-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TelkEByjOEIX9vL2Yf0qzNbTVl/AbDM6AqJI/CniUSvoUN/GoXQLU+PhK3fnGYJd 9hKAgWRVuDgC7uRfe0UDGQ== 0000930661-00-001063.txt : 20000501 0000930661-00-001063.hdr.sgml : 20000501 ACCESSION NUMBER: 0000930661-00-001063 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERCOM INC CENTRAL INDEX KEY: 0001030965 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 752680266 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 333-33639 FILM NUMBER: 612654 BUSINESS ADDRESS: STREET 1: 8201 TRISTAR DRIVE STREET 2: SUITE 300 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 9729883737 MAIL ADDRESS: STREET 1: 8201 TRISTAR DRIVE CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: TALTON HOLDINGS INC DATE OF NAME CHANGE: 19970812 10-K/A 1 AMENDMENT #1 TO FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-K/A FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number ______ EVERCOM, INC. ---------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 75-2680266 - ----------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 8201 Tristar Drive Irving, Texas 75063 - ----------------------------------------- ------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code -- 972/988-3737 ------------ Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - -------------------------- ----------------------------------------- 11 % Series B Senior Notes Not Applicable Due June 30, 2007 Securities registered pursuant to Section 12(g) of the Act: None - ----------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Not Applicable. 2 As of December 31, 1999, the market value for the voting and non-voting common equity held by non-affiliates of the registrant had a market value of $0. As of March 30, 2000, 16,033 shares of Class A common stock, par value $0.01 per share, were issued and outstanding, and 400 shares of Class B common stock, par value $0.01 per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. 3 PART III --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages, and positions of each of the directors and officers of Evercom, Inc. (the "Company") as of April 15, 2000.
Name Age Position ---- --- -------- Terry C. Matlack........................... 44 Chief Executive Officer Donald B. Vaello........................... 53 President and Chief Operating Officer Keith S. Kelson............................ 33 Chief Financial Officer, Assistant Secretary, and Assistant Treasurer Todd W. Follmer (1)........................ 41 Director Gregg L. Engles (4)........................ 42 Director Richard H. Hochman (1) (3) (4)............. 54 Director Jay R. Levine (2) (3) (4).................. 43 Director Nina E. McLemore (2)....................... 54 Director Bruce I. Raben (1)......................... 46 Director David A. Sachs (2)......................... 40 Director Roger K. Sallee (3)........................ 52 Director Julius E. Talton, Sr. (2).................. 71 Director Joseph P. Urso............................. 46 Director
_______________ (1) Member of the Executive Committee. (2) Member of the Audit Committee (3) Member of the Compensation Committee (4) Member of the Finance and Acquisition Committee Terry C. Matlack. Mr. Matlack became interim Chief Executive Officer in March 2000. Mr. Matlack was formerly the President of Ameritel Payphones, Inc. ("Ameritel"), serving in that capacity from May 1995 until Ameritel was acquired by the Company in 1996 in connection with the Company's initial founding. Mr. Matlack was President of GreenStreet Capital, Inc. ("GreenStreet"), a venture capital firm from January 1998 to March 2000. During this period he also served as President of Council Grove Telephone Company, a local exchange carrier, and as Chairman of Mustang Holdings, a delivery services business. Both of these were portfolio companies of GreenStreet. Mr. Matlack currently serves as a Director of W.K. Communications International and Kansas Value Capital, Inc. Donald B. Vaello. Mr. Vaello became President and Chief Operating Officer of the Company in April 2000. Prior to becoming President and Chief Operating Officer, Mr. Vaello served as Chief Operating Officer of the Company beginning in June 1998. From August 1984 until June 1989 Mr. Vaello served as Chairman and Chief Executive Officer of North American Intelecom, a public communications company that he formed in 1983 and sold in 1989 to Diamond Shamrock Refining and Marketing, Inc. After the sale to Diamond Shamrock Refining and Marketing, Inc., Mr. Vaello served in various capacities with Diamond North American Intelecom, most recently as President and Chief Operating Officer. Keith S. Kelson. Mr. Kelson became Chief Financial Officer in March 2000. Prior to becoming Chief Financial Officer, Mr. Kelson served as Vice President of Finance of the Company since April 1998. Mr. Kelson became Assistant Secretary and Assistant Treasurer of the Company in May 1998. From January 1995 until April 1998, Mr. Kelson served as a certified public accountant in the accounting 4 and auditing services division of Deloitte & Touche, LLP. From May 1991 until January 1995, Mr. Kelson served in various financial management capacities with subsidiaries of Kaneb Services Inc. Todd W. Follmer. Mr. Follmer was elected to the Company's Board of Directors in December 1996. Mr. Follmer served as the Chairman of the Company's Board of Directors from June 1998 until November 1998, and as the Company's Chief Executive Officer and President from June 1998 until September 1998. From November 1997 until June 1998, Mr. Follmer served as Acting Chief Executive Officer, and from December 1996 until June 1998, Mr. Follmer served as Vice President, Assistant Secretary, and Assistant Treasurer. Mr. Follmer has been a principal of Engles, Urso, Follmer Capital Corporation, ("EUF") since January 1996. From January 1993 until December 1995, Mr. Follmer served as President of Gulf Capital Partners Inc., a merchant banking firm. Gregg L. Engles. Mr. Engles was elected to the Company's Board of Directors in December 1996. Mr. Engles has served as Chairman and has been a principal of EUF since January 1996. Mr. Engles has served as Chairman of the Board and Chief Executive Officer of Suiza Foods Corporation since October 1994. Mr. Engles has also served in various senior management positions with certain subsidiaries of Suiza Foods since 1988. In addition, Mr. Engles has served as President of Kaminski Engles Capital Corporation ("KECC") since May 1988 and as President of Engles Management Corporation ("EMC") since February 1993. KECC and EMC are investment banking and consulting firms. Mr. Engles is a director of Electrolux, Booth Creek, Ltd., Independent Packaging, L.P., and Texas Capital Bank. Richard H. Hochman. Mr. Hochman was elected to the Company's Board of Directors in December 1996. Mr. Hochman has served as the Chairman of Regent Capital Management Corp., a private investment firm, since January 1995. From 1990 to December 1994, Mr. Hochman was a Managing Director of PaineWebber, Inc., an investment banking firm. Mr. Hochman is a director of Cablevision Systems Corporation and RABCO Enterprises. Jay R. Levine. Mr. Levine was elected to the Company's Board of Directors in December 1996. Since April 1997, Mr. Levine has served as a Managing Director of CIBC World Markets Corp., an investment banking firm, and since May 1997 has managed the CIBC World Markets Corp. High Yield Merchant Banking Funds. From September 1996 to May 1997, Mr. Levine served as President of PPMJ, Inc., a private consulting firm. From 1990 until June 1996, Mr. Levine served as a senior executive in the Morningside and Springfield Group, a private investment company. Mr. Levine is a director of Aircraft Service International Group, Inc., Consolidated Advisers Limited, L.L.C., and Heating Oil Partners, L.P. Nina E. McLemore. Ms. McLemore was elected to the Company's Board of Directors in December 1996. Ms. McLemore has been the President of Regent Capital Management Corp. since January 1995. From 1980 until 1993, Ms. McLemore served as founder and President of Liz Claiborne Accessories and was a member of the Policy Committee of Liz Claiborne Inc. She is chair of the National Foundation for Women Business Owners and is a Board member of Danskin Inc., and Robb & Stucky, Inc. Bruce I. Raben. Mr. Raben was elected to the Company's Board of Directors in December 1996. Since February 1996, Mr. Raben has served as a Managing Director of CIBC Wood Gundy Securities Corp., an investment banking firm. From March 1990 to February 1996, Mr. Raben served as a Managing Director of Jefferies & Co., an investment banking firm. Mr. Raben is a director of Global Crossing, Ltd., and Equity Marketing, Inc. David A. Sachs. Mr. Sachs was elected to the Company's Board of Directors in December 1996. Since July 1994, Mr. Sachs has been a principal of Onyx Partners, Inc., a merchant banking firm, and since October 1997 Mr. Sachs has been a Managing Director of Ares Management, L.P., an investment management firm. From October 1990 until June 1994, Mr. Sachs was employed at TMT-FW, Inc., an affiliate of Taylor & Co., a private investment management firm. Mr. Sachs is a director of Terex Corporation. 5 Roger K. Sallee. Mr. Sallee was elected to the Company's Board of Directors in December 1996. Mr. Sallee founded Ameritel and served as its Chief Executive Officer from July 1991 until December 1996. Mr. Sallee is Chairman and President of Ozark Shores Water Company. Joseph P. Urso. Mr. Urso was elected to the Company's Board of Directors in December 1996. Mr. Urso has served as President and has been a principal of EUF since January 1995. Since April 1998, Mr. Urso has served as Chairman and Chief Executive Officer of Electrolux LLC. Since March 1996 Mr. Urso has served as Chairman of Interstate Engineering, a manufacturing firm. Mr. Urso was a shareholder of Stutzman & Bromberg, P.C. from 1983 until May 1995. Julius E. Talton, Sr. Mr. Talton was elected to the Company's Board in December 1996. From December 1996 until June 1998, Mr. Talton served as Chairman of the Board and President of the Company. Mr. Talton founded Talton Telecommunications and served as its Chairman of the Board, President, and Chief Executive Officer from 1973 until December 1996. Mr. Talton served as President of Talton Outdoor Advertising from 1976 until November 1996. Mr. Talton was President and Chief Executive Officer of Talton Broadcasting Company from 1961 until 1984. The Company's Certificate of Incorporation divides the Board of Directors into two classes, the "Class A/B Directors" and the "Class B Directors," with each class serving a one-year term. The size of the Board of Directors depends on the aggregate percentage ownership of all outstanding Common Stock held by Gregg L. Engles, Joseph P. Urso, Todd W. Follmer, and their respective affiliates (the "EUF Holders") and Onyx Talton Partners, L.P. and Sachs Investment Partners and their respective affiliates (the "Onyx Holders"). The size of the Company's Board of Directors is currently ten members, with the holders of the Class A Common Stock and Class B Common Stock entitled to elect six Class A/B Directors and the holders of Class B Common Stock entitled exclusively to elect five Class B Directors. The Class A/B Directors are Richard H. Hochman, Jay R. Levine, Nina E. McLemore, Bruce I. Raben, and Julius E. Talton. The Class B Directors are Gregg L. Engles, Todd W. Follmer, David A. Sachs, Roger K. Sallee, and Joseph P. Urso. Each Class A/B Director is entitled, at all times, to one vote on any matter voted on by the Board of Directors. The number of votes that each Class B Director is entitled to on any matter voted on by the Board of Directors depends on the aggregate percentage ownership of all outstanding Common Stock held by the EUF Holders and the Onyx Holders. Each Class B Director is currently entitled to a 0.6 director vote on any matter voted on by the Board of Directors, resulting in the Class B Directors having an aggregate of three (3) director votes as a class. As the EUF Holders' and the Onyx Holders' ownership of the outstanding Common Stock decreases, the number of Class B Directors that the EUF Holders have the right to designate, the aggregate number of votes held by the remaining Class B Directors, and the size of the Company's Board of Directors decrease (and the number of Class A/B Directors increases), all as set forth in the Company's Certificate of Incorporation and the Shareholders Agreement (as defined). Under the terms of the Certificate of Incorporation and the Shareholders Agreement, the total number of votes on the Board of Directors will remain at nine. 6 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth annual cash compensation paid or accrued by the Company to the Company's Chief Executive Officer and its other Executive Officers receiving total salary and bonus in excess of $100,000 for the fiscal years ended December 31, 1999, 1998, and 1997.
LONG-TERM ANNUAL COMPENSATION COMPENSATION OTHER ANNUAL SHARES ALL OTHER COMPENSATION UNDERLYING COMPENSATION Name and Principal Position YEAR SALARY ($) BONUS ($) ($) (1) OPTIONS (#) ($) - --------------------------- Dennis L. Whipple (2) 1999 300,000 750,000 125 -- Chief Executive Officer.......... 1998 95,577 75,000 -- 500 -- 1997 -- -- -- -- -- Donald B. Vaello (3) 1999 200,000 150,000 -- 50 -- Chief Operating Officer.......... 1998 106,153 80,000 18,749 (4) 200 -- 1997 -- -- -- -- -- Jeffrey D. Cushman (5) Chief Financial Officer, Vice President, Secretary 1999 168,000 107,100 -- 35 -- and Treasurer.................... 1998 143,500 85,000 -- 125 -- 1997 17,500 35,000 -- -- -- Keith S. Kelson (6) Vice President of Finance, Assistant Treasurer, and 1999 100,000 40,000 -- -- -- Assistant Secretary.............. 1998 68,205 40,000 -- 50 -- 1997 -- -- -- -- --
(1) Unless otherwise indicated, the aggregate value of perquisites and other personal benefits does not exceed the lesser of $50,000 or 10% of the total annual salary and bonus report for the named executive officer. (2) Effective in April 2000, Mr. Whipple resigned as Chairman and Chief Executive Officer of the Company. Terry Matlack was employed by the Company in April 2000 to serve as Chief Executive Officer. (3) Appointed President and Chief Operating Officer effective April 12, 2000. Appointed Chief Operating Officer effective June 26, 1998. (4) Consisted of payment of closing costs on sale of residence. (5) Appointed effective November 15, 1997. Effective as of January 2000, Mr. Cushman resigned as Chief Financial Officer of the Company. (6) Appointed Chief Financial Officer effective March 24, 2000. Appointed Vice President of Finance, Assistant Treasurer, and Assistant Secretary effective April 27, 1998. 7 Option Grants During 1999, options to purchase an aggregate of 1,555 shares of Common Stock at an exercise price of $2,000 per share were granted. The following table provides information regarding stock options granted during 1999 to the Named Executive Officers.
Option Grants During 1999 % of Total Potential Realizable Number of Options Value at Assumed Securities Granted to Annual Rates of Stock Underlying Options Employees Exercise Price Appreciation for Granted (#) During Price Expiration Option Term (1) Name 1999 ($/Share) Date 5% 10% Dennis L. Whipple............... 125 29.8% $2,000 (2) 157,224 398,375 Donald B. Vaello................ 50 11.9% $2,000 6/30/2009 62,900 159,350 Jeffrey D. Cushman.............. 35 8.3% $2,000 (2) 44,020 111,545
_____________ (1) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the Securities and Exchange Commission. The actual value, if any, that an executive officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. There is no assurance the value realized by an executive officer will be at or near the assumed 5% or 10% levels. (2) Options expired upon the resignations of Mr. Whipple and Mr. Cushman. Aggregated Option Exercises in 1999 and Year-End Option Values During 1999, none of the Named Executive Officers exercised any options. Employment Agreements and Other Arrangements Terry C. Matlack joined the Company as interim Chief Executive Officer in April 2000. Mr. Matlack's letter of employment provides that Mr. Matlack receives an annual base salary of $210,000 and will be entitled to three months severance if terminated by the Company. Mr. Matlack is also eligible to receive a bonus of up to $450,000 in 2000 if certain objectives are achieved. Pursuant to his letter of employment, Mr. Matlack was awarded options to purchase 500 shares of Common Stock at a per share price of $2,000. 200 of these options immediately vested and the remainder vest over a twelve month period. Donald B. Vaello joined the Company as Chief Operating Officer in June 1998. Mr. Vaello became President and Chief Operating Officer in April 2000. The Company entered into a written employment agreement with Mr. Vaello on July 26, 1998 which was amended on April 15, 2000. The initial term expires on March 31, 2003, with successive one-year renewals thereafter unless notice is given by either party not less than 90 days immediately preceding the commencement of the renewal period. Mr. Vaello receives an annual base salary of $275,000. Mr. Vaello is also eligible for an annual bonus generally equal to an additional amount up to 100% of his base salary based upon achieving pre-determined performance objectives. This bonus may be in excess of such amount in the event such objectives are exceeded. In addition, in 1999 and 1998, Mr. Vaello received options to purchase 50 shares and 200 shares, respectively, of Common Stock at a price of $2,000 per share. In conjunction with the April 2000 contract amendment, Mr. Vaello will be awarded options to purchase an additional 100 shares of the Company's Common Stock at a strike price equal to the fair value of the stock as of the grant date. The employment agreement provides for a severance payment equal to one year's base salary if Mr. Vaello is 8 terminated by the Company without cause. The employment agreement also contains non-competition provisions that cover the Company's existing markets and expansion markets that apply during the term of the agreement and for a period of one year after the expiration or earlier termination of the agreement. Keith S. Kelson joined the Company as Vice President of Finance in April 1998 and was appointed Chief Financial Officer in March 2000. Mr. Kelson's offer letter specifies that he is eligible for an annual bonus generally equal to an additional amount up to 40% of his base salary based upon pre-determined performance objectives. This bonus may actually be in excess of such amount in the event such objectives are exceeded. The offer letter provides for a severance payment equal to one year's base salary if Mr. Kelson is terminated by the Company without cause. Dennis L. Whipple joined the Company as Chief Executive Officer in September 1998. The Company entered into a written employment agreement with Mr. Whipple that had an initial term expiring on December 31, 2001, with successive one-year renewals thereafter unless notice was given by either party not less than 90 days immediately preceding the commencement of the renewal period. Mr. Whipple received an annual base salary of $300,000, and was entitled to receive a guaranteed bonus of $150,000 for 1999. Mr. Whipple's target annual bonus was 100% of his base salary and could be earned upon the achievement of pre- determined performance objectives. This bonus could actually be in excess of such amount, up to a maximum of 200% of Mr. Whipple's base salary, in the event such objectives were exceeded. The 200% bonus cap would also be increased by $150,000 if the Company entered into meaningful discussions with certain acquisition targets and the Company achieved certain operating results. Mr. Whipple received a $750,000 bonus for 1999. In addition, in 1998 and 1999, Mr. Whipple received options to purchase 500 shares and 125 shares respectively, of Common Stock at a per share price of $2,000, subject to certain vesting requirements. If Mr. Whipple was terminated by the Company without cause, the employment agreement provided for a severance payment equal to the cash compensation paid by the Company to Mr. Whipple in the year prior to the year in which his employment was terminated or not extended, with the exception of 1999, in which Mr. Whipple would receive a severance payment of $1.2 million if terminated without cause. The employment agreement contained non-competition provisions that covered the Company's existing markets and expansion markets that applied during the term of the agreement and for a period of one year after the expiration or earlier termination of the agreement. Mr. Whipple resigned effective April 2000. Jeffrey D. Cushman joined the Company as Chief Financial Officer in November 1997. The Company entered into a written employment agreement with Mr. Cushman that was amended in November 1998. The agreement had an initial term expiring on December 31, 1999, with successive one-year renewals thereafter unless notice is given by either party not later than 90 days immediately preceding the commencement of the renewal period. Mr. Cushman received an annual base salary of $168,000 and a one-time guaranteed bonus of $85,000, $35,000 of which was paid in June 1998, and the remaining $50,000 of which was paid in February 1999. Mr. Cushman's target annual bonus was 50% of his base salary and was earned upon the achievement of pre-determined performance objectives. The bonus could actually be in excess of such amount, up to a maximum of 100% of Mr. Cushman's base salary, in the event such objectives are exceeded. In addition, in 1999 Mr. Cushman received options to purchase 35 shares of Common Stock at a price of $2,000 per share. If Mr. Cushman was terminated by the Company without cause, the employment agreement provided for a severance payment equal to the cash compensation paid by the Company to Mr. Cushman in the calendar year prior to the calendar year in which his employment is terminated or not extended. The employment agreement also contained non-competition provisions that cover the Company's existing markets and expansion markets that apply during the term of the agreement and for a period of one year after the expiration or earlier termination of the agreement, provided that the one year period would be extended for an additional year in the event that Mr. Cushman, rather than the Company, terminated the employment agreement. Mr. Cushman resigned in January 2000. 9 Stock Option Plans The Company's Stock Option Plan (the "Stock Option Plan") has been established to provide the officers and employees of the Company a strong incentive to contribute to the success of the Company by granting them options to acquire Common Stock. The Stock Option Plan is administered by the Compensation Committee for the Board of Directors. The Compensation Committee has the authority to determine the persons employed by the Company who are to be granted options under the Stock Option Plan, the number of shares subject to each option, the date of the grant of each option, the option exercise price, whether the option granted is to be treated as an incentive stock option or a non-statutory stock option, the vesting period, and such other determinations as may be appropriate or necessary for the administration of the Stock Option Plan. Only employees of the Company may be granted options under the Stock Option Plan. The option exercise price of each option granted under the Stock Option Plan may not be less than 100% of the fair market value of the Common Stock on the date of grant. In the event of a Change of Control (as defined in the Stock Option Plan), options issued pursuant to the Stock Option Plan become immediately exercisable for a period of 30 days following such event. Any options not exercised during the 30 day period are treated as if no Change in Control had occurred and will be governed by the terms of their original grant. The Stock Option Plan may be abandoned or terminated by the Board of Directors at any time. Such abandonment or termination, however, will not alter or impair any rights under any options granted prior to termination or abandonment. Unless previously terminated, the Stock Option Plan will expire on January 1, 2008. The Company has reserved 2,000 shares of Common Stock for issuance pursuant to the Stock Option Plan. As of December 31, 1999, options to acquire 1,855 shares had been granted to the Company's employees. The option exercise price for each of these options is $2,000 per share. These options generally provide for a ratable vesting over a three to five year period commencing upon the employee's initial employment with the Company. The options generally expire, if not previously exercised, upon the earlier of ten years following their date of grant or three months following the option holder's termination of employment with the Company. If any options terminate or expire without having been exercised, the shares not purchased under such options again are available for issuance under the Stock Option Plan. Limitation of Liability and Indemnification The Company's Certificate of Incorporation provides, consistent with the provisions of the Delaware General Corporation Law ("DGCL"), that no director of the Company will be personally liable to the Company or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director. This does not apply, however, with respect to any action for unlawful payments of dividends, stock purchases, or redemptions, nor does it apply if the director: (i) has breached his or her duty of loyalty to the Company and its stockholders; (ii) does not act or, in failing to act, has not acted in good faith; (iii) has acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, has acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) has derived an improper personal benefit. The provisions of the Certificate of Incorporation eliminating liability of directors for monetary damages do not affect the standard of conduct to which directors must adhere, nor do such provisions affect the availability of equitable relief. In addition, such limitations on personal liability do not affect the availability of monetary damages under claims based on federal law. The Company's bylaws provide for indemnification of its officers and directors to the fullest extent permitted by the DGCL. 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the Company's capital stock as of April 15, 2000 by (i) each stockholder known by the Company to beneficially own more than 5% of any class of the Company's outstanding capital stock; (ii) each director of the Company; (iii) each executive officer named in the Summary Compensation Table; and (iv) all executive officers and directors as a group.
Number of Number of Shares of Number of Shares of Number of Class A Shares of First Shares of Common Class B Preferred Senior Stock Percent of Common Percent of Series A Percent Preferred Percent NAME OF BENEFICIAL OWNER (1)(2) Class (2) Stock (1) Class (2) Stock (1) Of Class (2) Stock (1) Of Class (2) Terry C. Matlack (23)........... 225.0 1.4% -- -- -- -- -- -- Julius E. Talton (3)............ 2,062.5 12.9% -- -- -- -- 2,500.0 42.2% Todd W. Follmer (4) (15)........ 1,536.2 8.7% 100.0 25.0% 422.9 8.5% -- -- Gregg L. Engles (4) (16)........ 1,791.1 10.1% 100.0 25.0% 527.8 10.6% -- -- Richard H. Hochman (5).......... 2,426.8 14.7% -- -- 426.8 8.5% -- -- Jay R. Levine (6)............... 7,825.1 41.1% -- -- 1,889.6 37.8% -- -- Nina E. McLemore (7)............ 2,426.8 14.7% -- -- 426.8 8.5% -- -- Bruce I. Raben (6).............. 7,825.1 41.1% -- -- 1,889.6 37.8% -- -- David A. Sachs (8).............. 2,023.0 11.4% 100.0 25.0% 53.4 1.1% -- -- Roger K. Sallee................. 22.0 * -- -- -- -- 61.7 1.0% Joseph P. Urso (4) (14)......... 1,163.3 6.8% 100.0 25.0% 50.0 1.0% -- -- Canadian Imperial Bank of Commerce ("CIBC")(9).......... 7,825.1 41.1% -- -- 1,889.6 37.8% -- -- Regent Capital Partners, L.P. (10)..................... 2,426.8 14.7% -- -- 426.8 8.5% -- -- Onyx Talton Partners, L.P. (11)..................... 969.6 5.7% 100.0 25.0% -- -- -- -- Dennis L. Whipple (17).......... 312.5 1.9% -- -- -- -- -- -- Richard C. Green, Jr............ 233.0 1.5% -- -- -- -- 310.8 5.3% Robert K. Green................. 233.0 1.5% -- -- -- -- 310.8 5.3% William M. Ohland (12).......... 864.0 5.4% -- -- -- -- -- -- Donald B. Vaello (20)........... 50.0 * -- -- -- -- -- -- Keith S. Kelson (21)............ 16.7 * -- -- -- -- -- -- Jeffrey D. Cushman (19)......... 83.4 * -- -- -- -- -- -- Ares Leveraged Investment Fund (13)..................... 750.0 4.7% -- -- 750.0 15% -- -- Julius E. Talton, Jr. (22)...... 1,237.5 7.7% -- -- -- -- 1,500.0 25.3% James E. Lumpkin (22)........... 825.0 5.1% -- -- -- -- 1,000.0 16.9% All executive officers and directors as a group (13 persons) (18)................. 19,141.6 74.1% 400.0 100.0% 4,120.5 82.4% 2,561.7 43.2%
____________ * Less than 1.0% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Except as indicated in the footnotes to this table and subject to community property laws, where applicable, each of the stockholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned, unless otherwise indicated. (2) Percentages are based on the total number of shares outstanding at April 15, 2000, plus the total number of outstanding options held by such person that are exercisable within 60 days of such date and securities exchangeable into the Company's common stock within 60 days of such date. Shares issuable upon exercise of outstanding options or through the conversion of securities exchangeable into the Company's common stock, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. (3) The address for this stockholder is 801 Alabama Avenue, Selma, Alabama 36701. (4) The address for each of these stockholders is 5956 Sherry Lane, Suite 1575, Dallas, Texas 75225. 11 (5) Includes 2,000 shares of Common Stock and warrants to acquire 426.8 shares of Common Stock held by Regent Capital Partners, L.P. and Regent Capital Equity Partners, L.P. The warrants are exercisable within 60 days. Also includes 426.8 shares of First Preferred Series A stock held by Regent Capital Partners, L.P. Mr. Hochman, who is the chairman of Regent Capital Management Corp., an affiliate of Regent Capital Partners, exercises voting and investment power with respect to such shares. Mr. Hochman's address is 505 Park Avenue, 17th Floor, New York, New York 10022. (6) Includes 4,850 shares of Common Stock and warrants to acquire 2,975.2 shares of Common Stock held by CIBC. The warrants are exercisable within 60 days. Messrs. Levine and Raben are employees of an affiliate of CIBC. Such persons' address is 425 Lexington Avenue, New York, New York 10017. Messrs. Levine and Raben disclaim beneficial ownership of such shares. (7) Includes 2,000 shares of Common Stock and warrants to acquire 426.8 shares of Common Stock held by Regent Capital Partners, L.P. and Regent Capital Equity Partners, L.P. The warrants are exercisable within 60 days. Also includes 426.8 shares of First Preferred Series A stock held by Regent Capital Partners, L.P. Ms. McLemore, who is the president of Regent Capital Management Corp., an affiliate of Regent Capital Partners, exercises voting and investment power with respect to such shares. Ms. McLemore's address is 505 Park Avenue, 17th Floor, New York, New York 10022. (8) Consists of 250 shares of Common Stock held by Sachs Investment Partners, warrants to acquire 969.6 shares of Common Stock held by Onyx Talton Partners, L.P.,warrants, to acquire 750 shares of Common Stock held by Ares Leveraged Investment Fund, a warrant to acquire 53.4 shares of Common Stock held by Sachs Investment Partners, 100 shares of Class B Common Stock held by Onyx Talton Partners, L.P., 750 shares of First Preferred Series A Common Stock held by Ares Leveraged Investment Fund, and 53.4 shares of First Preferred Series A Common Stock held by Sachs Investment Partners. The warrants are exercisable within 60 days. Mr. Sachs is a Managing Director of Ares Management, and exercises voting and investment power with respect to such shares. Mr. Sachs disclaims beneficial ownership of the 100 shares of Class B Common Stock held by Onyx Talton Partners, L.P. Mr. Sachs is a general partner of Sachs Investment Partners, and exercises voting and investment power with respect to such shares. Mr. Sachs' address is 1999 Avenue of the Stars, Suite 1900, Los Angeles, California 90067. (9) Includes 4,850 shares of Common Stock and warrants to acquire 2,975.2 shares of Common Stock held by CIBC. The warrants are exercisable within 60 days. CIBC's address is 161 Bay Street, P.O. Box 500, M51258, Toronto, Canada. Jay R. Bloom, Andrew R. Heyer, and Dean C. Kehler, employees of an affiliate of CIBC, share the power to vote and dispose of the listed securities. (10) Includes 2,000 shares of Common Stock and warrants to acquire 426.8 shares of Common Stock held by Regent Capital Partners, L.P. and Regent Capital Equity Partners, L.P., an affiliate of Regent Capital Partners. The above warrants are exercisable within 60 days. Regent Capital Partners' address is 505 Park Avenue, 17th Floor, New York, New York 10022. (11) Includes 969.6 shares of Common Stock subject to warrants that are exercisable within 60 days. Onyx Talton Partners, L.P.'s address is 9595 Wilshire Blvd., Suite 700, Beverly Hills, California 90212. (12) Consists of shares issued to STC as part of the purchase price in the STC Acquisition. Mr. Ohland owns all of the outstanding capital stock of STC. (13) Includes 750 shares of Common Stock subject to warrants that are exercisable within 60 days. Ares Leveraged Investment Fund's address is 1999 Avenue of the Stars, Suite 1900, Los Angeles, California 90067. (14) Includes 1,163.3 shares of Common Stock subject to warrants that are exercisable within 60 days. (15) Includes 1,536.2 shares of Common Stock subject to warrants that are exercisable within 60 days. (16) Includes 1,641.1 shares of Common Stock subject to warrants that are exercisable within 60 days. (17) Includes 312.5 shares of Common Stock subject to options issued to Mr. Whipple under the Company's stock option plan that are exercisable within 60 days. (18) Includes 266.7 shares of Common Stock subject to options issued to certain directors and executive officers of the Company that are exercisable within 60 days and 9,515.4 shares of Common Stock subject to warrants that are exercisable within 60 days. (19) Includes 83.4 shares of Common Stock subject to options issued to Mr. Cushman under the Company's stock option plan that are exercisable within 60 days. 12 (20) Includes 50 shares of Common Stock subject to options issued to Mr. Vaello under the Company's stock option plan that are exercisable within 60 days. (21) Includes 16.7 shares of Common Stock subject to options issued to Mr. Kelson under the Company's stock option plan that are exercisable within 60 days. (22) The address for each of these stockholders is 801 Alabama Avenue, Selma, Alabama 36701. (23) Includes 200 shares of Common Stock subject to options issued to Mr. Matlack exercisable within 60 days. 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Relationships and Related Transactions Consulting and Strategic Services Agreement In connection with the acquisitions of Ameritel and Talton Telecommunications, the Company entered into a Consulting and Strategic Services Agreement with EUF Talton, a limited partnership controlled by Messrs. Engles, Urso, and Follmer, pursuant to which the Company would pay to EUF Talton an annual consulting fee of $300,000 for an initial term of three years ending December 27, 1999. Pursuant to this agreement, EUF Talton would provide management consulting services relating to strategic and financial matters, including acquisitions, business strategies, and financial planning. In addition, the Company agreed to pay to EUF Talton an acquisition fee of 1% of the gross acquisition price of any acquisitions of assets or stock by the Company, up to an aggregate maximum of $1.25 million. This agreement was terminated in 1999. Consulting and Employment Agreements In connection with the acquisitions of Ameritel and Talton Telecommunications, the Company entered into the consulting agreement described below. Roger K. Sallee was a former stockholder of Ameritel. The consulting agreement of Roger K. Sallee provides that Mr. Sallee will serve as a director of the Company and will perform such duties related to the business conducted by the Company as the Chief Executive Officer or the Board of Directors may designate from time to time. The consulting agreement had an initial term of one year, with successive one-year renewal periods thereafter unless earlier terminated by the Company or Mr. Sallee. In addition to a lump sum payment of $5,000 paid on the effective date of the agreement, Mr. Sallee will receive an annual consulting fee of $30,000 for each year that the agreement remains in effect. Mr. Sallee's consulting agreement contains non- competition provisions covering the Company's existing markets and expansion markets that apply during the term of the agreement and for a period of three years and two years, respectively, after the expiration or earlier termination of the agreement. Talton Agreement On July 1, 1998, the Company entered into an agreement with Julius E. Talton, Julius E. Talton, Jr. and James Lumpkin (the "Talton Agreement"). The Talton Agreement provided that Julius Talton, Julius Talton, Jr., and James E. Lumpkin would provide consulting services to the Company in relation to the Company's contract with a major RBOC. The Talton Agreement had a term of one year, ending on June 30, 1999. Under the terms of the Talton Agreement, Mr. Talton, Mr. Talton, Jr., and Mr. Lumpkin were paid 10% of the Profits (as defined in the Talton Agreement) between July 1, 1998 and December 31, 1998 and 5% of the Profits between January 1, 1999 and June 30, 1999 from the Company's contract with a major RBOC. Lease Agreement In December 1996, Talton Telecommunications entered into a lease agreement (the "Talton Lease") with Mr. Talton for office space located in Selma, Alabama. The Talton Lease has a five-year term commencing January 1, 1997, with an option to renew for an additional five-year term. Under the Talton Lease, Talton Telecommunications will pay fixed annual rent of approximately $109,000, $112,000, $90,000, $93,000, and $96,000, respectively, for the five years of the initial term. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) Exhibits Exhibit No. 10.1* Terry C. Matlack Letter of Employment 10.2* Amendment No. 1 to Employment Agreement of Donald B. Vaello * Filed herewith 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EVERCOM, INC. By: /s/ Terry C. Matlack ------------------------ Terry C. Matlack, Chief Executive Officer Date: April 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title Date /s/ Richard H. Hochman Director April 28, 2000 Richard H. Hochman /s/ Nina E. McLemore Director April 28, 2000 Nina E. McLemore /s/ Julius E. Talton, Sr. Director April 28, 2000 Julius E. Talton, Sr. /s/ David A. Sachs Director April 28, 2000 David A. Sachs /s/ Todd W. Follmer Director April 28, 2000 Todd W. Follmer /s/ Bruce I. Raben Director April 28, 2000 Bruce I. Raben /s/ Roger K. Sallee Director April 28, 2000 Roger K. Sallee /s/ Joseph P. Urso Director April 28, 2000 Joseph P. Urso /s/ Jay R. Levine Director April 28, 2000 Jay R. Levine /s/ Gregg L. Engles Director April 28, 2000 Gregg L. Engles /s/ Keith S. Kelson Chief Financial Officer, Vice April 28, 2000 Keith S. Kelson President, Assistant Secretary and Assistant Treasurer 16 EX-10.1 2 TERRY C. MATLACK LETTER OF EMPLOYMENT EXHIBIT 10.1 EVERCOM, INC. 8201 Tristar Drive Irving, Texas 75063 Main: 972/988-3737 Fax: 972/988-3774 ================================================================================ April 7, 2000 Mr. Terry Matlack 8700 Monrivia Suite 205 Lenexa, Kansas 66215 Dear Terry: Evercom, Inc. ("Evercom") is pleased to offer you the position of interim Chief ------- Executive Officer for Evercom, beginning April 4, 2000. 1. Term. It is anticipated that the Term of your employment will last between ---- 3 and 12 months, depending on the length of time required for the Board to hire a full-time CEO. During this period, this position will be your primary employment activity (initially, full-time, reducing if possible to 65-75% of time in later months). Evercom acknowledges that you will continue providing services to Greenstreet Capital, Inc. and its affiliates and that you will continue investigating and pursuing other business activities, and that you may do so as long as those services and activities do not materially adversely affect your services to Evercom. Evercom understands that the services and activities described in the previous sentence may involve other telecommunications businesses (which will not be competitive with Evercom's services in the telecommunications business) and you will be free to pursue these opportunities. 2. Relocation. You will not be required to relocate to Dallas. However, it ---------- is anticipated that you will initially spend three to five days per week in Dallas at the Evercom office or traveling in connection with Evercom- related business. 3. Compensation. Compensation for this position will consist of salary, bonus ------------ and stock options. (a) Salary. The base salary is $210,000 per year. ------ Mr. Terry Matlack April 7, 2000 Page 2 (b) Bonus. You will be entitled to a Bonus of $50,000, payable on the ----- hiring of a new, full-time Chief Executive Officer, during or within 30 days after the end of your employment. You will also be entitled to a severance payment equal to 3 months' of base salary, payable in monthly installments, beginning on the termination of your employment with Evercom. In addition, you will be entitled to Performance Bonuses, if you are still employed as Chief Executive Officer of the Company for at least 6 months after the date of this agreement, as follows: (i) $100,000, if the Revenues set forth on Exhibit A to this --------- Agreement are met for the 12 month-period ended December 31, 2000; and (ii) $200,000, if the EBITDA of the Company set forth on Exhibit A to --------- this Agreement is met for the 12 month-period ended December 31, 2000; and (iii) $100,000, at the sole discretion of the Board for the 12 month-period ended December 31, 2000. In the event of an extraordinary transaction, Exhibit A may be revised --------- by the Board of Directors if such transaction is consummated during the Term and your Performance Bonuses with regard to Revenues and EBITDA will then be measured by reference to the revised Exhibit A, --------- and not the attached Exhibit A. The revised Exhibit A shall show the --------- --------- Revenues and EBITDA in the revised budget or projections approved by the Board in connection with such transaction. (c) Options. You will receive options to acquire up to 500 shares of ------- Evercom stock, at $2,000 per share, with vesting to occur as follows: 200 at April 4, 2000 100 at the end of 6 months thereafter 100 at the end of 9 months thereafter 100 at the end of 12 months thereafter --- 500 total Your options are not being issued pursuant to the Company's stock option plan. Your vested options may be exercised up to five years from April 4, 2000. All of your options will become automatically vested upon the sale of substantially all of the Company's assets or the merger of the Company into an acquiring entity which is not controlled by the Company's current shareholders. Mr. Terry Matlack April 7, 2000 Page 3 4. Greenstreet. Upon the signing of this Agreement, the Company will pay ----------- Greenstreet Capital, Inc. $50,000, in order to compensate Greenstreet in connection with your services to Evercom. I am pleased about you joining the Evercom team and know that you will contribute to the success of the Company. Please sign below to indicate your acceptance of this offer. Sincerely, EVERCOM, INC. /s/ DONALD B. VAELLO - ---------------------------- Name: DONALD B. VAELLO ----------------------- Title: Chief Operating Officer ------------------------ ACCEPTED AND AGREED: /s/ TERRY MATLACK - ---------------------------- TERRY MATLACK Exhibit A to Agreement, dated April 4, 2000, between Evercom, Inc. and Terry Matlack ------------------------------- The Company's budget for the 12 month period ended December 31, 2000, is proposed to be adopted at its next Board of Director's meeting. The year 2000 budgeted Revenues and EBITDA will be attached as Exhibit A upon approval by the Board of Directors. EX-10.2 3 AMD#1 EMPLOYMENT AGREEMENT TO DONALD VAELLO EXHIBIT 10.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT -------------------- This Amendment No. 1 to Employment Agreement (the "Amendment") is made and --------- entered into effective as of April 5, 2000 (the "Effective Date") by and between -------------- Evercom, Inc., a Delaware corporation (previously known as Talton Holdings, Inc.) (the "Company") and Donald B. Vaello (the "Executive"). ------- --------- R E C I T A L S WHEREAS, the Company and Executive entered into an Employment Agreement, dated as of June 26, 1998 (the "Agreement"); and --------- WHEREAS, the Company and Executive wish to amend the Agreement; NOW, THEREFORE, in consideration of the promises and mutual agreements set forth below, the parties hereby agree as follows. All terms defined in the Agreement will have the same meaning in this Amendment. 1. EMPLOYMENT PERIOD. The date set forth on the first sentence of Section ----------------- 2 shall be "March 31, 2003." The date set forth in the second sentence of Section 2 shall be "April 1, 2003." 2. POSITION AND DUTIES. Section 3 of the Agreement shall be amended to ------------------- add the following sentence at the end of Section 3: The Executive shall be the Company's President and Chief Operating Officer, unless and until his title and duties are changed by the Company's Board of Directors. 3. COMPENSATION AND RELATED MATTERS. -------------------------------- (a) Section 4(a), (b) and (c), relating to the Executive's Base Salary, Bonus and Options, are hereby amended in their entirety as set forth on Exhibit A attached to this Amendment. --------- (b) Section 4(e) is hereby amended in its entirety as follows: (e) RELOCATION. The Executive shall relocate his primary residence to the Dallas-Fort Worth, Texas area if, and within a reasonable - 1 - time after, Employee has been elected to the position of the Company's Chief Executive Officer. Upon termination of the Executive's employment for any reason, the Executive shall be reimbursed for reasonable out-of-pocket expenses (not including the cost of housing) incurred by the Executive in relocating his primary residence to the San Antonio, Texas area (or to another area of reasonably similar distance from the Dallas-Fort Worth, Texas area). 4. TERMINATION. The second sentence of Section 5(b) shall be amended in ----------- its entirety as follows: If the Company terminates the Executive's employment without Cause prior to the expiration of the Employment Period, of if either party gives a notice not to extend this Agreement for a Renewal Period, the Company's liability to the Executive is limited to an amount equal to the Executive's annual Base Salary (the "Severance Payment"). ----------------- 5. This Agreement, as amended by this Amendment, is ratified and confirmed. 6. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. COMPANY: EXECUTIVE: - ------- --------- Evercom, Inc., a Delaware corporation /s/ DONALD B. VAELLO ------------------------- DONALD B. VAELLO By: /s/ TERRY MATLACK --------------------------- Name: TERRY MATLACK Title: Chief Executive Officer - 2 - EXHIBIT A --------- (a) Base Salary: $275,000 per year. ----------- (b) Bonus: Bonus program to be established whereby Executive could earn ----- an additional amount up to 100% of Base Salary based upon achieving performance objectives to be determined and may be increased to as much as 200% of Base Salary in the event such objectives are exceeded. (c) Options: Executive will be eligible to participate in the Company's ------- stock option program, and subject to Board approval, will be awarded options to purchase the equivalent to 300 common shares of Company stock (being an increase of 100 shares over the number set forth in the Agreement), having a strike price equal to the fair market value of the Company's common stock on the date of issuance of the options. Such options shall be subject to such vesting requirements as are established by the Board. EXHIBIT A - Page 1 of 1 --------- -----END PRIVACY-ENHANCED MESSAGE-----