.0 340.7 311.1 146.3 114.8 40.7
Nasdaq Stock Market (US Companies) 100.0 141.3 173.9 213.1 300.2 545.7
Nasdaq Health Services Stocks 100.0 126.8 126.6 129.0 109.3 88.6
SIC 8000-8099 US & Foreign
</TABLE>
12
<PAGE>
AGENDA ITEM TWO
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as the independent public accountants for the
fiscal year ended December 31, 1999, and upon the recommendation of the Audit
Committee, the Board of Directors has selected Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending December 31,
2000. The Board of Directors recommends that such appointment be ratified.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting and shall have the opportunity to make a statement, if they desire to do
so, and respond to appropriate questions.
PROPOSALS BY STOCKHOLDERS
Proposals by stockholders intended to be presented at the 2001 Transcend
annual meeting (to be held in the Spring of 2001) must be forwarded in writing
and received at the principal executive office of Transcend no later than
December 16, 2000 directed to the attention of the Secretary, for consideration
for inclusion in the Transcend's proxy statement for the annual meeting of
stockholders to be held in 2001. Any such proposals must comply in all
respects with the rules and regulations of the Securities and Exchange
Commission.
In connection with the Company's Annual Meeting of Shareholders to be held in
2001, if the Company does not receive notice of a matter or proposal to be
considered by February 28 , 2001; then the persons appointed by the Board of
Directors to act as the proxies for such Annual Meeting (named in the form of
proxy) will be allowed to use their discretionary voting authority with respect
to any such matter or proposal at the Annual Meeting, if such matter or proposal
is properly raised at the Annual Meeting and put to a vote.
ANNUAL REPORT ON FORM 10-K
Additional information concerning the Company, including financial statements
of the Company, is provided in the Company's Form 10-K for the fiscal year ended
December 31, 1999 which accompanies this report. Exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, as filed with the Securities and Exchange Commission, are available to
stockholders who make written request to the Company's Secretary, 3353 Peachtree
Road, N.E., Suite 1000, Atlanta, Georgia 30326.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented for
action at the Annual Meeting. If any other matter should come before the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote on such matter in accordance with their best judgment of what is in the
best interests of the Company.
By Order of the Board of Directors
/s/ Donald L. Lucas
Donald L. Lucas, Chairman of the Board
Atlanta, Georgia
April 14, 2000
13
<PAGE>
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF TRANSCEND SERVICES, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 9, 2000
The undersigned hereby appoints Larry G. Gerdes and Doug Shamon, or either of
them, with full power of substitution as proxies and attorneys-in-fact, to
represent and to vote, as designated on the reverse hereof, the common stock of
the undersigned at the Annual Meeting of Stockholders of the Company to be held
on May 9, 2000, at the offices of Smith, Gambrell & Russell, LLP, Suite 3100,
Promenade II, 1230 Peachtree Street, N.E., Atlanta, Georgia 30309-3592 at
10:00 a.m. local time and at any adjournment thereof, on the matters set forth
below:
1. To elect six Directors for a term of one year and until their successors
are elected and qualified:
[_] For All Nominees Listed Below (except as instructed
below).
George B. Caldwell, B. Frederick Becker, Larry G. Gerdes,
Walter S. Huff, Jr., Donald L. Lucas, Charles E. Thoele
[_] WITHHOLD AUTHORITY to vote for those Nominees listed below
- --------------------------------------------------------------------------------
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the year ending December 31, 2000.
[_] ABSTAIN
[_] FOR [_] AGAINST
3. In their discretion, upon such other matter or matters as may properly come
before the meeting or any adjournment thereof.
<PAGE>
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 PROXY HOLDERS ARE
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THAT
MEETING.
-----------------------------
Signature of Stockholder
-----------------------------
Signature of Stockholder
Dated:_______________________
Important: Sign exactly as
your name appears above.
Give full title of executor,
administrator, trustee,
guardian, etc. Joint owners
should each sign personally.
