EVERCOM INC, S-1, 1998-09-10

EVERCOM INC
S-1, 1998-09-10
TELEGRAPH & OTHER MESSAGE COMMUNICATIONS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EVERCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4825 75-2680266
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8201 TRISTAR DRIVE
IRVING, TEXAS 75063
(972) 988-3737
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TODD W. FOLLMER
8201 TRISTAR DRIVE
IRVING, TEXAS 75063
(972) 988-3737
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
GLEN J. HETTINGER JAMES S. SCOTT, SR.
HUGHES & LUCE, L.L.P. SHEARMAN & STERLING
1717 MAIN STREET, SUITE 2800 599 LEXINGTON AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022
(214) 939-5500 (212) 848-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. $ $125,000,000 $36,875
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</TABLE>
(1) Includes shares subject to an over-allotment option granted to the U.S.
Underwriters.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical in all
material respects except for the front cover page. The U.S. Prospectus is
included herein and is followed by the alternate front covered page to be used
in the International Prospectus. The alternate page for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." Final forms of each Prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b).
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF SUCH +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued September 10, 1998

Shares
Evercom, Inc.
COMMON STOCK

-----------

OF THE SHARES OF COMMON STOCK (THE "COMMON STOCK") BEING OFFERED, SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS (THE "U.S. OFFERING") AND SHARES ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS (THE "INTERNATIONAL OFFERING," AND, TOGETHER WITH THE U.S.
OFFERING, THE "OFFERING"). SEE "UNDERWRITERS." PRIOR TO THE OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.

-----------

APPLICATION WILL BE MADE FOR LISTING OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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PRICE $ A SHARE

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
-------- ---------------------- -----------
<S> <C> <C> <C>
Per share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
and proceeds to Company will be $ , $ , and $ , respectively. See
"Underwriters."

-----------

The shares are offered, subject to prior sale, when, as, and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1998, at the offices of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.

-----------

MORGAN STANLEY DEAN WITTER

BEAR, STEARNS & CO.

CIBC OPPENHEIMER

CREDIT SUISSE FIRST BOSTON

, 1998
<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY WILL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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For investors outside the United States: No action has been or will be taken
in any jurisdiction by the Company or any Underwriter that would permit a
pubic offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about, and to observe any restrictions as to, the offering of the Common Stock
and the distribution of this Prospectus.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................. 2
Risk Factors........................ 10
Stock Conversion and Split.......... 17
Special Note Regarding Forward-
Looking Information................ 18
Use of Proceeds..................... 18
Dividend Policy..................... 18
Dilution............................ 19
Capitalization...................... 20
Pro Forma Financial Data............ 21
Selected Financial Data............. 24
Selected Historical Predecessor
Financial Data..................... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business........................... 41
Management......................... 55
Principal Stockholders............. 60
Certain Transactions............... 62
Description of Capital Stock....... 68
Description of Certain
Indebtedness...................... 71
Shares Eligible for Future Sale.... 72
Certain United States Federal Tax
Considerations for Non-United
States Holders.................... 74
Underwriters....................... 76
Legal Matters...................... 79
Experts............................ 79
Additional Information............. 80
Index to Financial Statements...... F-1
</TABLE>

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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
(including notes) appearing elsewhere in this Prospectus. Except as otherwise
stated or unless the context otherwise requires, information in this Prospectus
assumes no exercise of the U.S. Underwriters' over-allotment option and all
references to "Evercom" and the "Company" are to Evercom, Inc. (formerly Talton
Holdings, Inc.) and its consolidated subsidiaries and predecessors. Unless
otherwise specifically stated, information in this Prospectus gives effect to a
to stock split that will be effected immediately prior to the Offering.

THE COMPANY

The Company is the largest independent provider of collect, prepaid, and
debit calling services to local, county, state, and private correctional
facilities in the United States. As of June 30, 1998, the Company served 2,145
correctional facilities in 43 states, of which 50 were private facilities. The
Company has a high level of market penetration in many states, providing inmate
telecommunications services to over 75% of the county correctional facilities
in seven states and to over 50% of the county correctional facilities in an
additional 12 states. The Company believes that this high level of market
penetration contributes to operating efficiencies through economies of scale
and enables the Company to compete more effectively for new contracts in these
geographic areas. The Company has increased the total number of facilities
served through internal growth and acquisitions from 1,112 at December 1, 1996
to 2,145 at June 30, 1998. The Company's historical revenues were $91.8 million
for the year ended December 31, 1997 and $103.6 million for the six months
ended June 30, 1998.

The Company's inmate telecommunications business consists of owning,
operating, servicing, and maintaining a system of automated operator switches
and telephones located in correctional facilities. Generally, inmates may make
only collect, prepaid, and debit calls from correctional facilities, which
generates revenue per phone line in excess of industry averages for a business
phone line. The Company generally enters into multi-year agreements with
correctional facilities pursuant to which the Company serves as exclusive
provider of telecommunications services to inmates within the facility. In
exchange for the exclusive service rights, the Company pays a percentage of its
revenue from each correctional facility to that facility as a commission.
Typically, the Company installs and retains ownership of the telephones and
related equipment.

Significant costs typically associated with providing telecommunication
services to correctional facilities include uncollectible accounts, network
expenses, and billing expenses. The Company has developed an integrated call
management and billing system to help control these expenses. This system
limits inmates to collect, prepaid, or debit calls; validates and verifies the
payment history and account status of each number dialed; confirms that the
destination number has not been blocked; and processes call records for billing
through a third party. To faciliate billing, the Company has entered into 29
separate direct billing agreements with regional bell operating companies
("RBOCs") and local exchange carriers ("LECs"), allowing the Company to bill
directly through the RBOCs and LECs rather than utilizing third party billing
services. Management believes that direct billing arrangements expedite the
billing and collections process and increase collectibility. The Company direct
billed approximately 80% of its operating revenues in June 1998.

The Company uses its experience in billing, collection, and control of
uncollectible accounts to offer specialized billing and collection services to
other inmate telecommunications service providers. The Company recently entered
into a contract with a major RBOC, under which the Company performs validation,
billing, and collection services for the RBOC's inmate calls. Under the terms
of the contract, the Company expects to receive call traffic from 428 local and
county facilities. The Company began processing call traffic under the contract
in May 1998. In addition, the Company provides call processing services for a
major interexchange carrier ("IXC"). The Company continues to pursue additional
opportunities to offer these services to RBOCs, LECs, IXCs, and other inmate
telecommunications providers.

2
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INDUSTRY OVERVIEW

The inmate telecommunications industry places unique demands on
telecommunications systems and service providers. Security and public safety
concerns associated with inmate telephone use require that correctional
facilities use call processor technology, which allows the facilities to
control inmate access to certain telephone numbers and to monitor inmate
telephone activity. In addition, concerns regarding fraud and called parties'
failure to pay for inmate collect calls require systems and procedures unique
to this industry.

Inmate telephones in the U.S. are operated by a large and diverse group of
service providers. Large telecommunications companies such as RBOCs, other
LECs, and IXCs such as AT&T Corp. ("AT&T"), MCI Communications, Inc. ("MCI"),
and Sprint Corporation ("Sprint") provide inmate telecommunications in addition
to other services. In addition, independent public pay telephone and inmate
telephone companies also focus on this market segment. As of December 31, 1996,
the inmate telecommunications market represented approximately $1.4 billion in
gross revenues annually. Management estimates that approximately 78% of this
market is controlled by RBOCs, other LECs, and IXCs. The remainder of this
market is served by independent service providers such as the Company, with the
Company accounting for approximately 66% of this market and 14% of the total
inmate telecommunications market. Management believes that no other independent
provider accounts for more than 5% of the revenues from the total market.

Companies compete for the right to serve as the exclusive provider of inmate
calling services within a particular correctional facility. Most local or
county correctional facilities (typically fewer than 250 beds) award contracts
on a facility-by-facility basis, while most state prison systems award
contracts on a system-wide basis. Generally, contracts are awarded pursuant to
a competitive bidding process.

EVERCOM'S COMPETITIVE ADVANTAGES

Evercom is the only nationwide telecommunications company focused exclusively
on providing services to correctional facilities. This focus has enabled the
Company to develop industry specific systems and services that give it
operating efficiencies and advantages over competitors in this segment of the
business. The Company believes that these advantages will enable the Company to
more aggressively bid and ultimately win contracts, as well as negotiate
favorable billing and network agreements.

. Uncollectible Account Control. The Company has developed an integrated
call management and billing system designed to help control expenses
associated with uncollectible accounts. Management believes that this
system has allowed it to incur lower uncollectible account expenses than
its competitors. The Company is currently enhancing its call management
and billing system to better identify called parties that pose an
uncollectible account risk, which the Company believes will further
reduce uncollectible accounts. The Company expects that this enhancement
will be implemented in 1999.

. Direct Billing. The Company currently has 29 direct billing agreements,
under which LECs include charges for the Company's services on the local
telephone bill sent to the recipient of inmate collect calls. Direct
billing arrangements with LECs are advantageous because they eliminate
the costs associated with third party billing arrangements. Management
believes that direct billing arrangements expedite the billing and
collections process and increase collectibility. The Company direct
billed approximately 80% of its operating revenues in June 1998.

3
<PAGE>

the Company has transmitted its traffic by purchasing minutes of use from
other carriers. However, the Company has begun to enter into month-to-
month leases for networks connecting major cities where the Company has a
high level of market penetration. The Company recently entered into an
agreement with BTI Telecommunications, Inc. ("BTI") to deploy a leased
network in the state of North Carolina. This agreement is expected to
result in a 38% reduction in the Company's telecommunications costs in
the state of North Carolina. The Company is also pursuing additional
alternative network solutions that management believes will enable the
Company to further reduce its operating expenses as a percentage of
revenue. See "Business--Business Strategy--Implement Cost Reduction
Initiatives."

. Regional Concentration. The Company has a high level of market
penetration in many states, providing inmate telecommunications services
to over 75% of the county correctional facilities in seven states, and to
over 50% of the county correctional facilities in an additional 12
states. This high market penetration has contributed to operating
efficiencies in field service, marketing, sales, and telecommunications
expense. The Company also believes that it is able to compete more
effectively for new contracts in states where it is the dominant service
provider.

. Call Processing. The Company has developed call processor technology that
provides call activity reporting and controls inmate access to specific
telephone numbers through call blocking, both of which are valuable
services to correctional facilities. The Company manufactures its call
processors using readily available components and internally developed
application software tailored to the inmate telecommunications industry.
Therefore, the Company does not need to rely on third party call
processor manufacturers.

. Value Added Services. The Company offers a number of value added services
that are tailored to meet the specialized needs of the corrections
industry and the requirements of individual correctional facilities, such
as a specialized law enforcement management system ("LEMS"), which
includes jail management, victim notification, and prisoner profile
software packages. Management believes that the Company's specialized
products and services afford the Company a competitive advantage because
it is less likely that a correctional facility will be able to
economically replace all of the services provided by the Company from
alternative sources.

BUSINESS STRATEGY

The Company's primary business objectives are to be a cost-efficient, high-
quality provider of telecommunications services to correctional facilities in
the U.S. and to leverage its billing and collections system, customer base,
and telecommunications network to grow its business. The Company has developed
and is implementing the following strategies to meet these objectives:

. Capitalize on Existing Opportunities to Expand Market Share. The Company
intends to aggressively pursue revenue growth in its core inmate
telecommunications business by winning contracts for which the Company is
not the incumbent and by pursuing the renewal of existing contracts. From
January 1997 through June 1998, in cases where the Company was not the
incumbent, the Company was successful in over 72% of its bids for county
and local contracts and 67% of its bids for state contracts. In August
1998, the Company, in a partnership arrangement with Public
Communications Services, Inc. ("PCS"), was awarded the federal contract
for 11 Immigration and Naturalization Service ("INS") facilities,
representing approximately 5,840 beds. Since its inception, the Company,
based on revenue, has been successful in obtaining renewals of 95% of its
contracts.

4
<PAGE>

third parties. The Company recently entered into a contract with a major
RBOC, under which the Company began performing validation, billing, and
collection services for the RBOC's inmate calls in May 1998. Under the
terms of the contract, the Company expects to receive call traffic from
428 local and county facilities.

. Focus on Needs of Growing Private Prison Industry. Management believes
that the dramatic growth of the private corrections industry provides the
Company with significant opportunities for further expansion. According
to the 1996 Private Adult Correctional Facility Census conducted by the
University of Florida, the rated capacity of privately managed adult
correctional facilities in the U.S. increased from 63,595 beds to 85,201
beds from December 31, 1995 to December 31, 1996. Management estimates
that the private prison industry's capacity will increase by an
additional 200,000 beds by 2002. As the largest provider of inmate
telecommunication services to the private corrections industry, serving
50 private facilities as of June 30, 1998, the Company believes that it
is positioned to continue to benefit from the growth in the private
corrections industry.

. Pursue Selective Acquisitions. The Company anticipates continued
expansion through an aggressive acquisition strategy. The Company expects
to continue to acquire inmate collect business from independents and to
pursue opportunities to acquire inmate collect operations from major
RBOCs and IXCs. The Company believes that acquisitions will improve its
operating results through the integration of acquired entities and
implementation of its billing and collections process into such acquired
entities. The Company also intends to pursue acquisitions that offer the
opportunity to add to the Company's portfolio of value added services
targeted at the corrections industry.

. Improve Credit and Collection Through Specialized Technology. The Company
believes that its call management and billing system reduces the risk of
uncollectible accounts. The Company is currently enhancing this system to
better identify called parties that pose an uncollectible account risk,
thereby further reducing the number of such accounts. The Company expects
that this enhancement will be implemented in 1999.

. Implement Cost Reduction Initiatives. The Company has capitalized upon
its geographic concentration and high call volume by pursuing
opportunities to obtain lower per minute calling rates in regions in
which the Company has high market penetration. The Company recently
entered into an agreement with BTI to deploy a private network in North
Carolina. This agreement is expected to result in a 38% reduction in the
Company's telecommunications costs in the state of North Carolina. The
Company intends to further reduce costs by installing a carrier-grade
switch in Dallas, Texas, which will give the Company greater flexibility
to pursue cost efficient network strategies by allowing it to aggregate
traffic and utilize least cost routing. The Company is also pursuing
additional alternative network solutions that management believes will
enable the Company to further reduce its operating expenses as a
percentage of revenue. See "Business--Business Strategy--Implement Cost
Reduction Initiatives."

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The Company was formed in November 1996 by EUF Talton, L.P. ("EUF Talton"),
an affiliate of Engles Urso Follmer Capital Corporation ("EUFCC"), a private
investment banking and consulting firm, the principals of which are
experienced in acquiring and integrating the operations of companies in
consolidating industries.

The Company's executive offices are located at 8201 Tristar Drive, Irving,
Texas 75063 and its telephone number is (972) 988-3737.

5
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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the
Company.......................... shares
Common Stock offered:
U.S. Offering................... shares
International Offering.......... shares
---------
Total......................... shares
=========
Common Stock to be outstanding
after the Offering............... shares(1)
Use of Proceeds................... The net proceeds to be received by the
Company from the Offering will be used (i)
to repay $10.0 million outstanding under
the Senior Credit Facility (the revolving
loan facility portion of which may
subsequently be reborrowed); (ii) for the
acquisition of telecommunications equipment
to service new contracts; (iii) for the
implementation of alternative network
solutions; (iv) for funding of potential
acquisitions; and (v) for general corporate
purposes, including working capital.
Proposed New York Stock Exchange
Symbol...........................
</TABLE>
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(1) Based upon shares of Common Stock outstanding immediately prior to the
Offering and assumes the U.S. Underwriters' overallotment option is not
exercised. Excludes (i) shares of Common Stock subject to options
outstanding as of June 30, 1998 that are exercisable at prices ranging from
$ to $ per share and (ii) shares of Common Stock issuable pursuant
to warrants that are exercisable at a price of $ per share. See
"Management--Compensation, Benefits, and Retirement Plans" and "Description
of Capital Stock."

RISK FACTORS

See "Risk Factors" immediately following the Prospectus Summary for a
discussion of risk factors that should be considered in evaluating an
investment in the Common Stock.

6
<PAGE>

SUMMARY HISTORICAL FINANCIAL DATA

Effective December 1, 1996, the Company became the holding company for the
operations of AmeriTel Pay Phones, Inc. ("AmeriTel") and Talton
Telecommunications Corporation and subsidiary ("Talton Telecommunications").
The Company accounted for these acquisitions using the purchase method of
accounting. Accordingly, the Company's consolidated financial statements
include the operations of AmeriTel and Talton Telecommunications only for
periods after December 1, 1996.

The following consolidated financial data for the Company for the year ended
December 31, 1997 and for the one month ended December 31, 1996 and combined
financial data of AmeriTel and Talton Telecommunications for the year ended
December 31, 1995 and for the eleven months ended November 30, 1996, have been
derived from the audited consolidated financial statements of the Company and
AmeriTel and Talton Telecommunications. The consolidated financial data of the
Company for the six months ended June 30, 1997 and 1998, respectively, are
unaudited and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) that are necessary to present
fairly the combined or consolidated financial statements for such periods. All
summary historical financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements (including pro forma financial data)
and the notes thereto included elsewhere in this Prospectus.

7
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMBINED PREDECESSORS THE COMPANY
-------------------------- -----------------------------------------------
YEAR ELEVEN MONTHS ONE MONTH YEAR SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997(1) 1997 1998
------------ ------------- ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues...... $40,326 $53,663 $5,506 $ 91,773 $30,082 $103,605
Operating expenses:
Telecommunication
costs................. 18,673 23,317 2,299 37,871 12,405 43,793
Facility commissions... 9,595 13,962 1,455 25,724 8,161 33,345
Field operations and
maintenance........... 1,467 1,816 219 4,543 1,166 3,747
Selling, general, and
administrative........ 4,089 3,921 372 8,540 2,327 8,316
Depreciation........... 1,359 1,538 111 2,219 617 2,690
Amortization of
intangibles(2)........ 1,605 1,746 741 14,243 4,738 12,917
Nonrecurring
expenses(3)........... 684 400
------- ------- ------ -------- ------- --------
Total operating
expenses.............. 36,788 46,984 5,197 93,540 29,414 104,808
------- ------- ------ -------- ------- --------
Operating income
(loss)................. 3,538 6,679 309 (1,767) 668 (1,203)
Other (income) expenses:
Interest expense, net.. 1,360 1,469 612 11,138 3,932 9,764
Other, net............. (52) 27 (20) (76) (19) (159)
------- ------- ------ -------- ------- --------
Total other (income)
expense............... 1,308 1,496 592 11,062 3,913 9,605
Income (loss) before
income taxes and
extraordinary loss..... 2,230 5,183 (283) (12,829) (3,245) (10,808)
Income tax expense
(benefit).............. 891 1,917 (23) (642) (850) 482
------- ------- ------ -------- ------- --------
Income (loss) before
extraordinary loss..... 1,339 3,266 (260) (12,187) (2,395) (11,290)
Extraordinary loss(4)... 52 4,740 4,396
------- ------- ------ -------- ------- --------
Net income (loss)....... 1,339 3,214 (260) (16,927) (6,791) (11,290)
Preferred stock
dividends.............. 80 118 474 237 237
------- ------- ------ -------- ------- --------
Net income (loss)
applicable to common
stock.................. $ 1,259 $ 3,096 $ (260) $(17,401) $(7,028) $(11,527)
======= ======= ====== ======== ======= ========
Net loss per common
share:
Loss from continuing
operations............ $ $ $ $
Extraordinary loss.....
------ -------- ------- --------
Net loss............... $ $ $ $
====== ======== ======= ========
Weighted average common
shares(5)..............
====== ======== ======= ========
Pro forma net loss per
common share(6)........ $ $
======== ========
OTHER DATA:
EBITDA(7)............... $ 6,554 $ 9,936 $1,181 $ 14,771 $ 6,042 $ 14,563
Capital
expenditures(8)........ 4,669 2,804 269 8,063 1,297 6,853
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1998
HISTORICAL AS ADJUSTED(9)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 4,519 $
Total assets.......................................... 198,752
Total debt (including current maturities)............. 176,706
Total stockholders' equity (deficit).................. (21,547)
</TABLE>

(Accompanying notes on following page)

8
<PAGE>

(1) The Company's 1997 results include the operating results of (i) Tri-T,
Inc. ("Tataka") effective April 4, 1997; (ii) Security Telecom Corporation
("STC") effective June 27, 1997; (iii) Correctional Communications
Corporation ("CCC") effective July 31, 1997; (iv) the net assets of the
inmate payphone division of Communications Central, Inc. ("Invision")
effective October 6, 1997; (v) the net assets of the inmate payphone
division of North American InTeleCom, Inc. ("NAI") effective December 1,
1997; and (vi) the net assets of the inmate payphone division of Peoples
Telephone Corporation ("PTC") effective December 19, 1997.

(2) Amortization of intangible assets is provided on a straight-line basis over
the estimated useful lives of the related assets. Amortization of acquired
facility contract costs was $11.3 million and $10.7 million for the year
ended December 31, 1997 and the six months ended June 30, 1998,
respectively. Acquired facility contracts consist primarily of purchase
price allocated to contracts acquired pursuant to acquisitions. Acquired
facility contracts are amortized over the applicable remaining contract
term. The average remaining term of the Company's contracts, as of June 30,
1998, was 23 months. The Company had capitalized $61.6 million of acquired
facility contracts as of June 30, 1998. As of June 30, 1998, the Company
had capitalized $83.2 million of goodwill. Goodwill represents the excess
of the purchase price paid by the Company for acquired businesses over the
fair value of the identified assets acquired. Goodwill is amortized over 20
years. Amortization of goodwill was $2.6 million and $2.0 million for the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively.

(3) During 1996, AmeriTel incurred costs of $250,000 related to the settlement
of a lawsuit related to a prior acquisition, along with special bonuses of
$434,000 paid to key management at the date of the acquisition of AmeriTel.
The special bonuses were payable to key management upon the closing of the
acquisition of AmeriTel pursuant to a transaction bonus agreement with such
employees. During 1997, the Company incurred $400,000 of external costs
associated with a bid for the Federal Bureau of Prisons contract. The
Company was unsuccessful in obtaining the contract and the contract award
has been appealed. The Company has expensed all costs associated with the
bid.

(4) In 1996, one of the Company's predecessors incurred an extraordinary loss
of approximately $52,000 in conjunction with the extinguishment of debt.
The Company incurred an extraordinary loss of $4.7 million in 1997 due to
the write-off of unamortized deferred loan costs and the unamortized
discount associated with the extinguishment of debt.

(5) Pursuant to Staff Accounting Bulletin No. 98, for the periods prior to the
Offering, basic net loss per share is computed using the weighted average
number of shares of Common Stock outstanding during the period. Diluted
net loss per share is computed using the weighted average number of shares
of Common Stock outstanding during the period and nominal issuances of
Common Stock and Common Stock equivalents, regardless of whether they are
anti-dilutive. For the period presented for the Company, the effect of the
Common Stock equivalents is not included in the computation of diluted net
loss per share because their effect is anti-dilutive.

(6) Reflects the issuance of shares of Common Stock in the Offering and the
conversion of Class B Common Stock and Senior Preferred Stock into an
aggregate of shares of Common Stock.

(7) For purposes of this Prospectus, EBITDA means income before interest,
income taxes, depreciation, and amortization. EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles and therefore is not necessarily comparable to similarly titled
measures of other companies. The Company has included information
concerning EBITDA in this Prospectus because it is commonly used by certain
investors and analysts as a measure of a company's ability to service its
debt obligations. EBITDA should not be used as an alternative to, or be
considered more meaningful than, operating income, net income, or cash flow
as an indicator of the Company's operating performance.

(8) Capital expenditures includes only amounts expended for purchases of
property and equipment and the installation of equipment pursuant to new
facility contracts and does not include purchase prices and other costs
associated with the Company's acquisitions.

(9) Reflects (i) the conversion of all Class B Common Stock and Senior
Preferred Stock into Common Stock in connection with the Offering, at
shares and shares of Common Stock per share of Class B Common Stock
and Senior Preferred Stock, respectively; (ii) the issuance of Common
Stock in the Offering; (iii) deduction of the estimated underwriting
discount and offering expenses payable by the Company; and (iv) the
application of the net proceeds therefrom. See "Use of Proceeds."

9
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following risk factors
in addition to the other information contained in this Prospectus.

COMPETITORS WITH GREATER RESOURCES

The inmate telecommunications industry is highly competitive. The Company
competes with numerous providers of inmate telephone services such as RBOCs,
LECs, IXCs, including major long distance carriers such as AT&T, MCI, and
Sprint, and independent public pay telephone and inmate telephone companies.
Many of the Company's competitors are larger and better capitalized and have
greater financial resources available than the Company. The Company believes
that the principal competitive factors in the inmate telecommunications market
are (i) rates of commissions paid to the correctional facilities; (ii) system
features and functionality; (iii) system reliability and service; (iv) the
ability to customize inmate call processing systems to the specifications and
needs of the particular correctional facility; and (v) relationships with
correctional facilities. To the extent that the Company is required to pay
higher commissions to retain its existing contracts or obtain new contracts,
there could be a material adverse effect on the Company and on the market
value of the Common Stock.

Historically, federal and state facilities, which are generally bid on a
system-wide basis, have been served by RBOCs, large LECs, and IXCs, which are
able to leverage their existing systems and infrastructure to serve these
large, high volume customers without the need for additional significant
capital expenditures. These providers have generally not, however, focused on
the smaller city and county correctional systems, which are typically
negotiated on a facility-by-facility basis. As a result, a significant portion
of city and county correctional facilities, which constitute a substantial
majority of the Company's customers, are served by independent inmate
telephone and independent public pay telephone companies. A decision by RBOCs,
large LECs, or IXCs to pursue actively contracts with city and county
correctional facilities could have a material adverse effect on the Company
and on the market value of the Common Stock. See "Business--Business Strategy"
and "Business--Competition."

The Company's ability to offer competitive commission rates depends on
effectively controlling costs, which in turn necessitates capital expenditures
for software and systems. If IXCs, RBOCs, and large LECs, which have
significantly greater financial resources than the Company and are able to
connect calls on their owned networks for a negligible marginal cost, were to
focus on the inmate telecommunications market, the Company could face
substantial competition and subsequent increases in commission rates or
reduction in market share, which could have a material adverse effect on the
Company and on the market value of the Common Stock.

RISKS ASSOCIATED WITH UNCOLLECTIBLE ACCOUNTS

The Company is required to carry a reserve on its books for future charge-
backs from LECs and third party clearinghouses for uncollectible amounts when
such amounts exceed the reserves initially withheld by the LECs and
clearinghouses. The Company sets the reserves on its books using historical
data on charge-backs for each LEC or other billing service providers. The
setting of these reserves requires substantial use of estimation. Actual
expenses associated with uncollectible accounts could differ from the
Company's estimates. Factors that could cause actual expenses associated with
uncollectible accounts to vary from the Company's estimates include
difficulties in estimating reserves for acquired contracts and variations in
expenses associated with uncollectible accounts among LECs. These variations
could potentially lead to an increase in the Company's expenses associated
with uncollectible accounts, which could have a material adverse effect on the
Company and on the market value of the Common Stock.

DIFFICULTY OF EXECUTING ACQUISITION STRATEGY; RISKS ASSOCIATED WITH
ANTICIPATED GROWTH

The Company has experienced rapid growth, and intends to continue to grow
through further expansion of its existing operations and through acquisitions.
The Company constantly evaluates acquisition opportunities and

10
<PAGE>

is currently evaluating possible acquisition candidates. The Company evaluates
specific acquisition opportunities based on market conditions and economic
factors existing at the time and intends to pursue favorable opportunities as
they arise. The Company may encounter increased competition for acquisitions
in the future, which could result in higher prices for acquisition candidates.
There can be no assurance that the Company will find suitable acquisition
candidates at acceptable prices, have sufficient available capital resources
to realize its acquisition strategy, be successful in entering into definitive
agreements for desired acquisitions, or that any such acquisitions, if
consummated, will prove to be advantageous to the Company. See "--Substantial
Leverage; Restrictive Covenants"; "Management's Discussion and Analysis of
Financial Condition and Results of Operations"; and "Business--Business
Strategy."

The success of the Company's growth strategy is also dependent on the
ability of the Company to integrate acquired operations into existing
operations. In addition, the Company's success is dependent on the ability of
the Company to expand internal operations. The Company's ability to manage its
anticipated future growth will depend on a number of factors, including its
ability to evaluate new contract opportunities, monitor operations, control
costs, maintain effective quality control, obtain satisfactory and cost-
effective lease rights from and interconnection agreements with companies that
own transmission lines, and expand the Company's internal management,
technical, and accounting systems. The Company's rapid growth has placed, and
its planned future growth will continue to place, a significant strain on the
Company's financial, management, and operational resources. There can be no
assurance that the integration of acquired operations and continued expansion
of internal operations will not require the investment of capital or result in
unforeseen difficulties or absorb significant management resources at levels
higher than that anticipated by management, or that the Company will realize
meaningful economies of scale or operating efficiencies from its acquisitions.
In addition, acquisitions and the establishment of new operations will entail
considerable expenses in advance of anticipated revenues and may cause
substantial fluctuations in the Company's operating results.

The Company's acquired businesses will need to be integrated with its
existing operations. This will entail, among other things, integration of
switching, transmission, technical, sales, marketing, billing, accounting,
quality control, management, payroll, personnel, regulatory compliance, and
other systems and operating hardware and software, some or all of which may be
incompatible. The failure of the Company to successfully integrate acquired
operations could have a material adverse effect on the Company and the market
value of the Common Stock. See "Business--Business Strategy." In addition, the
Company has no prior experience in acquiring operations from RBOCs or LECs,
and there can be no assurance that the Company will be successful in
consummating such acquisitions or in integrating such operations. The
Company's acquisition strategy results in the amortization of acquired
contracts over a relatively short period of time, generally one to three
years. The Company had capitalized $61.6 million of acquired facility
contracts as of June 30, 1998. As of June 30, 1998, the Company had
capitalized $83.2 million of goodwill. This could lead to operating losses
that could have a material adverse effect on the Company and on the market
value of the Common Stock.

SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS

The Company has significant debt and debt service obligations. The Company's
senior credit facility (the "Senior Credit Facility") with Canadian Imperial
Bank of Commerce ("CIBC") as an agent for a syndicate of lenders
(collectively, the "Lenders") provides for (a) a term loan acquisition
facility of $55.0 million and (b) a revolving loan facility of $25.0 million
(which includes a $5.0 million letter of credit facility). In addition, on
June 27, 1997, the Company consummated the offering (the "Notes Placement") of
$115,000,000 principal amount of 11% Senior Notes due 2007 (the "Senior
Notes"). At June 30, 1998, the Company had approximately $176.7 million of
long-term debt outstanding (including current maturities). After giving effect
to the Offering and the application of the net proceeds therefrom, the Company
would have had, as of June 30, 1998, $169.7 million of long-term debt
(including current maturities).

The significant leverage of the Company will have several important
consequences to holders of the Common Stock, including, but not limited to,
the following: (i) the Company will be required to dedicate a substantial
portion of its cash flow from operations to the payment of interest and
principal repayment obligations in connection with the Senior Notes, the
Senior Credit Facility, and other permitted indebtedness thereby

11
<PAGE>

reducing the funds available for its operations, capital expenditures, and
other purposes; (ii) the Company's leveraged position and the covenants
contained in the Senior Credit Facility and the Indenture with respect to the
Senior Notes will limit the Company's ability to obtain additional financing,
pay dividends, repurchase stock, make investments, grant liens, and take other
actions that may be in the best interests of stockholders; and (iii) the
Company's substantial leverage may make it more vulnerable to economic
fluctuations, limit its ability to withstand competitive pressures, and reduce
its flexibility in responding to changing business and economic conditions. In
addition, the Company's indebtedness under the Senior Credit Facility bears
interest at floating rates, which could adversely affect the Company's ability
to service its debt if interest rates rise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

There can be no assurance that the Company will be able to meet its debt
service obligations. If the Company is unable to generate sufficient cash flow
or otherwise obtain funds necessary to make required payments, or if the
Company otherwise fails to comply with the various covenants contained in its
debt obligations, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity thereof and
could cause defaults under other indebtedness of the Company. The Company's
ability to repay or refinance its obligations with respect to its indebtedness
will depend on its future financial and operating results, which in turn, will
be subject to prevailing economic and competitive conditions and to certain
financial, business, and other factors, many of which are beyond the Company's
control.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES

The Company was founded in December 1996. Accordingly, the Company has a
limited operating history upon which an evaluation of the Company and its
prospects can be based. Because the Company anticipates that it will incur
operating losses for the foreseeable future, the Company believes that its
future success will depend on its ability to significantly increase revenues,
which cannot be assured. Additionally, the limited operating history of the
Company makes the accurate prediction of future operating results difficult or
impossible, and there can be no assurance that the Company's revenues will
increase or even continue at their current level or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. Since its inception, the Company has incurred losses and, as of June
30, 1998, had an accumulated deficit of $43.3 million. The Company expects to
continue to incur significant losses on a quarterly and annual basis for the
foreseeable future, which could have a material adverse effect on the Company
and on the market value of the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS

The Company does not own telecommunications transmission lines. Accordingly,
telephone calls made from correctional facilities are connected through
transmission lines that the Company leases under a variety of arrangements
with transmission facilities-based long distance carriers, some of which are
or may become competitors of the Company. The Company's calls are transmitted
via facilities leased on a per minute or monthly basis. Accordingly, the
Company is vulnerable to increases in its cost basis. If there is an increase
in demand for telecommunications services (for example, data services) beyond
the increase in supply of transmission facilities, the Company's costs could
increase, which could have a material adverse effect on the Company and on the
market value of the Common Stock.

CHANGES IN REGULATION COULD ADVERSELY AFFECT THE COMPANY

The inmate telecommunications industry is regulated by both the Federal
Communications Commission (the "FCC") and state public utility commissions.
The Company's operations are also significantly affected by the regulation of
other telecommunications businesses, including LECs and IXCs. Changes in the
laws and regulations governing the Company's business or other
telecommunications businesses could have a material adverse effect on the
Company and on the market value of the Common Stock.

At the federal level, the industry is currently in a period of substantial
regulatory change in the aftermath of the Telecommunications Act of 1996 (the
"Telecom Act"), which, among other things, directed the FCC to

12
<PAGE>

restructure and to change the regulatory framework of the pay telephone
industry, including the inmate telephone industry. Because the FCC is still in
the process of implementing its new regulations, and because several aspects of
rule changes proposed by the FCC are subject to requests for reconsideration,
clarification, and final resolution in related proceedings, the ultimate effect
of regulatory changes on the Company's business is uncertain. In particular,
whether the FCC's rules designed to eliminate subsidization and discrimination
by the LECs prove to be effective will significantly affect the level of
competition faced by the Company in the inmate telecommunications market in the
future. Historically, LECs that have operated in the inmate telephone industry
have been able to subsidize their inmate operations with revenue from regulated
telephone service in other sectors. The Telecom Act requires that this
subsidization be brought to an end. It is not clear how the FCC will effect
this statutory mandate. Similarly, because the rules issued under the Telecom
Act have only recently been adopted, it is too early to assess the LECs'
competitive responses to them. See "Business--Regulation--Federal Regulation."

In addition to adopting regulations implementing the Telecom Act, the FCC
also recently adopted new regulations for interstate calls requiring inmate
telephone service providers to announce to called parties, before the called
party incurs any charges, that rate quotes may be obtained by dialing no more
than two digits or remaining on the line. The Company must come into compliance
with these new rules by October 1, 1999. These new regulations could result in
an increase in the Company's costs by slightly increasing the non-billable
network hold time for interstate collect calls. And, since the Company may
comply with the new Federal requirement by implementing rate disclosure on all
calls, including intrastate calls, the new regulations may lead to increases in
the costs for all inmate collect calls carried by the Company. In addition, the
announcement of rate quotes may lead to called parties refusing to accept
calls. The exact effect of the new regulations is difficult to predict as it
will depend in large part on how frequently called parties opt to receive a
rate quote.

The Company charges relatively high rates for completing inmate collect,
debit, and prepaid calls. Many states have set maximum rates that can be
charged for inmate collect calls. If regulators reduce the rates that may be
charged, there could be a material adverse effect on the Company and on the
market value of the Common Stock. See "Business--Regulation." From time to
time, inmate telecommunications providers are parties to proceedings initiated
by consumer protection advocates or individual called parties alleging that
excessive rates are being charged with respect to inmate collect calls. One
such proceeding is currently pending in the United States District Court in the
State of Kentucky. Although the Company has not been named in the proceeding,
the plaintiffs in such proceeding are seeking class action certification as to
all inmate telecommunications providers as defendants and all recipients of
calls from inmate facilities as plaintiffs. The proceeding is in its
preliminary stages. See "Business--Legal Proceedings."

RISKS ASSOCIATED WITH MARKET GROWTH STAGNATING OR DECLINING

The Company's future growth could be affected by negative trends in the
growth of the number of correctional facilities or the number of prisoners. If
the societal and political trends that have led to this growth rate abate, the
growth of the corrections industry could stagnate or decline, and this would
have a material adverse effect on the Company and on the market value of the
Common Stock. In particular, if the drug laws or mandatory sentencing laws that
have been enacted in the last decade are repealed or reduced in scope, there
could be an adverse effect on the growth of the inmate population, which could
effect the Company's future success and the market value of the Common Stock.
In addition, state prison authorities in the State of Texas have adopted
policies severely restricting the making of telephone calls by inmates in state
correctional facilities. The adoption of similar policies by other states could
severely reduce the size of the inmate telecommunications market and have a
material adverse effect on the Company and on the market value of the Common
Stock.

RISK OF NEW BUSINESS AREAS

The Company is pursuing opportunities to market its specialized billing, bad-
debt and fraud management, and call validation services to RBOCs, LECs, and
other inmate telecommunication providers. The Company

13
<PAGE>

recently entered into a contract with a major RBOC, under which the Company
performs validation, billing, and collections services for the RBOC's inmate
calls. The Company has assumed the risk of managing all billing and
collections costs related to this contract, with no recourse to the RBOC. The
Company has limited experience in obtaining contracts to provide, and in
providing, such services to third parties, and there can therefore be no
assurance that the Company will be successful in either of these endeavors.
The Company's failure to secure opportunities to provide these services to
third parties, to successfully provide these services, or to generate revenues
from these services could have a material adverse effect on the Company's
future success and on the market value of the Common Stock.

LEASED LINE AND OTHER NETWORK COST REDUCTION STRATEGIES

The Company is currently pursuing a strategy of utilizing leased lines for
traffic in certain states to reduce its purchases of minutes of use. The
Company believes that this strategy will allow it to decrease operating
expenses as a percentage of revenue. See "Business--Business Strategy." There
can, however, be no assurance that this strategy will be implemented
successfully or that, if the strategy is implemented successfully, that such
decrease in operating expenses as a percentage of revenue will occur. In
particular, the economic benefit to the Company of the leased line strategy is
substantially dependent upon the existence of a sufficient level of traffic
over the leased lines, and there can be no assurance that sufficient traffic
levels will be experienced by the Company. In addition, the Company is
pursuing additional alternative network solutions, including lower per minute
rates from second and third tier IXCs, carrying voice traffic over frame relay
facilities, and provisioning local lines through competitive local exchange
carriers rather than LECs. The failure of the Company to successfully
implement these strategies, to decrease operating expenses as a percentage of
revenue through the implementation of these strategies, or to experience the
traffic levels necessary to obtain the economic benefits of the leased line
strategy could have a material adverse effect on the Company and on the market
value of the Common Stock.

RISKS RELATED TO POTENTIAL YEAR 2000 PROBLEMS

Some computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result, some of
these systems will not operate correctly after 1999 because they may interpret
"00" to mean 1900, rather than 2000. These problems are widely expected to
increase in frequency and severity as the year 2000 approaches, and are
commonly referred to as the "Year 2000 Problem."

The Company believes that it has identified all significant computers,
software applications, and related other equipment used in connection with its
internal operations that will require modification to reduce the possibility
of a material disruption of its business from the Year 2000 Problem. Internal
resources are being used to make the required modifications and test Year 2000
compliance. The Company plans on completing the testing process of all
significant applications by February 1999. The Company does not expect to
incur material expenses related to its Year 2000 compliance efforts. The
Company has also commenced the process of modifying, upgrading, and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business. However, there can be no assurance in this regard, and if the
Company fails to properly recognize and address the Year 2000 Problem in the
Company's systems, its business, financial condition, results of operations,
and the market value of the Common Stock could be materially and adversely
affected.

The Year 2000 Problem also affects some of the Company's customers and major
suppliers of computers, software, and other equipment. The Company has
discussed the Year 2000 Problem with some of these customers and suppliers.
However, the Company has limited or no control over the actions of these
customers and suppliers. Accordingly, the Company cannot guarantee that these
customers and suppliers will resolve any or all Year 2000 Problems. If the
Company's customers and suppliers fail to resolve Year 2000 Problems, the
Company's business could be materially disrupted and there could be a material
adverse effect on the market value of the Common Stock. The Company has not
yet formulated a Year 2000 contingency plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Information Systems
and Year 2000 Compliance."

14
<PAGE>

DIFFICULTY OF EXECUTING STRATEGY IF KEY PERSONNEL CANNOT BE RECRUITED AND
RETAINED

The Company's success is dependent on the efforts of certain of its
officers, senior management, technical, and other personnel, and on its
ability to continue to attract, retain, and motivate qualified personnel,
particularly financial and accounting personnel. The competition for such
employees is intense, and the Company believes that it would be difficult to
replace the expertise and experience of such persons in the event that the
services of one or more such persons were to become unavailable. Accordingly,
the loss of the services of one or more of these individuals without adequate
replacement could have a material adverse effect on the Company and its
ability to implement its business strategy and to achieve its goals, and could
have a material adverse effect on the market value of the Common Stock. In
addition, the failure of the Company to attract and retain additional
management to support its business strategy could also have a material adverse
effect on the Company. See "Management."

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have ^ shares of
Common Stock outstanding ( ^ shares of Common Stock if the U.S. Underwriters'
over-allotment option is exercised in full), excluding (i) ^ shares of
Common Stock subject to options outstanding as of June 30, 1998 that are
exercisable at prices ranging from $ to $ per share and (ii) shares of
Common Stock issuable pursuant to warrants that are exercisable at a price of
$ per share. See "Certain Transactions--Historical Relationships and Related
Transactions--Warrants" and "Description of Capital Stock." All of the shares
of Common Stock sold in the Offering will be freely tradable without
restrictions, or further registration, under the Securities Act of 1933, as
amended (the "Securities Act"), except shares purchased by an "affiliate" of
the Company (as that term is defined in Rule 144 (an "Affiliate")), which may
be resold under the resale limitations of Rule 144. Each of the Company and
the directors, executive officers, and certain other of the stockholders of
the Company has, however, entered into a lock up agreement ("Lock Up
Agreement") restricting, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, during the period ending 180
days after the date of this Prospectus, its ability to sell any shares of
Common Stock. See "Shares Eligible for Future Sale." Shares that have not been
registered under the Securities Act may be sold only pursuant to an effective
registration statement under the Securities Act or in accordance with Rule 144
or another exemption from registration ("Restricted Shares"). Restricted
Shares constitute "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act and will be eligible for sale in the open
market after the Offering subject to the Lock-Up Agreement and applicable
requirements of Rule 144.

The Company is also obligated to file and maintain a shelf registration
statement on Form S-3 pursuant to Rule 415 of the Securities Act for all
shares of Common Stock other than those offered hereby as expeditiously as
possible after it is eligible to do so. The Company will be Form S-3 eligible
when (i) it has been subject to the requirements of Section 12 of the
Securities Exchange Act of 1934, as amended, and has filed all the material
required to be filed pursuant to Sections 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, for a period of at least 12 calendar months
immediately preceding the filing of the Form S-3; (ii) it has filed in a
timely manner all reports required to be filed during the twelve calendar
months and any portion of a month immediately preceding the filing of the Form
S-3; (iii) it has not defaulted on any installment or installments of
indebtedness for borrowed money; and (iv) it has a public float in excess of
$75 million at any time in the sixty days preceding the filing of the Form S-
3. The Company expects to be eligible to file by Form S-3 by approximately
January 1999. No prediction can be made as to the effect, if any, that future
sales or distributions of Common Stock for future sale or distribution, will
have on the market price of the Common Stock prevailing from time to time.
Sales or distributions of substantial amounts of Common Stock, or the
perception that such sales or distributions could occur, could adversely
affect the market value of the Common Stock.

POTENTIAL ANTI-TAKEOVER CONSIDERATIONS

Prior to the Offering, the Company's stockholders will adopt certain
amendments to the Certificate of Incorporation and the Bylaws of the Company
(the "Bylaws") that will impose procedural and other

15
<PAGE>

requirements that could make it more difficult to effect certain corporate
actions, including replacing incumbent directors. In addition, the Board of
Directors of the Company will be divided into three classes, each of which is
to serve for a staggered three-year term after the initial classification and
election, and, incumbent directors may not be removed without cause, all of
which may make it more difficult for a third party to gain control of the
Board of Directors. With certain exceptions, Section 203 of the Delaware
General Corporation Law (the "DGCL") imposes certain restrictions on mergers
and other business combinations between the Company and any holder of 15% or
more of the voting stock of the Company.

Although the Board of Directors has no current intention of doing so, under
the Company's Certificate of Incorporation, the Board of Directors will have
the authority, without action by the Company's stockholders, to fix certain
terms and issue shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). This Preferred Stock could have powers, rights, or
preferences superior to that of the Common Stock or that could impede the
completion of a merger, tender offer, or other takeover attempt. Such issuance
of Preferred Stock could be effected without a vote of the holders of the
Common Stock even though some or a majority of the Company's stockholders
might believe that such merger, tender offer, or takeover is in their best
interests and even if such transactions could result in stockholders receiving
a premium for their stock over the then current market price of such stock.
Actions of the Board of Directors pursuant to this authority may have the
effect of delaying, deterring, or preventing a change in control of the
Company. See "Description of Capital Stock--Preferred Stock."

In addition, the Company intends to adopt a stockholders' rights plan (the
"Rights Plan"). The Rights (as defined) to be issued under the Rights Plan
have certain anti-takeover effects. The Rights will cause substantial dilution
to a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors, except pursuant to an offer conditioned on
a substantial number of Rights being acquired. The Rights should not interfere
with any other merger or other business combination approved by the Board of
Directors since (subject to the limitations described above) the Rights may be
redeemed by the Company at the Redemption Price prior to the time that the
Rights would otherwise become exercisable, or if later, the time that a person
or group has become an Acquiring Person (as defined). See "Description of
Capital Stock--Rights Plan."

LACK OF PATENTS AND POSSIBLE INFRINGEMENT

None of the Company's internally developed call processing technology has
been patented. Accordingly, such technology and intellectual property rights
could infringe on other parties' intellectual property rights and could be
contested or challenged. The Company has received notice from two parties that
certain features of the Company's call processing technology may infringe upon
such parties' patents. Should the Company's call processor or any material
feature thereof be determined to violate applicable patents, the Company would
be required to cease using these features or to obtain appropriate licenses
for the use of such technology, either of which could have a material adverse
effect upon the Company and on the market value of the Common Stock.

GOVERNMENTAL ENTITIES AS CUSTOMERS

The Company's customers include state and local governmental entities
responsible for the administration and operation of correctional facilities.
The Company is subject, therefore, to the administrative policies and
procedures employed by, and the regulations that govern the activities of,
these governmental entities, including policies, procedures, and regulations
concerning the procurement and retention of contract rights and the provision
of services. There can be no assurance that the Company's operations will not
be adversely affected by the policies and procedures employed by, or the
regulations that govern the activities of, these governmental entities or that
the Company will not be limited in its ability to secure additional customer
contracts, renew existing customer contracts, or consummate acquisitions as a
result of such policies, procedures, and regulations.

TECHNOLOGICAL CHANGE AND NEW SERVICES

The telecommunications industry has been characterized by rapid
technological advancements, frequent new service introductions, and evolving
industry standards. Management believes that the Company's future success

16
<PAGE>

will depend on its ability to anticipate and respond to such changes and new
technology. There can be no assurance that the Company will not be materially
adversely affected by the introduction and acceptance of new technology. Some
of the Company's technology, such as its call processor technology, has not
yet been implemented in all of the facilities which the Company services.

ABSENCE OF DIVIDENDS

The Company currently intends to retain any future earnings to fund
operations and future growth and, therefore, does not anticipate paying any
cash dividends in the foreseeable future. The declaration and payment of
dividends by the Company are subject to the discretion of its Board of
Directors, to numerous restrictive covenants contained in the Senior Credit
Facility and the Indenture, dated as of June 27, 1997 (the "Indenture"), and
will depend on the Company's financial condition and results of operations,
capital requirements, and such other factors as the Board of Directors deems
relevant. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

VOLATILITY OF STOCK PRICE

The market price for the Common Stock may be highly volatile. The Company
believes that factors such as announcements by the Company, or by its
competitors, of quarterly variances in financial results could cause the
market price of the Common Stock to fluctuate substantially. In addition, the
stock market may experience extreme price and volume fluctuations, which often
are unrelated to the operating performance of specific companies. Market
fluctuations or perceptions regarding the Company's industry, as well as
general economic or political conditions, may have a material adverse effect
on the Company and on the market price of the Common Stock.

OFFERING PRICE DETERMINED IN THE ABSENCE OF A PUBLIC MARKET; MAY NOT INDICATE
POST-OFFERING PRICE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock will be
determined through negotiation among the Company and the Underwriters and may
not be indicative of the market price for the Common Stock after the Offering.
See "Underwriters."

CONTROL BY PRINCIPAL SHAREHOLDERS

Holders of a majority of the Company's outstanding Common Stock prior to the
consummation of the Offering will continue to hold a majority of the Company's
outstanding Common Stock after the consummation of the Offering. To the extent
that these shareholders exercise their voting rights in concert, they
effectively will have the ability to control the election of all of the
Company's Board of Directors, the outcome of most matters submitted to a vote
of the holders of Common Stock, and generally will be able to direct the
affairs of the Company. Any affiliate of CIBC will have beneficial ownership
of % of the Company's outstanding Common Stock after the Offering and will
therefore be able to exercise significant influence over shareholder votes,
including any vote relating to a potential change of control of the Company.

STOCK CONVERSION AND SPLIT

Upon the consummation of the Offering, each outstanding share of the
Company's preferred stock, par value $0.01 per share (the "Senior Preferred
Stock"), will be converted into shares of Common Stock. If any holder of
the Senior Preferred Stock elects not to convert their shares into Common
Stock, the Company will be required to redeem such holder's Senior Preferred
Stock. The redemption price for the Senior Preferred Stock is $1,000 per share
(as adjusted for any stock dividends, combinations or splits), plus all
accrued or declared but unpaid dividends. In addition, under the terms of the
Registration Rights Agreement (as defined), each share of the Company's
outstanding Class B Common Stock (the "Class B Common Stock") will be
automatically converted into shares of Common Stock upon the consummation
of the Offering. Unless otherwise stated, information contained in this
Prospectus reflects the conversion of the Senior Preferred Stock into Common
Stock, the conversion of the Class B Common Stock into Common Stock, and a
to stock split for the Common Stock and Class B Common Stock that will be
effected immediately prior to the Offering.

17
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements under "Prospectus Summary;" "Risk Factors;" "Management's
Discussion and Analysis of Financial Condition and Results of Operations;"
"Business;" "Pro Forma Financial Data;" and elsewhere in this Prospectus
constitute forward-looking statements, which involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, levels of
activity, performance, or achievements of the Company, or industry results, to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those listed under "Risk
Factors" and elsewhere in this Prospectus. In some cases, forward-looking
statements can be identified by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of such terms or other comparable
terminology. As a result of the foregoing and other factors, no assurance can
be given as to future results, levels of activity, or achievements, and
neither the Company nor any other person assumes responsibility for the
accuracy and completeness of such statements. Moreover, neither the Company
nor any other person assumes responsibility for the accuracy and completeness
of any such forward-looking statements. The Company is under no duty to update
any of the forward-looking statements after the date hereof.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the shares
of Common Stock in the Offering at an assumed initial public offering price of
$ per share, after deducting underwriting commissions and discounts and the
estimated expenses of the Offering, are expected to be approximately $
million ($ if the U. S. Underwriters' over-allotment option is exercised in
full).

The Company intends to use the net proceeds (i) to repay $10.0 million
outstanding under the Senior Credit Facility (the revolving loan portion of
which may subsequently be reborrowed); (ii) for the acquisition of
telecommunications equipment to service new contracts; (iii) for the
implementation of alternative network solutions; (iv) for funding of potential
acquisitions; and (v) for general corporate purposes, including working
capital. The Company currently has no material agreements with respect to any
potential acquisitions, but is continuously evaluating possible acquisition
candidates. Pending the use of the net proceeds for the above-described
purposes, the Company intends to invest such funds in short-term, interest-
bearing investment grade obligations.

Borrowings by the Company under the revolving portion of the Senior Credit
Facility bear interest at a rate equal to either (a) the Base Rate plus a
margin that varies from 75 to 225 basis points, depending on the ratio of the
Company's total debt to EBITDA or (b) the London Interbank Offering ("LIBO")
rate plus a margin that varies from 200 to 350 basis points, depending on the
ratio of the Company's total debt to EBITDA. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." Borrowings by the Company under the revolving portion of
the Senior Credit Facility have been used to fund acquisitions.

DIVIDEND POLICY

The Company intends to retain future earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on the Common
Stock for the foreseeable future. The declaration and payment of dividends by
the Company are subject to the discretion of its Board of Directors and to
numerous restrictive covenants contained in the Senior Credit Facility and the
Indenture, and will depend on the Company's financial condition and results of
operations, capital requirements, and such other factors as the Board of
Directors deems relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Indebtedness."

18
<PAGE>

DILUTION

As of June 30, 1998, the Company's net tangible book deficit (as defined)
was $147.0 million, or approximately $ per share of Common Stock (based on
shares of Common Stock). Net tangible book value per share represents the
total book value of the Company's tangible assets reduced by the amount of the
Company's total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the Offering at an assumed price of $
per share, and the application of the net proceeds therefrom as described
under "Use of Proceeds," the pro forma net tangible book value of the Common
Stock as of June 30, 1998 would have been $ per share. This represents an
immediate increase in net tangible book value of $ per share to the
Company's existing stockholders and an immediate dilution in tangible book
value of $ per share to new investors purchasing shares of Common Stock in
the Offering at the initial public offering price. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Net tangible book deficit per share at June 30, 1998..............
Decrease per share attributable to new investors..................
Pro forma net tangible book deficit per share after the
Offering(1)......................................................
----
Dilution in net tangible book value per share to new
investors(2)..................................................... $
====
</TABLE>
- --------
(1) Assumes the U.S. Underwriter's over-allotment option is not exercised.
(2) Does not include (i) shares of Common Stock subject to options
outstanding as of June 30, 1998 that are exercisable at prices ranging
from $ to $ per share or (ii) shares of Common Stock issuable
pursuant to warrants that are exercisable at a price of $ per share.

19
<PAGE>

CAPITALIZATION

The following table sets forth the cash and cash equivalents and
consolidated capitalization of the Company as of June 30, 1998 (unaudited) on
an actual basis and as adjusted to give effect to the Offering and the
application of the net proceeds therefrom as set forth under "Use of
Proceeds." The data set forth below should be read in conjunction with "Use of
Proceeds," "Pro Forma Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the financial statements
and notes thereto, and the other financial data included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $ 4,519 $
======== =====
Long-Term debt, including current maturities:
Senior Credit Facility:
Term loan............................................ $ 55,000 $
Revolving loan....................................... 4,500
Senior Notes........................................... 115,000
Other.................................................. 2,206
-------- -----
Total long-term debt............................... 176,706
Stockholders' equity:
Preferred stock, $.01 par value........................ (1) -- (2)
Common Stock, $.01 par value; shares authorized,
shares issued and outstanding as of June 30, 1998;
shares issued and outstanding, as adjusted(3)......... (2)(4)
Additional paid in capital(1).......................... 21,800
Accumulated deficit.................................... (43,347)
-------- -----
Total stockholders' equity (deficit)............... (21,547)
-------- -----
Total capitalization..................................... $155,159 $
======== =====
</TABLE>
- --------
(1) The Senior Preferred Stock represents 5,925 shares outstanding with a par
value of $.01 per share, which rounds to zero in the above table, and a
liquidation value per share of $1,000 plus accumulated but unpaid
dividends, of which $5.9 million represented additional paid in capital to
the Company upon the issuance of the Senior Preferred Stock. As of June
30, 1998 the cumulative liquidation value of the outstanding shares of
Senior Preferred Stock was $5.9 million plus accumulated but unpaid
dividends, which were approximately $237,000. The Senior Preferred Stock
is convertible into shares of Common Stock.
(2) Reflects the conversion of the Senior Preferred Stock into Common Stock in
connection with the Offering at shares of Common Stock per share of
Senior Preferred Stock.
(3) Excludes (i) shares of Common Stock subject to options outstanding as
of June 30, 1998 that are exercisable at prices ranging from $ to $
per share and (ii) shares of Common Stock issuable pursuant to
warrants that are exercisable at a price of $ per share.
(4) Reflects the Offering and conversion of the outstanding shares of Class B
Common Stock into shares of Common Stock at shares of Common Stock per
share of Class B Common Stock.

20
<PAGE>

PRO FORMA FINANCIAL DATA

The following unaudited pro forma statements of operations data for the year
ended December 31, 1997 give effect to pre-acquisition operating results of
(i) the Tataka acquisition effective April 4, 1997; (ii) the acquisition of
STC effective June 27, 1997; (iii) the CCC acquisition effective July 31,
1997; (iv) the Invision acquisition effective October 6, 1997; (v) the
acquisition of NAI effective December 1, 1997; (vi) the PTC acquisition
effective December 19, 1997; and (vii) the Notes Placement and certain
borrowings under the Senior Credit Facility to finance acquisitions, as if
each such transaction had been consummated on January 1, 1997. The
acquisitions consummated during 1997 were accounted for using the purchase
method of accounting as of their respective acquisition dates and,
accordingly, only the results of operations of the acquired companies
subsequent to their respective acquisition dates are included in the operating
results of the Company.

The pro forma financial data do not give effect to any events occurring
after consummation of the acquisitions, other than reduced telecommunications
costs associated with new direct billing agreements with various LECs, which
were negotiated by the Company as a result of the higher combined
telecommunications traffic that was anticipated as a result of the
acquisitions that have been consummated by the Company, and which were
executed after the closing of such acquisitions.

The pro forma adjustments, which are described in the accompanying notes,
are based on currently available information and assumptions that management
believes are reasonable. Such pro forma financial data and the notes thereto
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and the notes thereto included elsewhere in this Prospectus.

The presentation of pro forma financial data is for illustrative purposes
only, is not necessarily indicative of the results that would have been
reported had such events actually occurred on the dates specified, and should
not be viewed as a projection or forecast of the Company's performance for any
future period. Inclusion of pro forma financial data should not be regarded as
a representation by the Company, and there can be no assurance that the
results reflected in the pro forma financial data will be realized. The
Company does not intend to update or otherwise revise the pro forma financial
data to reflect circumstances existing after the date hereof or to reflect the
occurrence of future events, even if the assumptions or estimates underlying
the pro forma financial data are shown to be in error. Prospective investors
are cautioned not to place undue reliance on the pro forma financial data.

21
<PAGE>

PRO FORMA STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OTHER
COMPANY ACQUIRED TOTAL PRO FORMA PRO
HISTORICAL BUSINESSES(A) STC CCC INVISION HISTORICAL ADJUSTMENTS FORMA
---------- ------------- ------- ------ -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 91,773 $32,255 $10,576 $6,339 $31,624 $172,567 $172,567
Operating expenses:
Telecommunication
costs................. 37,871 14,828 5,528 1,761 19,081 79,069 (1,801)(b) 77,268
Facility commissions... 25,724 10,909 2,691 2,580 8,787 50,691 50,691
Field operations and
maintenance........... 4,543 1,358 805 223 1,745 8,674 8,674
Selling, general and
administrative........ 8,540 2,640 985 1,198 2,995 16,358 (345)(c) 16,013
Depreciation........... 2,219 2,039 514 131 1,123 6,026 (3,513)(d) 2,513
Amortization of
intangibles........... 14,243 2,441 113 2,595 19,392 3,246 (e) 22,638
Federal bid costs...... 400 400 400
-------- ------- ------- ------ ------- -------- ------- --------
Total operating
expenses.............. 93,540 34,215 10,523 6,006 36,326 180,610 (2,413) 178,197
-------- ------- ------- ------ ------- -------- ------- --------
Operating Income
(loss)................. (1,767) (1,960) 53 333 (4,702) (8,043) 2,413 (5,630)
Other (income) expense:
Interest expense....... 11,138 282 22 2,483 13,925 5,497 (f) 19,422
Other (net)............ (76) (76) 64 (859) (947) 12 (g) (935)
-------- ------- ------- ------ ------- -------- ------- --------
Total other (income)
expense............... 11,062 206 86 1,624 12,978 5,509 18,487
-------- ------- ------- ------ ------- -------- ------- --------
Income (loss) before
income taxes........... (12,829) (1,960) (153) 247 (6,326) (21,021) (3,096) (24,117)
Income taxes (benefit)
expense ............... (642) 31 6 (2) (607) (607)
-------- ------- ------- ------ ------- -------- ------- --------
Income (loss) from
continuing operations.. $(12,187) $(1,991) $ (159) $ 247 $(6,324) $(20,414) $(3,096) $(23,510)
======== ======= ======= ====== ======= ======== ======= ========
Net loss per common
share.................. $ $
======== ========
Weighted average common
shares (h).............
======== ========
Pro forma net loss per
common share (i)....... $
========
</TABLE>

(Accompanying notes on following page)

22
<PAGE>

NOTES TO PRO FORMA STATEMENTS OF OPERATIONS

(a) Represents the combined pre-acquisition historical operating results of
inmate facility contracts and related telecommunication assets acquired
during 1997 by the Company from Tataka, PTC and NAI.

(b) Telecommunication costs have been reduced to reflect billing and
collection cost savings associated with the negotiation of direct billing
agreements with GTE Corp. ("GTE"), US West Corp. ("US West"), Southwestern
Bell Telephone Company. ("Southwestern Bell"), Sprint, and other LECs. The
Company was able to negotiate these agreements as a result of the higher
telecommunications traffic of the combined acquired companies. The Company
has entered into additional direct billing agreements in 1998 as a result
of which the Company expects to begin realizing cost savings by the third
quarter of 1998.

(c) Compensation costs of $308,000 have been eliminated from Invision's
selling, general, and administrative expenses for Invision employees who
were terminated upon the consummation of the Invision acquisition. In
addition, certain specifically identified selling, general, and
administrative costs of $37,000 from the acquired businesses has been
eliminated. The Company expects to realize additional future cost savings
upon the completion of its consolidation of the acquisitions that have
been consummated by the Company.

(d) Depreciation expense has been reduced to reflect differences between pro
forma depreciation expense based on the fair values of acquired telephone
system equipment over a useful life of 7.5 years and historical
depreciation expense over useful lives primarily ranging from 5 to 7.5
years.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma depreciation expense...................... $ 2,513
Historical depreciation expense..................... 6,026
-------
Pro forma adjustment.............................. $(3,513)
=======
</TABLE>

(e) Amortization expense has been increased to reflect the difference between
historical amortization expense and amortization of the purchase price
amounts allocated to the fair values of (i) acquired inmate facility
contracts over the life of the related contract (generally 3 to 5 years);
(ii) goodwill (over 20 years); and (iii) other identifiable intangibles,
such as non-competition agreements, over the life of the related
intangible (generally 2.5 to 5 years).

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma amortization expense:..................... $22,638
Historical amortization expense:.................... 19,392
-------
Pro forma adjustment.............................. $ 3,246
=======
</TABLE>

(f) Interest expense has been increased to reflect interest expense related to
the acquisitions, amortization of approximately $8.3 million of deferred
financing costs, and the Notes Placement.

(g) Minority interest representing STC's interest in the earnings of its
subsidiary, Law Enforcement Technology, Inc., has been eliminated because
this subsidiary became wholly owned by the Company as a result of the
acquisition of STC.

(h) Pursuant to Staff Accounting Bulletin No. 98, for the periods prior to the
Offering, basic net loss per share is computed using the weighted average
number of shares of Common Stock outstanding during the period. Diluted
net loss per share is computed using the weighted average number of shares
of Common Stock outstanding during the period and nominal issuances of
Common Stock and Common Stock equivalents, regardless of whether they are
anti-dilutive. For the period presented for the Company, the effect of the
Common Stock equivalents is not included in the computation of diluted net
loss per share because their effect is anti-dilutive.

(i) Reflects the issuance of shares of Common Stock in the Offering and
the conversion of Class B Common Stock and Senior Preferred Stock into an
aggregate of shares of Common Stock.

23
<PAGE>

SELECTED FINANCIAL DATA

Effective December 1, 1996, the Company became the holding company for the
operations of AmeriTel and Talton Telecommunications. The Company accounted
for these acquisitions using the purchase method of accounting. Accordingly,
the Company's consolidated financial statements include the operations of
AmeriTel and Talton Telecommunications only for periods after December 1,
1996.

The following selected consolidated financial data of the Company for the
twelve months ended December 31, 1997 and for the one month ended December 31,
1996, and the selected combined financial data of the Company's predecessors
for the years ended December 31, 1994 and 1995, and for the eleven months
ended November 30, 1996, have been derived from the Company's and its
predecessors' audited financial statements. The selected combined financial
data of AmeriTel has been derived from its predecessors' audited financial
statements. The selected combined financial data of Talton Telecommunications
for the year ended December 31, 1993, and the selected consolidated financial
data of the Company for the six months ended June 30, 1997 and 1998 are
unaudited and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) that are necessary to present
fairly the combined or consolidated financial statements for such periods.

The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes thereto included elsewhere in this
Prospectus.

24
<PAGE>

SELECTED FINANCIAL DATA

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMBINED PREDECESSORS THE COMPANY
------------------------------------------- -----------------------------------------------
ELEVEN MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED ENDED ENDED
---------------------------- NOVEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1996 1996 1997(1) 1997 1998
----------- ------- ------- ------------- ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues...... $13,593 $23,892 $40,326 $53,663 $5,506 $ 91,773 $30,082 $103,605
Operating expenses:
Telecommunciation
costs................. 7,025 11,761 18,673 23,317 2,299 37,871 12,405 43,793
Facility commissions... 2,225 3,901 9,595 13,962 1,455 25,724 8,161 33,345
Field operations and
maintenance........... 538 1,044 1,467 1,816 219 4,543 1,166 3,747
Selling, general and
administrative........ 1,566 2,571 4,089 3,921 372 8,540 2,327 8,316
Depreciation........... 780 965 1,359 1,538 111 2,219 617 2,690
Amortization of
intangibles(2)........ 684 1,392 1,605 1,746 741 14,243 4,738 12,917
Nonrecurring
expenses(3)........... 684 400
------- ------- ------- ------- ------ -------- ------- --------
Total operating
expenses.............. 12,818 21,634 36,788 46,984 5,197 93,540 29,414 104,808
------- ------- ------- ------- ------ -------- ------- --------
Operating income
(loss)................. 775 2,258 3,538 6,679 309 (1,767) 668 (1,203)
Other (income) expenses:
Interest expense, net.. 331 745 1,360 1,469 612 11,138 3,932 9,764
Other, net............. (153) (134) (52) 27 (20) (76) (19) (159)
------- ------- ------- ------- ------ -------- ------- --------
Total other (income)
expense............... 178 611 1,308 1,496 592 11,062 3,913 9,605
Income (loss) before
income taxes and
extraordinary loss..... 597 1,647 2,230 5,183 (283) (12,829) (3,245) (10,808)
Income tax expense
(benefit).............. (11) 891 1,917 (23) (642) (850) 482
------- ------- ------- ------- ------ -------- ------- --------
Income (loss) before
extraordinary loss..... 597 1,658 1,339 3,266 (260) (12,187) (2,395) (11,290)
Extraordinary loss(4)... 52 4,740 4,396
------- ------- ------- ------- ------ -------- ------- --------
Net income (loss)....... 597 1,658 1,339 3,214 (260) (16,927) (6,791) (11,290)
Preferred stock
dividends.............. 80 118 474 237 237
------- ------- ------- ------- ------ -------- ------- --------
Net income (loss)
applicable to common
stock.................. $ 597 $ 1,658 $ 1,259 $ 3,096 $ (260) $(17,401) $(7,028) $(11,527)
======= ======= ======= ======= ====== ======== ======= ========
Basic earnings per
common share:
Loss from continuing
operations............ $ $ $ $
Extraordinary loss.....
------ -------- ------- --------
Net loss............... $ $ $ $
====== ======== ======= ========
Weighted average common
shares(5)..............
====== ======== ======= ========
Pro forma net loss per
common share(6)........ $ $
======== ========
OTHER DATA:
EBITDA(7)............... $ 2,392 $ 4,749 $ 6,554 $ 9,936 $1,181 $ 14,771 $ 6,042 $ 14,563
Capital
expenditures(8)........ 1,978 3,223 4,669 2,804 269 8,063 1,297 6,853
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1998
HISTORICAL AS ADJUSTED(9)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............................. $ 4,519 $
Total assets.......................................... 198,752
Total debt (including current maturities)............. 176,706 172,267
Total stockholders' equity (deficit).................. (21,547)
</TABLE>

(Accompanying notes on following page)

25
<PAGE>

- --------
(1) The Company's 1997 results include the operating results of (i) Tataka
effective April 4, 1997; (ii) STC effective June 27, 1997; (iii) CCC
effective July 31, 1997; (iv) Invision effective October 6, 1997; (v) NAI
effective December 1, 1997; and (vi) PTC effective December 19, 1997, in
each case subsequent to their respective acquisition dates.

(2) Amortization of intangible assets is provided on a straight-line basis
over the estimated useful lives of the related assets. Amortization of
acquired facility contract costs was $11.3 million and $10.7 million for
the year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. Acquired facility contracts consist primarily of purchase
price allocated to contracts acquired pursuant to acquisitions. Acquired
facility contracts are amortized over the applicable remaining contract
term. The average remaining term of the Company's contracts, as of June
30, 1998, was 23 months. The Company had capitalized $61.6 million of
acquired facility contracts as of June 30, 1998. As of June 30, 1998, the
Company had capitalized $83.2 million of goodwill. Goodwill represents the
excess of the purchase price paid by the Company for acquired businesses
over the fair value of the identified assets acquired. Goodwill is
amortized over 20 years. Amortization of goodwill was $2.6 million and
$2.0 million for the year ended December 31, 1997 and the six months ended
June 30, 1998, respectively.

(3) During 1996, AmeriTel incurred costs of $250,000 related to the settlement
of a lawsuit related to a prior acquisition, along with special bonuses of
$434,000 paid to key management at the date of the acquisition of
AmeriTel. The special bonuses were payable to key management upon the
closing of the acquisition of AmeriTel pursuant to a transaction bonus
agreement with such employees. During 1997, the Company incurred $400,000
of external costs associated with a bid for the Federal Bureau of Prisons
contract. The Company was unsuccessful in obtaining the contract and the
Contract award has been appealed. The Company has expensed all costs
associated with the bid.

(6) Reflects the issuance of shares of Common Stock in the Offering and
the conversion of Class B Common Stock and Senior Preferred Stock into an
aggregate of shares of Common Stock.

(7) For purposes of this Prospectus, EBITDA means income before interest,
income taxes, depreciation, and amortization. EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles and therefore is not necessarily comparable to similarly titled
measures of other companies. The Company has included information
concerning EBITDA in this Prospectus because it is commonly used by
certain investors and analysts as a measure of a company's ability to
service its debt obligations. EBITDA should not be used as an alternative
to, or be considered more meaningful than, operating income, net income,
or cash flow as an indicator of the Company's operating performance.

(8) Capital expenditures includes any amounts expended for purchases of
property and equipment and the installation equipment pursuant to new
facility contracts and does not include purchase prices and other costs
associated with the Company's acquisitions.

(9) Reflects the conversion of all Class B Common Stock and Senior Preferred
Stock into Common Stock in connection with the Offering, at shares and
shares of Common Stock per share of Class B Common Stock and Senior
Preferred Stock, respectively, the issuance of Common Stock in the
Offering, deduction of the estimated underwriting discount and offering
expenses payable by the Company in connection with the Offering, and the
application of the net proceeds therefrom. See "Use of Proceeds."

26
<PAGE>

SELECTED HISTORICAL PREDECESSOR FINANCIAL DATA

The following selected historical predecessor financial data of AmeriTel and
Talton Telecommunications for the years ended December 31, 1994 and 1995, and
for the eleven months ended November 30, 1996 (the period prior to the
effective dates of their respective acquisitions by the Company) have been
derived from AmeriTel's and Talton Telecommunications' audited financial
statements. The selected historical predecessor financial data of AmeriTel for
the year ended December 31, 1993 has been derived from audited financial
statements. The selected historical predecessor financial data of Talton
Telecommunications for the year ended December 31, 1993, are unaudited and, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) that are necessary to present fairly their respective
financial statements for such periods.

The selected historical predecessor financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.

27
<PAGE>

AMERITEL PAY PHONES, INC.

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER ELEVEN
31, MONTHS ENDED
----------------------- NOVEMBER 30,
1993 1994 1995 1996
------ ------- ------- ------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues....................... $3,858 $11,699 $20,371 $29,306
Operating expenses:
Telecommunication costs................. 1,826 5,347 9,747 13,729
Facility commissions.................... 623 1,861 3,497 6,087
Field operations and maintenance........ 192 508 864 1,166
Selling, general, and administrative.... 376 928 1,759 2,281
Depreciation............................ 213 194 384 536
Amortization of intangibles............. 81 595 1,224 1,624
Nonrecurring expenses................... 684
------ ------- ------- -------
Total operating expenses.............. 3,311 9,433 17,475 26,107
------ ------- ------- -------
Operating income......................... 547 2,266 2,896 3,199
Other (income) expense:
Interest expense, net................... 188 564 1,028 1,355
Other, net.............................. (123) 66 39
------ ------- ------- -------
Total other expense................... 65 564 1,094 1,394
------ ------- ------- -------
Income before income taxes and
extraordinary loss...................... 482 1,702 1,802 1,805
Income tax expense....................... 734 693
------ ------- ------- -------
Income before extraordinary loss......... 482 1,702 1,068 1,112
Extraordinary loss....................... 52
------ ------- ------- -------
Net income .............................. $ 482 $ 1,702 $ 1,068 $ 1,060
====== ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................ $ 189 $ 229 $ 891 $ 81
Total assets............................. 2,800 12,449 18,586 26,885
Long-term debt (including current
maturities)............................. 1,735 8,181 11,690 14,845
Total stockholders' equity............... 470 1,985 4,537 6,894
</TABLE>

28
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ELEVEN
YEARS ENDED DECEMBER 31, MONTHS ENDED
---------------------------- NOVEMBER 30,
1993 1994 1995 1996
----------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues................. $9,735 $12,193 $19,955 $24,357
Operating expenses:
Telecommunication costs........... 5,199 6,414 8,926 9,588
Facility commissions.............. 1,602 2,040 6,098 7,875
Field operations and maintenance.. 346 536 603 650
Selling, general, and
administrative................... 1,190 1,643 2,330 1,640
Depreciation...................... 567 771 975 1,002
Amortization of intangibles....... 603 797 381 122
------ ------- ------- -------
Total operating expenses........ 9,507 12,201 19,313 20,877
------ ------- ------- -------
Operating income (loss)............ 228 (8) 642 3,480
Other (income) expense:
Interest expense, net............. 143 181 332 114
Other, net........................ (30) (134) (118) (12)
------ ------- ------- -------
Total other (income) expense.... 113 47 214 102
------ ------- ------- -------
Income (loss) before income taxes.. 115 (55) 428 3,378
Income tax expense (benefit)....... (11) 157 1,224
------ ------- ------- -------
Net income (loss).................. $ 115 $ (44) $ 271 $ 2,154
====== ======= ======= =======
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.......... $ 94 $ 190 $ 402 $ 450
Total assets....................... 5,728 5,190 8,006 7,823
Long-term debt (including current
maturities)....................... 3,118 2,569 3,384
Total stockholders' equity......... 86 42 313 2,467
</TABLE>

29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the notes thereto contained elsewhere in this
Prospectus. Certain information contained in the discussion and analysis set
forth below and elsewhere in this Prospectus, including information with
respect to the Company's plans and strategy for its business and related
financing, includes forward-looking statements that involve risks and
uncertainties. See "Special Note Regarding Forward-Looking Information." See
"Risk Factors" for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by such
forward-looking statements.

OVERVIEW

The Company derives substantially all of its revenues from its operation of
inmate telecommunications systems located in correctional facilities in
approximately 43 states. The Company's inmate telecommunications services
consist of collect call, prepaid, and debit card services. The Company enters
into multi-year agreements with the correctional facilities, pursuant to which
the Company serves as the exclusive provider of telecommunications services to
inmates within each facility. In exchange for the exclusive service rights,
the Company pays a percentage of its revenue from each correctional facility
as a commission to that facility. The Company installs and generally retains
ownership of the telephones and the associated equipment and provides
additional services to correctional facilities that are tailored to the
specialized needs of the corrections industry and to the requirements of the
individual correctional facility, such as call activity reporting and call
blocking. The Company also generates revenues from public pay telephones that
are ancillary to its inmate telephone business.

The Company accumulates call activity data from its various installations
and bills its revenues related to this call activity through LECs or through
third-party billing services. In addition, the Company accrues the related
telecommunications costs for validating, transmitting, billing and collection,
and line and long-distance charges, along with commissions payable to the
facilities, and allowances for uncollectible accounts based on historical
experience.

The Company recently began providing validation, billing, and collections
services for the inmate calls of a major RBOC. Under the terms of the
agreement the Company acquires at a discount the related accounts receivable
from the RBOC. When the receivables are purchased, the Company accepts
responsibility for all validation, uncollectible accounts, and billing and
collections costs, with no recourse to the RBOC. See "Risk Factors-- Risk of
New Business Areas." However, under the terms of the agreement, all purchased
receivables must be processed and validated through the Company's call
management and billing system. The Company's revenues from this service equal
the difference between the face value of the receivables purchased and the
amount it pays the RBOC for the accounts receivable. There are minimal
selling, general, and administrative ("SG&A") cost associated with this
contract. The contract term is three years and has no minimum volume
commitment.

The Company's principal operating expenses consist of (i) telecommunication
costs; (ii) commissions paid to correctional facilities, which are typically
expressed as a percentage of either gross or net revenues, fixed for the term
of the agreements with the facilities, and in some cases are subject to
monthly minimum amounts;

30
<PAGE>

(iii) field operations and maintenance costs, which consist primarily of field
service on the Company's installed base of inmate telephones; and (iv)
selling, general, and administrative costs.

Telecommunication Costs. The principal components of telecommunication costs
are long distance transmission costs, local access costs, third party billing
costs, and costs of uncollectible accounts. Historically, long distance costs
have consisted of charges for minutes of use purchased from IXCs. The Company
recently entered into an agreement to lease lines connecting urban areas and
correctional facilities in the state of North Carolina. Given the Company's
relatively high level of traffic in North Carolina, management believes that
transmission via leased lines will be more economical than acquiring minutes
of use, and expects that this agreement will result in a 38% reduction in the
Company's telecommunication costs in the state of North Carolina. The Company
intends to lease lines in other areas where it has substantial penetration,
and believes it can thereby further lower its long distance transmission costs
as a percentage of revenue. Local access charges consist of monthly line and
usage charges paid to RBOCs and other LECs for interconnection to the local
network for local calls, which are computed on a flat monthly charge plus, for
certain LECs, and on a per message or per minute usage rate based on the time
and duration of the call. Third party billing charges consist of payments to
LECs and other billing service providers for billing and collecting revenues
from called parties. The Company believes that it experiences faster payments
and lower expenses associated with uncollectible accounts when using direct
billing than when using other billing service providers. Expenses associated
with uncollectible accounts are a significant cost in providing inmate
telecommunications services. The Company believes that it has competitive
advantages in this area, due to its integrated call management and billing
system. The Company is currently enhancing this system to better identify
called parties that pose an uncollectible account risk, which the Company
believes will further reduce the number of such accounts, although there can
be no assurance in this regard.

Commissions. The Company pays a percentage of its revenue from each facility
to that facility as a commission. Commissions are generally set for the
duration of the Company's mutli-year contract with the facility. Commission
rates are the principal basis of competition for obtaining and retaining
contracts. The Company's ability to offer increasingly attractive commission
rates to facilities depends on its ability to control its operating expenses.
Generally, contracts for larger facilities have higher commission rates, but
these higher commission rates are typically offset by lower network charges,
field maintenance, and SG&A expenses as a percentage of revenue. The
commission rates paid by the Company have increased in each period, from 23.8%
in 1995 to 32.0% in the first quarter of 1998, primarily due to increased
facility commissions under contracts obtained by the Company through
acquisitions, and are expected to slightly increase as a percentage of revenue
in the future.

Field Operations and Maintenance. Field operations and maintenance consist
of maintenance costs associated with inmate phones and related equipment.
These costs are relatively small and more constant components of operating
expenses. The Company is currently integrating its acquired operations into
its existing operations, and management expects that this integration will
result in a consolidation charge in the third quarter of 1998 of between $1.0
million and $3.0 million. Management expects that these consolidation
activities, which will include a reduction in the size of the Company's
workforce and the closing of certain of the Company's offices, will result in
monthly savings to the Company.

Selling, General, and Administrative. SG&A expenses consist of corporate
overhead and selling expense. These costs are also relatively small and more
constant components of operating expenses and are expected to be further
reduced as a result of the savings resulting from the consolidation activities
described above.

Company History. The Company became the holding company for the operations
of its predecessors, AmeriTel and Talton Telecommunications, effective
December 1, 1996. Because the Company's acquisitions of its predecessors have
been accounted for using the purchase method of accounting, the Company's
results of operations reflect the operations of AmeriTel and Talton
Telecommunications only subsequent to December 1, 1996. In addition to the
acquisitions of its predecessors, the Company has also completed eight other
acquisitions that have also been accounted for using the purchase method of
accounting, and the Company's results of operations therefore reflect the
operations of these companies only subsequent to the effective dates of their

31
<PAGE>

acquisitions. Management believes that the growth of the Company and its
predecessors, AmeriTel and Talton Telecommunications, through acquisitions
makes meaningful period-to-period comparisons of historical results of
operations difficult. Consequently, management believes that an investor is
presented with more meaningful information through discussion of the Company
and its predecessors on a combined basis, for the periods discussed below.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the combined
historical results of operations of the Company and AmeriTel and Talton
Telecommunications, without any adjustments to historical results to reflect
changes in depreciation and amortization resulting from purchase accounting
revaluations, as follows:

<TABLE>
<S> <C>
Year ended December 31, 1995..... Combined results of operations of the
predecessors, AmeriTel and Talton
Telecommunications, for the year
Year ended December 31, 1996..... Combined results of operations of the
predecessors, AmeriTel and Talton
Telecommunications, for the eleven months
ended November 30, 1996 and of the Company
for the one month ended December 31, 1996
Year ended December 30, 1997 and
the six months ended June 30, Results of operations of the Company for the
1997 and 1998................... periods
</TABLE>

These above described combined results of operations include the results of
operations of the acquired entities in the Company's results of operations
only for the periods subsequent to the acquisition dates.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
-------------- ------------- --------------- -------------- ---------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $40,326 100.0% $59,169 100.0% $ 91,773 100.0% $30,082 100.0% $103,605 100.0%
Operating expenses:
Telecommunication
cost.................. 18,673 46.3 25,616 43.3 37,871 41.3 12,405 41.2 43,793 42.3
Facility commissions... 9,595 23.8 15,417 26.1 25,724 28.0 8,161 27.1 33,345 32.2
Field operations and
maintenance........... 1,467 3.6 2,035 3.4 4,543 5.0 1,166 3.9 3,747 3.6
Selling, general, and
administrative........ 4,089 10.1 4,293 7.3 8,540 9.3 2,327 7.7 8,316 8.0
Depreciation........... 1,359 3.4 1,649 2.8 2,219 2.4 617 2.1 2,690 2.6
Amortization of
intangibles........... 1,605 4.0 2,487 4.2 14,243 15.5 4,738 15.8 12,917 12.5
Nonrecurring expenses.. 684 1.2 400 0.4
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Total operating
expenses.............. 36,788 91.2 52,181 88.3 93,540 101.9 29,414 97.8 104,808 101.2
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Operating income
(loss)................. 3,538 8.8 6,988 11.7 (1,767) (1.9) 668 2.2 (1,203) (1.2)
Other (income) expenses:
Interest expense, net.. 1,360 3.4 2,081 3.5 11,138 12.1 3,932 13.1 9,764 9.4
Other, net............. (52) (0.1) 7 0.0 (76) (19) (0.1) (159) (0.1)
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Net other (income)
expense............... 1,308 3.3 2,088 3.5 11,062 12.1 3,913 13.0 9,605 9.3
Income (loss) before
income taxes and
extraordinary loss..... 2,230 5.5 4,900 8.2 (12,829) (14.0) (3,245) (10.8) (10,808) (10.5)
Income tax expense
(benefit).............. 891 2.2 1,894 3.2 (642) (0.7) (850) (2.8) 483 0.4
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Income (loss) before
extraordinary loss..... 1,339 3.3 3,006 5.0 (12,187) (13.3) (2,395) (8.0) (11,291) (10.9)
Extraordinary loss...... 52 0.1 4,740 5.2 4,396 14.6
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Net income (loss)....... $ 1,339 3.3% $ 2,954 4.9% $(16,927) (18.4)% $(6,791) (22.6)% $(11,291) (10.9)%
======= ===== ======= ===== ======== ===== ======= ===== ======== =====
EBITDA.................. $ 6,554 16.3% $11,117 18.8% $ 14,771 16.1% $ 6,042 20.1% $ 14,563 14.1%
</TABLE>

32
<PAGE>

SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
(CONSOLIDATED RESULTS OF OPERATIONS OF THE COMPANY)

Operating Revenues. The Company's operating revenues increased by $73.5
million, or 244.2%, from $30.1 million for the six months ended June 30, 1997
to $103.6 million for the six months ended June 30, 1998. The increase in
operating revenues was primarily due to acquisitions by the Company of STC,
CCC, Invision, PTC, and NAI during the last six months of 1997 and the
acquisitions of MOG Communications, Inc. ("MOG") and^ILD Teleservices, Inc.
("ILD") in the first quarter of 1998, representing contracts for 841
facilities in the aggregate. Since its inception, the Company has acquired
contracts for 1,870 facilities through acquisitions and has added an
additional 304 facilities by winning new contracts for county, local, and
state facilities, including bids for new contracts in the states of North
Carolina, North Dakota, and Alaska. As of June 30, 1998, the Company served
2,145 correctional facilities in 43 states, of which 50 were private
facilities.

Operating Expenses. Total operating expenses increased $75.4 million, from
$29.4 million for the six months ended June 30, 1997 to $104.8 million for the
six months ended June 30, 1998. Operating expenses as a percentage of
operating revenues increased 3.4% from 97.8% for the six months ended June 30,
1997 to 101.2% for the six months ended June 30, 1998. The increase in
operating expenses as a percentage of revenues is primarily due to the factors
discussed below.

Telecommunication costs increased by $31.4 million, from $12.4 million for
the six months ended June 30, 1997 to $43.8 million for the six months ended
June 30, 1998. Telecommunication costs represented 41.2% of operating revenues
for the six months ended June 30, 1997 and 42.3% of operating revenues for the
six months ended June 30, 1998, an increase of 1.1%. The percentage increase
is primarily due to higher levels of uncollectible accounts associated with
the contracts acquired by the Company in connection with its acquisitions. The
Company entered into an agreement with BTI in June 1998 to deploy a leased
network in the state of North Carolina, and this agreement is expected to
result in a 38% reduction in the Company's telecommunication costs in the
state of North Carolina.

Facility commissions increased by $25.1 million, from $8.2 million for the
six months ended June 30, 1997 to $33.3 million for the six months ended June
30, 1998. Facility commissions represented 27.1% of operating revenues for the
six months ended June 30, 1997 and 32.2% of operating revenues for the six
months ended June 30, 1998, an increase of 5.1%. The increase is primarily due
to higher commission rates for contracts obtained as a result of acquisitions.

Field operations and maintenance costs increased by $2.5 million, from $1.2
million for the six months ended June 30, 1997 to $3.7 million for the six
months ended June 30, 1998. Field operations and maintenance costs represented
3.9% of operating revenues for the six months ended June 30, 1997 and 3.6% of
operating revenues for the six months ended June 30, 1998, a decrease of 0.3%.
The dollar increase is primarily due to costs associated with servicing the
acquired facilities and the new contract facilities. The Company is
integrating the field service and maintenance organizations of its acquired
companies and anticipates a reduction in this cost component as a percentage
of revenue when the integration activities are complete, although there can be
no assurance in this regard.

SG&A increased by $6.0 million, from $2.3 million for the six months ended
June 30, 1997 to $8.3 million for the six months ended June 30, 1998. SG&A
represented 7.7% of operating revenues for the six months ended June 30, 1997
and 8.0% of operating revenues for the six months ended June 30, 1998, an
increase of 0.3%. The increase in SG&A is primarily due to the increased
infrastructure necessary to support the Company's acquisitions.

The Company is currently integrating its acquired operations into its
existing operations, and this integration will result in a consolidation
charge in the third quarter of 1998. These consolidation activities, which
will include a reduction in the size of the Company's workforce and the
closing of certain of the Company's offices, are expected to result in monthly
savings to the Company.

33
<PAGE>

Total depreciation and amortization costs increased by $10.2 million, from
$5.4 million for the six months ended June 30, 1997 to $15.6 million for the
six months ended June 30, 1998. Depreciation and amortization costs
represented 17.9% of operating revenues for the six months ended June 30, 1997
and 15.1% of operating revenues for the six months ended June 30, 1998, a
decrease of 2.8%. The dollar increase is primarily due to additional
amortization expense associated with the acquisitions by the Company of inmate
facility contracts. Amortization resulting from purchase accounting of the
Company's acquisitions is and will continue to be a substantial portion of the
Company's operating expenses and will increase if the Company consummates
other acquisitions.

Other (Income) Expense. Other (income) expense, consisting primarily of
interest expense, increased by $5.7 million from $3.9 million for the six
months ended June 30, 1997 to $9.6 million for the six months ended June 30,
1998. The increase was primarily due to interest expense associated with the
indebtedness incurred by the Company in connection with its acquisitions.

Extraordinary Loss. The Company incurred an extraordinary loss of $4.4
million in 1997 due to the write-off of the unamortized deferred loan costs
and the unamortized discount related to the senior subordinated notes
originally issued to CIBC in connection with the acquisitions of AmeriTel and
Talton Telecommunications (the "Senior Subordinated Notes"), which were repaid
with the net proceeds of the Notes Placement.

Net Loss. The Company's net loss increased by $4.5 million, from $6.8
million for the six months ended June 30, 1997 to $11.3 million for the six
months ended June 30, 1998 as a result of the factors described above,
including "Depreciation and Amortization." $11.3 million of this loss is
attributable to the amortization of telephone contracts, which are amortized
over three years.

EBITDA. EBITDA increased by $8.6 million from $6.0 million for the six
months ended June 30, 1997 to $14.6 million for the six months ended June 30,
1998. EBITDA as a percentage of operating revenues decreased from 20.1% for
the six months ended June 30, 1997 to 14.1% for the six months ended June 30,
1998 due to the factors described above. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles, the Company has included information concerning EBITDA because it
is commonly used by investors and analysts as a measure of a company's ability
to service its debt obligation and is a component of the Company's debt
compliance ratios. EBITDA should not be used as an alternative to, or be
considered more meaningful than operating income, net income, or cash flows as
an indicator of the Company's operating income.

YEAR ENDED DECEMBER 31, 1997 (CONSOLIDATED RESULTS OF OPERATIONS OF THE
COMPANY) COMPARED TO YEAR ENDED DECEMBER 31, 1996 (COMBINED RESULTS OF
OPERATIONS OF THE COMPANY'S PREDECESSORS, AMERITEL AND TALTON
TELECOMMUNICATIONS, FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1996 AND OF THE
COMPANY FOR THE ONE MONTH ENDED DECEMBER 31, 1996)

Operating Revenues. The Company's operating revenues increased by $32.6
million, from $59.2 million for 1996 to $91.8 million for 1997. The increase
in operating revenues was primarily due to the acquisitions by the Company of
Tataka, STC, CCC, Invision, NAI, and PTC during 1997. Specifically, the
Company acquired 864 facilities in 1997 through acquisitions. In addition, the
Company won bids for new contracts for county and local facilities, and
contracts for the states of North Carolina, North Dakota, and Alaska.

Operating Expenses. Total operating expenses increased $41.3 million, from
$52.2 million in 1996 to $93.5 million in 1997. Operating expenses as a
percentage of operating revenues increased 13.6% from 88.3% for 1996 to 101.9%
for 1997. The increase in operating expenses as a percentage of revenues was
primarily due to the factors discussed below.

Telecommunication costs increased by $12.3 million, from $25.6 million in
1996 to $37.9 million in 1997. Telecommunication costs represented 43.3% of
operating revenues in 1996 and 41.3% of operating revenues in 1997, a decrease
of 2.0%. The dollar increase is primarily due to the acquisitions by the
Company of STC, CCC, Invision, NAI, and PTC during 1997, and the addition of
new contracts. The decrease as a percentage of

34
<PAGE>

operating revenues was primarily due to lower billing and collection costs as
a result of direct billing arrangements entered into with various major LECs
and lower relative costs for long distance as a result of new long distance
agreements.

Facility commissions increased by $10.3 million, from $15.4 million in 1996
to $25.7 million in 1997. Facility commissions represented 26.1% of operating
revenues in 1996 and 28.0% of operating revenues in 1997, an increase of 1.9%.
The increase was primarily due to higher commission rates for certain
contracts associated with the Company's six acquisitions made during 1997, as
well as higher commission percentages paid as a result of periodic increases
in percentages paid to existing customers as contracts were renewed.

Field operation and maintenance costs increased by $2.5 million, from $2.0
million in 1996 to $4.5 million in 1996. Field operation and maintenance costs
represented 3.4% of operating revenues in 1996 and 5.0% of operating revenues
in 1997, an increase of 1.6%. The dollar increase was primarily due to an
increase in the costs associated with servicing acquired facilities.

SG&A increased by $4.2 million, from $4.3 million in 1996 to $8.5 million in
1997. SG&A represented 7.3% of operating revenues in 1996 and 9.3% of
operating revenues in 1997, an increase of 2.0%. The increase in SG&A as a
percentage of operating revenues was primarily due to the increased
infrastructure necessary to support the Company's acquisitions and the
Company's more aggressive sales efforts. The Company's SG&A for 1997 was also
affected by the significant acquisition activity during the period.

Total depreciation and amortization costs increased by $12.4 million, from
$4.1 million in 1996 to $16.5 million in 1997. Depreciation and amortization
costs represented 7.0% of operating revenues in 1996 and 17.9% of operating
revenues in 1997, an increase of 10.9%. The increase was primarily due to
additional amortization expense associated with the acquisitions by the
Company of inmate facility contracts, and the acquisitions completed by the
Company in 1997.

The Company incurred an expense of $400,000 in 1997 related to external
costs associated with the Company's bid for the Federal Board of Prisons
contract. The Company was unsuccessful in obtaining the contract and has
appealed the award. See "Business--Legal Proceedings." The Company has,
however, expensed all costs associated with this bid. The Company incurred a
non-recurring expense of $684,000 in 1996 related to $434,000 in bonuses paid
by AmeriTel prior to its acquisition by the Company and $250,000 paid by
AmeriTel to settle a lawsuit. Such expense represented 1.2% of operating
revenues in 1996.

Operating Income (Loss). The Company's operating income decreased by $8.8
million, from $7.0 million in 1996 to an operating loss of $1.8 million in
1997 primarily as a result of increases in depreciation and amortization due
to the acquisitions completed by the Company in 1997. Also, primarily as a
result of the depreciation and amortization, the Company's operating income
margin decreased from 11.7% in 1996 to an operating loss of 1.9% in 1997.

Other (Income) Expense. Other (income) expense, net, consisting primarily of
interest expense, increased by $9.0 million from $2.1 million in 1996 to $11.1
million in 1997. The increase was primarily due to interest expense associated
with indebtedness incurred by the Company in connection with acquisitions and
the Notes Placement.

Extraordinary Loss. The Company incurred an extraordinary loss of $4.7
million in 1997 due to the write-off of the unamortized deferred loan costs
and the unamortized discount related to the Senior Subordinated Notes, which
were repaid with a portion of the net proceeds of the Notes Placement. In
1996, one of the Company's predecessors incurred an extraordinary loss of
approximately $52,000 in conjunction with the extinguishment of debt.

Net Income (Loss). The Company's net income decreased by $19.9 million, from
$3.0 million in 1996 to a net loss of $16.9 million in 1997 as a result of the
factors described above.

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EBITDA. EBITDA increased by $3.7 million from $11.1 million in 1996 to $14.8
million in 1997. EBITDA as a percentage of operating revenues decreased from
18.8% in 1996 to 16.1% in 1997 due to the factors described above. For the
purposes of this Prospectus, EBITDA means income before interest, income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles, the Company has included information concerning EBITDA in this
Prospectus because it is commonly used by certain investors and analysts as a
measure of a company's ability to service its debt obligations. EBITDA should
not be used as an alternative to, or be considered more meaningful than,
operating income, net income, or cash flow as an indicator of the Company's
operating performance.

YEAR ENDED DECEMBER 31, 1996 (COMBINED RESULTS OF OPERATIONS OF THE COMPANY'S
PREDECESSORS, AMERITEL AND TALTON TELECOMMUNICATIONS, FOR THE ELEVEN MONTHS
ENDED NOVEMBER 30, 1996 AND OF THE COMPANY FOR THE ONE MONTH ENDED DECEMBER
31, 1996) COMPARED TO YEAR ENDED DECEMBER 31, 1995 (COMBINED RESULTS OF
OPERATIONS OF THE COMPANY'S PREDECESSORS, AMERITEL AND TALTON
TELECOMMUNICATIONS)

Operating Revenues. The Company's operating revenues increased by $18.9
million, or 46.7%, from $40.3 million for the year ended December 31, 1995 to
$59.2 million for the year ended December 31, 1996. The increase in operating
revenues was primarily due to (i) the addition of operating revenues from the
Company's acquisitions of contracts covering 76 inmate facilities during 1995
(the results of which were reflected for the full year in 1996) and contracts
covering 140 inmate facilities during 1996, (ii) operating revenues from the
Company's contract with the state of Alabama, a portion of which become
operational during the last half of 1995, and (iii) increases in operating
revenues from the Company's addition of new contracts covering 130 inmate
facilities, net of contract terminations, during 1995 (the results of which
were reflected for the full year in 1996) and, to a lesser extent, from the
addition of new contracts during 1996.

Operating Expenses. Total operating expenses increased $15.4 million, from
$36.8 million in 1995 to $52.2 million in 1996. Operating expenses as a
percentage of operating revenues decreased 2.9% from 91.2% for the year ended
December 31, 1995 to 88.3% for the year ended December 31, 1996. The decrease
in operating expenses as a percentage of revenues was primarily due to a
relative decrease in telecommunication costs resulting from lower long
distance rates from more favorable long distance service contracts, decreases
in local exchange costs, relatively lower SG&A expenses, and relatively lower
field operations and maintenance expenses primarily as a result of the fixed
portion of these expenses being spread over a larger revenue base.

Telecommunication costs increased by $6.9 million, from $18.7 million in
1995 to $25.6 million in 1996. Telecommunication costs represented 46.3% of
operating revenues in 1995 and 43.3% of operating revenues in 1996, a decrease
of 3.0%. The dollar increase was primarily due to increased costs associated
with higher call volumes, while the percentage decrease is primarily due to
lower long distance rates from more favorable long distance service contracts
and decreases in local exchange costs.

Facility commissions increased by $5.8 million, from $9.6 million in 1995 to
$15.4 million in 1996. Facility commissions represented 23.8% of operating
revenues in 1995 and 26.1% of operating revenues in 1996, an increase of 2.3%.
The increase was primarily due to higher commission rates on the Company's
contract with the state of Alabama and on acquired inmate facility contracts.

Field operation and maintenance costs increased by $568,000, from $1.5
million in 1995 to $2.0 million in 1996. Field operation and maintenance costs
represented 3.6% of operating revenues in 1995 and 3.4% of operating revenues
in 1996, a decrease of 0.2%. The dollar increase was primarily due to
increased costs associated with serving a larger account base, while the
percentage decrease was primarily due to the effect of spreading fixed costs
over a larger revenue base.

SG&A increased by $200,000, from $4.1 million in 1995 to $4.3 million in
1996. SG&A represented 10.1% of operating revenues in 1995 and 7.3% of
operating revenues in 1996, a decrease of 2.8%.

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The decrease in SG&A as a percentage of operating revenues was primarily due
to the effect of spreading fixed costs over a larger revenue base.

Depreciation and amortization costs increased by $1.1 million, from $3.0
million in 1995 to $4.1 million in 1996. Depreciation and amortization costs
represented 7.4% of operating revenues in 1995 and 7.0% of operating revenues
in 1996, a decrease of 0.4%. The dollar increase was primarily due to $600,000
in additional depreciation and amortization expense resulting from the
Company's acquisitions of AmeriTel and Talton Telecommunications in December
1996.

The Company incurred a non-recurring expense of $684,000 in 1996 related to
$434,000 in bonuses paid by AmeriTel prior to its acquisition by the Company
and $250,000 paid by AmeriTel to settle a lawsuit. Such expense represented
1.2% of operating revenues in 1996.

Operating Income. The Company's operating income increased by $3.5 million,
from $3.5 million in 1995 to $7.0 million in 1996, as a result of the
significant increase in operating revenues offset in part by the increase in
operating costs discussed above. The Company's operating income margin
increased from 8.8% in 1995 to 11.7% in 1996 due to the factors described
above.

Other (Income) Expense. Other (income) expense, consisting primarily of
interest expense, increased by $780,000 from $1.3 million in 1995 to $2.1
million in 1996. The increase was primarily due to increased interest expense
associated with indebtedness incurred by the Company in connection with the
acquisitions of AmeriTel and Talton Telecommunications.

Net Income (Loss). The Company's net income increased by $1.7 million, from
$1.3 million in 1995 to $3.0 million in 1996 as a result of the factors
described above.

EBITDA. EBITDA increased by $4.5 million from $6.6 million in 1995 to $11.1
million in 1996. EBITDA as a percentage of operating revenues increased from
16.3% in 1995 to 18.8% in 1996 due to the factors described above. For the
purposes of this Prospectus, EBITDA means income before interest, income
taxes, depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles, the Company has included information concerning EBITDA in this
Prospectus because it is commonly used by certain investors and analysts as a
measure of a company's ability to service its debt obligations. EBITDA should
not be used as an alternative to, or be considered more meaningful than,
operating income, net income, or cash flow as an indicator of the Company's
operating performance.

LIQUIDITY AND CAPITAL RESOURCES

The Company anticipates that its principal uses of liquidity will be to
finance future acquisitions, provide working capital, meet debt service
requirement, and to repay principal under the Senior Credit Facility. The
Company, without taking into account the Offering, expects that its principal
sources of funds will be cash flow from operations and borrowings under the
Senior Credit Facility. The Company anticipates that its primary capital
expenditures will be for capital items required to implement new contracts
entered into by the Company and alternative network solutions, although the
Company does not have material commitments for capital expenditures.
Management believes that cash flow from operations (if any) and from the
Senior Credit Facility will be sufficient to fund the requirements of the
Company for at least the next 12 months. In connection with the consummation
of the Offering, the Company intends to repay $10.0 million outstanding under
the Senior Credit Facility. See "Use of Proceeds." The Company is currently in
negotiations to restructure the Senior Credit Facility to increase its
available borrowing capacity and modify certain other provisions. See
"Description of Certain Indebtedness."

The Company intends to pursue additional acquisitions to expand its base of
installed inmate telephones and value added services and is currently
evaluating possible acquisition candidates. There can be no assurance that the
Company will have sufficient available capital resources to realize its
acquisition strategy. Such future acquisitions, depending on their size and
the form of consideration, may require the Company to seek additional debt or
equity financing.

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Net cash provided by operating activities was $1.4 million for the six
months ended June 30, 1998, as compared to $2.1 million for the six months
ended June 30, 1997. Net cash provided by operating activities was $6.0
million as compared to $5.9 million for the years ended December 31, 1997 and
1996, respectively. Net cash provided by operating activities in 1997
increased primarily due to the operations of the Company's acquired companies
during 1997.

Cash used in investing activities was $13.2 million for the six months ended
June 30, 1998, as compared to $11.7 million for the six months ended June 30,
1997. Cash used in investing activities was $90.8 million in 1997, consisting
primarily of cash outflows for the Company's acquisitions during 1997. Cash
used in investing activities was $54.8 million in 1996, consisting primarily
of cash outflows for acquisitions.

Cash provided by financing activities was $8.5 million for the six months
ended June 30, 1998, as compared to $43.5 million for the six months ended
June 30, 1997. Cash provided by financing activities was $92.2 million in
1997, consisting primarily of the issuance of the $115.0 million Senior Notes,
the borrowing of $50.5 million under the Senior Credit Facility and offset by
the repayment of amounts borrowed under the Company's previous credit
facility, the Senior Subordinated Notes, and subordinated notes issued in
connection with the acquisition of Talton Telecommunications (the "Talton
Notes"), as compared with the $48.4 million in 1996. See "Certain
Transactions--Historical Relationships and Related Transactions."

The Senior Credit Facility consists of (a) a $55.0 million term loan
acquisition facility and (b) a $25.0 million revolving loan facility (which
includes a $5.0 million letter of credit facility). Amounts borrowed under the
Senior Credit Facility bear interest, at the option of the Company, at either
(i) the base rate (i.e., the higher of CIBC's reference rate and the overnight
federal funds rate plus 0.5%) plus a margin that varies from 75 to 225 basis
points, depending on the Company's total debt to EBITDA ratio; or (ii) the
LIBO rate plus a margin that varies from 200 to 350 basis points, depending on
the Company's total debt to EBITDA ratio.

The Senior Credit Facility requires quarterly interest payments to be made
on base rate loans and periodic interest-only payments based on the applicable
interest period on LIBO rate loans, at least quarterly, in each case until
maturity. In addition, the Senior Credit Facility requires mandatory
prepayments out of the proceeds of certain equity or debt offerings, asset
dispositions, receipt of insurance proceeds not applied as provided in the
Senior Credit Facility, and receipts of funds from certain escrow accounts.
Scheduled principal payments on the term loan facility are approximately $5.5
million, $9.6 million, $12.4 million, $13.8 million, $13.8 million, during the
years ended 1998, 1999, 2000, 2001, and 2002, respectively. No prepayments of
the Senior Credit Facility will be required as a result of the Offering. All
outstanding principal and interest under the Senior Credit Facility is due
December 31, 2002. The Senior Credit Facility is secured by substantially all
the assets of the Company and its subsidiaries.

As of June 30, 1998, the Company had approximately $176.7 million of long-
term indebtedness outstanding, including (i) $115.0 million of the Senior
Notes at an interest rate of 11.0%, (ii) $59.5 million of indebtedness under
the Senior Credit Facility, and (iii) $2.2 million of other indebtedness
consisting primarily of deferred acquisitions costs and capital leases. As of
June 30, 1998, the Company had available borrowing capacity under the
revolving credit portion of its Senior Credit Facility of approximately $17.7
million, subject to borrowing base limitations and certain conditions.

On June 30, 1998, the Company entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest
rate exposure on its loan under the Senior Credit Facility. At June 30, 1998,
the interest rate cap has an aggregate notional amount of $30.0 million, which
matures in June 2001, and caps interest on the LIBO rate portion of the term
loan, up to the aggregate notional amount, at 7.5%, plus the applicable LIBO
rate margin.

The Senior Credit Facility and the Indenture contain numerous restrictive
covenants including, among others, limitations on the ability of the Company
to incur additional indebtedness, to create liens and other encumbrances, to
make certain payments and investments, to sell or otherwise dispose of assets,
or to merge or consolidate with another entity. See "Description of Certain
Indebtedness." The Senior Credit Facility also

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<PAGE>

requires the Company to meet certain financial tests on a consolidated basis,
some of which may be more restrictive in future years. The Company's failure
to comply with its obligations under the Senior Credit Facility, or in
agreements relating to indebtedness incurred in the future, could result in an
event of default under such agreements, which could permit acceleration of the
related debt and acceleration of debt under other financing arrangements that
may contain cross-acceleration or cross-default provisions. In addition,
because interest under the Company's Senior Credit Facility accrues at
floating rates, the Company remains subject to interest rate risk with respect
to a significant portion of its indebtedness. See "Description of Certain
Indebtedness."

INCOME TAXES

Since the Company's acquisitions of AmeriTel, Talton Telecommunications, and
MOG were stock purchases, the Company was required to retain the tax bases of
AmeriTel, Talton Telecommunications, and MOG in the assets acquired. As a
result, the Company will not be entitled to a tax deduction for the
amortization of goodwill or the depreciation and amortization of certain other
tangible and intangible assets related to these acquisitions. The Company has
provided deferred income tax liabilities for differences in the financial
accounting and tax bases of its tangible and identifiable intangible assets.
However, in accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," future
amortization of non-deductible goodwill will be treated as a permanent
difference in the Company's financial statements.

ACCOUNTING PRONOUNCEMENTS

SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997, and
establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for the Company's year ending
December 31, 1998.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997, and establishes new standards for
reporting information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major customers. SFAS No.
131 is effective for the Company's year ending December 31, 1998.

INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE

The Company believes that it has identified all significant computers,
software applications, and related other equipment used in connection with its
internal operations that will require modification to reduce the possibility
of a material disruption to its business from the Year 2000 Problem. Internal
resources are being used to make the required modifications and test Year 2000
compliance. The Company plans on completing the testing process of all
significant applications by February 1999. This effort will be made by the
Company's internal technical staff. The Company does not expect to incur
material expenses related to this effort. The Company has also commenced the
process of modifying, upgrading, and replacing major systems that have been
assessed as adversely affected, and expects to complete this process before
the occurrence of any material disruption of its business. However, there can
be no assurance in this regard.

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The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance constitutes forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other
things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.

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BUSINESS

GENERAL

The Company is the largest independent provider of collect, prepaid, and
debit calling services to local, county, state, and private correctional
facilities in the United States. As of June 30, 1998, the Company served 2,145
correctional facilities in 43 states, of which 50 were private facilities. The
Company has a high level of market penetration in many states, providing inmate
telecommunications services to over 75% of the county correctional facilities
in seven states and to over 50% of the county correctional facilities in an
additional 12 states. The Company believes that this high level of market
penetration contributes to operating efficiencies through economies of scale
and enables the Company to compete more effectively for new contracts in these
geographic areas. The Company has increased the total number of facilities
served both through internal growth and through acquisitions from 1,112 at
December 1, 1996 to 2,145 at June 30, 1998. The Company's historical revenues
were $91.8 million for the year ended December 31, 1997 and $103.6 million for
the six months ended June 30, 1998.

The Company's inmate telecommunications business consists of owning,
operating, servicing, and maintaining a system of automated operator switches
and telephones located in correctional facilities. Generally, inmates may make
only collect, prepaid, and debit calls from correctional facilities, which
generates revenue per phone line in excess of industry averages for a typical
business phone line. The Company generally enters into multi-year agreements
with correctional facilities pursuant to which the Company serves as exclusive
provider of telecommunications services to inmates within the facility. In
exchange for the exclusive service rights, the Company pays a percentage of its
revenue from each correctional facility to that facility as a commission.
Typically, the Company installs and retains ownership of the telephones and
related equipment.

Significant costs typically associated with providing telecommunication
services to correctional facilities include uncollectible accounts, network,
and billing expenses. The Company has developed an integrated call management
and billing system to help control these expenses. This system limits inmates
to collect, prepaid, or debit calls; validates and verifies the payment history
and account status of each number dialed; confirms that the destination number
has not been blocked; and processes call records for billing through a third
party. To facilitate billing, the Company has entered into 29 separate direct
billing agreements with RBOCs and LECs, allowing the Company to bill directly
through the RBOCs and LECs rather than utilizing third party billing services.
Management believes that direct billing arrangements expedite the billing and
collections process and increase collectibility. The Company direct billed
approximately 80% of its operating revenues in June 1998.

The Company uses its experience in billing, collection, and control of
uncollectible accounts to offer specialized billing and collection services to
other inmate telecommunications service providers. The Company recently entered
into a contract with a major RBOC, under which the Company performs validation,
billing, and collection services for the RBOC's inmate calls. Under the terms
of the contract, the Company expects to receive call traffic from 428
facilities. The Company began processing call traffic under the contract in May
1998. In addition, the Company offer call processing services for a major IXC.
The Company continues to pursue additional opportunities to offer these
services to RBOCs, LECs, IXCs, and other inmate telecommunications providers.

INMATE TELECOMMUNICATIONS INDUSTRY OVERVIEW

The U.S. has one of the highest incarceration rates of any country in the
world. As of June 30, 1997, there were approximately 137 federal, 1,306 state,
and 2,994 city and county correctional facilities. According to U.S. Department
of Justice statistics, the number of inmates incarcerated in federal and state
prisons and in city and county correctional facilities increased from
approximately 1.1 million at June 30, 1990 to approximately 1.7 million at June
30, 1997, or approximately one inmate for every 158 U.S. residents. Of this
total, approximately 100,000 were housed in federal prisons, 1.1 million were
housed in state prisons, and 500,000 were housed in local and county
facilities.

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Over the past several years, the private corrections industry has also
experienced significant growth. Increasing costs and rising inmate population
have led a number of jurisdictions to privatize all or a portion of their
corrections operations in an attempt to control or lower expenditures.
According to the 1996 Private Adult Correctional Facility Census conducted by
the University of Florida, the rated capacity of privately managed adult
correctional facilities in the U.S. increased from 63,595 beds to 85,201 beds
from December 31, 1995 to December 31, 1996. Although 25 states have express
statutory authority for privatized corrections at the state level, only
approximately 5% of the nation's inmate population was housed in privately
managed facilities as of December 31, 1996.

The inmate telecommunications industry places unique demands on
telecommunications systems and service providers. Security and public safety
concerns associated with inmate telephone use require that correctional
facilities use call processor technology, which allows the facilities to
control inmate access to certain telephone numbers and to monitor inmate
telephone activity. In addition, concerns regarding fraud and the called
parties' failure to pay for inmate collect calls require systems and
procedures unique to this industry.

Inmate telephones in the U.S. are operated by a large and diverse group of
service providers. Large telecommunications companies such as RBOCs, other
LECs, and IXCs such as AT&T, MCI, and Sprint provide inmate telecommunications
in addition to other services. In addition, independent public pay telephone
and inmate telephone companies also focus on this market segment. As of
December 31, 1996, the inmate telecommunications market represented
approximately $1.4 billion in gross revenues annually. Management estimates
that approximately 78% of this market is controlled by RBOCs, other LECs, and
IXCs. The remainder of this market is served by independent service providers
such as the Company, with the Company accounting for approximately 66% of this
market and 14% of the total inmate telecommunications market. Management
believes that no other independent provider accounts for more than 5% of the
revenues from the total market.

The Company targets the corrections industry by tracking when the
telecommunications contracts for significant inmate facilities in the U.S. are
up for bid. The Company monitors which federal, state, county, and city
contracts are coming up for renewal and how much revenue is expected to be
generated by each of those contracts. Based upon current information, the
Company believes that there will be a total of 25 state contracts up for bid
between June 30, 1998 and December 31, 1999, representing $345 million in
estimated annual revenues.

EVERCOM'S COMPETITIVE ADVANTAGES

Evercom is the only nationwide telecommunications company focused
exclusively on providing services to correctional facilities. This focus has
enabled the Company to develop industry specific systems and services that
give it operating efficiencies and advantages over competitors in this segment
of the business. The Company believes that these advantages will enable the
Company to more aggressively bid and ultimately win contracts to provide
service to facilities, as well as negotiate favorable billing and network
agreements.

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. Direct Billing. The Company currently has 29 direct billing agreements,
under which LECs include charges for the Company's services on the local
telephone bill sent to the recipient of inmate collect calls. Direct
billing arrangements with LECs are advantageous because they eliminate
the costs associated with third party billing arrangements. Many
independent inmate telecommunications companies lack the size and
expertise to benefit from direct billing through LECs. Management
believes that direct billing arrangements expedite the billing and
collections process and increase collectibility. The Company direct
billed approximately 80% of its operating revenues in June 1998.

. Network. Management believes that the Company's high call volume and
regional concentration have enabled it to obtain low per minute calling
rates, particularly in comparison to the rates typically obtained by
other independent providers. The Company has recently entered into
agreements with alternative long distance providers, such as, ICG,
Unidial, and Vartec, which the Company believes will further reduce its
cost per minute calling rates. The Company is also establishing fixed
cost networks to reduce its operating expenses by obtaining leased lines
in areas where it has significant traffic. To date, the Company has
transmitted its traffic by purchasing minutes of use from other carriers.
However, the Company has begun to enter into month-to-month leases for
networks connecting major cities where the Company has a high level of
market penetration. The Company recently entered into an agreement with
BTI to deploy a leased network in the state of North Carolina. This
agreement is expected to result in a 38% reduction in the Company's
telecommunications costs in the state of North Carolina. The Company is
also pursuing additional alternative network solutions that management
believes will enable the Company to further reduce its operating expenses
as a percentage of revenue. See "--Business Strategy--Implement Cost
Reduction Initiatives."

. Value Added Services. The Company offers a number of value added services
that are tailored to meet the specialized needs of the corrections
industry and the requirements of individual correctional facilities, such
as the LEMS system, which includes jail management, victim notification,
and prisoner profile software packages. LEMS is a computer-based system
that allows prison authorities to better manage facility operations and
track operating information, including, among other data, inmate
profiles, payroll and inventory. Management believes that the Company's
specialized products and services afford the Company a competitive
advantage because it is less likely that a correctional facility will be
able to economically replace all of the services provided by the Company
from alternative sources. Management believes that its ability to provide
these ancillary services gives it an advantage in bidding for new
contracts and retaining existing customers, and the Company intends to
develop these and acquire additional value added services in order to
further enhance the Company's portfolio of value added service offerings.

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BUSINESS STRATEGY

The Company's primary business objectives are to be a cost-efficient, high-
quality provider of inmate telecommunications services to correctional
facilities in the U.S. and to leverage its billing and collections system,
customer base, and telecommunications network to grow its business. The
Company has developed and is implementing the following strategies to meet
these objectives:

. Capitalize on Existing Opportunities to Expand Market Share. The Company
intends to aggressively pursue revenue growth in its core inmate
telecommunications business by winning contracts for which the Company is
not the incumbent and by pursuing the renewal of existing contracts. From
January 1997 through June 1998, in cases where the Company was not the
incumbent, the Company was successful in over 72% of its bids for county
and local contracts and 67% of its bids for state contracts. In August
1998, the Company, in a partnership arrangement with PCS, was awarded the
federal contract for 11 INS facilities, representing approximately 5,840
beds. The Company has historically focused on providing
telecommunications services to city and county correctional facilities
and intends to capitalize upon the growth of all segments of the
corrections industry. Since its inception, based on revenue, the Company
has been successful in obtaining renewals of 95% of its contracts.

. Pursue Opportunities to Perform Third-Party Inmate Telecom Billing. The
Company's call management and billing system focuses on the unique needs
of the corrections industry. This system has provided the Company with
the opportunity to market its inmate billing and collections services to
third parties. The Company recently entered into a contract with a major
RBOC, under which the Company began performing validation, billing, and
collection services for the RBOC's inmate calls in May 1998. Under the
terms of the contract, the Company expects to receive call traffic from
428 local and county facilities. The contract provides that the Company
acquires at a discount the related accounts receivable from the RBOC.
When the receivables are purchased, the Company accepts responsibility
for all billing and collection costs, with no recourse to the RBOC. See
"Risk Factors -- Risk of New Business Areas." However, under the terms of
the agreement, all purchased receivables must be processed and validated
through the Company's call management and billing system. The Company's
revenues from this service equal the difference between the face value of
the receivables purchased and the amount it pays the RBOC for the
accounts receivable. The contract term is three years and has no minimum
volume commitment. In addition, the Company provides call processing
services for a major IXC. The Company is pursuing opportunities to market
these systems to RBOCs, LECs, and other inmate telecommunication
providers.

. Improve Credit and Collection Through Specialized Technology. The Company
believes that its call management and billing system reduces the risk of
uncollectible accounts. Management believes that this system has allowed
it to incur lower uncollectible account expenses than those of its
competitors

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The Company is currently enhancing this system to better identify called
parties that pose an uncollectible account risk, thereby further reducing
the number of such accounts. The Company expects that this enhancement
will be implemented in 1999.

. Implement Cost Reduction Initiatives. The Company has capitalized upon
its geographic concentration and high call volume by pursuing
opportunities to obtain lower per minute calling rates in regions in
which the Company has high market penetration. The Company recently
entered into an agreement with BTI to deploy a private network in North
Carolina. This agreement is expected to result in a 38% reduction in the
Company's telecommunication costs in the state of North Carolina. These
networks consist of T-1s connecting major cities, which the Company
leases on a month-to-month basis. By routing a substantial portion of
traffic over fixed cost leased lines instead of purchasing minutes of
use, the Company believes that it will be able to reduce its operating
expenses as a percentage of revenue. The Company intends to further
reduce costs by installing a carrier-grade switch in Dallas, Texas, which
will give the Company greater flexibility to pursue cost efficient
network strategies by allowing it to aggregate traffic and utilize least
cost routing. The Company is also pursuing additional alternative network
solutions including lower per minute rates from second and third tier
IXCs, carrying voice traffic over frame relay facilities, and
provisioning local lines through competitive local exchange carriers
rather than LECs.

In addition to reducing network costs, the Company intends to pursue
additional cost-saving opportunities. For example, management believes
that the expansion of the Company's installed base of inmate telephones
will allow the Company to enter into additional direct billing
agreements. These agreements generally improve the speed at which the
Company's calls are billed, thereby decreasing billing and collection
costs and bad-debt expense, and increasing the effectiveness of the
Company's call validation process. The Company also intends to reduce
operating costs by fully integrating its past acquisitions, thereby
reducing overhead expenses.

INMATE TELECOMMUNICATIONS OPERATIONS

Products and Services

The Company has developed its products and services to meet the needs of the
inmate telecommunications market. The Company offers the following products
and services as part of its core inmate telecommunications business:

. Inmate Collect Call Services. The Company provides collect call services
on an exclusive basis to its inmate facility customers during the term of
the facility's contract. The majority of calls made by inmates from
correctional facilities are collect calls, with the balance of the calls
being prepaid and debit card calls. The Company's collect call revenues
comprise a majority of the Company's total revenues.

. Prepaid and Debit Card Services. The Company also provides both prepaid
and debit card services to inmates and called parties. The Company sells
debit cards to corrections facilities at a discount to their face value,
which in turn sell the cards at face value to inmates at those
facilities. Prepaid call services allow the recipient of an inmate call
to pay in advance for collect calls placed to the recipient, while debit
card services allow inmates to pay in advance for telephone calls placed
by that inmate. Both prepaid and debit card services have no associated
uncollectible account expenses and minimal billing and collection costs.
The Company's prepaid and debit card services revenues comprise a small
percentage of the Company's revenues, but these revenues are expected to
increase as a percentage of total revenue.

. Billing Services. The Company uses its experience in billing and
collections and management of uncollectible accounts to offer specialized
billing and collection services for other inmate telecommunications
service providers. The Company is pursuing opportunities to market these
services to RBOCs, LECs, IXCs, and other inmate telecommunications
providers. The Company has recently

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entered into a contract with a major RBOC, under which the Company
performs validation, billing, and collections services for the RBOC's
inmate calls. The Company began receiving revenue for billing services
under this contract in May 1998. Under the terms of the agreement, the
Company acquires at a discount the related accounts receivable from the
RBOC for the calls that the Company processes. When the receivables are
purchased, the Company accepts responsibility for all billing and
collections costs, with no recourse to the RBOC. See "Risk Factors --
Risk of New Business Areas." However, under the terms of the agreement,
all purchased receivables must be processed and validated through the
Company's call management and billing system. The Company's revenues from
this service equal the difference between the face value of the
receivables purchased and the amount it pays the RBOC for the discounted
accounts receivable. The contract term is three years and has no minimum
volume commitment.

. Additional Value Added Services. The Company offers value added services
on a customized, facility by facility basis. These services include the
use of the Company's computer-based LEMS system, which includes jail
management, victim notification, and prisoner profile software packages.
The Company offers these value added services to correctional facilities
at no up-front cost in exchange for lower commission rates and longer
contract terms. LEMS is a key selling point for the Company to potential
customers and will also be marketed to its existing customers. The
Company's jail training services include Company-sponsored training
seminars for jail personnel on a variety of topics, including safety and
fraud detection.

Marketing and Customer Service

The Company has historically focused its marketing efforts on local and
county correctional facilities. Local and county facilities house inmates for
shorter durations than federal and state prisons and generally have higher
inmate call volumes. The Company's competitors in bidding for contracts to
serve local and county correctional facilities are usually small, regionally
focused independent providers. For larger local and county correctional
facility contracts, the Company may also compete with the local RBOC. Because
bidding for these contracts is generally less competitive than that for state
and federal facility contracts, the Company pays relatively lower commission
rates for these facilities. Because of their smaller size and limited
resources, however, these facilities typically require a higher level of
service than federal and state facilities. The Company has recently established
a team that focuses predominantly on state accounts, and in the last twelve
months the Company has been awarded four state contracts in addition to certain
state facilities in two other states. In August 1998, the Company, in a
partnership arrangement with PCS, was awarded the federal contract for 11 INS
facilities, representing approximately 5,840 beds.

The Company monitors which federal, state, county, and local contracts are
coming up for renewal and actively markets to these facilities as well as to
facilities currently under contract with the Company, in order to negotiate
contract extensions, product upgrades, and service enhancements. Based upon its
current information, the Company believes that there will be a total of 25
state contracts up for renewal between June 30, 1998 and December 31, 1999,
representing $345.0 million in estimated annual revenues.

The Company seeks new contracts by participating in competitive bidding
processes and by negotiating directly with correctional facilities. The Company
markets its inmate telecommunications services through a sales staff largely
made up of former law enforcement officials and others with experience in the
corrections and telecommunications industries who understand the specialized
needs of correctional facilities. The Company operates five regional offices
from which services are offered, and the Company believes that this is the most
comprehensive service and marketing effort in the inmate telecommunications
industry. The Company's marketing strategy emphasizes the knowledge,
experience, and reputation of the Company in the inmate telecommunications
industry, its high level of service, and the additional specialized products
and services offered by the Company to its correctional facility customers. In
addition to conducting in-person sales calls on the operators of correctional
facilities, the Company participates in trade shows and is active in local law
enforcement associations.

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The Company provides and installs the inmate telephone system in each
correctional facility at no cost to the operator of the facility and generally
performs all maintenance activities. The Company utilizes a geographically
dispersed staff of trained field service technicians and independent
telecommunications services contractors, which allows the Company to respond
quickly (typically within 24 hours) to service interruptions. In addition, the
Company has the ability to make some repairs remotely through electronic
communication with the installed equipment without the need of an on-site
service call. Management believes that system reliability and service quality
are particularly important in the inmate telecommunications industry because
of the potential for disruptions among inmates if telephone service remains
unavailable for extended periods.

Correctional Facility Contracts

The Company has contracts to provide inmate telecommunications services on
an exclusive basis to correctional facilities ranging in size from small,
municipal jails to large, state-operated facilities, as well as other types of
confinement facilities, including juvenile detention centers, private
correctional facilities, and halfway houses. The Company's state contracts
generally cover a greater number of facilities, and typically have longer
terms, than the Company's county or city contracts. The Company's state
contracts range in duration from three to seven years, and the state
facilities that the Company serves range in size from approximately 37 to
1,084 beds. The Company's revenue from state facilities represented $12.0
million in 1997 and $13.3 million for the six months ended June 30, 1998. The
Company's county and local contracts typically range in duration from three to
five years. These facilities range in size from approximately eight to 6,300
beds, with a typical size of 100 to 500 beds. The Company's revenues from
county and local facilities represented $78.5 million in 1997 and $88.4
million for the six months ended June 30, 1998.

Management estimates that the Company provides inmate telecommunications
services to over 75% of the county correctional facilities in the states of
Alabama, Colorado, Illinois, Iowa, Kansas, Missouri, and Nebraska, and to over
50% of the county correctional facilities in the states of Idaho, Indiana,
Kentucky, Minnesota, Mississippi, Montana, Ohio, Oklahoma, South Carolina,
South Dakota, Tennessee, and Utah. The Company has the state contracts for
Alabama, Alaska, North Carolina, North Dakota, and West Virginia, and state
facilities in Oklahoma and Mississippi. The contract for the state of Alabama
is currently up for renewal. This contract represented 5.7% of the Company's
revenues for the six months ended June 30, 1998. The Company believes that
there will be a total of 25 state contracts for which the Company is not the
incumbent up for bid between June 30, 1998 and December 31, 1999, representing
$345.0 million in estimated annual revenues. The Company intends to bid on
substantially all of these contracts. The Company has historically won 67% of
its bids for new state contracts.

In addition, contracts that accounted for 59% of the Company's revenues for
the period ended June 30, 1998 will be up for renewal before December 31,
1999. The Company intends to bid on substantially all of these renewals, and
the Company has historically been successful in renewing contracts accounting
for in excess of 95% of its revenues for local and county facilities. The
average term of the Company's contracts with facilities is approximately
48 months, and the average remaining term is approximately 23 months. The
Company typically secures renewals of its contracts before the end of their
stated terms.

Billing Arrangements

The Company uses direct and third party billing agreements to bill and
collect phone charges. Under direct billing agreements with LECs, the LEC
includes collect call charges for the Company's services on the local
telephone bill sent to the called party. The Company generally receives
payment from the LEC for such calls 30 to 60 days after the end of the month
in which the call is submitted to the LEC for billing. The payment received by
the Company is net of a service fee, write-offs of uncollectible accounts, and
an estimated reserve for bad-debt expense.

Unlike many smaller independent service providers with lower
telecommunications traffic, the Company has been able to enter into direct
billing agreements in most of its markets because of the Company's high market
penetration. The Company's increased telecommunications traffic has enabled
the Company to enter into

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29 direct billing arrangements that enabled the Company to direct bill
approximately 80% of its operating revenues in June 1998. Management believes
that direct billing agreements expedite the billing and collection process and
increase collectibility. These contracts require up-front capital commitments
at the time of execution, experienced personnel to correctly deliver the bills
to the LECs, and sufficient volume to meet the minimum requirements typically
required by such agreements. The Company therefore believes that it has a
significant lead time advantage against any competitor that may attempt to
replicate the Company's direct billing system. Management believes that its
direct billing agreements give it a competitive advantage against both RBOCs
and smaller independent providers.

In the absence of a direct billing arrangement, the Company bills and
collects its fees through a third-party billing and collection clearinghouse
that in turn has a billing and collection agreement with the LEC. When the
Company employs a third-party billing and collection clearinghouse, the
account proceeds are forwarded by the various LECs to the clearinghouse, which
then forwards the proceeds to the Company, less a processing fee that varies
from 2% to 3% of billed revenues. The Company also has a central billing
office that receives all call records and then enters them into the Company's
call activity data base.

The Company's specialized call management and billing system integrates its
direct billing arrangements with LECs with its call blocking, validation, and
customer inquiry procedures. Through the use of this system, the Company
believes it has incurred lower levels of expenses associated with
uncollectible accounts than its competitors. Management is currently
implementing this system throughout the Company's existing operations and
intends to implement this system in future acquired operations, thereby
enhancing the profitability of such operations. This system has also provided
the Company with the opportunity to market its billing and collection services
to third parties. The Company has recently entered into a contract with a
major RBOC, under which the Company performs all of the inmate billing and
collection functions for inmate call records supplied by the RBOC. In
addition, the Company provides call processing services for a major IXC. The
Company intends to pursue opportunities to market this system to third parties
such as RBOCs, LECs, and other inmate telecommunication providers.

Systems

The Company currently utilizes a call management and billing system that
consists of purchased and internally developed software applications on
specialized equipment. The Company's call processing and billing system limits
inmates to collect, prepaid, or debit calls; validates and verifies the
payment history and account status of each number dialed for billing purposes;
and confirms that the destination number has not been blocked. The Company
also installs its internally developed call management system ("CAM") within
new facilities that require special features such as call monitoring and
recording capability. The graphic below illustrates the different segments of
the Company's call management and billing system:

(CHART)

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Step 1--When an inmate picks up a telephone in a correctional facility to
make a collect call the inmate is first prompted to enter 0 plus the number
being called.

Step 2--The number is transmitted over local or long distance lines to a
database manager retained by the Company to validate calls, Transactional
Network Services ("TNS"). TNS validates the called party's phone number
against the Company's proprietary database to determine if the number has been
blocked or otherwise restricted by the Company. If the number is not resident
in the Company's database, TNS then relays the call information to the Line
Information Data Base ("LIDB"), which is maintained by the RBOCs, to validate
whether the number dialed is a billable number. Once LIDB indicates the number
dialed is valid (that is, numbers other than cellular telephones, pay phones,
and other numbers to which Company is unable to bill), TNS stores and retains
this information in the Company's database for a period of time specified by
the Company.

Step 3--If a number has not been blocked, the system automatically requests
the inmate's name, records the inmate's response, and waits for the called
party to answer. When the call is answered, the system informs the called
party that there is a collect call from a correctional facility, plays back
the name of the inmate in the inmate's voice, and instructs the called party
to accept or reject the call. On October 1, 1999, a new Federal regulation
will take effect that will require that called parties be offered the option
of receiving a rate quote before incurring charges (see "--Regulation--Federal
Regulation"). The system only completes calls that have been accepted by the
called party.

Step 4--The call processor automatically records details of each call, such
as the number called, the date and time the call was made, and the length of
the call, and stores the information for remote retrieval. The call processor
is polled daily and a billing rate is assigned by the call processor to each
call.

Step 5--The call records are then transported via the Company's wide area
network to a central billing office where they are entered into the Company's
call activity data base. The calls are then run through a series of filters to
determine the billing status of the called party. Called party numbers that
reach their billed limit are sent daily to TNS to update the Company's
database so that no more calls will be allowed to that number until payment is
received from the called party.

Step 6--The central billing office then consolidates all calls for each LEC
and sends the information to the applicable LEC daily or weekly depending on
the traffic volume.

Step 7--The LECs process billing data and include the tolls in the called
party's monthly telephone bill.

Step 8--The Company's customer inquiry center responds to most billing
inquiries from called parties. When a called party questions a charge on his
or her bill or a block status, the Company's customer service representative
is able to retrieve the call history for that called party. This gives the
representative information about that customer to determine whether a call
should be credited. The Company makes most decisions related to crediting
calls, and thereby has greater control in determining account charge-offs than
it would if such decisions were made by third party inquiry centers.

The Company's database of telephone numbers and call activity allows the
Company to provide extensive call activity reports to correctional facilities
and law enforcement authorities. These include reports of frequently called
numbers, calls of longer than normal duration, and calls by more than one
inmate to the same number, which can assist law enforcement authorities in
connection with ongoing investigations. Management believes this database
offers competitive advantages particularly within states in which the Company
has achieved substantial market penetration.

OTHER OPERATIONS

The Company owns, operates, services, and maintains a system of
microprocessor controlled public pay telephones that are ancillary to its
inmate telecommunications business, and occasionally installs public pay

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telephones as an accommodation to, or pursuant to a contract requirement
imposed by, its correctional facility customers.

COMPETITION

In the inmate telecommunications business, the Company competes with
numerous independent providers of inmate telephone systems, RBOCs, LECs, and
IXCs. Many of the Company's competitors are larger and better capitalized with
significantly greater financial resources than the Company. The Company
believes that the principal competitive factors in the inmate
telecommunications industry are (i) rates of commissions paid to the
correctional facilities; (ii) system features and functionality; (iii) system
reliability and service; (iv) the ability to customize inmate call processing
systems to the specific needs of the particular correctional facility; and (v)
relationships with correctional facilities.

Historically, federal and state correctional facilities, which are generally
bid on a system-wide basis, have been served by RBOCs, large LECs, and major
long distance companies that are able to leverage their existing systems and
infrastructure to serve these large, high-volume customers without significant
additional capital expenditures. These same service providers, however, have
generally not focused on the smaller city and county correctional contracts
that may be awarded on a facility-by-facility basis. Management believes that,
because of the variance in the level of service required by these relatively
small facilities, service providers must maintain a more extensive service
infrastructure in order to compete within this segment of the corrections
industry. Due to greater costs associated with serving smaller facilities and
their lower volume of telecommunications traffic, management believes that
large service providers have historically found the smaller facilities less
attractive to serve. As a result, a significant portion of city and county
correctional facilities are served by independent inmate telephone and public
pay telephone companies. Management believes that the market for city and
county correctional facilities is fragmented and is occupied by a number of
competing service providers.

REGULATION

The inmate telephone industry is regulated at the federal level by the FCC
and at the state level by the public utility commissions of the various
states. In addition, from time to time, legislation may be enacted by Congress
or the various state legislatures that affects the telecommunications industry
generally and the inmate telephone industry specifically. Court decisions
interpreting applicable laws and regulations may also have a significant
effect on the inmate telephone industry. Changes in existing laws and
regulations, as well as the adoption of new laws and regulations applicable to
the activities of the Company or other telecommunications business, could have
a material adverse effect on the Company.

Federal Regulation

Prior to 1996, the federal government's role in the regulation of the inmate
telephone industry was limited. The enactment of the Telecom Act, however,
marked a significant change in the scope of federal regulation of inmate
telephone service. Section 276 of the Telecom Act directed the FCC to
implement rules to overhaul the regulation of the provision of pay telephone
service, which Congress defined to include the provision of inmate telephone
service.

Before adoption of the Telecom Act, LECs generally included inmate telephone
operations as part of their regulated local exchange telephone company
operations. This allowed the LECs to pool revenue and expenses from their
monopoly local exchange operations with revenue and expenses from their inmate
telephone operations. This commingling of operations made possible the
subsidization of the LECs' inmate operations through other regulated revenues.
The LECs were also able to shift certain costs from their inmate operations to
their local exchange monopoly accounts. In particular, the LECs were able to
pool the bad debt from their inmate operations with their other bad debt.
Because inmate telephone providers act as their own carrier, they bear the
risk of fraudulent calling and uncollectible calls and other bad debt. Bad
debt is substantially higher in the inmate telephone industry than in other
segments of the telecommunications industry. The LECs' practice of pooling

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bad debt shifts the high costs of bad debt from inmate telephone operations to
the expense accounts of other LEC operations, presenting a vehicle for the
cross-subsidization of the LECs' inmate operations, which, in turn, has
allowed the LECs to offer commissions to correctional facilities that are
significantly higher than those that independent inmate telephone providers
can offer.

Section 276 directed the FCC to adopt regulations to end the LECs'
subsidization of their inmate telephone operations from regulated revenues.
Congress also directed the FCC to ensure that the LECs could not discriminate
in favor of their own operations to the competitive detriment of independent
inmate telephone providers. Finally, Congress required the FCC to ensure that
all inmate telephone providers were fairly compensated for "each and every"
call made from their telephones.

To carry out its Congressional mandate, the FCC adopted regulations
requiring all LECs to transfer their inmate telephone operations from their
regulated accounts to the LECs' unregulated accounts no later than April 15,
1997. While the FCC's rules implementing Section 276 are designed to eliminate
cross-subsidization and cost-shifting, there are significant questions
regarding their ultimate effect. For example, it is unclear whether the FCC's
rules will fully prevent the shifting of bad debt from inmate operations to
the LECs' regulated accounts. Since the bad debt arises from the charges for
collect calls, which have traditionally been regulated carrier activities, the
FCC has not yet finally resolved exactly how the bad debt from inmate
operations will be allocated between regulated and unregulated accounts.

The FCC also addressed the one-time transfer of existing inmate telephone
operation assets from the LECs' regulated accounts to the unregulated accounts
established for inmate telephone operations. The FCC ordered the transfer of
those assets at their net book value rather than at their fair market value.
The inmate telecommunications industry had argued to the FCC that the transfer
should be accomplished at the assets' fair market value, including the value
of the contracts between the LECs' inmate operations and correctional
facilities. The net book value of those assets is much lower than their fair
market value. As a result of the below market valuation of the assets, the
LECs' inmate telephone operations may be able to post nominally higher returns
on their assets than they would otherwise be able to and hence relieve
operating pressures for returns on assets. This also could result in a
competitive advantage for the LECs with respect to access to capital markets
compared with the Company and other independent inmate telephone providers.

To eliminate discrimination, the FCC required, among other things, that the
LECs' inmate telephone operations take any tariffed services from its
regulated operations at the tariffed rate for the service, rather than the
actual cost of the service. Before the Telecom Act, the LECs' inmate
operations were able to take these services at some variant of their
underlying costs without regard to the tariffed rate being charged to
independent providers. Under the Telecom Act, the LECs' inmate operations must
take tariffed services on an arm's length basis, at tariffed rates that are
subject to regulatory approval. Further, the rates for the tariffed services
offered to both the LECs' inmate telephone operations and independent inmate
telephone providers must be developed on a consistent basis. The test that the
FCC has mandated for the pricing of services to both independent inmate
telephone providers and the LECs' own inmate operations will require a
reexamination of existing rates and may lead to a rate reduction for services
in some instances, while it is also possible that the rate reexamination may
result in some rate increases. In either event, the requirement for a
consistent methodology for developing rates should substantially reduce LEC
opportunities for unfavorable rate discrimination against independent inmate
telephone providers like the Company.

The FCC did allow the LECs to offer certain non-tariffed services, for
example, repair and installation services, to the LECs' inmate operations on a
cost-sharing basis, which could result in some cost advantage to the LECs'
inmate operations. The LECs are free to price these services at full market
rates to independent inmate telephone providers. Independent inmate telephone
providers are not, however, dependent on the LEC for these services, as they
are with telephone lines; independent inmate telephone providers can provide
services like repair and installation with their own staff or contractors.

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To ensure "fair compensation" for inmate telephone providers, the FCC held
that it was not required to prescribe compensation for collect calls because
inmate providers act as their own carriers and collect the revenue from those
calls directly from called parties. The inmate telephone industry had argued
to the FCC, however, that because of state-mandated ceilings on the rates for
intrastate collect calls, inmate telephone providers could not recover
adequate revenue for those calls, and accordingly, had sought an "inmate
system compensation charge" in addition to the charges collected for carrying
the call. See "--State Regulation."

Because of continuing restrictions stemming from the 1984 divestiture of the
RBOCs by AT&T, the RBOCs are not able to carry long distance traffic. Prior to
the Telecom Act, the RBOCs were also precluded from choosing a long distance
carrier for calls originating from facilities where the RBOCs provided the
inmate telephone service and receiving commission revenue from that carrier.
Instead, carriers were selected by, and paid commissions directly to, the
individual correctional facilities being served by RBOCs.

Pursuant to the Telecom Act, the FCC decided that the RBOCs would be allowed
to choose their own carrier for their traffic from a given correctional
facility. As a result, the RBOCs may gain the ability to negotiate higher
commission rates to be paid to them from their contracted carrier by
aggregating traffic from several facilities into a single contract with the
carrier.

Many aspects of the FCC's rules implementing Section 276 are currently the
subject of further proceedings by the FCC. In particular, two important issues
are back before the FCC as the result of a court challenge in which the FCC
voluntarily sought, and the court granted, a remand to the FCC for further
proceedings. The first of those issues is the FCC's decision not to prescribe
compensation for inmate collect calls. If the FCC ultimately decides to
prescribe compensation, the Company could potentially benefit from the ability
to collect additional revenue. It is not possible to predict whether the FCC
will prescribe compensation and the degree to which the Company could benefit,
if at all, would depend on the exact compensation scheme ultimately prescribed
by the FCC for inmate collect calls.

The second important issue before the FCC on remand is the FCC's decision to
include only inmate telephone equipment and not the collect calling service
itself in the inmate telephone services that the RBOCs must provide on a
nonregulated basis. As a result of this ruling, the RBOCs have to some extent
remained able to subsidize and discriminate in favor of their inmate calling
operations. In particular, so long as the RBOCs can continue to define their
inmate collect calling service as part of their regulated operations, they may
be commingling that bad debt with bad debt from other services. It cannot be
predicted how the FCC will rule on this issue on remand. However, if the FCC
reverses its stance and defines nonregulated inmate calling services to
include inmate collect calls, the Company could potentially benefit from a
reduction in the ability of its RBOC competitors to subsidize and discriminate
in favor of their inmate operations.

Because of the further proceedings pending before the FCC, the ultimate
effects of the rule changes mandated by the Telecom Act are uncertain. In
particular, the extent to which the FCC's rules designed to eliminate
subsidization and discrimination by the LECs prove to be effective will
significantly affect the level of competition faced by the Company in the
inmate telecommunications market. Similarly, although the rules have been in
effect for over a year, it is too early to assess the LECs' competitive
responses to them.

Apart from its proceedings to implement the Telecom Act, the FCC also
recently adopted regulations for interstate calls requiring inmate telephone
service providers to announce to called parties, before the called party
incurs any charges, that rate quotes may be obtained by dialing no more than
two digits or remaining on the line. The Company must come into compliance
with these new rules by October 1, 1999. The Company's existing systems
already have the capability to perform this function. These new regulations
could result in an increase in the Company's costs by slightly increasing the
non-billable network hold time for interstate collect calls. Also, since the
Company may comply with the new Federal requirement by implementing rate
disclosure on all calls, including intrastate calls, the new regulations may
lead to slight increases in the costs for all inmate collect calls carried by
the Company. In addition, the announcement of rate quotes may lead to called
parties refusing to

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accept calls. The exact effect of the new regulations is difficult to predict
as it will depend in large part on how frequently called parties will opt to
receive a rate quote.

Significantly, the FCC adopted the rate disclosure option in lieu of the so-
called "Billed Party Preference" proposal that had been pending before the FCC
for several years. Under that plan, inmate telephone service providers would
have been required to send their interstate inmate collect calls to the called
party's pre-subscribed carrier, thereby bypassing the opportunity for the
inmate telephone service provider to receive revenue from the calls. The
Company believes that the rate quote regulations adopted by the Commission are
a preferable alternative to Billed Party Preference, which would potentially
have had a much more adverse effect on the Company's business.

State Regulation

The most significant state involvement in the regulation of inmate telephone
service is the limit on the maximum rates that can be charged for intrastate
collect calls set by most states, referred to as "rate ceilings." Since
collect calls are generally the only kind of calls that can be made by inmates
in correctional facilities, the state-imposed rate ceilings on those calls can
have a significant effect on the Company's business.

In many states, the rate ceilings on inmate collect calls within the
originating LEC's service area are tied to the rates charged by the LEC and
subject to state regulatory approval. Thus, where the LEC chooses not to raise
its rates, independent inmate telephone providers are precluded from raising
theirs. Prior to the passage of the Telecom Act, the LECs had less incentive
to raise their rates than independent inmate telephone providers because the
LECs were able to subsidize their inmate telephone operations and discriminate
in their favor, as described above. See "--Federal Regulation." It is possible
that as a result of the FCC's new rules designed to eliminate such subsidies,
some LECs may choose to file with their state commissions to raise their rates
for inmate collect calls. If this occurs, the Company and other independent
inmate telephone providers could also raise their rates. It is difficult to
predict the extent to which the LECs will raise their rates.

For calls going outside the originating LEC's service area, there may be
state rate ceilings tied to the rates of the largest IXCs. In some cases,
these rate ceilings can also make sufficient cost recovery difficult. In
general, the cost recovery problems that arise from rate ceilings tied to IXC
rates are not as severe as the difficulties created by rate ceilings tied to
LEC rates.

In its rulemaking implementing the Telecom Act, the FCC declined to address
these state rate ceilings. The FCC ruled that inmate telephone providers must
first seek relief from the state rate ceilings at the state level. The outcome
of any such proceedings at the state level, if undertaken, is uncertain.
Further, it is uncertain whether the FCC would intervene or if so, how, in the
event a state failed to provide relief. This issue is part of the currently
pending FCC remand proceeding.

In addition to imposing rate caps, the states regulate other aspects of the
inmate calling industry. While the degree of regulatory oversight varies
significantly from state to state, state regulations generally establish
minimum technical and operating standards to ensure that public interest
considerations are met. Among other things, most states have established rules
that govern registration requirements, notice to called parties of the
identity of the service provider in the form of postings or verbal
announcements, and requirements for rate quotes upon request. In some
jurisdictions, in order for the Company to operate its inmate telephones and
public pay telephones, it is necessary to become certificated and to file
tariffs with the appropriate state regulatory authority.

In connection with the Offering, the Company will be required to make notice
filings with the state regulatory authorities in certain states in which the
Company conducts a limited portion of its business. The Company does not
believe that the failure to obtain such consents or approvals, individually or
in the aggregate, would have a material adverse effect on the Company or its
operations.

53
<PAGE>

TRADENAMES

The Company has two registered trademarks, Security Telecom Corporation(R)
and STC(R) and has developed or acquired a number of additional unregistered
tradenames that it uses in its business. Although the use of these trademarks
and tradenames has created goodwill in certain markets, management does not
believe that the loss of these trademarks and tradenames would have a material
adverse effect on the Company's operations. The Company also has a
registration application pending for the tradename Evercom.

FACILITIES

The Company's principal executive offices are located in and a portion of
its operations are conducted from, leased premises located at 8201 Tristar
Drive, Irving, Texas 75063. The Company also has three additional regional
facilities from which it conducts its operations located in Selma, Alabama;
Louisville, Kentucky; and Lee's Summit, Missouri, all of which are leased.

ENVIRONMENTAL

The Company is subject to certain federal, state, and local environmental
regulations. Management does not expect environmental compliance to have a
material effect on the Company's capital expenditures, earnings, or
competitive position in the foreseeable future.

EMPLOYEES

As of June 30, 1998, the Company had approximately 339 employees, of which
approximately 37 were executive and administrative personnel, and
approximately 302 were sales, marketing, technical, and other operations
personnel.

LEGAL PROCEEDINGS

The Company is from time to time a party to other legal proceedings that
arise in the ordinary course of business. Management does not believe that the
resolution of any threatened or pending legal proceedings will have a material
adverse affect on the Company.

From time to time, inmate telecommunications providers are parties to
proceedings initiated by consumer protection advocates or individual called
parties alleging that excessive rates are being charged with respect to inmate
collect calls. One such proceeding is currently pending in the United States
District Court in the State of Kentucky. The Company has not been named in the
proceeding, however, the plaintiffs in such proceeding are seeking class
action certification as to all inmate telecommunications providers as
defendants, and all recipients of calls from inmate Facilities, as plaintiffs.
The proceeding is in its preliminary stages. See "Risk Factors--Changes in
Regulation Could Adversely Affect the Company."

In addition, the Company has received notice from two parties that certain
features of the Company's call processor technology may infringe upon such
parties' patents. See "Risk Factors--Lack of Patents and Possible
Infringements."

The Company was unsuccessful in obtaining a Federal Board of Prisons
contract, and has appealed the award. There can be no assurances that the
Company will be successful in appealing this award.

54
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages, and positions of each of the
directors and executive officers of the Company as of September 8, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis L. Whipple....... 54 Chief Executive Officer, Vice Chairman, and Director
Donald B. Vaello........ 51 Chief Operating Officer
Jeffrey D. Cushman...... 36 Chief Financial Officer, Vice President, Secretary, and Treasurer
Keith S. Kelson......... 31 Vice President, Assistant Secretary, and Assistant Treasurer
Todd W. Follmer(1)...... 39 Chairman of the Board of Directors
Gregg L. Engles......... 40 Director
Richard H.
Hochman(1)(3).......... 52 Director
Jay R. Levine(2)(3)..... 42 Director
Nina E. McLemore(2)..... 53 Director
Bruce I. Raben(1)....... 44 Director
David A. Sachs(2)....... 39 Director
Roger K. Sallee(3)...... 50 Director
Joseph P. Urso.......... 44 Director
Julius E. Talton,
Sr. (2)................ 70 Director
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit and Finance Committee
(3) Member of the Compensation Committee

Dennis L. Whipple. Mr. Whipple became Chief Executive Officer, Vice
Chairman, and a Director of the Company in September 1998. From June 1995
until March 1998, Mr. Whipple served as President of ALLTEL Communications,
Inc. Mr. Whipple served as Chief Executive Officer and President of Contel
Cellular, Inc. from 1991 through June 1995. Prior to joining Contel Cellular,
Inc., Mr. Whipple held various positions with GTE from 1971 through 1991, most
recently as Corporate Vice President of Marketing and Business Development.

Donald B. Vaello. Mr. Vaello became Chief Operating Officer of the Company
in June 1998. From August 1994 until June 1998 Mr. Vaello served as Chairman
and Chief Operating Officer of North American Intelcom, 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 Intelcom, most recently as President and Chief
Operating Officer.

Jeffrey D. Cushman. Mr. Cushman became Chief Financial Officer of the
Company in November 1997. In addition, in December 1997 Mr. Cushman was named
Vice President, Secretary, and Treasurer. From 1985 until October 1997, Mr.
Cushman served in various capacities with Electronic Data Systems Corporation
("EDS"), most recently as director of Business Development for EDS' Customer
Solutions Unit.

Keith S. Kelson. Mr. Kelson became Vice President of Finance of the Company
in April 1998 and became Assistant Secretary and Assistant Treasurer of the
Company in May 1998. From January 1995 until April 1998, Mr. Kelson served in
the accounting and auditing services division of Deloitte & Touche, LLP. From
May 1991 until January 1995, Mr. Kelson served as the Accounting Manager for
Viata Corporation, a credit card processing company. Mr. Kelson is a certified
public accountant.

Todd W. Follmer. Mr. Follmer was elected to the Company's Board of Directors
in December 1996 and became Chairman of the Company's Board of Directors in
June 1998. Mr. Follmer served as the Company's Chief Executive Officer and
President from June 1998 until September 1998. From December 1996 until June
1998, Mr. Follmer served as Acting Chief Executive Officer, Vice President,
Assistant Secretary, and Assistant

55
<PAGE>

Treasurer. Mr. Follmer has been a principal of EUFCC since January 1996. From
January 1993 until December 1995, Mr. Follmer served as President of Gulf
Capital Partners Inc., a merchant banking firm. From May 1988 until December
1992, Mr. Follmer served in various capacities with Donaldson, Lufkin &
Jenrette Securities Corporation, an investment 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 EUFCC 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 Corporation 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 was also President of Engles Capital Corporation, an investment banking
and consulting firm, from May 1989 to October 1992. Mr. Engles is a director
of Columbus Realty Trust.

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.

Jay R. Levine. Mr. Levine was elected to the Company's Board of Directors in
November 1996. Since May 1997, Mr. Levine has served as a Managing Director of
CIBC Oppenheimer Corp., an investment banking firm. From September 1996 to
April 1997, Mr. Levine served as President of PPMJ, Inc., an investment
banking and consulting firm. From January 1994 to June 1996, Mr. Levine served
as President of Springfield Services, Inc., a private investment company. From
August 1990 to January 1994, Mr. Levine served as Vice President of
Morningside/North America Limited, a private investment company affiliated
with Springfield Services, Inc. Mr. Levine is a director of Aircraft Service
International Group, Consolidated Advisers Limited, L.L.C., Global Crossing,
Ltd., 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 1990 until 1993, Ms.
McLemore served in various capacities with Liz Claiborne Accessories.

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 Oppenheimer Corp. 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., GT Parent Holdings, L.D.C.,
Terex Corporation, Optical Security, Inc., 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.

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 President and
Chief Executive Officer from July 1991 until December 1996.

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
EUFCC since January 1996. Since March 1996, Mr. Urso

56
<PAGE>

has served as Chairman of Interstate Engineering, a manufacturing firm located
in California. Mr. Urso was a shareholder of Stutzman & Bromberg, P.C. from
January 1992 until June 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 is a Director of the People's Bank and Trust Company in Alabama.

BOARD OF DIRECTORS

The Company's Certificate of Incorporation and Bylaws will provide for a
classified Board of Directors. The Board of Directors will be divided into
three classes, with regular three-year staggered terms. Mr. , Mr.. , and
Mr. will be Class I Directors and will serve until the annual meeting of
stockholders in 1999; Mr. and Mr. will be Class II Directors and will
serve until the annual meeting of stockholders in 2000; and Mr. and Mr.
will be Class III Directors and will serve until the annual meeting of
stockholders in 2001. At each annual meeting of stockholders beginning with
the 1999 annual meeting, the successors to the directors whose terms have
expired will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been duly elected and qualified. Any additional directorships resulting
from an increase in the number of directors will be distributed among the
three classes so that, as nearly as possible, each class will consist of an
equal number of directors. Moreover, the Company's Certificate of
Incorporation will also provide that directors may only be removed from office
prior to the expiration of their term for "cause." This provision could delay,
prevent, or make more difficult a merger, tender offer, or proxy contest
involving the Company.

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, 1997 and December 31, 1996.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER ANNUAL SHARES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS (#) ($)
- --------------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis L. Whipple(2)..... 1997 -- -- -- -- --
Chief Executive Officer 1996 -- -- -- -- --
Todd W. Follmer.......... 1997 -- -- -- -- --
Chairman of the Board of
Directors 1996 -- -- -- -- --
John R. Summers.......... 1997 100,000 20,000 -- -- --
Vice President and
Assistant Secretary 1996 94,565 211,506(3) -- -- --
Julius E. Talton, Jr..... 1997 125,000 24,190 -- -- --
Vice President 1996 101,926 -- -- -- --
John A. Crooks, Jr....... 1997 95,353 50,000 -- -- --
Vice President 1996 -- -- -- -- --
</TABLE>
- --------
(1) In each case, 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 reported for the named Executive Officer.
(2) Appointed effective September 8, 1998.
(3) Includes special bonuses of $195,506 paid in connection with the Company's
acquisition of AmeriTel and Talton Telecommunications.

57
<PAGE>

Employment Agreements and Other Arrangements

In December 1996, the Company entered into consulting or employment
agreements with each of Julius E. Talton, Julius E. Talton, Jr., Roger K.
Sallee, James E. Lumpkin, and John R. Summers, each of whom was a former
stockholder of AmeriTel or Talton Telecommunications. See "Certain
Transactions--Consulting and Employment Agreements." In addition, the Company
is a party to an employment agreements with each of John A. Crooks, Jeffrey D.
Cushman, Donald B. Vaello, and Keith S. Kelson, and intends to enter into an
employment agreement with Dennis L. Whipple, each of which are described
below.

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 has 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 receives an annual base salary of $140,000 and a one-time guaranteed
bonus of $70,000, $35,000 of that was paid on January 30, 1998, and the
remaining $35,000 of which is payable on or before December 31, 1998. Mr.
Cushman is also eligible for an annual bonus generally equal to 50% 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. In addition, Mr. Cushman is eligible to receive options to purchase
shares of Common Stock at a price of $ per share. The employment
agreement provides for a severance payment equal to one year's base salary if
Mr. Cushman is 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, provided that the one year period shall be
extended for an additional year in the event that Mr. Cushman, rather than the
Company, terminates the employment agreement.

Donald B. Vaello joined the Company as Chief Operating Officer in June 1998.
The Company entered into a written employment agreement with Mr. Vaello that
has an initial term expiring on June 30, 2001, 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 $200,000, and a one-time guaranteed bonus of
$30,000, payable on or before December 31, 1998. Mr. Vaello is also eligible
for an annual bonus generally equal to an additional amount up to 50% 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, Mr. Vaello is eligible to receive options to purchase
shares of Common Stock at a price of $ per share. The employment
agreement provides for a severance payment equal to one year's base salary if
Mr. Vaello is 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. Mr. Kelson's offer letter specifies that Mr. Kelson receives a base
salary of $100,000 per year and a one-time guaranteed bonus of $25,000 payable
in January 1999. Mr. Kelson is also 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 letter specifies
that Mr. Kelson is eligible to receive options to purchase shares of
Common Stock at an exercise price of $ per share. 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 intends to enter into a written employment agreement with
Mr. Whipple that has an initial term expiring on December 31, 2001, 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. It is anticipated that Mr. Whipple will receive an annual base salary
of $300,000, and guaranteed bonus of $75,000 for 1998. It is also expected
that Mr. Whipple will be eligible for incentive bonuses each year beginning in
1999, in an amount up to 150% of his base salary based upon the Company
achieving certain pre-determined performance objectives. In addition, it is
anticipated that Mr. Whipple will receive options to purchase shares of
Common Stock at a per

58
<PAGE>

share price of $ and shares of Common Stock at a per share price of $ .
It is also anticipated that the employment agreement will provide for a
severance payment equal to $450,000 if Mr. Whipple is terminated by the
Company without cause. The employment agreement is also expected to contain
non-competition provisions that will cover the Company's existing markets and
expansion markets and that will apply during the term of the agreement and for
a period of one year after the expiration or earlier termination of the
agreement.

John A. Crooks' employment agreement with the Company was terminated
effective as of August 15, 1998. Pursuant to such termination, Mr. Crooks will
receive a severance payment equal to one year's base salary.

Stock Option Plans

The Company's 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 the Company's Common Stock.
The Stock Option Plan is administered by the Compensation Committee of
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 intended 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 in 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 shares of Common Stock for issuance pursuant to
the Stock Option Plan. As of June 30, 1998, options to acquire shares have
been granted to the Company's employees. The option exercise price for each of
these options is $ 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 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 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 causes of action based on
federal law.

The Company's By-laws provide for indemnification of its officers and
directors to the fullest extent permitted by the DGCL.

59
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of the Company's
capital stock as of September 9, 1998 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. Upon consummation of the
Offering, each share of Senior Preferred Stock will be converted into
shares of Common Stock. If any holder of the Senior Preferred Stock elects not
to convert their shares into Common Stock, the Company will be required to
redeem such holders' Senior Preferred Stock. The following table presumes that
all of the outstanding shares of Senior Preferred Stock will be converted into
Common Stock prior to the Offering.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------
NUMBER OF
SHARES OF
COMMON PERCENT
NAME OF BENEFICIAL OWNER STOCK OF CLASS (1)
- ------------------------ ------------- --------------
<S> <C> <C>
CIBC Wood Gundy Ventures, Inc.(2).............
John A. Crooks, Jr............................
Jeffrey D. Cushman............................
Gregg L. Engles(3)............................
Todd W. Follmer(3)............................
Richard C. Green, Jr..........................
Robert K. Green...............................
Richard H. Hochman(4).........................
Keith S. Kelson...............................
Jay R. Levine(2)(5)...........................
James E. Lumpkin(6)...........................
Terry C. Matlack..............................
Nina E. McLemore(7)...........................
William M. Ohland(8)..........................
Onyx Talton Partners, L.P.(9).................
Bruce I. Raben(2)(5)..........................
Regent Capital Partners, L.P.(10).............
David A. Sachs(11)............................
Roger K. Sallee...............................
John R. Summers...............................
Julius E. Talton(6)...........................
Julius E. Talton, Jr.(6)......................
Joseph P. Urso(3).............................
Donald B. Vaello..............................
Dennis L. Whipple.............................
All executive officers and directors as a
group (17 persons)...........................
</TABLE>
- --------
* Less than 1.0%
(1) Such percentages have been calculated in accordance with Section 13(d)(4)
the Securities Exchange Act of 1934, as amended.
(2) Includes shares of Common Stock subject to a warrant that is
exercisable within 60 days after September 9, 1998. CIBC Wood Gundy
Ventures, Inc.'s address is 161 Bay Street, Eighth Floor, BCE Place, P.P.
Box 500, M5J 258, Toronto, Canada. Messrs. Jay Bloom, Andrew Heyer, and
Dean Kehler, each of whom are managing directors of CIBC Oppenheimer
Corp., may be deemed to share with CIBC Wood Gundy Ventures, Inc. the
power to vote and dispose of the shares indicated, and may therefore be
deemed to be beneficial owners of such shares.
(3) The address for each of these stockholders is 3811 Turtle Creek Blvd.,
Suite 1300, Dallas, Texas 75219.

60
<PAGE>

(4) Includes shares of Common Stock held by Regent Capital Partners. 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.
(5) Includes shares of Common Stock and warrants to acquire shares of
Common Stock beneficially owned by CIBC. Mr. Levine and Mr. Raben were
designated by affiliates of CIBC to the Company's Board of Directors and
are managing directors of CIBC Oppenheimer Corp., an affiliate of CIBC.
Messrs. Levine and Raben disclaim beneficial ownership of such shares.
(6) The address for each of these stockholders is 801 Alabama Avenue, Selma,
Alabama 36701.
(7) Includes shares of Common Stock held by Regent Capital Partners. 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 shares issued to STC as part of the purchase price in the
Company's acquisition of STC. STC's address is c/o Sparta Corp., P.O. Box
595789, Dallas, Texas 75359.
(9) Onyx Talton Partners, L.P.'s address is 9595 Wilshire Blvd., Suite 700,
Beverly Hills, California 90212.
(10) Includes shares of Common Stock held by Regent Capital Equity
Partners, L.P., an affiliate of Regent Capital Partners. Regent Capital
Partners' address is 505 Park Avenue, 17th Floor, New York, New York
10022.
(11) Consists of shares of Common Stock held by Sachs Investment Partners,
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.

61
<PAGE>

CERTAIN TRANSACTIONS

CURRENT RELATIONSHIPS AND RELATED TRANSACTIONS

Repayment of Indebtedness

Affiliates of CIBC, a beneficial stockholder of the Company, beneficially
held $7.5 million of the Senior Subordinated Notes, was agent and a lender
under the Company's previous credit facilities, and holding $45.0 million and
$7.9 million of the principal amount outstanding under the term and revolving
loan portions, respectively, of the Company's credit facility that was in
place immediately prior to the Notes Placement. Upon completion of the Notes
Placement, the Company repaid the entire principal amounts outstanding under
the Senior Subordinated Notes and the term loan and revolving loan portions of
the previous credit facility, together with accrued and unpaid interest. In
addition to this repayment, a CIBC affiliate received a customary fee for
banking services rendered to the Company in its capacity as agent under the
previous credit facility and in connection with the Senior Credit Facility.
Immediately prior to the Notes Placement, Regent Capital Partners, a principal
stockholder of the Company, beneficially owned $1.0 million of the Senior
Subordinated Notes. This amount was repaid in its entirety, together with
accrued and unpaid interest, with the proceeds of the Notes Placement. In
addition, affiliates of CIBC and Onyx Partners, Inc. ("Onyx Partners") from
time to time provide financial and investment banking services to the Company
for customary fees.

Immediately prior to the Notes Placement, Messrs. Talton, Jr., and Lumpkin
held $2.5 million, $1.5 million, and $1.0 million, respectively, of the Talton
Notes. Upon completion of the Notes Placement, the Company repaid the entire
amount of the Talton Notes, together with accrued and unpaid interest.

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 will 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 will
provide management consulting services relating to strategic and financial
matters, including acquisitions, business strategies, and financial planning.
The Company also paid to EUF Talton a $200,000 refinancing fee upon the
repayment of the Senior Subordinated Notes and the Talton Notes, upon the
closing of the Notes Placement. The Company paid an acquisition fee of
$357,000 to EUF Talton upon the closing of the acquisition by the Company of
STC in a transaction that closed simultaneously with the closing of the Notes
Placement. As of June 30, 1998, the Company had no liability to EUF Talton for
the acquisitions of Invision, NAI, PTC, ILD, and MOG. In addition, the Company
has 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. Each acquisition that the Company has
consummated was brought to the Company's attention by EUF Talton. This
agreement will be terminated prior to the consummation of the Offering in
connection with the exercise of the warrants held by Messrs. Follmer, Engles,
and Urso. See "--Historical Relationships and Related Transactions--Warrants."

Consulting and Employment Agreements

In connection with the acquisitions of AmeriTel and Talton
Telecommunications, the Company entered into the agreements described below.
Each of the named persons was a former stockholder of AmeriTel or Talton
Telecommunications.

The consulting agreement of Julius E. Talton provided that Mr. Talton would
serve as a director of the Company and perform such duties related to the
business conducted by the Company as the Board of Directors designated from
time to time. The consulting agreement had an initial term of two years, with
successive one-year renewal periods thereafter unless earlier terminated by
the Company or Mr. Talton. In addition to an

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aggregate of $10,000 payable in equal monthly installments to Mr. Talton over
the first twelve months of the agreement, Mr. Talton would receive payments of
$86,000 and $96,000 for the first and second years of the initial term,
respectively, and $120,000 for each year thereafter that the agreement
remained in effect. Mr. Talton's consulting agreement contained a non-
competition provision that applied during the term of the agreement and for a
period of two years after the expiration or earlier termination of the
agreement. Mr. Talton ceased working for the Company effective as of June 30,
1998 and this agreement was terminated as of that date. Negotiations regarding
his severance payment are in process.

Julius E. Talton, Jr.'s employment agreement provided that Mr. Talton, Jr.
would serve as an executive of the Company, performing such duties and holding
such positions as the Board of Directors or senior management of the Company
directed. The employment agreement had an initial term of one year, with
successive one-year periods thereafter unless earlier terminated by the
Company or Mr. Talton, Jr. In addition to an aggregate of $25,000 payable in
equal monthly installments to Mr. Talton, Jr. over the first twelve months of
the agreement, Mr. Talton would receive an annual base salary of $100,000, a
guaranteed bonus of $25,000 which was paid, in accordance with the agreement,
upon closing of the Notes Placement, and an incentive cash bonus of up to
37.5% of base salary if certain performance goals established by the Board of
Directors were achieved. Mr. Talton Jr.'s employment agreement contained a
non-competition provision that applied during the term of the agreement and
for a period of two years after the expiration or earlier termination of the
agreement. Mr. Talton, Jr. also received an option to purchase up to
shares of Common Stock at an exercise price of $ per share. Mr. Talton, Jr.
ceased working for the Company effective as of June 30, 1998, and this
agreement was terminated as of that date. Negotiations regarding his severance
payment are in process.

The consulting agreement of James E. Lumpkin provided that Mr. Lumpkin would
serve, if requested, as a director of the Company and would perform such
duties related to the business conducted by the Company as the chief executive
officer or the Board of Directors designated from time to time. The consulting
agreement had an initial term of two years, with successive one-year renewal
periods thereafter unless earlier terminated by the Company or Mr. Lumpkin. In
addition to an aggregate of $10,000 payable in equal monthly installments to
Mr. Lumpkin over the first twelve months of the agreement, Mr. Lumpkin would
receive $62,000 and $72,000 for the first and second years of the initial
term, respectively. Mr. Lumpkin's consulting agreement contained a non-
competition provision that applied during the term of the agreement and for a
period of two years after the expiration or earlier termination of the
agreement. Mr. Lumpkin ceased working for the Company effective as of June 30,
1998, and this agreement was terminated as of that date.

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 has 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.

The employment agreement of John R. Summers provided that Mr. Summers would
serve as an executive of the Company, performing such duties and holding such
positions as the Board of Directors or senior management of the Company
directed. The employment agreement had an initial term of one year, and
expired in December 1997. In addition to a lump sum payment of $30,000 paid on
the effective date of the agreement, Mr. Summers received an annual base
salary of $100,000, a cash bonus of $20,000, which was paid, in accordance
with the agreement, upon closing of the Notes Placement, and an incentive cash
bonus of up to 30.0% of base salary if certain performance goals established
by the Board of Directors were achieved. Mr. Summers' employment agreement
contained a non-competition provision that will apply until December 2000. Mr.
Summers also received an option to purchase up to shares of Common Stock at
an exercise price of $ per share. Mr. Summers now serves as Vice President
of each of the Company's operating subsidiaries.

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Lease Agreement

In December 1996, Talton Telecommunications entered in a lease agreement
(the "Talton Lease") with Mr. Talton for office space located in Selma,
Alabama. The 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.

The Notes Placement

CIBC Wood Gundy Securities Corp., which became CIBC Oppenheimer Corp., acted
as initial purchaser (the "Initial Purchaser") in connection with the Notes
Placement. In such capacity, the Initial Purchaser received an aggregate
discount of $3,852,500. In addition, the Company and its subsidiaries agreed
to indemnify Initial Purchaser against certain liabilities, including
liabilities under the Securities Act, in connection with the Notes Placement.

The Company and its subsidiaries agreed to indemnify Onyx Partners against
certain liabilities in connection with the Notes Placement, including
liabilities under the Securities Act.

HISTORICAL RELATIONSHIPS AND RELATED TRANSACTIONS

Acquisitions

In December 1996, the Company acquired the outstanding capital stock of
AmeriTel for a purchase price of approximately $23.4 million. Terry C. Matlack
and John R. Summers, former executive officers of the Company, and Roger K.
Sallee, a director of the Company, were stockholders of AmeriTel and received
an aggregate of approximately $361,000, $354,000, and $1.4 million,
respectively, of the purchase price, and , , and shares, respectively, of
Common Stock in exchange for shares of AmeriTel capital stock held by each of
them. In addition, Mr. Sallee received 61.699 shares of Senior Preferred
Stock.

Concurrently with its acquisition of AmeriTel, the Company acquired the
outstanding capital stock of Talton Telecommunications for an aggregate
purchase price of approximately $39.4 million, which included the issuance of
the $5.0 million Talton Notes. Julius E. Talton, a director of the Company,
Julius E. Talton, Jr. and James E. Lumpkin, former executive officers of the
Company, and Mr. Talton's daughter, were stockholders of Talton
Telecommunications and received an aggregate of approximately $11.2 million
(including $2.5 million of the Talton Notes), $9.1 million (including $1.5
million of the Talton Notes), $6.0 million (including $1.0 million of the
Talton Notes), and $4.0 million, respectively, of the purchase price. Messrs.
Talton, Talton Jr., and Lumpkin also received shares of Common Stock and
2,500 shares of Senior Preferred Stock, shares of Common Stock and 1,500
shares of Senior Preferred Stock, and shares of Common Stock and 1,000
shares of Senior Preferred Stock, respectively, in exchange for shares of
Talton Telecommunications capital stock held by each of them.

The cash portions of the respective purchase prices for AmeriTel and Talton
Telecommunications were financed with the proceeds of the following: (i) the
issuance by the Company of an aggregate of shares of Common Stock to the
stockholders of the Company, including an affiliate of CIBC, an affiliate of
Regent Capital Partners, and Mr. Engles, a director of the Company, for
aggregate consideration of approximately $9.8 million, (ii) the issuance by
the Company of an aggregate of shares of Class B Common Stock and warrants
to acquire an aggregate of shares of Common Stock to Onyx Talton
Partners, L.P. ("Onyx Talton Partners") and to Messrs. Follmer, Engles, and
Urso, each of whom is an executive officer and/or director of the Company, for
aggregate consideration of $400,000; (iii) the issuance of an aggregate of
$8.5 million in Senior Subordinated Notes to an affiliate of CIBC and to
Regent Capital Partners and related warrants for the purchase of Common Stock
to an affiliate of CIBC and to Regent Equity Partners, L.P.; (iv) the issuance
of the $5.0 million Talton Notes (including related warrants) to Messrs.
Talton, Talton, Jr., and Lumpkin; and (v) an aggregate of $50.7 million of the
proceeds from the term and revolving loan facilities under the

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Company's previous credit facility. All stockholders of the Company, including
the executive officers and directors of the Company who hold shares of capital
stock of the Company, pledged the shares of capital stock of the Company held
by each of them to CIBC to secure the Company's obligations under the Senior
Credit Facility.

In connection with the acquisitions of AmeriTel and Talton
Telecommunications and the consummation of the related financing in December
1996, Onyx Partners, Inc., the general partner of Onyx Talton Partners, and an
affiliate of CIBC received expense reimbursements and transaction fees
totaling approximately $635,000 and $852,000, respectively, and EUF Talton
received expense reimbursements of approximately $183,000. An affiliate of
CIBC, which is the agent and a lender under the Senior Credit Facility,
received a fee of approximately $1.8 million in December 1996 for banking
services rendered to the Company in connection with the closing of the
Company's previous credit facility.

In connection with these transactions, the Company entered into agreements
with affiliates of CIBC and Onyx Partners, dated as of November 1996 and
September 1996, respectively (collectively, the "Engagement Letters"). The
Engagement Letters provide that the Company will pay affiliates of CIBC and
Onyx Partners 25% and 15%, respectively, of all fees and compensation payable
to all managers with respect to any public common equity financings
consummated by the company on or before December 27, 1998. Any management fees
to be received by affiliates of CIBC in conjunction with such a public common
equity financing will be credited against any amounts payable pursuant to
their Engagement Letter.

The holders of Common Stock received registration rights with respect to
such shares pursuant to the terms of that certain registration rights
agreement (the "Registration Rights Agreement"). In addition, the Company and
its stockholders entered into a Shareholders Agreement (the "Shareholders
Agreement"). The following summary of the warrants referred to above, the
Registration Rights Agreement, and the Shareholders Agreement do not purport
to be complete and are qualified in their entirety to the actual documents.

Warrants

The Company issued to each of Messrs. Follmer, Urso, and Engles (i) a
warrant to acquire up to shares of Common Stock (subject to certain
adjustments) with an exercise price per share of $ ; (ii) a warrant to
acquire up to shares of Common Stock (subject to certain adjustments)
with an exercise price per share of $ ; and (iii) a warrant to acquire up to
shares of Common Stock (subject to certain adjustments) with an exercise
price per share of $ . The Company also issued to Onyx Talton Partners: (i)
a warrant to acquire up to shares of Common Stock (subject to certain
adjustments) with an exercise price per share of ; (ii) a warrant to
acquire up to shares of Common Stock (subject to certain adjustments)
with an exercise price per share of $ ; and (iii) a warrant to acquire up to
shares of Common Stock (subject to certain adjustments) with an exercise
price per share of $ . Information contained in this prospectus reflects the
exercise of these warrants prior to the consummation of the Offering. The
exercise price for these warrants will be represented by full recourse
promissory notes payable to the Company. These notes will bear interest at an
annual rate of 7%, compounded annually, have a term of five years, and be
payable in a lump sum payment of principal and all accrued interest.

Registration Rights Agreement

The Registration Rights Agreement applies to all currently outstanding
shares of Common Stock including shares issuable upon exercise of the
currently outstanding warrants or the conversion of the currently outstanding
Class B Common Stock or the Senior Preferred Stock ("Registrable Securities"),
and grants to all holders of Registrable Securities ("Holders") certain
registration rights with respect to such Registrable Securities.

Subject to certain special rights (the "CIBC Demand Rights") granted to
affiliates of CIBC (the "CIBC Entities"), at any time after the earlier to
occur of (i) six months after the consummation of the Offering; or (ii)
November 30, 1998, Initiating Holders (defined below) are entitled to require
the Company to effect up to three registrations under the Securities Act of
all or a part of the Registrable Securities (each a "Demand Registration"),
subject to certain limitations. Initiating Holders are defined as (i) Holders
of at least 25% (or 35% in certain circumstances) of the Registrable
Securities; or (ii) a combination of Holders of

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Registrable Securities and Holders of warrants having an exercise price less
than or equal to the per share reported price for the Common Stock ("Qualified
Warrants") that in the aggregate hold at least 25% (or 35% in certain
circumstances) of all Registrable Securities and Qualified Warrants. Subject
to the CIBC Demand Rights, Holders of Registrable Securities also have the
right to include such Registrable Securities in any registration statement
under the Securities Act filed by the Company for its own account (other than
a registration statement for securities to be offered in a Rule 145
transaction under the Securities Act or to employees of the Company pursuant
to any employee benefit plan). So long as the CIBC Entities hold Registrable
Securities equaling at least 50% of their holdings of Common Stock on December
27, 1996, the CIBC Entities have the following CIBC Demand Rights: (i) one of
the Demand Registrations is exclusively reserved for the use and exercise by
the CIBC Entities; (ii) the CIBC Entities have the right at any time to
require the Company to use its best efforts to effect an Initial Public
Offering; and (iii) the CIBC Entities have in certain circumstances, a first
priority to cause a portion of their Registrable Securities to be registered
prior to the registration of the Registrable Securities of the other Holders.
Holders of substantially all of the Registrable Securities has waived their
registration rights under the Registration Rights Agreement with regard to the
Offering.

The Company is also obligated to file and maintain a shelf registration
statement on Form S-3 pursuant to Rule 415 of the Securities Act for all
shares of Common Stock currently outstanding as expeditiously as possible
after it is eligible to do so. The Company will be Form S-3 eligible when (i)
it has been subject to the requirements of Section 12 of the Securities
Exchange Act of 1934, as amended, and has filed all the material required to
be filed pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act
of 1934, as amended, for a period of at least 12 calendar months immediately
preceding the filing of the Form S-3; (ii) it has filed in a timely manner all
reports required to be filed during the twelve calendar months and any portion
of a month immediately preceding the filing of the Form S-3; (iii) it has not
defaulted on any installment or installments of indebtedness for borrowed
money; and (iv) it has a public float in excess of $75 million at any time in
the sixty days preceding the filing of the Form S-3. The Company expects to be
eligible to file by Form S-3 by approximately January 1999.

Shareholders Agreement

Pursuant to the Shareholders Agreement, the Company has a right of first
refusal with respect to most transfers of Common Stock and rights, warrants,
options, convertible securities, or debt convertible into Common Stock
("Common Stock Equivalents"). To the extent the Company does not fully
exercise such right of first refusal, the stockholders generally have the
right to purchase the offered Common Stock or Common Stock Equivalents on a
pro rata basis. Transfers to affiliates, testamentary transfers, and intestate
succession are generally excluded from the Company's first refusal rights and
any stockholder acquisition rights. In addition, the Shareholders Agreement
establishes certain "tag-along" rights whereby if any holder of 10% or more of
the fully diluted Common Stock or any EUF Holder proposes to sell any of its
Common Stock, then the other stockholders have the right to require the
proposed buyer to purchase from each of them a proportionate number of shares
of Common Stock.

The Shareholders Agreement also provides for certain "drag-along rights"
whereby any stockholder or group of stockholders owning Common Stock
representing 60% or more of the total amount of the outstanding Common Stock
and warrants having a value in excess of their exercise price proposes to
transfer all their Common Stock to any third party, such stockholders have the
right to require all other holders to sell all of their Common Stock and
Common Stock Equivalents to such third party. The Shareholders Agreement
further provides that if a third party offers to acquire 75% or more of all
outstanding Common Stock and all warrants having a value in excess of their
exercise price, and a holder or a group of holders owning 75% or more of the
outstanding Common Stock plus such warrants proposes to accept such offer,
then such holders desiring to accept such offer have the right to require all
other holders of Common Stock and such warrants to sell to the third party
their outstanding Common Stock and such warrants pro rata in accordance with
such offer.

The Shareholders Agreement will terminate upon the effective date of the
Offering if the Offering results in at least $20.0 million in gross proceeds.
In addition, the Shareholders Agreement terminates upon (i) the merger,

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consolidation, or reorganization of the Company, or the sale of all or
substantially all of the assets of the Company, if, immediately following such
transaction, the stockholders of the Company immediately prior to such
transaction own less than a majority of the combined voting power to elect
directors and the combined equity ownership interest in the surviving entity,
or such surviving entity has publicly traded common stock not held by the
parties to the Shareholders Agreement with a market value in excess of $30.0
million; (ii) the written consent of the CIBC Entities, the Talton Holders,
the Regent Entities, and the EUF Holders (but only so long as each such party
is entitled to designate at least one member of the Board of Directors) and a
majority in interest of the other stockholders; or (iii) with respect to any
party, when such party no longer owns any capital stock of the Company.

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DESCRIPTION OF CAPITAL STOCK

Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of shares of Common Stock, par value $0.01 per share,
and 50,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"). The Preferred Stock is divided into two classes. One class
consists of 6,000 shares and is designated "Senior Preferred Stock" and the
other class consists of 44,000 shares and is designated "Junior Preferred
Stock."

Of the Common Stock authorized, shares will be outstanding upon
consummation of the Offering, all of which are being offered in the Offering
( shares if the Underwriters' over-allotment option is exercised in full).
shares of Common Stock have been reserved for issuance pursuant to
compensation and benefit plans of the Company, options have been granted
under the Stock Option Plan, and up to shares of Common Stock are
issuable pursuant to warrants that are exercisable at a price of $ per
share.

There have been no cash dividends declared on the Company's Common Stock
from the period January 1, 1996 through December 31, 1997. The Indenture and
the Senior Credit Facility contain certain restrictive covenants that are
likely to materially limit the future payment of dividends on the Company's
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share of
Common Stock on all matters voted on by the stockholders of the Company. The
holders of Common Stock are entitled to receive, pari passu, such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of the Preferred Stock. See "--Preferred Stock."

PREFERRED STOCK

The Company is authorized to issue shares of Preferred Stock in one or more
series, and to designate the rights, preferences, limitations and restrictions
of and upon shares of each series, including voting, redemption and conversion
rights. The Board of Directors also may designate dividend rights and
preferences in liquidation. It is not possible to state the actual effect of
the authorization and issuance of additional series of Preferred Stock upon
the rights of holders of Common Stock until the Board of Directors determines
the specific terms, rights and preferences of a series of Preferred Stock.
Such effects, however, might include, among other things, granting the holders
of Preferred Stock priority over the holders of Common Stock with respect to
the payment of dividends, diluting the voting power of the Common Stock, or
granting the holders of Preferred Stock preference with respect to liquidation
rights. In addition, under some circumstances, the issuance of Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management.

In addition, the Company intends to adopt a stockholders' rights plan. The
Rights (as defined) to be issued under the Rights Plan have certain anti-
takeover effects. The Rights will cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board
of Directors. The Rights should not interfere with any other merger or other
business combination approved by the Board of Directors since (subject to the
limitations described above) the Rights may be redeemed by the Company at the
Redemption Price prior to the time that the Rights would otherwise become
exercisable, or if later, the time that a person or group has become an
Acquiring Person. See "Description of Capital Stock--Rights Plan."

WARRANTS

There are outstanding warrants to purchase up to shares of Common Stock
at an exercise price of $ per share. See "Certain Relationships and Related
Transactions."

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RIGHTS PLAN

The Board of Directors of the Company intends to authorize the Company to
enter into the Rights Plan, declaring a dividend of one Common Stock purchase
right (a "Right") for each outstanding share of Common Stock of the Company.
The dividend will be made to the shareholders of record at the close of
business on (the "Record Date"). Each Right entitles the registered holder
to purchase from the Company one share of Common Stock, at a price of $ (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights will be set forth in a Rights Agreement (the "Rights Agreement")
between the Company and as Rights Agent (the "Rights Agent"). The Company
currently intends for the Rights Plan to have the following terms:

Until the earlier to occur of (i) ten Business Days following a public
announcement that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of Common Stock (an "Acquiring Person") or (ii)
ten Business Days following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 15% or more
of such outstanding shares of Common Stock (the earlier of such dates being
the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate with a copy of a Summary of Rights attached to the
certificate. A majority of the Company's directors that are not associated
with Acquiring Person may in their discretion vote to extend the Distribution
Date.

The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding even without such notation or a copy of a Summary of
Rights being attached to such Certificate, will also constitute the transfer
of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights (the "Right Certificates") will be mailed
to holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.

The Rights are not exercisable until the Distribution Date. The Rights will
expire on (the "Final Expiration Date"), unless the Final Expiration Date
is extended or unless the Rights are earlier redeemed by the Company, in each
case, as described below.

The Purchase Price payable and the number of shares of Common Stock or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination, or reclassification of, the Common
Stock, (ii) upon the grant to holders of the Common Stock of certain rights or
warrants to subscribe for or purchase Common Stock at a price, or securities
convertible into Common Stock with a conversion price, less than the then
current market price of the Common Stock, or (iii) upon the distribution to
holders of the Common Stock of evidences of indebtedness or assets or of
subscription rights or warrants (other than those referred to above).

In the event that any person or entity becomes an Acquiring Person (the
beneficial owner of 15% or more of the Common Stock), provision will be made
so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will then be void), will have the right to purchase
from the Company upon exercise that number of Common Shares having a market
value of two times the applicable exercise price of the Right ($ ).

The Rights Agreement excludes from the definition of Acquiring Persons those
who certify to the Company that they inadvertently acquired in excess of 14.9%
of the outstanding shares of Common Stock and thereafter divest such excess
Common Stock or who acquire 15% or more of the outstanding shares of Common
Stock in a

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Permitted Transaction. A "Permitted Transaction" is a stock acquisition or
tender or exchange offer pursuant to a definitive agreement which would result
in a person beneficially owning 15% or more of the outstanding shares of
Common Stock and which has been approved by the Board of Directors (including
a majority of the Company's directors that are not associated with Acquiring
Person) prior to the execution of the agreement or the public announcement of
the offer.

In the event that the Company is acquired in a merger or other business
combination transaction, or 50% or more of its consolidated assets or earning
power are sold, proper provisions will be made so that each holder of a Right
will have the right to purchase from the acquiring company, upon the exercise
of the Right at the then applicable exercise price, that number of shares of
common stock of the acquiring company that at the time of such transaction
will have a market value of two times the applicable exercise price of the
Right ($ ).

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Common Stock will be issued and,
in lieu of such fractional shares, an adjustment in cash will be made based on
the market price of the Common Stock on the last trading day prior to the date
of exercise.

After a person becomes an Acquiring Person, the Company's Board of Directors
may exchange the Rights, other than those Rights owned by the Acquiring
Person, in whole or in part, at an exchange ratio of one share of Common Stock
per Right, subject to adjustment. However, the Board of Directors cannot
conduct an exchange at any time after any Person, together with its Affiliates
and Associates, becomes the beneficial owner of 50% or more of the outstanding
Common Stock.

At any time prior to a Distribution Date, a Requisite Majority may redeem
the Rights in whole, but not in part, at a price of $ per Right (the
"Redemption Price"). In addition, the Board of Directors may extend or reduce
the period during which the Rights are redeemable, so long as the Rights are
redeemable at the time of such extension or reduction. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.

The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an
amendment to extend the Final Expiration Date, except that from and after the
date any Person becomes an Acquiring Person, no such amendment may adversely
affect the economic interests of the holders of the Rights.

Until a Right is exercised, the holder of the Right, as such, will have no
rights as a shareholder of the Company, including, without limitation, the
right to vote, or to receive dividends.

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any other merger or other business combination
approved by the Board of Directors since (subject to the limitations described
above) the Rights may be redeemed by the Company at the Redemption Price prior
to the time that the Rights would otherwise become exercisable, or if later,
the time that a person or group has become an Acquiring Person.

LISTING

Application will be made to have the Common Stock approved for listing on
the New York Stock Exchange under the trading symbol " ."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is .

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The Company issued $115,000,000 aggregate principal amount of 11% Senior
Notes due June 27, 2007 pursuant to the Indenture. Interest on the Senior
Notes accrues at the rate of 11% per annum and is payable semi-annually in
arrears on January 1 and July 1 to holders of record on the immediately
preceding December 15 and June 15.

The Senior Notes are general unsecured obligations of the Company and rank
pari passu in right of payment to all other current and future senior
indebtedness of the Company, and senior to all subordinated indebtedness of
the Company. The Senior Notes are guaranteed on a senior unsecured basis (the
"Subsidiary Guarantees") by all of the Company's current and future Restricted
Subsidiaries (as defined in the Indenture, filed as an exhibit hereto). The
Subsidiary Guarantee of each subsidiary will be a general unsecured obligation
of such Subsidiary Guarantor, ranking pari passu in right of payment with all
other senior indebtedness of such Subsidiary Guarantor and senior in right of
payment to all subordinated indebtedness of such Subsidiary Guarantor. The
Senior Notes are effectively subordinated, however, to all secured obligations
of the Company and its subsidiaries to the extent of the assets securing such
obligations, including borrowings under the Senior Credit Facility. The
Indenture permits the incurrence of additional indebtedness, including
additional secured indebtedness, under certain circumstances.

As of the date hereof, all of the Company's Subsidiaries constitute
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries (as defined in the Indenture). Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.

Except upon the occurrence of a "Change of Control," (as defined in the
Indenture) the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Senior Notes. Upon a Change of Control, the
Company will be required to make an offer to purchase the Senior Notes at a
purchase price equal to 101% of their principal amount, plus accrued interest
to the date of purchase. Except as relates to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction. In addition, the
Company could enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that could affect the Company's
capital structure or the value of the Senior Notes, but that would not
constitute a Change of Control.

The Indenture contains certain restrictive covenants including the inability
of the Company (i) incur indebtedness; (ii) create liens on assets; (iii) make
investments; (iv) to pay dividends; (v) to make specified payments to
affiliates; and (vi) other covenants that could operate to restrict the
available funds for distribution.

The Company is currently in negotiations to restructure the Senior Credit
Facility. As of September 1, 1998, the Company had $55.0 million outstanding
under the term loan portion of the Senior Credit Facility, $7.5 million
outstanding under the revolving loan facility portion of the Senior Credit
Facility, and an additional $2.8 million of letters of credit outstanding
under the revolving loan portion of the Senior Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

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SHARES ELIGIBLE FOR FUTURE SALE

Before the Offering, there has been no market for the Common Stock of the
Company. Future sales or distributions of substantial amounts of Common Stock
in the public market could adversely affect prevailing market prices.

Upon consummation of the Offering, the Company will have shares of Common
Stock outstanding ( shares of Common Stock if the Underwriters' over-
allotment option is exercised in full), excluding shares of Common Stock
reserved for issuance pursuant to compensation and benefit plans of the
Company, options granted under the Company's 1998 Stock Option Plan (the
"Stock Option Plan"), and up to shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants that were issued in
connection with the initial capitalization of the Company. All of the shares
of Common Stock to be sold in the Offering will be freely tradable without
restrictions, or further registration under the Securities Act, except that
shares purchased by an Affiliate will be subject to the resale limitations of
Rule 144. Restricted shares that have not been registered under the Securities
Act may be sold only pursuant to an effective registration statement under the
Securities Act or in accordance with Rule 144 or another exemption from
registration.

Restricted Shares constitute "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act and will be eligible for sale in
the open market after the Offering subject to the Lock-Up Agreement and
applicable requirements of Rule 144 described below.

In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted
shares" (as that phrase is defined in Rule 144) were acquired from the Company
and the date on which they were acquired from an Affiliate, then the holder of
such restricted shares (including an Affiliate) is entitled to sell a number
of shares within any three-month period that does not exceed the greater of
(i) one percent of the then outstanding shares of the Common Stock or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales, and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other requirements but
without regard to the one-year period. Under Rule 144(k), if a period of at
least two years has elapsed between the later of the date on which restricted
shares were acquired from the Company and the date on which they were acquired
from an Affiliate, a holder of such restricted shares who is not an Affiliate
at the time of the sale and has not been an Affiliate for at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The foregoing description of Rule 144 is not intended to be complete, and Rule
144 in its entirety should be referred to.

Sales of significant amounts of the Common Stock or the perception that such
sales could occur, could have an adverse effect on the market price of the
Common Stock. Each of the Company and the directors, executive officers, and
certain other stockholders of the Company has agreed that during the period
beginning on the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, it will not offer, sell,
contract to sell, or otherwise dispose of any shares of Common Stock (other
than pursuant to employee benefit plans existing, or on conversion or exchange
of convertible or exchangeable securities outstanding, on the date of this
Prospectus or as payment for acquisitions by the Company) without the prior
written consent of Morgan Stanley & Co. Incorporated, except for the shares of
Common Stock offered in connection with the Offering. See "Underwriters."

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(ii) it has filed in a timely manner all reports required to be filed during
the twelve calendar months and any portion of a month immediately preceding
the filing of the Form S-3; (iii) it has not defaulted on any installment or
installments of indebtedness for borrowed money; and (iv) it has a public
float in excess of $75 million at any time in the sixty days preceding the
filing of the Form S-3. The Company expects to be eligible to file by Form S-3
by approximately January 1999.

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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States Federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders. In general, a
"Non-U.S. Holder" is any holder other than (i) a citizen or resident of the
United States; (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state; (iii) an
estate, the income of which is includable in gross income for United States
federal income tax purposes regardless of its source; or (iv) a trust if (a) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (b) one or more United States persons have
the authority to control all substantial decisions of the trust. This
discussion is based on current provisions of the Internal Revenue Code of
1986, as amended, Treasury Regulations promulgated thereunder, judicial
opinions, published positions of the Internal Revenue Service (the "IRS"), and
all other applicable authorities, all of which are subject to change (possibly
with retroactive effect). This discussion does not address all aspects of
income and estate taxation or any aspects of state, local or non-United States
taxes, nor does it consider any specific facts or circumstances that may apply
to a particular Non-U.S. Holder that may be subject to special treatment under
the United States federal income tax laws (such as insurance companies, tax-
exempt organizations, financial institutions, brokers, dealers in securities,
and certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL,
AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING,
HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are either
(i) effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States or (ii) if certain income tax treaties apply,
attributable to a permanent establishment in the United States maintained by
the Non-U.S. Holder. Dividends effectively connected with such a United States
trade or business or attributable to such a United States permanent
establishment generally will not be subject to United States withholding tax
if the Non-U.S. Holder files certain forms, including IRS Form 4224 (or any
successor form), with the payor of the dividend, and generally will be subject
to United States federal income tax on a net income basis, in the same manner
as if the Non-U.S. Holder were a resident of the United States. A Non-U.S.
Holder that is a corporation may be subject to an additional branch profits
tax at a rate of 30% (or such lower rate as may be specified by an applicable
income tax treaty) on the repatriation from the United States of its
"effectively connected earnings and profits," subject to certain adjustments.
To determine the applicability of a tax treaty providing for a lower rate of
withholding under the currently effective Treasury Regulations (the "Current
Regulations") and published IRS positions, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country absent
knowledge to the contrary. Under Treasury Regulations issued on October 6,
1997, as modified by an IRS Notice (the "Final Regulations"), generally
effective for payments made after December 31, 1999, a Non-U.S. Holder
(including, in certain cases of Non-U.S. Holders that are entities, the owner
or owners of such entities) will be required to satisfy certain certification
requirements in order to claim a reduced rate of withholding pursuant to an
applicable income tax treaty.

GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK

In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain either is effectively
connected with a trade or business carried on by the Non-U.S. Holder within
the United States or, if certain income tax treaties apply, is attributable to
a permanent establishment in the United States maintained by the Non-U.S.
Holder (and, in either case, the branch profits tax discussed above may also
apply if the Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an
individual who holds shares of Common Stock as a capital asset and is present
in the United States for 183 days or more in the taxable year of disposition
and certain

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<PAGE>

other tests are met; or (iii) the Company is or has been a United States real
property holding corporation (a "USRPHC") for United States Federal income tax
purposes (which the Company does not believe that it has been, currently is,
or will become) at any time within the shorter of the five-year period
preceding such disposition or such Non-U.S. Holder's holding period. If the
Company were or were to become a USRPHC at any time during this period, gains
realized upon a disposition of Common Stock by a Non-U.S. Holder that did not
directly or indirectly own more than 5% of the Common Stock during this period
generally would not be subject to United States Federal income tax, provided
that the Common Stock is regularly traded on an established securities market.

ESTATE TAX

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States Federal estate tax purposes) of the
United States at the time of death will be includable in the individual's
gross estate for United States Federal estate tax purposes unless an
applicable estate tax treaty provides otherwise, and therefore may be subject
to United States Federal estate tax.

BACKUP WITHHOLDING, INFORMATION REPORTING, AND OTHER REPORTING REQUIREMENTS

The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of this information also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides or is established.

Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than
those discussed above under "Dividends") generally will not apply to dividends
paid on Common Stock to a Non-U.S. holder at an address outside the United
States. Backup withholding and information reporting generally will apply,
however, to dividends paid on shares of Common Stock to a Non-U.S. Holder at
an address in the United States, if such holder fails to establish an
exemption or to provide certain other information to the payor.

Under the Current Regulations, the payment of proceeds from the disposition
of Common Stock to or through a United States office of a broker will be
subject to information reporting and backup withholding unless the beneficial
owner, under penalties of perjury, certifies, among other things, its status
as a Non-U.S. Holder or otherwise establishes an exemption. The payment of
proceeds from the disposition of Common Stock to or through a non-U.S. office
of a broker generally will not be subject to backup withholding and
information reporting except as noted below. In the case of proceeds from a
disposition of Common Stock paid to or through a non-U.S. office of a broker
that is (i) a United States person; (ii) a "controlled foreign corporation"
for United States Federal income tax purposes; or (iii) a foreign person 50%
or more of whose gross income from certain periods is effectively connected
with a United States trade or business, information reporting (but not backup
withholding) will apply unless the broker has documentary evidence in its
files that the owner is a Non-U.S. Holder (and the broker has no actual
knowledge to the contrary).

Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
satisfies applicable certification requirements or otherwise establishes an
exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded
or credited against the Non-U.S. Holder's United States Federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service in a timely manner.

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<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation, CIBC Oppenheimer Corp., and Bear Stearns &
Co. Incorporated are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Bear, Stearns International Limited, CIBC Oppenheimer International Limited,
and Credit Suisse First Boston (Europe) Limited are acting as International
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, severally, the respective number of shares of Common Stock
set forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated................................
Bear, Stearns & Co. Incorporated.................................
CIBC Oppenheimer Corp............................................
Credit Suisse First Boston Corporation...........................
---
Subtotal.......................................................
===
International Underwriters:
Morgan Stanley & Co. International Limited.......................
Bear, Stearns International Limited..............................
CIBC Oppenheimer International Limited...........................
Credit Suisse First Boston (Europe) Limited......................
---
Subtotal.......................................................
---
Total........................................................
===
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions (i)
it is not purchasing any Shares (as defined herein,) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions (i) it is not purchasing any Shares for the account of any United
States or Canadian person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between the U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing, or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or

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<PAGE>

Canadian branch of a person who is otherwise not a United States or Canadian
person. All shares of Common Stock to be purchased by the Underwriters are
referred to herein as the "Shares."

Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares so sold will be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing, or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances that have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise be lawfully issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.

The Underwriters initially propose to offer part of the Shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in

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<PAGE>

excess of $ . per share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ . per
share to other Underwriters or to certain dealers. After the initial offering
of the Shares, the offering price and other selling terms may from time to
time be varied by the Representatives.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the price to public set forth on the
cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding
table bears to the total number of shares of Common Stock set forth next to
the names of all U.S. Underwriters in the preceding table.

Application will be made to have the Common Stock approved for listing on
the NYSE under the trading symbol " ."

Each of the Company and the directors, executive officers, and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of this Prospectus, (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is settled by delivery of
Common Stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to (x) the sale of Shares to the
Underwriters, (y) the issuance by the Company of shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date of this Prospectus of which the Underwriters have been
advised in writing or (z) transactions relating to Shares of Common Stock or
other securities acquired in open market transactions after the completion of
the offering of the Shares.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions, or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage
in these activities, and may end any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

Prior to the Offering, an affiliate of owns approximately % of the
Company's Common Stock ( % after giving effect to the Offering and the
conversions of the Senior Preferred Stock and the Class B Common Stock into
Common Stock, assuming no exercise of the underwriters' over-allotment
option). Therefore, the Offering is being conducted in accordance with Rule
2720 of the National Association of Securities Dealers, Inc. ("NASD"). Rule
2720 provides that, among other things, when an NASD member participates in
the underwriting of equity securities of an affiliate, the initial public
offering price can be no higher than that

78
<PAGE>

recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Morgan Stanley & Co.
Incorporated ("Morgan Stanley") has served in such role and will recommend a
price in compliance with the requirements of Rule 2720. In connection with the
Offering, Morgan Stanley in its role as qualified independent underwriter has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus is a part. In addition, the Underwriters may not confirm sales to
any discretionary account without the prior specific written approval of the
customer.

From time to time, certain of the Underwriters and their affiliates have
provided, and continue to provide, financial and investment banking services
to the Company for which they have received customary fees and commissions.
CIBC Oppenheimer Corp. is an affiliate of CIBC, which is the agent and a
lender under the Senior Credit Facility. The Company intends to repay $10.0
million aggregate indebtedness under the Senior Credit Facility out of the
proceeds of this Offering. See "Use of Proceeds." CIBC Oppenheimer Corp. will
not receive any proceeds from the Offering other than its respective portion
of the underwriting discounts and commissions payable by the Company.

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to shares offered hereby for
directors, officers, employees, business associates, and related persons of
the Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares that are not so purchased will be offered
by the Underwriters to the general public on the same basis as the other
shares offered hereby.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Company and the U.S. Representatives. Among the factors considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings, and certain other
financial operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hughes & Luce, L.L.P., Dallas, Texas. Certain legal
matters in connection with the sale of shares of Common Stock in the Offering
will be passed upon for the Underwriters by Shearman & Sterling, New York, New
York.

EXPERTS

The consolidated financial statements of Evercom, Inc. as of December 3l,
1997 and December 31, 1996, and for the one-month period from December 1, 1996
(date of acquisition) to December 31, 1996, and for the year ended December
31, 1997; the financial statements of AmeriTel Pay Phones Inc. as of November
30, 1996 and for the eleven months ended November 30, 1996; the consolidated
financial statements of Talton Telecommunications Corporation as of November
30, 1996 and for the eleven months ended November 30, 1996; the consolidated
financial statements of Security Telecom Corporation as of June 30, 1997 and
for the six months ended June 30, 1997; and the financial statements of
InVision Telecom, Inc. as of December 31, 1996 and September 30, 1997 and for
each of the two years ended December 31, 1995 and 1996, and for the nine
months ended September 30, 1997 appearing in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

79
<PAGE>

The financial statements of AmeriTel Pay Phones, Inc. as of December 31,
1995 and for the year ended December 31, 1995 included in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included in reliance
upon the authority of said firm as experts in giving said report.

The financial statements of Talton Telecommunications Corporation as of
December 31, 1995 and for the year ended December 31, 1995 appearing in this
Prospectus have been audited by Borland, Benefield, Crawford & Webster, P.C.,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

The financial statements of Security Telecom Corporation as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 appearing in this Prospectus have been audited by Davis, Clark and
Company, P.C., independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The financial statements of Correctional Communications Corporation as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus have been audited by Ginsberg,
Weiss & Company, independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect
to the Common Stock to be sold in the Offering. This Prospectus constitutes a
part of the Registration Statement and does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respect
by such reference. For further information regarding the Company and the
Common Stock, reference is hereby made to the Registration Statement, a copy
of which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. The Registration Statement, and the reports
and other information to be filed by the Company with the Commission following
the Offering in accordance with the Exchange Act, can be inspected and copied
at the principal office of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained from the Commission's
website, http://www.sec.gov, and from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission.

80
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EVERCOM, INC.
Report of Independent Auditors--Deloitte & Touche LLP................... F-3
Consolidated Balance Sheets for December 31, 1997 and 1996.............. F-4
Consolidated Statements of Operations for the year ended December 31,
1997 and for the one month ended December 31, 1996..................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the year
ended December 31, 1997 and for the one month period ended December 31,
1996................................................................... F-6
Consolidated Statements of Cash Flows for the year ended December 31,
1997 and for the one month period ended December 31, 1996.............. F-7
Notes to the Consolidated Financial Statements.......................... F-8
PREDECESSORS' FINANCIAL STATEMENTS
AMERITEL PAY PHONES, INC.
Report of Independent Auditors--Deloitte & Touche LLP................... F-24
Report of Independent Auditors--Arthur Andersen LLP..................... F-25
Balance Sheets for November 30, 1996 and December 31, 1995.............. F-26
Statements of Income for the eleven months ended November 30, 1996 and
for the year ended December 31, 1995................................... F-27
Statements of Stockholders' Equity for the eleven months ended November
30, 1996 and for the year ended December 31, 1995...................... F-28
Statements of Cash Flows for the eleven months ended November 30, 1996
and for the year ended December 31, 1995............................... F-29
Notes to the Financial Statements....................................... F-30
TALTON TELECOMMUNICATIONS CORPORATION
Report of Independent Auditors--Deloitte & Touche LLP................... F-40
Report of Independent Auditors--Borland, Benefield, Crawford & Webster,
P.C.................................................................... F-41
Consolidated Balance Sheets for November 30, 1996 and December 31,
1995................................................................... F-42
Consolidated Statements of Income for the eleven months ended November
30, 1996 and the year ended December 31, 1995.......................... F-43
Consolidated Statements of Stockholders' Equity for the eleven months
ended November 30, 1996 and the year ended December 31, 1995........... F-44
Consolidated Statements of Cash Flows for the eleven months ended
November 30, 1996 and the year ended December 31, 1995................. F-45
Notes to the Consolidated Financial Statements.......................... F-46
SECURITY TELECOM CORPORATION
Report of Independent Auditors--Deloitte & Touche LLP................... F-53
Report of Independent Auditors--Davis, Clark and Company, P.C. ......... F-54
Consolidated Balance Sheets for June 30, 1997 and December 31, 1996 and
1995................................................................... F-55
Consolidated Statements of Operations for the six months ended June 30,
1997 and the years ended December 31, 1996, 1995, and 1994............. F-56
Consolidated Statements of Stockholders' Equity......................... F-57
Consolidated Statements of Cash Flows................................... F-58
Notes to Consolidated Financial Statements.............................. F-59
CORRECTIONAL COMMUNICATIONS CORPORATION
Report of Independent Auditors--Ginsberg, Weiss & Company............... F-65
Balance Sheets for December 31, 1996 and 1995........................... F-66
Statements of Income for the years ended December 31, 1996, 1995, and
1994................................................................... F-67
Statements of Stockholders' Equity for the years ended December 31,
1996, 1995, and 1994................................................... F-68
Statements of Cash Flows for the years ended December 31, 1996, 1995,
and 1994............................................................... F-69
Notes to Financial Statements........................................... F-70
</TABLE>

F-1
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVISION TELECOM, INC.
Report of Independent Auditors--Deloitte & Touche LLP................... F-75
Balance Sheets for September 30, 1997 and December 31, 1996............. F-76
Statements of Operations for the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995......................... F-77
Statements of Stockholder's Equity (Deficit) for the nine months ended
September 30, 1997 and the years ended December 31, 1996 and 1995...... F-78
Statements of Cash Flows for the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995......................... F-79
Notes to Financial Statements........................................... F-80
</TABLE>

F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Evercom, Inc.:

We have audited the accompanying consolidated balance sheets of Evercom,
Inc. and subsidiaries (the "Company") (formerly Talton Holdings, Inc.) as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the one-month
period from December 1, 1996 (date of acquisition) to December 31, 1996, and
for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as
of December 31, 1996 and 1997, and the results of their operations and their
cash flows for the one month ended December 31, 1996, and the year ended
December 31, 1997, in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP
Dallas, Texas
March 18, 1998

F-3
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 294,494 $ 7,777,996 $ 4,519,242
Accounts receivable................ 7,346,270 17,401,907 34,758,705
Refundable income taxes............ 601,842 600,388 172,428
Inventories........................ 941,819 1,690,930 3,056,292
Prepaid expenses and other current
assets............................ 259,984 2,309,661 560,054
Deferred income tax assets......... 673,259 1,059,752 1,239,025
------------ ------------ ------------
Total current assets............. 10,117,668 30,840,634 44,305,746
PROPERTY AND EQUIPMENT............... 7,969,134 24,007,039 27,726,212
INTANGIBLE AND OTHER ASSETS.......... 62,046,732 134,540,767 126,720,376
------------ ------------ ------------
TOTAL................................ $ 80,133,534 $189,388,440 $198,752,334
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 2,797,845 $ 6,933,874 $ 17,428,607
Accrued expenses................... 4,593,093 24,678,158 24,474,793
Income taxes payable............... 978,000 450,408
Current portion of long-term debt.. 3,150,000 5,545,363 11,296,302
------------ ------------ ------------
Total current liabilities........ 11,518,938 37,157,395 53,650,110
LONG-TERM DEBT....................... 59,964,500 160,040,938 164,218,290
OTHER LONG-TERM LIABILITIES.......... 200,000 1,150,000 1,191,667
DEFERRED INCOME TAXES................ 1,968,767 1,059,752 1,239,025
COMMITMENTS AND CONTINGENCIES (See
Notes)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value;
6,000 shares authorized; 5,925
shares issued and outstanding
(cumulative liquidation value of
$5,925,000)....................... 59 59 59
Common stock, $.01 par value;
50,000 shares authorized; 15,300
shares and 16,200 shares issued
and outstanding as of December 31,
1996, December 31, 1997, and June
30, 1998, respectively............ 153 162 162
Additional paid-in capital......... 21,610,972 22,036,963 21,799,963
Accumulated deficit................ (15,129,855) (32,056,829) (43,346,942)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... 6,481,329 (10,019,645) (21,546,758)
------------ ------------ ------------
TOTAL................................ $ 80,133,534 $189,388,440 $198,752,334
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

EVERCOM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX-MONTH
ONE-MONTH YEAR PERIOD ENDED
PERIOD ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE....... $5,506,110 $ 91,773,041 $30,082,290 $103,604,748
OPERATING EXPENSES:
Telecommunication
costs................ 2,298,712 37,871,217 12,405,583 43,792,785
Facility commissions.. 1,455,375 25,723,997 8,160,713 33,344,834
Field operations and
maintenance.......... 218,895 4,542,757 1,165,678 3,746,658
Selling, general and
administrative....... 372,341 8,540,629 2,327,093 8,316,569
Depreciation.......... 110,803 2,218,694 617,084 2,689,675
Amortization of
intangibles.......... 741,032 14,243,332 4,738,419 12,917,064
Federal bid costs..... 399,817
---------- ------------ ----------- ------------
Total operating
expenses........... 5,197,158 93,540,443 29,414,570 104,807,585
---------- ------------ ----------- ------------
OPERATING INCOME
(LOSS)................. 308,952 (1,767,402) 667,720 (1,202,837)
OTHER (INCOME) EXPENSE:
Interest expense,
net.................. 612,071 11,137,877 3,931,885 9,763,635
Other (income), net... (20,490) (76,392) (19,220) (158,955)
---------- ------------ ----------- ------------
Total other (income)
expense............ 591,581 11,061,485 3,912,665 9,604,680
---------- ------------ ----------- ------------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY
LOSS................... (282,629) (12,828,887) (3,244,945) (10,807,517)
INCOME TAX (BENEFIT)
EXPENSE................ (22,502) (641,670) (849,614) 482,596
---------- ------------ ----------- ------------
LOSS BEFORE
EXTRAORDINARY ITEM..... (260,127) (12,187,217) (2,395,331) (11,290,113)
EXTRAORDINARY LOSS ON
DEBT EXTINGUISHMENT.... 4,739,757 4,395,681
---------- ------------ ----------- ------------
NET LOSS................ (260,127) (16,926,974) (6,791,012) (11,290,113)
PREFERRED STOCK
DIVIDENDS.............. 474,000 237,000 237,000
---------- ------------ ----------- ------------
NET LOSS APPLICABLE TO
COMMON STOCK........... $ (260,127) $(17,400,974) $(7,028,012) $(11,527,113)
========== ============ =========== ============
NET LOSS PER COMMON
SHARE:
Loss from continuing
operations........... $ (17.00) $ (803.68) $ (172.05) $ (711.55)
Extraordinary loss.... (300.86) (287.30)
---------- ------------ ----------- ------------
Net loss.............. $ (17.00) $ (1,104.54) $ (459.35) $ (711.55)
========== ============ =========== ============
WEIGHTED AVERAGE COMMON
SHARES................. 15,300 15,754 15,300 16,200
========== ============ =========== ============
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK ADDITIONAL
------------- ------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF PREFERRED
STOCK.................. 5,925 $59 -- $-- $ 5,924,941 $ -- $ 5,925,000
Issuance of common
stock................ 15,300 153 15,686,031 15,686,184
Portion of acquisition
cash payments to
continuing
stockholders, treated
as a dividend........ (14,869,728) (14,869,728)
Net loss.............. (260,127) (260,127)
----- --- ------ ---- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1996................... 5,925 59 15,300 153 21,610,972 (15,129,855) 6,481,329
Preferred dividends... (474,000) (474,000)
Issuance of common
stock................ 900 9 899,991 900,000
Net loss.............. (16,926,974) (16,926,974)
----- --- ------ ---- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1997................... 5,925 59 16,200 162 22,036,963 (32,056,829) (10,019,645)
Preferred dividends
(Unaudited).......... (237,000) (237,000)
Net loss (Unaudited).. (11,290,113) (11,290,113)
----- --- ------ ---- ----------- ------------ ------------
BALANCE, JUNE 30, 1998
(Unaudited)............ 5,925 $59 16,200 $162 $21,799,963 $(43,346,942) $(21,546,758)
===== === ====== ==== =========== ============ ============
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX-MONTH
ONE-MONTH PERIOD ENDED
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................ $ (260,127) $(16,926,974) $(6,791,012) $(11,290,113)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation............ 110,803 2,218,694 617,084 2,689,675
Amortization of
intangible assets,
including deferred
financing costs and
bond discount.......... 803,023 14,804,641 5,110,365 13,581,766
Extraordinary loss on
debt extinguishment.... 4,739,757 4,395,681
Deferred income taxes... 160,512 (1,295,508) (1,295,508)
Changes in operating
assets and
liabilities, net of
effects of
acquisitions:
Accounts receivable.... 44,823 (6,974,425) (505,303) (17,356,798)
Inventories............ 12,013 (723,013) 41,541 (1,205,171)
Prepaid expenses and
other ................ (166,096) (87,536) (84,759) 43,202
Accounts payable....... (1,010,795) 1,574,179 1,569,933 10,494,733
Accrued expenses....... (718,313) 9,694,953 (113,274) 3,607,032
Income taxes........... (394,963) (976,546) (891,873) 878,368
----------- ------------ ----------- ------------
Net cash (used in)
provided by operating
activities........... (1,419,120) 6,048,222 2,052,875 1,442,694
----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
(Decrease) Increase in
restricted cash........ (1,919,312) 1,919,312
Capital expenditures.... (268,801) (8,062,724) (1,296,817) (6,852,626)
Cash outflows for
acquisitions........... (46,983,442) (80,775,395) (10,367,497) (8,272,425)
----------- ------------ ----------- ------------
Net cash used in
investing
activities........... (47,252,243) (90,757,431) (11,664,314) (13,205,739)
----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the
issuance of debt....... 59,200,000 168,709,966 118,200,000 9,000,000
Repayment of advances... (1,001,024) (1,188,671)
Repayment of debt....... (15,912,706) (67,630,581) (67,400,000) (21,709)
Payments of deferred
financing costs........ (3,804,121) (7,885,650) (6,142,404)
Payments of preferred
dividends.............. (474,000)
Proceeds from the
issuance of common and
preferred stock, net of
expenses............... 9,482,684
----------- ------------ ----------- ------------
Net cash provided by
financing
activities........... 48,965,857 92,192,711 43,468,925 8,504,291
----------- ------------ ----------- ------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............. 294,494 7,483,502 33,857,486 (3,258,754)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............... 294,494 294,494 7,777,996
----------- ------------ ----------- ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD.................. $ 294,494 $ 7,777,996 $34,151,980 $ 4,519,242
=========== ============ =========== ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest.. $ 640,035 $ 4,202,059 $ 3,734,387 $ 8,806,228
=========== ============ =========== ============
Cash paid for income
taxes.................. $ 211,950 $ 1,552,973 $ 1,192,215 $ 26,144
=========== ============ =========== ============
Noncash transactions:
Issuance of subordinate
notes, preferred stock
and common stock for
acquisitions........... $16,043,000 $ 900,000 $ 1,200,000 $ 950,000
=========== ============ =========== ============
Reduction of
stockholders' equity
to reflect continuing
stockholder
interests.............. $14,869,728 $ -- $ -- $ --
=========== ============ =========== ============
Dividends payable....... $ -- $ 474,000 $ 237,000 $ 237,000
=========== ============ =========== ============
Amounts payable for
acquisition costs...... $ -- $ 8,369,421 $ 3,240,355 $ --
=========== ============ =========== ============
Amounts payable for
deferred financing
costs.................. $ -- $ 757,493 $ -- $ --
=========== ============ =========== ============
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--Evercom, Inc. (the "Company") (formerly Talton Holdings, Inc.)
owns, operates and maintains telephone systems under contracts with
correctional facilities in 43 states throughout the United States. The Company
was incorporated on November 20, 1996, and effective December 1, 1996,
acquired all of the outstanding equity interests of Talton Telecommunications
Corporation and AmeriTel Pay Phones, Inc., as discussed in Note 2.

The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through major local exchange
carriers ("LECs") or through third-party billing services for smaller volume
LECs, all of which are granted credit in the normal course of business with
terms of between 30 and 60 days. The Company performs ongoing credit
evaluations of its customers and maintains allowances for unbillable and
uncollectible losses based on historical experience.

Preparation of Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
and reserves for unbillable and uncollectible chargebacks that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, Talton Telecommunications Corporation, Talton Telecommunications
of Carolina, Inc., AmeriTel Pay Phones, Inc., Talton STC Inc., Talton InVision
and One Source Telecommunications, Inc. All significant intercompany balances
and transactions are eliminated in consolidation. Certain amounts have been
reclassified to conform with the current year presentation.

Cash and Cash Equivalents--Cash and cash equivalents include cash on hand
and investments with a remaining maturity at date of purchase of three months
or less.

Accounts Receivable--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of advance payments received, and an
allowance for unbillable and uncollectible calls, based on historical
experience, for estimated chargebacks to be made by the LECs. Under account
advance agreements with various third-party billing services, advance payments
equal to a percentage of the outstanding billed receivables are remitted to
the Company when calls are submitted to the third-party billing service, and
the Company grants a lien to the third-party billing service on the related
accounts receivable for the advance. The remainder of the billed receivable is
paid to the Company, net of the advance amount, after the third-party billing
service has collected the amounts receivable from the respective LECs.
Interest is charged on the advance payment at varying rates.

Inventories--Inventories are stated at the lower of cost, as determined
primarily using the weighted average cost method, or market. Inventory is
primarily composed of equipment for installation on new contracts and supplies
and parts for the telephone systems serviced by the Company.

Property and Equipment--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the related assets. The following is a summary of
useful lives for major categories of property and equipment.

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Leasehold improvements.......................... Lesser of life or lease term
Telephone system equipment...................... 3.5 to 7.5 years
Vehicles........................................ 3 years
Office equipment................................ 3 to 7 years
</TABLE>

F-8
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Maintenance and repairs are expensed when incurred and major repairs that
extend an asset's useful life are capitalized. When items are retired or
disposed, the related carrying value and accumulated depreciation are removed
from the respective accounts, and the net difference less any amount realized
from the disposition is reflected in earnings.

Intangible and Other Assets--Intangible and other assets primarily include
amounts allocated to acquired facility contracts, noncompete agreements,
goodwill and other intangible assets, which are stated at cost, along with the
long-term portion of customer advances. Amortization of intangible assets is
provided on a straight-line basis over the estimated useful lives of the
related assets. The following is a summary of useful lives for major
categories of intangible assets:

<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
---------------- -----------
<S> <C>
Acquired facility contracts................................... Contract term
Noncompete agreements......................................... Agreement term
Deferred loan costs........................................... Loan term
Other assets and intangibles.................................. 2 to 5 years
Goodwill...................................................... 20 years
</TABLE>

Acquired facility contracts consist primarily of costs allocated to
locations acquired in acquisitions of facility contract rights from other
service providers, along with signing bonuses paid to the facilities under new
facility installations and other incremental direct costs paid to obtain the
facility contracts.

Other assets and intangibles include costs incurred to obtain direct billing
agreements with local exchange carriers, organizational costs and licensing
fees to obtain state licenses to conduct business.

The Company periodically assesses the net realizable value of its intangible
assets, as well as all other long-term assets, by comparing the expected
future net operating cash flow, undiscounted and without interest charges, to
the carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.

Income Taxes--The Company accounts for income taxes using the liability
method in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are provided for temporary differences
between the financial statement and tax bases of the assets and liabilities
using current tax rates.

Revenue Recognition--Revenues are recognized during the period in which the
calls are made. In addition, during the same period, the Company accrues the
related telecommunication costs for validating, transmitting, billing and
collection, and line and long-distance charges, along with commissions payable
to the facilities and allowances for unbillable and uncollectible calls, based
on historical experience.

Facility Commissions--Under the terms of the Company's telephone system
contracts with correctional facilities, the Company pays commissions to these
facilities generally based on call volume revenues that are accrued during the
period the revenues are generated.

Earnings (loss) per Share--During 1997, the Company adopted SFAS No. 128,
"Earnings per Share," which requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the consolidated income statement
and requires a reconciliation of the numerators and denominators of the basic
and diluted EPS

F-9
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

calculations. Common shares issuable upon exercise of common stock warrants
and common stock options are antidilutive for the periods presented and
therefore are not included in the calculation of diluted earnings per share.

Recently Issued Accounting Pronouncements--SFAS No. 130, "Reporting
Comprehensive Income," was issued in June 1997 and establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 is
effective for the Company's year ending December 31, 1998.

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," was also issued in June 1997 and establishes new standards for
reporting information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major customers. SFAS No.
131 is effective for the Company's year ending December 31, 1998.

The Company expects that the adoption of these pronouncements will have no
material effect on the financial position, results of operations or cash flows
of the Company.

Unaudited Interim Financial Statements--The Company's balance sheet as of
June 30, 1998, and the statements of operations and cash flows for the six
months ended June 30, 1997 and 1998, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations and cash flows of the Company as of June
30, 1998, and for the six months ended June 30, 1997 and 1998, have been made.
The financial position and results of operations for the interim period are
not necessarily indicative of the results to be expected for the full year.

2. ACQUISITIONS

Effective December 1, 1996, the Company acquired all of the outstanding
equity interests of Talton Telecommunications Corporation and AmeriTel Pay
Phones, Inc. The aggregate net purchase price was approximately $47.9 million,
which was funded with the net proceeds from the issuance of common and
preferred stock and the proceeds from the issuance of long-term debt.

Since certain of the stockholders of the Company held ownership interests in
Talton Telecommunication Corporation and AmeriTel Pay Phones, Inc., their
continuing ownership interest in the Company has been accounted for at their
prior historical basis, which has resulted in a reduction in stockholders'
deficit of approximately $14.9 million and a corresponding reduction in the
fair values assigned to tangible and identifiable intangible assets, in
accordance with the provisions of Emerging Issue Task Force discussion No. 88-
16, "Basis in Leveraged Buyout Transactions."

Effective April 4, 1997, the Company acquired substantially all of the net
assets of Tri-T, Inc. (d.b.a. Tataka) for cash of $0.8 million, which was
funded primarily by borrowings under the Senior Credit Agreement.

Effective June 27, 1997, the Company acquired substantially all of the net
assets of Security Telecom Corporation for cash of $9.9 million and issuance
of 900 shares of the Company common stock. Approximately $2.5 million of the
purchase price was withheld at closing, pending certain regulatory approvals
and final

F-10
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

adjustments. In conjunction with the acquisition of Security Telecom
Corporation, the Company entered into an agreement with an employee of
Security Telecom Corporation giving the employee the right to purchase up to
100 shares of the Company's Class A common stock for $2,000 per share. The
employee may elect to exercise the options after December 31, 1997, or may
elect to receive a $200,000 payment in cash. The options must be exercised by
June 30, 1999. The Company has recorded this liability with a corresponding
increase in goodwill resulting from the Security Telecom acquisition. The
Company financed the acquisition with a portion of the proceeds from the
Senior Notes.

Effective July 31, 1997, the Company acquired all of the net assets of
Correctional Communications Corporation for cash purchase price of $10.3
million. Approximately $5.5 million of the purchase price is held in an escrow
account pending certain regulatory approvals. The acquisition agreement also
provides for contingent payment of up to $1.5 million if certain financial
performance benchmarks are achieved in the future. The $1.5 million
contingency will be accounted for as an adjustment to the purchase price when
the contingency is resolved. The Company financed the acquisition with a
portion of the proceeds from the Senior Notes.

Effective October 6, 1997, the Company entered into an agreement to purchase
substantially all of the net assets of the inmate pay phone division of
Communications Central Inc. for $40 million in cash and assumption of $2.0
million in liabilities subject to various adjustments as defined in the
agreement and subject to a provision for working capital of approximately $1.2
million provided to the Company pursuant to the purchase agreement. The
Company financed the acquisition with the remaining proceeds from the Senior
Notes and borrowings under the Senior Credit Agreement.

Effective December 1, 1997, the Company entered into an agreement to
purchase substantially all of the net assets of the inmate pay phone division
of North American InTeleCom, Inc. from TSC Communications for a cash purchase
price of $6.5 million in cash, a deferred payment of $1.7 million, and the
assumption of certain liabilities approximating $0.7 million. The Company
funded the acquisition with borrowings under the Senior Credit Agreement.

Effective December 19, 1997, the Company entered into an agreement to
purchase substantially all of the net assets of the inmate pay phone division
of Peoples Telephone Company, Inc. for $10.6 million with the assumption of
certain liabilities. The acquisition agreement also provides for additional
contingent payments if certain financial results are obtained in the future.
The additional payments will be accounted for as an adjustment to the purchase
price when the contingency is resolved. The Company funded the acquisition
with borrowings under the Senior Credit Agreement.

The above acquisitions were accounted for using the purchase method of
accounting as of their respective acquisition dates and, accordingly, only the
results of operations of the acquired companies subsequent to their respective
acquisition dates are included in the consolidated financial statements of the
Company. At the acquisition date, the purchase price was allocated to assets
acquired, including identifiable intangibles and liabilities assumed based on
their fair market values. The excess of the total purchase prices over the
fair value of the net assets acquired represents goodwill.

F-11
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the acquisitions, assets were acquired and liabilities
were assumed as follows:

<TABLE>
<CAPTION>
PURCHASE PRICES 1996 1997
--------------- ------------ -----------
<S> <C> <C>
Net cash paid................................... $ 46,983,442 $80,775,395
Amounts payable for acquisition costs........... 8,369,421
Subordinated notes, preferred stock and common
stock issued to sellers, net of expenses....... 15,768,624 900,000
Portion of purchase price for continuing
stockholders, treated as a dividend............ (14,869,728)
------------ -----------
Total net purchase prices, including
professional fees.............................. 47,882,338 90,044,816
Fair values of net assets acquired:
Fair values of assets acquired................ 35,987,320 53,131,563
Liabilities assumed........................... (27,864,398) (3,297,973)
------------ -----------
Total net assets acquired....................... 8,122,922 49,833,590
------------ -----------
Goodwill........................................ $ 39,759,416 $40,211,226
============ ===========
</TABLE>

The following table presents unaudited pro forma results of operations of
the Company for the one-month period ended December 31, 1996, and the year
ended December 31, 1997, as if the 1997 acquisitions had occurred at the
beginning of each respective period:

<TABLE>
<CAPTION>
ONE-MONTH YEAR
PERIOD ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Net sales......................................... $14,894,179 $172,567,348
Loss before extraordinary loss.................... 1,981,056 26,001,087
Net loss.......................................... 1,981,056 30,740,844
</TABLE>

The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
the acquisition occurred at the beginning of the periods presented, nor do
they purport to be indicative of the future results of operations of the
Company.

Effective January 1, 1998, the Company entered into an agreement to purchase
substantially all of the net assets of the inmate pay phone division of ILD
Teleservices, Inc. for a cash purchase price of $2.6 million. The acquisition
was funded with borrowings under the Senior Credit Agreement.

Effective February 1, 1998, the Company entered into an agreement to
purchase substantially all of the net assets of MOG Communications, Inc. for a
cash purchase price of $1.9 million with a note of $950,000. The acquisition
was funded with borrowings under the Senior Credit Agreement.

F-12
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable, net of
advance payments received of
$1,188,671, $187,647 and $205,956
at December 31, 1996 and 1997, and
June 30, 1998, respectively........ $ 7,975,016 $21,809,811 $41,918,193
Advance commissions receivable...... 349,094 272,921 562,829
Amounts receivable from
stockholders....................... 135,627
Receivables related to
acquisitions....................... 456,875
Universal service fund receivable... 956,032
Employees and other................. 11,556 178,989 271,324
----------- ----------- -----------
8,471,293 22,718,596 43,708,378
Less allowance for unbillable and
uncollectible chargebacks.......... (1,125,023) (5,316,689) (8,949,673)
----------- ----------- -----------
$ 7,346,270 $17,401,907 $34,758,705
=========== =========== ===========
</TABLE>

At December 31, 1996 and 1997, and June 30, 1998, the Company had advanced
commissions to certain facilities of $835,641, $1,290,732 and $1,338,295
(unaudited), respectively, which are recoverable from such facilities as a
reduction of earned commissions at specified monthly amounts. Amounts included
in accounts receivable represent the estimated recoverable amounts during the
next fiscal year with the remaining balance recorded in other assets.

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................. $ 432,036 $ 493,836 $ 740,544
Telephone system equipment............. 7,259,333 24,480,777 29,508,686
Vehicles............................... 123,977 249,868 413,207
Office equipment....................... 264,591 1,075,751 2,046,642
---------- ----------- -----------
8,079,937 26,300,232 32,709,079
Less accumulated depreciation.......... (110,803) (2,293,193) (4,982,867)
---------- ----------- -----------
$7,969,134 $24,007,039 $27,726,212
========== =========== ===========
</TABLE>

F-13
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Intangible and other assets:
Acquired telephone contracts.... $18,440,124 $ 59,064,429 $ 61,564,224
Noncompete agreements........... 303,611 403,611 568,611
Deferred loan costs............. 3,804,121 8,299,067 8,299,067
Goodwill........................ 39,759,416 79,970,642 83,162,862
Other intangibles............... 55,936 526,385 601,983
----------- ------------ ------------
62,363,208 148,264,134 154,196,749
Less accumulated amortization..... (803,023) (15,157,562) (28,739,328)
----------- ------------ ------------
Total intangible and other
assets........................... 61,560,185 133,106,572 125,457,421
Deposits.......................... 416,384 487,489
Other assets--noncurrent portion
of commission advances to
facilities....................... 486,547 1,017,811 775,466
----------- ------------ ------------
$62,046,732 $134,540,767 $126,720,376
=========== ============ ============
</TABLE>

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Facility commissions.................... $2,034,070 $ 5,456,245 $ 6,110,318
Billing and collection fees............. 455,517 1,148,171 2,162,334
Uncollectible call chargebacks.......... 840,000 990,135 1,810,064
Accrued acquisition and financing
costs.................................. 1,068,124 8,599,778 5,026,381
Accrued interest........................ 9,946 6,557,651 6,871,152
Accrued excise taxes payable............ 1,166,003 1,837,684
Accrued dividends on preferred stock.... 474,000 237,000
Other................................... 185,436 286,175 419,860
---------- ----------- -----------
$4,593,093 $24,678,158 $24,474,793
========== =========== ===========
</TABLE>

The accrual for uncollectible call chargebacks represents a reserve for
amounts collected from the various LECs or third-party billing services that
are expected to be charged back to the Company in future periods.

The amount payable for acquisitions and financing costs includes a $2.5
million holdback of the purchase price of Security Telecom Corporation
acquisition (see Note 2), which will be paid to the sellers after certain
regulatory approvals have been obtained, and a $1.7 million deferred payment
relating to the North American InTeleCom acquisition.

F-14
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. LONG-TERM DEBT

The following is a summary of long-term debt:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Senior Notes....................... $ -- $115,000,000 $115,000,000
Senior Credit Agreement:
Revolving loan facility.......... 5,700,000 2,000,000 4,500,000
Term loan facility............... 45,000,000 48,500,000 55,000,000
Senior subordinated notes.......... 8,500,000
Subordinated notes................. 5,000,000
Note payable, with interest of
8.0%, due at maturity on February
19, 1999, and subordinate to
borrowings of the Senior Notes and
Senior Credit Agreement........... 950,000
Other.............................. 86,301 64,592
----------- ------------ ------------
64,200,000 165,586,301 175,514,592
Less unamortized discount.......... (1,085,500)
Less current portion of long-term
debt.............................. (3,150,000) (5,545,363) (11,296,302)
----------- ------------ ------------
$59,964,500 $160,040,938 $164,218,290
=========== ============ ============
</TABLE>

Senior Notes--On June 27, 1997, the Company issued $115.0 million of 11%
Senior Notes due 2007. A portion of the proceeds of the issuance was used to
repay all of the previous debt outstanding under the Senior Credit Agreement,
the Senior Subordinated Notes (as defined), the Subordinated Notes and to fund
the purchase of Security Telecom Corporation. As a result of the repayment of
the outstanding debt, and amendment of the Company's Senior Credit Agreement,
the Company incurred an extraordinary loss of $4.7 million resulting from the
write-off of the unamortized deferred loan costs and the unamortized discount
of the Senior Subordinated Notes.

Interest on the Senior Notes is payable semiannually. All of the Company's
subsidiaries (the "Subsidiary Guarantors") are fully, unconditionally, and
jointly and severally liable for the Notes. The Subsidiary Guarantors are
wholly owned and constitute all of the Company's direct and indirect
subsidiaries. The Company has not included separate financial statements of
its subsidiaries because (a) the aggregate assets, liabilities, earnings and
equity of such subsidiaries are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis and
(b) the Company believes that separate financial statements and other
disclosures concerning subsidiaries are not material to investors.

The Senior Notes are redeemable at the Company's option on or after June 30,
2002. The Senior Notes are redeemable at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................................ 105.500%
2003............................................................ 103.667%
2004............................................................ 101.833%
2005 and thereafter............................................. 100.000%
</TABLE>

F-15
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At any time on or prior to June 30, 2000, the Company may redeem up to 30%
of the Senior Notes originally issued at a redemption price of 111% of the
principal amount, plus accrued and unpaid interest, with the proceeds of one
or more Equity Offerings, as defined.

Senior Credit Agreement--In July 1997 and again in December 1997, the
Company amended and restated its Senior Credit Agreement with a group of
lenders. The Senior Credit Agreement includes a $55.0 million term loan
acquisition facility and a $25.0 million revolving loan facility (which
includes a $5.0 million letter of credit facility). Under the terms of the
Senior Credit Facility, the term loan is amortized on a quarterly basis, over
five years beginning September 30, 1998, and the revolving credit facility
expires on December 31, 2002. Amounts outstanding under the Senior Credit
Agreement bear interest at a rate per annum equal to one of the following
rates, at the Company's option: (i) a base rate equal to the higher of the
Federal Funds rate plus 50 basis points or the lead bank's reference rate or
(ii) the London Interbank Offering Rate ("LIBOR") plus a margin that varies
from 200 to 350 basis points, based on the Company's Total Debt to EBITDA
Ratio, as defined. The Company pays a commitment fee on unused amounts of the
Senior Credit Agreement at the rate of 50 basis points. The blended interest
rate in effect at December 31, 1997, on the Senior Credit Agreement was 9.47%.

Interest is payable quarterly, and scheduled principal installments on the
term loan facilities are due in quarterly installments of $2,750,000 beginning
September 30, 1998 through December 31, 1998, decreasing to $2,406,250 on
March 31, 1999, and increasing to $3,093,750 on March 31, 2000, and $3,437,500
on March 31, 2001, with the remaining unpaid balance due on December 31, 2002.
Both the revolving and the term loan facilities are collateralized by
substantially all of the assets of the Company.

Senior Subordinated Notes--In connection with the acquisitions of Talton
Telecommunications Corporation and AmeriTel Pay Phones, Inc., the Company
issued $8.5 million of senior subordinated notes (the "Senior Subordinated
Notes") that accrued interest, payable quarterly, at an initial rate of 12%
per annum for the period from the date of issuance until March 27, 1997.
Thereafter, the interest rate increased 0.5% on a quarterly basis up to a
maximum rate of 19%. In connection with the issuance of the Senior
Subordinated Notes, stock purchase warrants to acquire 1,085 shares of the
Company's Class A common stock at an exercise price of $.01 per share were
issued to certain note holders. As a result, the Senior Subordinated Notes
were discounted from their face value by $1,085,500, which represented the
estimated value of the proceeds assigned to the warrants as discussed in Note
9. On June 27, 1997, the Company used $8.5 million of the net proceeds from
the Senior Notes to pay off the outstanding Senior Subordinated Notes.

Subordinated Notes--In connection with the acquisitions of Talton
Telecommunications Corporation and AmeriTel Pay Phones, Inc., the Company
issued subordinated notes to three stockholders of the Company, which accrued
interest, payable quarterly, at an initial rate of 12.5% per annum. On June
27, 1997, the Company used $5.0 million of the net proceeds from the Senior
Notes to pay off the outstanding Subordinated Notes.

Covenants and Other--The Senior Notes and the amended and restated Senior
Credit Agreement contain financial and operating covenants requiring, among
other items, the maintenance of certain financial ratios, as defined,
including total debt to free cash flow, senior secured debt to free cash flow
and various other ratios of free cash flow to specified minimums. In addition,
the amended and restated Senior Credit Agreement contains various covenants,
which, among other things, limit the Company's ability to incur additional
indebtedness, restrict the Company's ability to invest in and divest of
assets, and restrict the Company's ability to pay dividends. In the event the
Company fails to comply with the covenants and other restrictions, as
specified, it could be in default under the Senior Notes and the Senior Credit
Agreement and substantially all of the Company's long-term maturities could be
accelerated.

F-16
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1997, the scheduled maturities of long-term debt were as
follows:

<TABLE>
<S> <C>
1998.......................................................... $ 5,545,363
1999.......................................................... 9,665,938
2000.......................................................... 12,375,000
2001.......................................................... 13,750,000
2002.......................................................... 9,250,000
Thereafter.................................................... 115,000,000
------------
$165,586,301
============
</TABLE>

8. INCOME TAXES

A summary of the income tax benefit is as follows:

<TABLE>
<CAPTION>
ONE MONTH YEAR
PERIOD ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Current income tax provision:
Federal......................................... $(73,837) $ 228,461
State........................................... (10,260) 425,377
Deferred income taxes........................... 61,595 (1,295,508)
-------- -----------
$(22,502) $ (641,670)
======== ===========
</TABLE>

The Company has provided for income taxes during the six months ended June
30, 1998 using expected 1998 effective tax rates for each of its taxing
jurisdictions which have been allocated between current income taxes payable
and deferred income taxes based on anticipated 1998 temporary differences.

The income tax benefit differs from statutory rates primarily because of
permanent differences related to a valuation allowance on deferred tax asset,
nondeductible write-off of debt discount and nondeductible goodwill
amortization. The following is a reconciliation of the income tax benefit
reported in the statement of operations:

<TABLE>
<CAPTION>
1996 1997
-------- -----------
<S> <C> <C>
Tax benefit at statutory rates....................... $(96,094) $(5,973,339)
Effect of state income taxes......................... (13,284) (301,595)
Effect of nondeductible goodwill amortization........ 86,876 675,910
Nondeductible write-off of debt discount............. 332,163
Valuation allowance on deferred tax assets........... 4,674,920
Other................................................ (49,729)
-------- -----------
$(22,502) $ (641,670)
======== ===========
</TABLE>

F-17
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Allowance for unbillable and uncollectible
chargebacks................................... $ 440,547 $ 1,486,129
Reserves....................................... 232,712 166,368
Amortization of intangibles.................... 2,210,171
Net operating loss carryforward................ 1,872,004
Valuation allowance............................ (4,674,920)
----------- -----------
673,259 1,059,752
Deferred income tax liabilities:
Depreciation and amortization.................. (1,944,922) (1,059,752)
Other.......................................... (23,845)
----------- -----------
(1,968,767) (1,059,752)
----------- -----------
Net deferred income tax asset (liability)........ $(1,295,508) $ --
=========== ===========
</TABLE>

This net deferred income tax liability is classified in the consolidated
balance sheet as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current asset...................................... $ 673,259 $ 1,059,752
Noncurrent liability............................... (1,968,767) (1,059,752)
----------- -----------
$(1,295,508) $ --
=========== ===========
</TABLE>

The Company has established a valuation allowance for deferred tax assets
primarily as a result of operating and extraordinary losses. The Company was
unable to determine that it is more likely than not that the deferred tax
assets will be realized. The Company generated a federal income tax net
operating loss carryforward of approximately $4.8 million and $301,000 for the
year ended December 31, 1997, and the one month ended December 31, 1996,
respectively, which will expire in 2017 and 2011, respectively.

9. STOCKHOLDERS' EQUITY

Common Stock--The authorized common stock of the Company includes 49,600
shares of Class A common stock and 400 shares of Class B common stock. Holders
of the shares of Class A and Class B common stock have identical rights and
privileges except that holders of Class B common stock are entitled to four
votes a share as compared to one vote per share for holders of Class A common
stock.

Issued and outstanding shares of common stock as of December 31, 1997,
include 15,800 shares of Class A common stock and 400 shares of Class B common
stock. The Class B common stock is convertible into four shares of Class A
common stock upon the occurrence of a major event, as defined.

Preferred Stock--In connection with the acquisitions of Talton
Telecommunications Corporation and AmeriTel Pay Phones, Inc. as discussed in
Note 2, the Company issued 5,925 shares of senior preferred stock to former
stockholders of the acquired companies. The preferred stockholders have no
voting rights and are entitled to receive cumulative dividends at the rate of
$80 per share per annum, payable quarterly, when declared by the Board of
Directors. In the event of any liquidation, dissolution or winding up of the
Company (voluntary or involuntary), the holders of the preferred stock shall
be entitled to receive a preference over common stockholders in any
distribution of assets of the Company, equal to $1,000 per share plus
cumulative unpaid dividends. Upon the occurrence of a major event, which
includes (i) a sale of all or substantially all the assets of

F-18
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Company or (ii) a registered public offering of equity interests with
gross proceeds of at least $20.0 million under the Securities Act of 1933, as
amended, the Company is required to redeem the outstanding shares of preferred
stock at a price equal to $1,000 a share plus cumulative unpaid dividends.
Each holder of preferred stock is entitled to convert each preferred share
into 0.08505 shares of Class A common stock, at the option of the holder, at
any time after the date of issuance and on or prior to the occurrence of a
major event, as defined.

In addition to the senior preferred stock discussed above, the Company is
authorized to issue up to 44,000 shares of junior preferred stock, of which no
shares have been issued as of December 31, 1997.

Warrants--At the acquisition date, the Company entered into a warrant
agreement with certain of its senior subordinated note holders, which granted
the note holders the right to purchase 1,085 shares of Class A common stock at
an exercise price of $.01 a share, which was below the market value of the
underlying shares at that date. Accordingly, as of December 31, 1996,
approximately $1,085,500 of the proceeds of the senior subordinated note
borrowings were allocated to these warrants and were recorded as additional
paid-in capital. The $1,085,500, net of accumulated amortization, was written
off as part of the extraordinary loss on debt extinguishment upon the issuance
of the Senior Notes and the related repayment of the outstanding balances
under the previous Senior Credit Agreement.

At the acquisition date, the Company also entered into various warrant
agreements with its other subordinated lenders along with its Class B common
stockholders that granted such holders the right to purchase 6,230 shares of
Class A common stock of the Company upon terms established by the Board of
Directors. In conjunction with the issuance of the Senior Notes, 1,059 of
these warrants were terminated. The remaining 5,171 warrants are exercisable
in whole or part, at various dates through December 27, 2006, at warrant
prices ranging from $1,000 to $3,000 a share.

Options--In connection with certain employment agreements in 1997, the
Company granted 611 options to acquire common stock at an exercise price equal
to the fair market value of such shares at the date of grant. The options vest
ratably over the term of the employment agreements and expire ten years from
the date of grant. The following is a summary of changes in stock options
during 1997:

<TABLE>
<CAPTION>
NUMBER EXERCISE
OF PRICE PER
SHARES SHARE
------ ---------
<S> <C> <C>
Outstanding at January 1, 1997.............................. -- $ --
Granted during 1997....................................... 611 2,000
---
Outstanding at December 31, 1997............................ 611 $2,000
===
</TABLE>

F-19
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its options. Accordingly, no compensation
cost has been recognized for such option grants. Had compensation cost for the
Company's options been determined based upon the fair value at the grant dates
for awards consistent with the method prescribed by the Financial Accounting
Standards Board's SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net loss would have been the amount as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
COMPENSATION COST DISCLOSURE
Compensation cost............................................. $ 173,000
Net loss:
As reported............................................... $(16,926,974)
Pro forma................................................. (17,158,794)
Net loss per share:
As reported--basic........................................ $ (773.60)
Pro forma--basic.......................................... (1,089.17)
Stock option shared data:
Stock options granted during period....................... 611
Weighted average option fair value(a)..................... $ 850.00
</TABLE>
- --------
(a) Calculated in accordance with the Black-Scholes option pricing model,
using the following assumptions: expected volatility of 0%; expected
dividend yield of 0%; expected option term of ten years and risk-free
rate of return of 5.6% based on the yield of ten-year U.S. treasury
securities.

Earnings per Share--As a result of the adoption of SFAS No. 128, all EPS
amounts have been restated to the basic and diluted presentations required by
this pronouncement. The following table reconciles the numerators and
denominators used in the computations of both basic and diluted EPS:

<TABLE>
<CAPTION>
ONE MONTH SIX MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Loss from continuing
operations................... $(260,127) $(12,187,217) $(11,290,113)
Less preferred stock
dividends.................... (474,000) (237,000)
--------- ------------ ------------
Loss applicable to common
stock........................ $(260,127) $(12,661,217) $(11,527,113)
========= ============ ============
Denominator:
Weighted average common
shares....................... 15,300 15,754 16,200
========= ============ ============
Basic EPS..................... $ (17.00) $ (803.68) $ (711.55)
========= ============ ============
</TABLE>

10. RELATED-PARTY TRANSACTIONS

Two stockholders of the Company have personally guaranteed three of the
Company's operating leases, which have expiration dates ranging from September
1998 to April 2000. In addition, one of the Company's subsidiaries leased
office space from this stockholder under a month-to-month lease with monthly
rentals of $3,000. This lease expired on December 31, 1996. Subsequently, the
Company entered into a new lease agreement with the stockholder, which
required monthly payments in 1997 of $9,083, and thereafter at agreed-

F-20
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

upon monthly rates through December 31, 2001, at which time the Company has an
option to extend the lease for an additional five years.

In conjunction with the formation of the Company in 1996 and the
consummation and original financing of the acquisitions of Talton
Telecommunications Corporation and AmeriTel Pay Phones, Inc., the Company paid
transaction fees and expenses of $1,670,000 to three companies affiliated with
certain stockholders that have been capitalized in the acquisitions.

The Company entered into a management services and consulting agreement with
a company affiliated with certain stockholders, along with separate consulting
agreements with four stockholders who are former employees of the acquired
companies. These agreements require the payment of aggregate minimum annual
consulting fees over the next five years in the following amounts:

These agreements also provide for the reimbursement of direct expenses along
with future payments for transaction consulting services. One of the
agreements entitles an affiliate of certain stockholders to a 1% fee based on
the gross acquisition price for any asset or stock acquisitions by the
Company. This agreement, which expires in December 1999, limits the cumulative
acquisition fees paid to this consultant to an amount not to exceed $1,250,000
over the life of the agreement. In 1997, the Company paid $187,000 under the
terms of this agreement and $591,250 was recorded as a liability at December
31, 1997. This agreement also provides for an additional amount upon the
refinancing of certain Senior Subordinated Notes outstanding. In conjunction
with the Senior Notes offering, the Company paid $200,000 under the terms of
this agreement.

The management services and consulting agreement has a three-year term and
is cancelable at either party's discretion, with all consulting fees under the
remaining term of the agreement to be paid upon the date of termination. The
remaining consulting agreements are cancelable only at the option of the
consultants and expire over one- to five-year terms. In connection with these
agreements, the Company paid $478,000 during the year ended December 31, 1997.

11. BENEFIT PLAN

The Company's subsidiaries sponsor 401(k) savings plans for the benefit of
eligible full-time employees, which are qualified benefit plans in accordance
with the Employee Retirement Income Security Act ("ERISA"). Employees
participating in the plan can generally make contributions to the plan of up
to 15% of their compensation. The plans provide for discretionary matching
contributions by the Company of up to 50% of an eligible employee's
contribution. Total plan expenses were $3,517 for the one-month period ended
December 31, 1996, $5,115 for the year ended December 31, 1997, and $30,366
for the unaudited six months ended June 30, 1998.

F-21
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. COMMITMENTS AND CONTINGENCIES

Operating Leases--The Company leases office furniture, office space and
vehicles under various operating lease agreements. Rent expense under these
operating lease agreements was $19,900, $496,967 and $499,016, respectively,
during the one-month period ended December 31, 1996, the year ended December
31, 1997 and the unaudited six-month period ended June 30, 1998. Minimum
future rental payments under noncancelable operating leases for each of the
next five years and thereafter and in the aggregate are:

<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 824,952
1999.......................................................... 700,164
2000.......................................................... 498,135
2001.......................................................... 459,776
2002.......................................................... 352,238
Thereafter.................................................... 1,484,900
----------
$4,320,165
==========
</TABLE>

Minimum Commissions--The Company has entered into contracts with customers
obligating the Company to pay future minimum commissions of approximately $9.9
million a year over the next three years.

Employment Agreements--As of December 31, 1997, the Company had entered into
employment agreements with certain key management personnel, which provided
for minimum compensation levels and incentive bonuses along with provisions
for termination of benefits in certain circumstances and for certain severance
payments in the event of a change in control (as defined).

Litigation--The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business operations. In the opinion of
management, the amount of liability, if any, with respect to these actions
would not materially affect the financial statements of the Company.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," the Company is required to disclose an estimate of the fair
value of the Company's financial instruments. The Company believes that the
carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable are a reasonable estimate of their fair value because of the
short-term maturities of such instruments. In addition, because the interest
rates on the amounts borrowed under the Senior Credit Agreement are variable,
their fair values approximate their carrying values.

The fair value of the Company's Senior Notes is based on their quoted market
value. The following is a summary of the carrying value of the Company's debt
instruments:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------------- ---------------------------
HISTORICAL HISTORICAL
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Senior Notes............ $ -- $ -- $115,000,000 $123,912,500
Senior Credit
Agreement.............. 50,700,000 50,700,000 50,500,000 50,500,000
</TABLE>

14. FEDERAL BID AND OTHER COSTS

Federal Bid Costs--During 1997, the Company incurred $399,817 of external
costs associated with a bid for the Federal Bureau of Prisons contract.
Initial indications are that the Company was unsuccessful in obtaining

F-22
<PAGE>

EVERCOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the contract. The contract award has been appealed; however, the Company has
expensed all costs associated with the bid.

Extraordinary Loss--During 1997, as a result of the repayment of outstanding
indebtedness and amendments of the Senior Credit Agreement, the Company
expensed approximately $4.7 million of debt issuance, legal and other costs
associated with the extinguishment of the prior credit facilities. These
amounts have been classified as an extraordinary loss in accordance with the
provisions of SFAS No. 4, "Reporting Gains and Losses From the Extinguishment
of Debt."

15. SUBSEQUENT EVENTS (UNAUDITED)

In connection with certain employment agreements in 1998, the Company
granted options to purchase 396 common stock at an exercise price of $2,000
per share. The options vest ratably over the terms of the employment
agreements and expire ten years from the date of issuance.

On June 30, 1998, the Company's Board of Directors adopted a Stock Incentive
Plan (the "Plan"). The Plan provides for options to be granted to key
employees and officers of the Company for the purchase of 77 shares of common
stock at an exercise price of $2,000 per share. The options granted under the
Plan have a vesting period of three to five years and expire after ten years
from the date of grant.

On June 30, 1998, the Company entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest
rate exposure on its loan under the Senior Credit Agreement. At June 30, 1998,
the interest rate cap has an aggregate notional amount of $30.0 million, which
matures in June 2001, and caps interest on the LIBOR portion of the term loan
up to the aggregate notional amount at 7.5%, plus the applicable LIBOR margin.

On July 1, 1998, the Company entered into an agreement to purchase Saratoga
Telephone Company for a cash purchase price of $2.0 million.

* * * * * *

F-23
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
AmeriTel Pay Phones, Inc.:

We have audited the accompanying balance sheet of AmeriTel Pay Phones, Inc.
(the "Company") as of November 30, 1996, and the related statements of income,
stockholders' equity and cash flows for the eleven months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of AmeriTel Pay Phones, Inc. as of November
30, 1996, and the results of its income and its cash flows for the eleven
months then ended, in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP
Dallas, Texas
April 4, 1997

F-24
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
AmeriTel Pay Phones, Inc.:

We have audited the accompanying balance sheet of AmeriTel Pay Phones, Inc.
(a Missouri corporation) as of December 31, 1995, and the related statements
of income, stockholders' equity and cash flows for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriTel Pay Phones, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.

Arthur Andersen LLP
Kansas City, Missouri
March 22, 1996

F-25
<PAGE>

AMERITEL PAY PHONES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 891,026 $ 80,664
Accounts receivable................................ 1,754,777 5,546,304
Stock subscriptions receivable..................... 1,061,384
Refundable income taxes............................ 242,277 342,986
Inventories........................................ 1,056,724 785,438
Prepaid expenses................................... 79,526 34,646
Deferred tax asset................................. 253,893 396,752
----------- -----------
Total current assets............................. 4,278,223 8,248,174
PROPERTY AND EQUIPMENT............................... 3,671,940 4,521,521
INTANGIBLE AND OTHER ASSETS.......................... 10,635,478 14,114,958
----------- -----------
TOTAL................................................ $18,585,641 $26,884,653
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 337,485 $ 1,429,916
Accrued expenses................................... 1,702,786 3,289,957
Current maturities of long-term debt............... 220,592 1,824,907
----------- -----------
Total current liabilities........................ 2,260,863 6,544,780
LONG-TERM DEBT....................................... 11,469,408 13,019,811
DEFERRED INCOME TAXES................................ 318,354 425,689
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 500,000 shares
authorized; 244,800 shares issued and outstanding
(liquidation value of $1,534,157 at November 30,
1996)............................................. 2,448 2,448
Common stock, $.01 par value, 10,000,000 shares
authorized; 3,233,854 and 3,519,315 shares issued
and outstanding as of December 31, 1995, and
November 30, 1996, respectively................... 32,338 35,193
Additional paid-in capital......................... 2,292,548 3,704,863
Retained earnings.................................. 2,209,682 3,151,869
----------- -----------
Total stockholders' equity....................... 4,537,016 6,894,373
----------- -----------
TOTAL................................................ $18,585,641 $26,884,653
=========== ===========
</TABLE>

See notes to financial statements.

F-26
<PAGE>

AMERITEL PAY PHONES, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ELEVEN MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING REVENUE................................. $20,371,388 $29,305,641
OPERATING EXPENSES:
Telecommunication costs......................... 9,747,326 13,728,316
Facility commissions............................ 3,497,488 6,086,469
Field operations and maintenance................ 863,901 1,166,063
Selling, general and administrative............. 1,758,744 2,281,177
Depreciation.................................... 384,277 536,264
Amortization of intangibles..................... 1,224,071 1,624,017
Nonrecurring expenses........................... 684,320
----------- -----------
Total operating expenses...................... 17,475,807 26,106,626
----------- -----------
OPERATING INCOME.................................. 2,895,581 3,199,015
OTHER (INCOME) EXPENSE:
Interest income................................. (32,165) (20,816)
Interest expense................................ 1,059,860 1,375,701
Other, net...................................... 66,139 38,881
----------- -----------
Total other (income) expense.................. 1,093,834 1,393,766
----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS............................................. 1,801,747 1,805,249
INCOME TAXES...................................... 734,363 693,001
----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS.................. 1,067,384 1,112,248
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
DEBT............................................. 52,353
----------- -----------
NET INCOME........................................ $ 1,067,384 $ 1,059,895
=========== ===========
</TABLE>

See notes to financial statements.

F-27
<PAGE>

AMERITEL PAY PHONES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PREFERRED ---------------------- PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... $ -- 9,375 $ 9,375 $ 738,125 $1,237,265 $1,984,765
Stock split........... 3,054,377 3,054,377 (3,054,377) --
Change in par value... (3,033,115) 3,033,115 --
Issuance of common
stock................ 173,370 1,734 130,891 132,625
Purchase and
retirement of
treasury stock....... (3,268) (33) (14,967) (15,000)
Issuance of preferred
stock................ 2,400 1,414,842 1,417,242
Preferred stock
dividends ($0.21 per
share)............... 48 29,952 (80,000) (50,000)
Net income............ 1,067,384 1,067,384
------ --------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31,
1995................... 2,448 3,233,854 32,338 2,292,548 2,209,682 4,537,016
Issuance of common
stock................ 285,461 2,855 1,412,315 1,415,170
Preferred stock
dividends ($0.48 per
share)............... (117,708) (117,708)
Net income............ 1,059,895 1,059,895
------ --------- ----------- ----------- ---------- ----------
BALANCE, NOVEMBER 30,
1996................... $2,448 3,519,315 $ 35,193 $ 3,704,863 $3,151,869 $6,894,373
====== ========= =========== =========== ========== ==========
</TABLE>

See notes to financial statements.

F-28
<PAGE>

AMERITEL PAY PHONES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ELEVEN
ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,067,384 $ 1,059,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss............................... 52,353
Depreciation and amortization.................... 1,608,348 2,160,281
Deferred income taxes............................ 64,461 (35,524)
Changes in operating assets and liabilities:
Accounts receivable............................ (992,079) (3,803,925)
Inventory...................................... (299,555) 271,286
Prepaid expenses............................... (44,017) 44,880
Accounts payable............................... (135,633) 1,092,431
Accrued expenses............................... 1,288,008 1,460,005
Income taxes................................... (242,277) 266,149
----------- -----------
Net cash provided by operating activities.... 2,314,640 2,567,831
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (2,051,111) (1,516,236)
Cash outflows for acquisition of facility
contracts......................................... (3,613,662) (4,698,468)
Payments under noncompete agreements...............
----------- -----------
Net cash used in investing activities........ (5,664,773) (6,214,704)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings............ 11,890,000 5,600,000
Proceeds from payments on advance from related
parties........................................... (571,653)
Proceeds from issuance of common stock............. 19,501
Proceeds from issuance of preferred stock.......... 1,417,242
Purchase of treasury stock......................... (15,000)
Payments of long-term debt......................... (8,200,510) (2,645,282)
Dividends paid on common and preferred stock....... (507,840) (137,708)
----------- -----------
Net cash provided by financing activities.... 4,012,239 2,836,511
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 662,106 (810,362)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 228,920 891,026
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 891,026 $ 80,664
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest............................. $ 930,906 $ 1,489,076
=========== ===========
Cash paid for income tax........................... $ 912,479 $ 462,380
=========== ===========
Noncash transactions:
Issuance of common stock upon exercise of stock
options in exchange for stock subscriptions
receivable, along with the related tax benefit.. $ -- $ 1,395,669
=========== ===========
Amounts payable for acquisitions................. $ -- $ 310,000
=========== ===========
Issuance of common stock upon conversion of notes
payable......................................... $ 123,500 $ --
=========== ===========
</TABLE>

See notes to financial statements.

F-29
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--AmeriTel Pay Phones, Inc. (the "Company"), which was incorporated
on June 6, 1991, owns, operates and maintains telephone systems under
contracts with correctional facilities in 30 states, with the majority of its
installations in Missouri, Kansas, Iowa, Indiana, Minnesota and Nebraska.

The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through major local exchange
carriers ("LECs") or through third-party billing services, all of which are
granted credit in the normal course of business with terms of between 30 and
60 days. The Company performs ongoing credit evaluations of its customers and
maintains allowances for unbillable and uncollectible losses based on
historical experience.

Preparation of Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
for unbillable and uncollectible chargebacks, that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Cash and Cash Equivalents--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.

Accounts Receivable--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of advance payments received, and an
allowance for unbillable and uncollectible calls based on historical
experience for estimated chargebacks to be made by the LECs. Under account
advance agreements with various third-party billing services, advance payments
equal to a percentage of the outstanding billed receivables are remitted to
the Company when calls are submitted to the third-party billing service, and
the Company grants a lien to the third-party billing service on the related
accounts receivable for the advance. The remainder of the billed receivable is
paid to the Company, net of the advance amount, after the third-party billing
service has collected the amounts receivable from the respective LECs.
Interest is charged on the advance payment at varying rates.

Inventories--Inventories are stated at the lower of cost, as determined
using the weighted average cost method, or market. Inventory is primarily
composed of equipment available for installation on new contracts and supplies
and parts for the telephone systems serviced by the Company.

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Leasehold improvements....................................... Term of lease
Telephone system equipment................................... 7.5 to 10 years
Vehicles..................................................... 5 years
Office equipment............................................. 3 to 7 years
</TABLE>

Maintenance and repairs are expensed when incurred, and major repairs that
extend an asset's useful life are capitalized. When items are retired or
disposed of, the related carrying value and accumulated depreciation are
removed from the respective accounts, and the net difference less any amount
realized from the disposition is reflected in earnings.

F-30
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
---------------- -----------
<S> <C>
Acquired facility contracts................................... 7.5 years
Noncompete agreements......................................... Agreement term
Deferred loan costs........................................... Loan term
Office intangibles............................................ 5 to 20 years
Goodwill...................................................... 15 years
</TABLE>

Other intangibles include organizational costs and licensing fees to obtain
state licenses to conduct business.

The Company began in 1996 to periodically assess the net realizable value of
its intangible assets, as well as all other assets, by comparing the expected
future net operating cash flow, undiscounted and without interest charges, to
the carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.

Income Taxes--Prior to 1995, the Company had elected to be treated as an S
Corporation under certain provisions of the Internal Revenue Code. Effective
January 1, 1995, the Company terminated its S Corporation status.

The Company accounts for income taxes using the liability method in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are provided for temporary differences between the
financial statement and tax bases of the assets and liabilities using current
tax rates.

Revenue Recognition--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long distance charges, along with commissions payable to the
facilities and allowances for unbillable and uncollectible calls, based on
historical experience.

Facility Commissions--Under the terms of the Company's telephone system
contracts with correctional facilities, the Company pays commissions to these
facilities generally based on call volume revenues, which are accrued during
the period the revenues are generated.

Financial Instruments--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt.
The Company believes that the carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt are a reasonable
estimate of their fair value because of the short-term maturities of such
instruments or, in the case of the revolving credit facility borrowings,
because of the

F-31
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

floating interest rates on such borrowings. In the case of the subordinated
promissory notes to related parties, which bear a fixed interest rate, the
Company believes that the current interest rates on these notes approximate
the rates that could be currently negotiated with such related parties.

Reclassifications--Certain reclassifications have been made to the 1995
financial statements to conform to the presentation used in the 1996 financial
statements.

2. ACQUISITIONS

During the year ended December 31, 1995, and the eleven months ended
November 30, 1996, the Company acquired facility contracts and the related
facility equipment from various other independent inmate phone operators for
purchase prices aggregating $3.6 million and $5.0 million, respectively.

These acquisitions were each accounted for using the purchase method of
accounting as of their respective acquisition dates, and accordingly, only the
results of the operations of these facilities subsequent to their respective
acquisition dates are included in the financial statements of the Company. At
the acquisition dates, the purchase prices were allocated to the assets
acquired, including telephone system equipment, facility contracts and other
identifiable intangibles based on their fair market values.

The excess of the total purchase prices over the fair values of the assets
acquired represented goodwill. In connection with the acquisitions, assets
were acquired, and liabilities were assumed as follows:

<TABLE>
<CAPTION>
YEAR ELEVEN MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Purchase prices:
Net cash paid................................. $3,613,662 $4,698,468
Amounts payable to sellers.................... 310,000
---------- ----------
Total purchase price............................ 3,613,662 5,008,468
Estimated fair values of tangible and
identifiable intangible assets acquired........ 3,215,111 4,121,809
---------- ----------
Goodwill........................................ $ 398,551 $ 886,659
========== ==========
</TABLE>

The following table presents unaudited pro forma results of operations of
the Company for the year ended December 31, 1995, and the eleven months ended
November 30, 1996, as if the 1995 and 1996 acquisitions had occurred at the
beginning of 1995:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales........................................... $32,770,086 $31,929,045
=========== ===========
Income before extraordinary loss.................... $ 1,430,165 $ 1,308,344
=========== ===========
Net income.......................................... $ 1,430,165 $ 1,255,991
=========== ===========
</TABLE>

The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
the acquisitions occurred at the beginning of the year, nor do they purport to
be indicative of the future results of operations of the Company.

F-32
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In connection with two of the acquisitions in 1996, the Company recorded
amounts payable to the sellers of $310,000, the payment of which was
contingent upon the fulfillment of certain stipulations that the Company
believed were probable of being met. In the event that the stipulations were
not met and the full balance was not paid by the Company, intangible assets
previously recorded on these acquisitions would be reduced.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Trade accounts receivable........................ $4,255,170 $6,895,904
Advance commissions receivable................... 111,211 353,378
Receivable related to an acquisition............. 163,867
Employees and other.............................. 22,621 50,670
---------- ----------
4,552,869 7,299,952
Less advances on receivables..................... (2,136,156) (719,093)
Less allowance for unbillable and uncollectible
chargebacks..................................... (661,936) (1,034,555)
---------- ----------
$1,754,777 $5,546,304
========== ==========
</TABLE>

At December 31, 1995, and November 30, 1996, the Company had advanced
commissions to certain facilities of $306,243 and $843,378, respectively,
which are recoverable from such facilities as a reduction of earned
commissions at specified monthly amounts. Amounts included in accounts
receivable represent the estimated recoverable amounts during the next fiscal
year with the remaining balance recorded in other assets.

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Leasehold improvements............................ $ 66,156 $ 59,145
Telephone system equipment........................ 3,845,877 5,159,020
Vehicles.......................................... 157,506 138,914
Office equipment.................................. 263,558 334,543
---------- ----------
4,333,097 5,691,622
Less accumulated depreciation and amortization.... (661,157) (1,170,101)
---------- ----------
$3,671,940 $4,521,521
========== ==========
</TABLE>

Substantially all of the Company's property and equipment is collateral for
the Company's long-term debt.

F-33
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Intangible assets:
Acquired facility contracts................... $ 7,549,937 $11,432,435
Noncompete agreements......................... 455,000 375,000
Goodwill...................................... 4,202,301 5,088,960
Other intangibles............................. 199,819 100,945
----------- -----------
12,407,057 16,997,340
Less accumulated amortization................... (1,966,611) (3,372,382)
----------- -----------
Total intangible assets......................... 10,440,446 13,624,958
Other assets--noncurrent portion of commission
advances to facilities......................... 195,032 490,000
----------- -----------
$10,635,478 $14,114,958
=========== ===========
</TABLE>

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Billing and collection fees........................ $ 382,965 $ 420,338
Facility commissions............................... 326,613 722,769
Long-distance charges.............................. 740,006 1,399,180
Recurring and special bonuses...................... 521,875
Other.............................................. 253,202 225,795
---------- ----------
$1,702,786 $3,289,957
========== ==========
</TABLE>

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revolving credit facility advances................ $ 9,500,000 $12,600,000
Subordinated promissory note payable to a related
party, with interest at 10%, due on December 31,
2001............................................. 800,000 800,000
Subordinated promissory notes payable to a related
party, with interest of 10%, payable in quarterly
installments of $106,472 until maturity on March
31, 2001, collateralized by a security interest
in certain facility equipment and contracts...... 1,390,000 1,244,718
Amount payable in connection with a facility
contract acquisition, due in February 1999....... 200,000
----------- -----------
11,690,000 14,844,718
Less current maturities of long-term debt......... (220,592) (1,824,907)
----------- -----------
$11,469,408 $13,019,811
=========== ===========
</TABLE>

F-34
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The revolving credit facility is a $20,000,000 revolving credit facility
with United Missouri Bank, N.A. and NBD Bank, with interest at a floating rate
based on either prime or LIBOR options plus applicable basis points based on
the Company's applicable coverage ratios. The outstanding balance at September
30, 1996, was converted into an installment note at that date, with the
remaining balance of the revolving credit facility available until September
30, 1998. The installment note is payable in quarterly installments of
$378,000 in 1997, increasing on an annual basis thereafter through September
30, 2001. The Company pays a commitment and facility fee of 0.5% on the
average daily unused portion of the revolving credit facility. The revolving
credit facility is collateralized by substantially all assets of the Company.

Scheduled principal maturities on long-term debt for the five years
subsequent to December 31, 1996, are as follows:

In conjunction with the sale of the Company, as discussed in Note 14, all of
the outstanding debt was repaid.

8. INCOME TAXES

The provision for income taxes for the year ended December 31, 1995, and the
eleven months ended November 30, 1996, is as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current taxes payable:
Federal.................................................. $553,459 $609,228
State.................................................... 116,443 119,297
Deferred income taxes...................................... 64,461 (35,524)
-------- --------
$734,363 $693,001
======== ========
</TABLE>

The provision for income taxes differs from statutory rates primarily as a
result of state income taxes and permanent differences. The following is a
reconciliation of income taxes reported in the statement of operations:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Tax at statutory rates.................................... $612,594 $613,785
Effect of state income taxes.............................. 78,919 102,487
Termination of S Corporation status....................... 15,141
Other..................................................... 27,709 (23,271)
-------- --------
$734,363 $693,001
======== ========
</TABLE>

F-35
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences giving rise to deferred income tax
asset and liabilities were:

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax asset:
Allowance for unbillable and uncollectible
chargebacks.................................. $ 253,893 $ 396,752
Deferred tax liabilities:
Depreciation and amortization................. (313,584) (402,892)
Other......................................... (4,770) (22,797)
--------- ---------
(318,354) (425,689)
--------- ---------
Net deferred income tax liability............... $ (64,461) $ (28,937)
========= =========
</TABLE>

This net deferred income tax liability is classified in the balance sheet as
follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Current asset..................................... $ 253,893 $ 396,752
Noncurrent liability.............................. (318,354) (425,689)
--------- ---------
$ (64,461) $ (28,937)
========= =========
</TABLE>

9. STOCKHOLDERS' EQUITY

Stock Split--On April 26, 1995, the Company's Board of Directors approved a
326.8-for-1 split of the Company's common stock, a change in the par value of
the stock from $1 to $.01 and a change in the number of authorized common
shares to 10,000,000 shares of common stock. All share amounts in the
financial statements have been restated for the stock split.

Stock Options--On May 1, 1994, the Board of Directors of the Company adopted
a stock option agreement for certain employees and consultants of the Company.
On the same date, the Board of Directors granted options for 233,335 shares of
common stock at $.765 per share, the then-estimated fair market value per
share of common stock of the Company that were exercisable at any time for a
period of up to ten years from the date of grant.

On December 19, 1994, the Board of Directors of the Company adopted the 1995
Stock Option Plan (the "Plan") for the directors, officers and other key
employees of the Company, effective for fiscal year 1995. The maximum number
of shares that could be granted under the Plan was amended from 653,600 shares
to 446,248 shares on April 28, 1995. Under the provisions of the Plan, options
were to be granted at an exercise price per share not less than the fair
market value at the date of grant, as determined by the Compensation Committee
(the "Committee"), and were to be exercisable on the date of grant. The
Committee was also assigned responsibility for determining the term of each
option, which in no event could exceed ten years from the date of grant. A
total of 225,492 options were granted under the Plan during 1995 at a price of
$4.59 per share, the then estimated fair market value per share of common
stock of the Company.

F-36
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

During 1996, no additional stock options were granted to employees, and
employees exercised all remaining unexercised options prior to the sale of the
Company, as discussed in Note 14. The following is a summary of changes in
stock options during 1995 and 1996:

<TABLE>
<CAPTION>
EXERCISE
WEIGHTED
AVERAGE
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1995.......................... 233,339 $0.765
Granted during 1995................................... 225,492 4.590
Exercised during 1995................................. (173,370) 0.765
--------
Outstanding at December 31, 1995........................ 285,461 3.790
Exercised during 1996................................. (285,461) 3.790
--------
Outstanding at November 30, 1996........................ --
========
</TABLE>

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans, and accordingly, no compensation has
been recognized since stock options granted under these plans were at exercise
prices, which approximated market value at the grant date. Had the Company
implemented SFAS No. 123, "Accounting for Stock-Based Compensation" the
implementation would not have affected the net income of the Company for the
eleven months ending November 30, 1996, because no options were granted during
the period and because options granted prior to 1996 were fully vested. Had
the Company implemented SFAS No. 123 in 1995, the implementation would have
increased the Company's compensation expense by approximately $307,000, and
the Company's pro forma net income, considering the effect of implementing
SFAS No. 123, net of tax effects, would have been approximately $878,384.

In connection with the issuance of shares of the Company's common stock for
exercised options in 1996, the Company recognized, as increases in common
stock and additional paid-in capital, the aggregate exercise price of
$1,080,885, along with the tax benefits related to such options of $334,285.
At November 30, 1996, the Company had recorded stock subscriptions receivable
of $1,061,384 from certain employees for unpaid exercise proceeds, which were
subsequently collected by the Company in December 1996.

Preferred Stock--On May 1, 1995, the Company authorized the issuance of up
to 500,000 shares of preferred stock at $.01 par value. Subsequently, 244,800
shares were issued during 1995 (of which 4,800 were issued in the form of a
stock dividend); 208,000 of such shares were purchased by Kansas City Equity
Partners, L.P. The preferred stock accrues dividends at 8% for the one-year
period ending on the first anniversary of the original issue date, 10% until
the second anniversary date and 12% thereafter. The preferred stock dividend,
at the election of the Company, is payable in cash or additional shares of
preferred stock. The preferred stock is convertible any time into 244,800
shares of common stock on an after-stock-conversion basis. During 1996,
$137,708 of the cash dividends were paid on the preferred stock. During 1995,
$30,000 of dividends were paid on the preferred stock in the form of a stock
dividend, resulting in the issuance of an additional 4,800 preferred shares;
$50,000 of cash dividends were paid on the preferred stock.

In conjunction with the sale of the Company, as discussed in Note 14, all
outstanding shares of preferred stock were redeemed.

10. RELATED PARTY TRANSACTIONS

In addition to the related party notes payable discussed in Note 7 and the
stock subscription receivables related to exercised stock options discussed in
Note 9, during 1995 and the eleven months ended November 30,

F-37
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

1996, the Company paid an affiliate of its majority stockholders a consulting
fee of $57,005 and $37,500, respectively, and, in 1996, incurred certain legal
costs on behalf of its stockholders, which are recorded as accounts receivable
from such stockholders.

In 1995, the Company shared a common office facility with Green Street
Capital, Inc. ("Green Street"), which is owned by the two principal
shareholders of the Company. Rental payments received from Green Street in
1995 were $7,750. There were no similar arrangements in 1996.

In addition to the above shared facilities, the Company entered into several
other related party transactions with Green Street. A management fee of
$40,000 through June 1995 was paid to Green Street for reimbursement of
services provided to the Company and is included in selling, general and
administrative expenses in the accompanying statements of income. Subsequent
to the termination of the management fee, certain salaries and expenses of
Green Street employees were billed and paid monthly by the Company for
services rendered. During 1994, an advance of $571,653 was received by the
Company, representing Company expenses paid by Green Street during the year.
The advance carried interest at 9.5% and was repaid by the Company in 1995.

Other related party transactions included the Company's purchase of
telephone contracts and equipment from Pay-Tel of America, Inc., an affiliate
of certain stockholders, for $770,000 in 1995, and during 1995, the Company
paid Phone Bell Systems, Inc., an affiliate of certain stockholders, $18,825
for billing services and purchased the stock of this entity for $10,000.

11. BENEFIT PLAN

The Company sponsors a 401(k) savings plan for the benefit of eligible full-
time employees; this is a qualified benefit plan in accordance with the
Employee Retirement Income Security Act ("ERISA"). The employees participating
in the plan can generally make contributions to the plan of up to 15% of their
compensation. The plan provides for discretionary matching contributions by
the Company of up to 50% of an eligible employee's contribution. No
significant contributions to this plan were made by the Company during 1995
and 1996.

12. OTHER COSTS

Nonrecurring Costs--During 1996, the Company incurred costs of $250,000
related to the settlement of a lawsuit related to a prior acquisition, along
with special bonuses of $434,320 paid to key management at the date of the
sale of the Company, as discussed in Note 14. These special bonuses were
payable to key management upon the closing of the sale of the Company pursuant
to a transaction bonus agreement with such employees, due and payable only
upon the closing of the sale, a portion of which was attributable to the
buyout of existing employment contracts with such employees.

Extraordinary Loss--In connection with the sale of the Company, all
outstanding long-term debt was repaid, resulting in the expensing of existing
unamortized debt issue costs of $52,353 (net of income tax benefit of
$32,573). This loss has been classified as an extraordinary loss in accordance
with the provisions of SFAS No. 4, "Reporting Gains and Losses From the Early
Extinguishment of Debt."

F-38
<PAGE>

AMERITEL PAY PHONES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

13. COMMITMENTS AND CONTINGENCIES

Operating Lease--The Company leases office space under an operating lease
agreement that expires on July 31, 1999. Rent expense under this and prior
operating lease agreements was $102,484 and $61,050 during the fiscal years
1995 and 1996, respectively. The total remaining future minimum lease payments
for the Company under the operating lease agreement are as follows:

Contingencies--The Company is subject to various legal proceedings and
claims that arise in the ordinary course of business operations. In the
opinion of management, the amount of liability, if any, with respect to these
actions would not materially affect the financial position of the Company or
its results of operations.

14. SUBSEQUENT SALE OF COMPANY

On December 27, 1996, Talton Holdings, Inc. acquired all of the outstanding
common stock of the Company in a purchase business combination effective
December 1, 1996. In conjunction with this transaction, all of the outstanding
debt of the Company was repaid and all of the outstanding preferred stock was
redeemed.

* * * * * *

F-39
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Talton Telecommunications Corporation:

We have audited the accompanying consolidated balance sheet of Talton
Telecommunications Corporation and subsidiary (the "Company") as of November
30, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for the eleven months then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Talton
Telecommunications Corporation and subsidiary as of November 30, 1996, and the
results of their income and their cash flows for the eleven months then ended,
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Dallas, Texas
April 4, 1997

F-40
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Talton Telecommunications Corporation:

We have audited the accompanying consolidated balance sheet of Talton
Telecommunications Corporation and subsidiary (the "Company") as of December
31, 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the year ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1995, and the results of their income and their cash flows for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles.

Borland, Benefield, Crawford & Webster, P.C.
Birmingham, Alabama
March 4, 1996

F-41
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 401,737 $ 449,904
Accounts receivable................................ 2,054,141 2,388,958
Refundable income taxes............................ 489,652
Inventories........................................ 310,628 168,395
Prepaid expenses................................... 55,788
Deferred income tax asset.......................... 220,653 54,400
---------- ----------
Total current assets............................. 3,476,811 3,117,445
PROPERTY AND EQUIPMENT............................... 3,833,426 4,119,147
INTANGIBLE AND OTHER ASSETS.......................... 695,861 586,656
---------- ----------
TOTAL................................................ $8,006,098 $7,823,248
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 936,569 $ 950,576
Accrued expenses................................... 3,148,445 3,205,027
Income taxes payable............................... 892,000
Current portion of debt............................ 1,848,716
---------- ----------
Total current liabilities........................ 5,933,730 5,047,603
LONG-TERM DEBT....................................... 1,535,078
DEFERRED INCOME TAXES................................ 223,869 308,605
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 5,000 shares
authorized, issued and outstanding................ 5,000 5,000
Retained earnings.................................. 308,421 2,462,040
---------- ----------
Total stockholders' equity....................... 313,421 2,467,040
---------- ----------
TOTAL................................................ $8,006,098 $7,823,248
========== ==========
</TABLE>

See notes to consolidated financial statements.

F-42
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING REVENUE................................... $19,955,019 $24,357,473
OPERATING EXPENSES:
Telecommunication costs........................... 8,926,090 9,588,482
Facility commissions.............................. 6,097,790 7,875,455
Field operations and maintenance.................. 602,429 649,739
Selling, general and administrative............... 2,329,970 1,639,827
Depreciation...................................... 975,350 1,001,982
Amortization of intangibles....................... 380,895 122,180
----------- -----------
Total operating expenses........................ 19,312,524 20,877,665
----------- -----------
OPERATING INCOME.................................... 642,495 3,479,808
OTHER (INCOME) EXPENSE:
Interest income................................... (9,625) (55,268)
Interest expense.................................. 341,461 169,789
Other, net........................................ (118,095) (12,321)
----------- -----------
Total other (income) expense.................... 213,741 102,200
----------- -----------
INCOME BEFORE INCOME TAXES.......................... 428,754 3,377,608
INCOME TAXES........................................ 157,339 1,223,989
----------- -----------
NET INCOME.......................................... $ 271,415 $ 2,153,619
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-43
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 (As restated--Note
2)........................................ 5,000 $5,000 $ 37,006 $ 42,006
Net income for 1995 (as restated)........ 271,415 271,415
----- ------ ---------- ----------
BALANCE, DECEMBER 31, 1995 (As restated--
Note 2)................................... 5,000 5,000 308,421 313,421
Net income for the eleven months ended
November 30, 1996....................... 2,153,619 2,153,619
----- ------ ---------- ----------
BALANCE, NOVEMBER 30, 1996................. 5,000 $5,000 $2,462,040 $2,467,040
===== ====== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-44
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ELEVEN MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 271,415 $ 2,153,619
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization................... 1,356,245 1,124,162
Deferred income taxes........................... 354,884 250,989
Changes in operating assets and liabilities:
Accounts receivable............................. (1,077,696) (180,563)
Inventories..................................... (174,715) 142,233
Prepaid expenses................................ 7,536 (55,788)
Accounts payable................................ 302,838 14,007
Accrued expenses................................ 1,236,118 (97,672)
Income taxes payable............................ (523,114) 1,381,652
----------- -----------
Net cash provided by operating activities..... 1,753,511 4,732,639
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (2,617,816) (1,287,703)
Payments (refunds) for intangible and other....... 260,767 (12,975)
----------- -----------
Net cash used in investing activities......... (2,357,049) (1,300,678)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 2,000,225
Payments of long-term debt........................ (1,185,168) (3,383,794)
----------- -----------
Net cash provided by (used in) financing
activities................................... 815,057 (3,383,794)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS............... 211,519 48,167
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 190,218 401,737
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 401,737 $ 449,904
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid..................................... $ 338,672 $ 172,578
=========== ===========
Income taxes paid (refunded)...................... $ 89,500 $ (408,652)
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-45
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--Talton Telecommunications Corporation (the "Company"), which was
incorporated in 1973, owns, operates and maintains telephone systems under
contracts with correctional facilities in Alabama, Mississippi, North Carolina
and South Carolina. The Company also operates and maintains public pay
telephone systems at various third-party property locations. The Company
accumulates call activity from its various installations and bills its
revenues related to this call activity through major local exchange carriers
("LECs") or through third-party billing services for smaller volume LECs, all
of which are granted credit in the normal course of business with terms of
between 30 and 60 days. The Company performs ongoing credit evaluations of its
customers and maintains allowances for unbillable and uncollectible losses
based on historical experience.

Preparation of Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
and reserves for unbillable and uncollectible chargebacks, that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Talton
Telecommunications of Carolina, Inc. All significant intercompany balances and
transactions are eliminated in consolidation.

Cash and Cash Equivalents--For purposes of the statement of cash flows, cash
and cash equivalents includes cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.

Accounts Receivable--Trade accounts receivable represents amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of an allowance for unbillable and
uncollectible calls, based on historical experience, for estimated chargebacks
to be made by the LECs.

Inventories--Inventories are stated at the lower of cost, as determined
using the first-in, first-out ("FIFO") method of valuation or market.
Inventory is primarily composed of equipment available for installation on new
contracts and supplies and parts for the telephone systems serviced by the
Company.

Property and Equipment--Property and equipment is stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the related assets. The following is a summary of
useful lives for major categories of property and equipment:

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Leasehold improvements...................................... 15 to 39 years
Telephone system equipment.................................. 5 to 6 years
Vehicles.................................................... 5 years
Office equipment............................................ 5 to 7 years
</TABLE>

Intangible and Other Assets--Intangible and other assets include amounts
allocated to acquired facility contracts, noncompete agreements, goodwill and
other intangible assets, which are stated at cost. Amortization

F-46
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

of intangible assets is provided on a straight-line basis over the estimated
useful lives of the related assets. The following is a summary of useful lives
for major categories of intangible assets:

<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
---------------- -----------
<S> <C>
Acquired facility contracts................................. Contract term
Noncompete agreements....................................... Agreement term
Goodwill.................................................... 15 years
</TABLE>

Acquired facility contracts consist primarily of costs allocated to
locations acquired in acquisitions of facility contract rights from other
service providers, along with other incremental direct costs paid to obtain
the facility contracts.

The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flows, undiscounted and without interest charges, to the
carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.

Financial Instruments--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt.
The Company believes that the carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt are a reasonable
estimate of their fair value because of the short-term maturities of such
instruments or, in the case of long-term debt, because of the floating
interest rates on such long-term debt.

Reclassifications--Certain reclassifications have been made to the 1995
financial statements to conform to the presentation used in the 1996 financial
statements.

2. PRIOR-PERIOD ADJUSTMENTS

The Company has restated its previously issued consolidated financial
statements for the year ended December 31, 1995, to correct for certain errors
principally related to the timing of when certain recurring costs are
recognized in the consolidated financial statements. These corrections relate
primarily to the capitalization of certain direct costs of facility contract
installations previously expensed, the recording of allowances and reserves

F-47
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

for unbillable and uncollectible chargebacks, the recording of excise taxes
and the recording of deferred income taxes, and reduced previously reported
retained earnings as of January 1, 1994, by $396,209. The following table
summarizes the impact of these corrections on previously reported results of
operations and retained earnings during 1995:

<TABLE>
<S> <C>
Income (loss) before income taxes:
As previously reported........................................ $(24,716)
As restated................................................... 428,754
Net income:
As previously reported........................................ 154,670
As restated................................................... 271,415
Retained earnings:
As previously reported........................................ 303,800
As restated................................................... 308,421
</TABLE>

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Trade accounts receivable........................ $2,159,660 $2,390,864
Amounts due from shareholders.................... 154,894
Other............................................ 54,481 3,200
---------- ----------
2,214,141 2,548,958
Less allowance for unbillable and uncollectible
chargebacks..................................... (160,000) (160,000)
---------- ----------
$2,054,141 $2,388,958
========== ==========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Leasehold improvements.......................... $ 430,346 $ 449,116
Telephone system equipment...................... 6,301,141 7,425,582
Vehicles........................................ 227,370 246,611
Office equipment................................ 194,942 319,167
----------- -----------
7,153,799 8,440,476
Less accumulated depreciation and amortization.. (3,320,373) (4,321,329)
----------- -----------
$ 3,833,426 $ 4,119,147
=========== ===========
</TABLE>

F-48
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Acquired facility contracts...................... $ 1,562,906 $ 1,562,906
Noncompete agreement............................. 250,000 250,000
Goodwill......................................... 455,704 455,704
Other............................................ 53,400 66,375
----------- -----------
2,322,010 2,334,985
Less accumulated amortization.................... (1,626,149) (1,748,329)
----------- -----------
$ 695,861 $ 586,656
=========== ===========
</TABLE>

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Facility commissions............................... $1,293,030 $1,317,000
Uncollectible call chargebacks..................... 840,000 840,000
Sales and excise taxes............................. 530,161 702,838
Payroll and benefits............................... 161,000 145,295
Other.............................................. 324,254 199,894
---------- ----------
$3,148,445 $3,205,027
========== ==========
</TABLE>

7. LONG-TERM DEBT

The following table summarizes the Company's long-term debt at December 31,
1995. Since all of the outstanding debt was repaid by the Company during 1996,
there are no outstanding balances at November 30, 1996:

<TABLE>
<S> <C>
Notes payable, with interest of 8.5%, payable in monthly
installments of $110,000 until maturity in June 1997,
collateralized by equipment and personally guaranteed by the
majority stockholder............................................ $1,980,545
Note payable, with interest of 9.75%, payable in monthly
installments of $50,000 until maturity in December 1997,
collateralized by accounts receivable and certain equipment and
personally guaranteed by the majority stockholder............... 1,112,226
Note payable, with interest of 8.5%, payable in monthly
installments of $12,660 until maturity in January 1998,
collateralized by equipment and personally guaranteed by the
majority stockholder............................................ 291,023
----------
3,383,794
Less current maturities of long-term debt........................ 1,848,716
----------
$1,535,078
==========
</TABLE>

F-49
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has a $750,000 line of credit arrangement with The Peoples Bank
and Trust Company. The line had no outstanding balance at either December 31,
1995, or November 30, 1996. The line of credit bears interest at the prime
rate, and is personally guaranteed by the majority stockholder.

8. INCOME TAXES

The provision for income taxes for the year ended December 31, 1995, and the
eleven months ended November 30, 1996, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Current taxes payable (refundable):
Federal............................................. $(181,387) $ 901,000
State............................................... (16,158) 72,000
Deferred income taxes............................... 354,884 250,989
--------- ----------
$ 157,339 $1,223,989
========= ==========
</TABLE>

The Company has provided income tax expense during the nine months ended
September 30, 1996, using the effective tax rates for each of its taxing
jurisdictions that have been allocated between current income taxes payable
and deferred income taxes based on 1996 anticipated temporary differences.

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Tax at statutory rates............................. $145,776 $1,148,387
Effect of state income taxes....................... 12,434 97,951
Tax penalties and other............................ (871) (22,349)
-------- ----------
$157,339 $1,223,989
======== ==========
</TABLE>

The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for unbillable and uncollectible
revenues...................................... $ 54,400 $ 54,400
Reserves....................................... 146,201
Other.......................................... 20,052
--------- ---------
220,653 54,400
Deferred income tax liabilities:
Depreciation and amortization.................. (222,821) (307,557)
Other.......................................... (1,048) (1,048)
--------- ---------
(223,869) (308,605)
--------- ---------
Net deferred income tax liability................ $ (3,216) $(254,205)
========= =========
</TABLE>

F-50
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

This net deferred income tax liability is classified in the consolidated
balance sheets as follows:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Current asset...................................... $ 220,653 $ 54,400
Noncurrent liability............................... (223,869) (308,605)
--------- ---------
$ (3,216) $(254,205)
========= =========
</TABLE>

9. BENEFIT PLAN

The Company sponsors a 401(k) savings plan for the benefit of eligible full-
time employees that is a qualified benefit plan in accordance with the
Employee Retirement Income Security Act ("ERISA"). The employees participating
in the plan can generally make contributions to the plan of between 5% and 10%
of their compensation. The plan provides for discretionary matching
contributions by the Company of up to 50% of an eligible employee's
contribution. Total plan expense was $29,489 and $32,820 for the year ended
December 31, 1995, and for the eleven months ended November 30, 1996,
respectively.

10. COMMITMENTS AND CONTINGENCIES

The Company leases certain property and equipment used in its operations
under operating lease agreements. Such leases, which are primarily for office
furniture, office space and vehicles, have lease terms ranging from one to
four years.

Future minimum lease payments for years ending December 31 under
noncancelable operating leases are summarized below:

<TABLE>
<S> <C>
1996 (one month).................................................. $ 10,848
1997.............................................................. 63,209
1998.............................................................. 30,187
1999.............................................................. 960
2000.............................................................. 720
--------
$105,924
========
</TABLE>

Rent expense in connection with these leases totaled $159,951 and $107,158
for the year ended December 31, 1995, and for the eleven months ended November
30, 1996, respectively.

11. RELATED PARTY TRANSACTIONS

The Company's majority stockholder and president has personally guaranteed
three of the Company's operating leases, which have expiration dates ranging
from March 1997 to September 1998. Total payments under the guaranteed leases
for the year ended December 31, 1995, and for the eleven months ended November
30, 1996, totaled $75,282 and $79,239, respectively.

During 1996, the Company's stockholders incurred $154,894 of legal expenses,
which were paid by the Company and are recorded as amounts due from
stockholders in accounts receivable at November 30, 1996, pending
reimbursement from such stockholders.

F-51
<PAGE>

TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. SUBSEQUENT SALE OF COMPANY

On December 27, 1996, Talton Holdings, Inc. acquired all of the outstanding
common stock of the Company in a purchase business combination effective
December 1, 1996.

* * * * * *

F-52
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Security Telecom Corporation:

We have audited the accompanying consolidated balance sheet of Security
Telecom Corporation and subsidiary (the "Company") as of June 30, 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the six-month period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Security Telecom
Corporation and subsidiary as of June 30, 1997, and the results of their
operations and their cash flows for the six-month period then ended, in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Dallas, Texas
October 10, 1997

F-53
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Security Telecom Corporation:

We have audited the accompanying consolidated balance sheets of Security
Telecom Corporation and subsidiary (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Security Telecom Corporation and subsidiary as of December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

Davis, Clark and Company, P.C.
Dallas, Texas
May 23, 1997

F-54
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 11,601 $ 15,391 $ 14,381
Accounts receivable......................... 257,847 788,070 1,072,263
Prepaid expenses............................ 27,191 69,817 104,590
---------- ---------- ----------
Total current assets...................... 296,639 873,278 1,191,234
PROPERTY AND EQUIPMENT........................ 3,275,040 4,213,412 5,017,469
OTHER ASSETS.................................. 79,192 44,473 588,863
---------- ---------- ----------
TOTAL......................................... $3,650,871 $5,131,163 $6,797,566
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................ $1,139,488 $1,633,773 $2,572,702
Accrued expenses............................ 383,387 523,517 690,439
Current portion of long-term debt........... 963,069 1,692,647 2,615,419
---------- ---------- ----------
Total current liabilities................. 2,485,944 3,849,937 5,878,560
LONG-TERM DEBT................................ 567,538 758,513 560,782
DEFERRED INCOME TAXES......................... 87,125 106,915 113,396
MINORITY INTEREST............................. 156,546 175,352 163,818
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares
authorized; 105 and 70 shares issued and
outstanding, respectively.................. 2,857 1,905 1,905
Retained earnings........................... 350,861 238,541 79,105
---------- ---------- ----------
Total stockholders' equity................ 353,718 240,446 81,010
---------- ---------- ----------
TOTAL......................................... $3,650,871 $5,131,163 $6,797,566
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-55
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------ JUNE 30,
1994 1995 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUE........... $8,091,728 $11,892,919 $15,281,621 $10,576,209
OPERATING EXPENSES:
Telecommunication costs... 4,176,907 6,134,823 8,265,116 5,527,903
Facility commissions...... 1,814,997 2,590,813 3,246,247 2,690,984
Field operations and
maintenance.............. 483,012 632,178 1,055,506 805,400
Selling, general and
administrative........... 866,762 1,201,567 1,373,701 985,536
Depreciation and
amortization............. 255,324 442,952 868,265 513,695
---------- ----------- ----------- -----------
Total operating
expenses............... 7,597,002 11,002,333 14,808,835 10,523,518
---------- ----------- ----------- -----------
OPERATING INCOME............ 494,726 890,586 472,786 52,691
OTHER (INCOME) EXPENSE:
Interest income........... (29,040) (24,204) (13,643)
Interest expense.......... 252,904 314,110 460,880 281,980
Minority interest......... 117,478 19,724 18,806 (11,534)
Other, net................ (21,667) 20,544 (84,970) (64,800)
---------- ----------- ----------- -----------
Total other (income)
expense................ 319,675 330,174 381,073 205,646
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 175,051 560,412 91,713 (152,955)
INCOME TAXES................ 66,730 13,548 21,609 6,481
---------- ----------- ----------- -----------
NET INCOME (LOSS)........... $ 108,321 $ 546,864 $ 70,104 $ (159,436)
========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-56
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------ --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................. 105 $2,857 $(304,324) $(301,467)
Net income.............................. 108,321 108,321
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1994................ 105 2,857 (196,003) (193,146)
Net income.............................. 546,864 546,864
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1995................ 105 2,857 350,861 353,718
Net income.............................. 70,104 70,104
Purchase and retirement of treasury
stock.................................. (35) (952) (117,359) (118,311)
Dividends............................... (65,065) (65,065)
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1996................ 70 1,905 238,541 240,446
Net loss................................ (159,436) (159,436)
--- ------ --------- ---------
BALANCE, JUNE 30, 1997.................... 70 $1,905 $ 79,105 $ 81,010
=== ====== ========= =========
</TABLE>

See notes to consolidated financial statements.

F-57
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------------- ENDED JUNE
1994 1995 1996 30, 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ 108,321 $ 546,864 $ 70,104 $(159,436)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization............ 255,324 442,952 868,265 513,695
Minority interest........ 117,478 19,724 18,806 (11,534)
Deferred income taxes.... 78,472 13,548 19,790 6,481
Changes in operating assets
and liabilities:
Accounts receivable...... (283,405) (319,099) (1,096,079) (699,870)
Prepaid expenses......... (27,191) (42,626) (34,773)
Accounts payable......... 275,536 419,939 494,285 915,037
Accrued expenses......... 97,332 137,486 140,130 166,922
Other assets............. (18,251) 4,160 34,719 (44,731)
----------- ----------- ----------- ---------
Net cash provided by
operating activities.. 630,807 1,238,383 507,394 651,791
----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................. (1,522,914) (1,085,286) (1,687,649) (749,791)
Cash outflows for
acquisitions.............. (237,111)
Increase in investments.... (21,154)
----------- ----------- ----------- ---------
Net cash used in
investing activities.. (1,544,068) (1,085,286) (1,687,649) (986,902)
----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends paid............. (43,376)
Net proceeds from advances
on accounts receivable.... 201,789 294,273 565,856 415,677
Proceeds from issuance of
long-term debt............ 1,065,723 158,763 1,006,955 825,487
Payments of long-term
debt...................... (317,823) (634,769) (345,390) (907,063)
----------- ----------- ----------- ---------
Net cash provided by
(used in) financing
activities............ 949,689 (181,733) 1,184,045 334,101
----------- ----------- ----------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........ 36,428 (28,636) 3,790 (1,010)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD......... 3,809 40,237 11,601 15,391
----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............... $ 40,237 $ 11,601 $ 15,391 $ 14,381
=========== =========== =========== =========
SUPPLEMENTAL INFORMATION:
Interest paid.............. $ 214,090 $ 295,204 $ 429,365 $ 313,495
=========== =========== =========== =========
Noncash transactions:
Purchase of fixed assets
through the issuance of
long-term debt.......... $ 194,999 $ 385,829 $ 118,988 $ 400,508
=========== =========== =========== =========
Purchase of treasury
stock through the
issuance of long-term
debt.................... $ -- $ -- $ 118,311 $ --
=========== =========== =========== =========
Dividends paid through
the issuance of long-
term debt............... $ -- $ -- $ 21,689 $ --
=========== =========== =========== =========
Amounts payable for
acquisitions............ $ -- $ -- $ -- $ 430,000
=========== =========== =========== =========
</TABLE>

See notes to consolidated financial statements.

F-58
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--Security Telecom Corporation (the "Company" or "STC"), which was
incorporated on November 1, 1990, owns, operates and maintains telephone
systems under contracts with correctional facilities.

The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through third-party billing
services to local exchange carriers ("LECs"), all of which are granted credit
in the normal course of business with terms of between 30 and 60 days. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for unbillable and uncollectible losses based on historical
experience.

In fulfilling its responsibility for the preparation of the Company's
financial statements and disclosures, Company management selects generally
accepted accounting principles and adopts methods for their application. The
application of accounting principles requires the estimating, matching and
timing of revenue and costs in the determination of income or loss. It is also
necessary for management to determine, measure and allocate Company resources
and obligations within the financial process according to those principles.

Principles of Consolidation--The financial statements include accounts of
the Company and its 25% owned subsidiary, Law Enforcement Technologies, Inc.
("LETI"). The Company consolidates LETI because of its ability to control the
operations of LETI pursuant to an exclusive marketing agreement with LETI
whereby STC is the primary customer of LETI. All material intercompany
transactions and balances have been eliminated in consolidation. In May 1997,
one of the Company's affiliates acquired the remaining outstanding common
stock of LETI.

Cash and Cash Equivalents--For purposes of the statements of cash flows,
cash and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.

Accounts Receivable--Trade accounts receivable represents amounts billed for
calls placed through the Company's telephone systems to the third-party
billing services, net of advance payments received, and an allowance for
unbillable and uncollectible calls based on historical experience for
estimated chargebacks to be made by the LECs. Under account advance agreements
with third-party billing services, advance payments equal to a percentage of
the outstanding billed receivables are remitted to the Company when calls are
submitted to the third-party billing service, and the Company grants a lien to
the third-party billing service on the related accounts receivable for the
advance. The remainder of the billed receivable is paid to the Company, net of
the advance amount, after the third-party billing service has collected the
receivables from the respective LECs. Interest is charged on the advance
payment at varying rates.

Property and Equipment--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated lives of the related assets, or in the case of capital lease assets,
over the life of the leases. The following is a summary of useful lives for
the major categories of property and equipment:

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Leasehold improvements....................................... 2 to 10 years
Telephone system equipment................................... 5 to 10 years
Office equipment............................................. 5 to 7 years
</TABLE>

Maintenance and repairs are expensed when incurred and major repairs that
extend an asset's useful life are capitalized. When items are retired or
disposed of, the related carrying value and accumulated depreciation are

F-59
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

removed from the respective accounts, and the net differences less any amount
realized from the disposition is reflected in earnings.

The Company capitalizes internally developed software by its LETI subsidiary
based on the guidelines of Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." Accordingly, costs incurred after
technological feasibility has been established for a product are capitalized.
Costs capitalized in 1994, 1995 and 1996 were $30,870, $103,863 and $119,826,
respectively, and costs capitalized during the six-month period ended June 30,
1997, was $53,146. These costs are being amortized over 60 months.
Amortization expense was $3,087, $16,560 and $38,930 in 1994, 1995 and 1996,
respectively. Amortization expense for the six-month period ended June 30,
1997, was $29,197.

Income Taxes--The Company has elected to be treated as an S Corporation
under certain provisions of the Internal Revenue Code, and the Company's
subsidiary, LETI, is a C Corporation. Accordingly, the statements of income
include a provision for federal income taxes only on the operations of LETI
since the taxable income of the Company is included in the stockholders'
individual income tax returns.

The Company's LETI subsidiary accounts for income taxes using the liability
method in accordance with the provisions of SFAS No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
provided for temporary differences between the financial statement and tax
bases of the assets and liabilities using current tax rates.

Revenue Recognition--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long distance charges, along with commissions payable to the
facilities and allowance for unbillable and uncollectible calls, based on
historical experience.

Facility Commissions--Under the terms of the Company's telephone system
contracts with corrections facilities, the Company pays commissions to these
facilities generally based on call volume revenues that are accrued during the
period the revenues are generated.

Financial Instruments--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt.
The Company believes that the carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt are a reasonable
estimate of their fair value because of the short-term maturities of such
instruments or, in the case of long-term debt due after one year, because the
Company believes that the current interest rates on these notes approximates
the rates that could be currently negotiated with such lenders.

Reclassifications--Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the presentation used in the 1996
financial statements.

F-60
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. RELATED PARTIES

The Company purchases software and enters into other related transactions
with the Company's subsidiary, LETI, that are eliminated in consolidation. The
Company has also entered into financing arrangements with its stockholders,
which are discussed in Note 6. At December 31, 1995 and 1996, and the six-
month period ended June 30, 1997, the outstanding balances of these related
party notes payable were $534,848, $655,451, and $1,384,243, respectively.
Interest paid or accrued to these related parties pursuant to these financing
arrangements was $46,704 in 1994, $43,007 in 1995, $55,576 in 1996, and $7,790
in the six-month period ended June 30, 1997.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Trade accounts receivable........... $ 1,530,663 $ 2,686,172 $ 3,287,247
Employee receivables................ 21,153 42,274 7,553
Other............................... 73,632
----------- ----------- -----------
1,551,816 2,728,446 3,368,432
Less advances on receivables........ (1,159,969) (1,725,825) (1,950,705)
Less allowance for unbillable and
uncollectible chargebacks.......... (134,000) (214,551) (345,464)
----------- ----------- -----------
$ 257,847 $ 788,070 $ 1,072,263
=========== =========== ===========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Leasehold improvements............... $ 2,000 $ 2,900 $ 50,194
Telephone systems equipment.......... 3,789,729 5,429,727 6,567,000
Furniture and fixtures............... 292,005 449,175 542,676
---------- ----------- -----------
4,083,734 5,881,802 7,159,870
Less accumulated depreciation and
amortization........................ (808,694) (1,668,390) (2,142,401)
---------- ----------- -----------
$3,275,040 $ 4,213,412 $ 5,017,469
========== =========== ===========

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Billing and collection fees.......... $ 89,410 $ 66,240 $ 64,506
Facility commissions................. 227,730 323,889 527,870
Other................................ 66,247 133,388 98,063
---------- ----------- -----------
$ 383,387 $ 523,517 $ 690,439
========== =========== ===========
</TABLE>

F-61
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. LONG-TERM DEBT

The Company's long-term debt is composed of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Notes payable to Comerica Bank--Texas with
interest at 9.25%, payable in monthly principal
installments of $11,925, plus interest, through
their maturity at varying dates throughout
1997............................................ $ 382,428 $ 414,273
Notes payable to Lyon Credit with interest at
between 10.09% and 10.78%, payable in monthly
installments of $34,458, through their maturity
on April 1, 1999................................ 826,377 705,581
Note payable to LDDS with interest at 9.5%,
payable in monthly installments of $21,538,
through its maturity on December 8, 1997........ 245,630 105,177
Notes payable to Northern Trust Bank with
interest at between 10.25% and 10.76%, payable
in monthly installments of $11,429, through
their maturity at varying dates from May 21,
1997, through December 10, 1999................. 177,341 125,018
Note payable to North American Intelecom, Inc.
with interest at 8%, payable in monthly
installments of $25,430, through its maturity on
August 1, 1998.................................. 340,770
Notes payable to shareholders:
Notes payable with interest at 5%, due at
maturity on November 28, 1997, and
subordinated to borrowings from Comerica
Bank--Texas................................... 515,451 1,265,451
Note payable with interest at 7.5%, payable in
monthly principal installments of $3,602, plus
interest, through December 6, 1999............ 140,000 118,792
Capital lease obligations and other.............. 163,933 101,139
----------- -----------
2,451,160 3,176,201
Less current portion of long-term debt........... (1,692,647) (2,615,419)
----------- -----------
$ 758,513 $ 560,782
=========== ===========
</TABLE>

Substantially all of the Company's accounts receivable and equipment are
collateral for the above notes payable or the advances on accounts receivable
from third-party billing services. In addition, the notes payable agreements
with Lyon Credit are subject to prepayment penalties of 3% for prepayments
during the first 12 months of the loan; 2% for prepayments during the second
12 months of the loan; and 1% for prepayments during the third 12 months of
the loan.

Future maturities of long-term debt as of June 30, 1997, including capital
lease obligations, for the six months ending December 31, 1997, and the years
ending December 31, 1998 and 1999, are as follows:

<TABLE>
<S> <C>
1997 (six months)............................................... $2,063,226
1998............................................................ 834,413
1999............................................................ 278,562
----------
$3,176,201
==========
</TABLE>

F-62
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

Leases--The Company leases certain telephone systems equipment under capital
lease agreements with lease terms of two to six years and leases certain
operating facilities under operating lease agreements with lease terms of one
to seven years. Total rent expense under operating lease agreements for 1994,
1995 and 1996 was $33,520, $64,240 and $50,797, respectively, and rent expense
under operating lease agreements for the six-month period ended June 30, 1997,
was $24,387.

Future minimum lease payments under capital and operating leases with terms
greater than one year as of June 30, 1997, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending:
1997 (six months)...................................... $ 34,263 $ 23,113
1998................................................... 50,629 50,455
1999................................................... 37,309 56,377
2000................................................... 30,303
-------- --------
Total minimum future rental payments..................... 122,201 $160,248
========
Less amounts representing imputed interest............... (21,062)
--------
Total capital lease obligations.......................... 101,139
Less current portion..................................... (49,514)
--------
Long-term portion........................................ $ 51,625
========
</TABLE>

Contingencies--The Company is a party to various claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, the amount of liability, if any, with respect to these actions,
would not have a material effect on the financial position of the Company or
its results of operations.

8. STOCKHOLDERS' EQUITY

The Company has outstanding options and warrants that allow certain
individuals the right to acquire up to a 14% ownership interest in the Company
for nominal exercise prices, including an option to acquire up to a 10%
ownership interest issued in 1989 to a consultant in consideration for certain
facility contract proposals and a warrant issued in 1996 to a stockholder to
acquire up to a 4% ownership interest in connection with this stockholder's
sale of common stock to the Company discussed below.

During 1996, the Company acquired 35 shares of common stock from a
stockholder for $118,311, which was retired by the Company resulting in a
reduction of common stock of $952 and retained earnings of $117,359.

9. INCOME TAXES

As discussed in Note 1, STC is organized as an S Corporation and does not
pay tax at the corporate level; however, the Company's subsidiary, LETI, is
subject to income taxes at the corporate level. There are no material
permanent differences for LETI, and principal temporary differences between
book income and taxable income include capital leases that are reported on the
cash basis for tax purposes and capitalized software costs that are expensed
for tax purposes as research and development costs. The Company has provided
income tax expense during the six months ended June 30, 1997, using the
effective tax rates for each of its taxing jurisdictions that have been
allocated between current income taxes payable and deferred income taxes based
on 1996

F-63
<PAGE>

SECURITY TELECOM CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

anticipated temporary differences. The composition of deferred income tax
liabilities as of December 31, 1995 and 1996, and June 30, 1997, is as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Capital leases................................. $ 68,617 $ 50,616 $ 36,444
Capitalized software........................... 39,129 66,634 84,704
Other.......................................... (20,621) (10,335) (7,752)
-------- -------- --------
$ 87,125 $106,915 $113,396
======== ======== ========
</TABLE>

10. SUBSEQUENT EVENTS

On June 27, 1997, substantially all of the net assets of the Company were
sold to Talton Holdings, Inc. for cash of $11.2 million and 900 shares of
Talton Holdings, Inc. common stock.

* * * * * *

F-64
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Correctional Communications Corporation:

We have audited the accompanying balance sheets of Correctional
Communications Corporation (the "Company") as of December 31, 1995 and 1996,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Correctional
Communications Corporation at December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

Ginsberg, Weiss & Company
Pearl River, New York
June 27, 1997
(October 6, 1997, as to Note 10)

F-65
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JULY 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 693,918 $ 643,742 $ 304,529
Accounts receivable, net................... 648,519 924,249 1,109,019
Inventories................................ 10,148 15,075 16,038
Other assets............................... 14,378 32,067
---------- ---------- ----------
Total current assets..................... 1,366,963 1,615,133 1,429,586
PROPERTY AND EQUIPMENT....................... 491,100 550,263 569,497
LOANS RECEIVABLE--STOCKHOLDER................ 95,289 96,569
OTHER ASSETS................................. 150,067 274,584 741,523
---------- ---------- ----------
TOTAL........................................ $2,008,130 $2,535,269 $2,837,175
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 684,915 $ 783,794 $1,561,712
Accrued expenses........................... 441,738 787,883 182,659
Current portion of long-term debt.......... 24,504 5,602
---------- ---------- ----------
Total current liabilities................ 1,126,653 1,596,181 1,749,973
LONG-TERM DEBT--STOCKHOLDERS................. 442,880 442,880 442,880
LONG-TERM DEBT--OTHER........................ 19,343 3,273
MINORITY INTEREST............................ 93,033 58,701 75,675
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000
shares authorized; 18,750 shares issued
and outstanding........................... 138,333 138,333 138,333
Retained earnings.......................... 207,231 279,831 427,041
---------- ---------- ----------
Total stockholders' equity............... 345,564 418,164 565,374
---------- ---------- ----------
TOTAL........................................ $2,008,130 $2,535,269 $2,837,175
========== ========== ==========
</TABLE>

See notes to financial statements.

F-66
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------- JULY 31,
1994 1995 1996 1997
---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE................ $4,190,994 $7,372,233 $9,563,648 $6,339,001
OPERATING EXPENSES:
Telecommunication costs........ 1,575,480 2,429,046 2,921,990 1,761,493
Facility commissions........... 1,533,120 2,761,862 3,668,035 2,579,699
Field operations and
maintenance................... 171,460 174,676 289,173 222,455
Selling, general and
administrative................ 651,780 1,292,219 1,972,112 1,197,993
Depreciation and amortization.. 156,704 242,500 332,938 243,815
---------- ---------- ---------- ----------
Total operating expenses..... 4,088,544 6,900,303 9,184,248 6,005,455
---------- ---------- ---------- ----------
OPERATING INCOME................. 102,450 471,930 379,400 333,546
OTHER (INCOME) EXPENSE:
Interest expense, net.......... 74,940 51,631 39,564 21,946
Minority interest.............. 23 73,298 117,236 64,390
---------- ---------- ---------- ----------
Total other (income)
expense..................... 74,963 124,929 156,800 86,336
---------- ---------- ---------- ----------
NET INCOME....................... $ 27,487 $ 347,001 $ 222,600 $ 247,210
========== ========== ========== ==========
</TABLE>

See notes to financial statements.

F-67
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ -------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................. 15,000 $ 38,333 $(167,257) $(128,924)
Net income............................. 27,487 27,487
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1994............... 15,000 38,333 (139,770) (101,437)
Issuance of common stock............... 3,750 100,000 100,000
Net income............................. 347,001 347,001
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1995............... 18,750 138,333 207,231 345,564
Net income............................. 222,600 222,600
Dividends.............................. (150,000) (150,000)
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1996............... 18,750 138,333 279,831 418,164
Net income (Unaudited)................. 247,210 247,210
Dividends (Unaudited).................. (100,000) (100,000)
------ -------- --------- ---------
BALANCE, JULY 31, 1997 (Unaudited)....... 18,750 $138,333 $ 427,041 $ 565,374
====== ======== ========= =========
</TABLE>

See notes to financial statements.

F-68
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- JULY 31,
1994 1995 1996 1997
--------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income..................... $ 27,487 $ 347,001 $ 222,600 $ 247,210
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 156,704 242,500 332,938 243,815
Minority interest............ 23 73,298 117,236 64,391
Changes in operating assets and
liabilities:
Accounts receivable.......... (262,027) (126,460) (275,730) (184,770)
Accounts payable............. 146,981 91,097 98,879 777,918
Accrued expenses............. 78,597 336,997 346,145 (605,224)
Other assets................. (10,857) (26,500) (26,143) 31,104
--------- --------- --------- ---------
Net cash provided by
operating activities...... 136,908 937,933 815,925 574,444
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment..................... (335,899) (170,705) (267,555) (149,887)
Increase in investments........ 75,000
Increase in note receivable.... (95,289) (1,280)
Additions to intangibles....... (133,568) (55,321) (244,470) (479,758)
Increase in restricted cash.... (20,789) (1,066) (100,343)
--------- --------- --------- ---------
Net cash used in investing
activities................ (394,467) (246,815) (608,380) (731,268)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends paid................. (150,000) (100,000)
Investments of (distributions
to) limited partners.......... (22,609) (96,146) (151,568) (47,417)
Issuance of common stock....... 100,000
Proceeds from issuance of long-
term debt..................... 408,000 61,654
Payments of long-term debt..... (145,500) (17,807) (34,972)
--------- --------- --------- ---------
Net cash provided by (used
in) financing activities.. 385,391 (141,646) (257,721) (182,389)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................ 127,832 549,472 (50,176) (339,213)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............. 16,614 144,446 693,918 643,742
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.......................... $ 144,446 $ 693,918 $ 643,742 $ 304,529
========= ========= ========= =========
SUPPLEMENTAL INFORMATION:
Cash paid for interest......... $ 75,284 $ 68,082 $ 67,427 $ 36,218
========= ========= ========= =========
Cash paid for income taxes..... $ 2,475 $ 7,600 $ 5,560 $ --
========= ========= ========= =========
</TABLE>

See notes to financial statements.

F-69
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--Correctional Communications Corporation and Subsidiaries (the
"Company") was incorporated on February 11, 1991, in the State of California.
The Company provides fully automated pay telephone services to jail inmates in
correctional facilities located in the western United States.

Preparation of Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management of the Company to make estimates and assumptions that affect the
amount reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Principles of Consolidation--The Company owns 50% and is the general partner
of MCJ Telephone Partners LP ("MCJ") and KCJ Telephone Partners LP ("KCJ")
Each partnership was formed to own, in conjunction with third-party investors,
and operate contracts providing telephone service. The financial statements
presented reflect 100% of the assets, liabilities, revenue and expenses of MCJ
and KCJ. The limited partners' interests are reflected as minority interests
in the joint venture. All significant intercompany balances and transactions
have been eliminated.

Concentration of Credit Risk--Financial instruments that potentially subject
the Company to a concentration of credit risk consist of accounts receivable.
These receivables are generated by collect calls made by inmates at the
correctional facilities that have contracted with the Company. The credit risk
relates to funds not being collected from the third-party recipients. The
credit risk is mitigated by the large number of customers and the limit on the
amount of credit extended to any billing number.

The Company also has concentration of credit risk involving cash. The
Company maintains multiple cash accounts with one bank. The uninsured amount
at December 31, 1996, is due to cash balances in excess of FDIC insurance
limits in the amount of $819,521.

Accounts Receivable--Accounts receivable at July 31, 1997, and December 31,
1996 and 1995, consists primarily of amounts due from billing and collection
clearing houses for noncoin calls placed through the Company's inmate pay
telephone systems. The amounts due are net of an allowance for uncollectible
accounts, which is determined based upon rates established from historical
experience. The allowance for doubtful accounts was $806,425 as of July 31,
1997, and $246,940 and $144,438 as of December 31, 1996 and 1995,
respectively. The balance due from one billing and collection clearinghouse
was $832,983, $515,555 and $416,269 at July 31, 1997, December 31, 1996 and
1995, respectively.

Property and Equipment--The Company's property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to five years.
Expenditures for major renewals and betterments that extend the useful lives
of assets are capitalized. Expenditures for repairs and maintenance are
charged to operations in the period incurred. Depreciation expense at July 31,
1997, and December 31, 1996, 1995 and 1994, is $130,653, $208,393, $181,214
and $122,524, respectively.

Intangible Assets--Intangible assets consist of signing bonuses paid to
correctional facilities at the inception of the contract term. These signing
bonuses have been capitalized and are being amortized over the life of the
contracts, which range from three to five years. Amortization expense at
December 31, 1996, 1995 and 1994, is $124,115, $60,498 and $32,052,
respectively, and $113,162 and $89,448 for the seven months ended July 31,
1997 and 1996, respectively.

F-70
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Organization expense has been capitalized and is being amortized over five
years using the straight-line method. Amortization expense at December 31,
1996, 1995 and 1994, is $430, $264 and $266, respectively.

Income Taxes--On February 11, 1991, the Company filed an election to be
taxed as an S Corporation under Section 1361 of the Internal Revenue Code.
Taxes on income are payable by the individual stockholders. Accordingly, no
provision for federal corporation taxes based on income is recorded. The
Company, MCJ and KCJ file separate income tax returns and are all subject to
taxes in the State of California. Additionally, the Company is subject to tax
on income in the States of California and Arizona.

Revenue Recognition--Revenue is recognized when earned. Coin call and
noncoin call revenue is recognized at the time the call is made.

The Company occasionally requires certain customers to remit funds in
advance in order to guarantee payment of telephone service. Unearned advances
are recorded as a current liability in customer deposits. As calls are made by
these customers, the customer deposit account is reduced, and revenue is
recognized.

Facility Commissions--Under the terms of the Company's telephone system
contracts with corrections facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.

Financial Instruments--The Company's financial instruments under Statement
of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair
Value of Financial Instruments," include cash and cash equivalents, accounts
receivable, accounts payable and long-term debt. The Company believes that the
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt are a reasonable estimate of their fair value
because of the short-term maturities of such instruments or, in the case of
long-term debt due after one year, because the Company believes that the
current interest rates on these notes approximates the rates that could be
currently negotiated with such lenders.

Research and Development--Costs related to research, design and development
of computer software are charged to operations as incurred, in accordance with
SFAS No. 86 "Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed." For the seven months ended July 31, 1997, and the year
ended December 31, 1996, $0 and $193,339, respectively, was charged to current
operations as research and development.

Reclassification--Certain amounts for the prior years have been reclassified
to conform with the current-year presentation.

Unaudited Interim Financial Statements--The Company's balance sheet as of
July 31, 1997, and the seven months ended July 31, 1997, have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal, recurring adjustments) necessary to present fairly
the balance sheet of the Company as of July 31, 1997, and the results of
operations and cash flows of the Company for the seven months ended July 31,
1997, have been made. The results of operation for the interim period are not
necessarily indicative of the results to be expected for the full year.

2. RELATED PARTIES

Loans from stockholder of $95,289 and $96,569 as of December 31, 1996, and
July 31, 1997, reflects amounts advance at various times during 1996. These
notes are unsecured and non-interest-bearing. Interest has been imputed at the
rate of prime plus 1% and totals $4,709 for the year ended December 31, 1996.

F-71
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JULY 31,
1995 1996 1997
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Telephone systems equipment.............. $ 796,926 $ 995,320 $1,165,778
Furniture and fixtures................... 95,347 103,623 117,016
Vehicles................................. 61,655 26,190
--------- ---------- ----------
892,273 1,160,598 1,308,984
Less accumulated depreciation............ (401,173) (610,335) (739,487)
--------- ---------- ----------
$ 491,100 $ 550,263 $ 569,497
========= ========== ==========
</TABLE>

4. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JULY 31,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Signing bonus.............................. $218,891 $ 465,513 $ 858,081
Organization costs......................... 3,712 3,712 3,712
Restricted cash............................ 20,789 21,855 122,198
Other...................................... 5,310 9,110 97,502
-------- --------- ----------
248,702 500,190 1,081,493
Less accumulation amortization............. (98,635) (225,606) (339,970)
-------- --------- ----------
$150,067 $ 274,584 $ 741,523
======== ========= ==========
</TABLE>

Restricted cash consists of a certificate of deposit for $20,000 plus
accrued interest income of $343, $1,855 and $789 as of July 31, 1997, December
31, 1996, and December 31, 1995, respectively. By agreement with one of its
county facilities, the Company is obligated to maintain this certificate of
deposit in a segregated account for the duration of the contract period, which
expires June 30, 1998.

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JULY 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Billing and collection fees.................... $ 17,932 $ 43,702 $ 94,811
Facility commissions........................... 267,154 343,756 15,050
Profit sharing plan............................ 110,000
Telephone charges.............................. 109,663 101,419 9,881
Other.......................................... 46,989 189,006 62,917
-------- -------- --------
$441,738 $787,883 $182,659
======== ======== ========
</TABLE>

F-72
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. LONG-TERM DEBT

The Company's long-term debt is composed of the following as of December 31,
1996, and July 31, 1997:

<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
8.75% note payable to Union Bank of California,
due in 24 monthly installments of $1,091,
including interest, due March 15, 1998, secured
by a vehicle..................................... $15,466 $8,875
10.25% note payable to Patelco Credit Union, due
in 36 monthly installments of $1,219, including
interest, due February 5, 1999, secured by a
vehicle.......................................... 28,381
------- ------
Less current portion of long-term debt............ 43,847 8,875
24,504 5,602
------- ------
$19,343 $3,273
======= ======
</TABLE>

Principal payments on long-term liabilities as of December 31, 1996, are as
follows:

<TABLE>
<S> <C>
Years ending December 31:
1997............................................................ $24,504
1998............................................................ 16,848
1999............................................................ 2,495
-------
$43,847
=======
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

Leases--The Company leases certain personal property under noncancelable
operating leases. In addition, the Company has guaranteed certain monthly
commission payments to one of the counties with which it contracts, which is
paid in addition to the contracted commission rate. The following is a
schedule by years of future minimum lease and contract payments:

<TABLE>
<S> <C>
Years ending December 31:
1997........................................................... $ 65,347
1998........................................................... 68,101
1999........................................................... 49,858
2000........................................................... 22,619
--------
$205,925
========
</TABLE>

Rent--The Company rents space for its administrative activities under a
lease that was signed effective June 1, 1995, for a two-year period. It calls
for monthly rent of $2,310. Effective October 1, 1996, the lease was extended
to September 30, 1999, at a monthly rent of $4,309. The future minimum rental
payments at December 31 are $51,705 for 1997, $51,705 for 1998 and $38,779 for
1999.

8. TRANSACTION WITH RELATED PARTY

The Company is indebted to its stockholders for loans aggregating $442,880.
The loans bear interest at rates that vary from 8% to 14%. Payments of
principal are determined between the related parties. The loans are not
currently scheduled for repayment.

F-73
<PAGE>

CORRECTIONAL COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

9. RETIREMENT PLAN

The Company has adopted a qualified profit sharing plan covering all its
employees. The eligibility requirements for employees are as follows: They
must attain the age of 21, have 12 months of service and perform at least
1,000 hours of work within a plan year. Contributions are made at the
discretion of the Board of Directors. For the years ended December 31, 1996
and 1995, the Company has made contributions of $110,000 and $100,000,
respectively.

10. SUBSEQUENT EVENT

Subsequent to the balance sheet date, the Board of Directors declared a
dividend of $5.33 per share, payable on April 1, 1997.

On July 31, 1997, the Company signed an agreement with Talton Holdings, Inc.
to sell substantially all of the assets of the Company for cash of $10.5
million, subject to certain adjustments to be determined based on future
results of operations of the Company. No effect of this transaction has been
reflected in the accompanying financial statements.

* * * * * *

F-74
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
InVision Telecom, Inc.:

We have audited the accompanying balance sheets of InVision Telecom, Inc.
(the "Company") as of December 31, 1996 and September 30, 1997, and the
related statements of operations, stockholders' equity (deficit) and cash
flows for each of the two years ended December 31, 1996 and 1995, and for the
nine months ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December
31, 1996 and September 30, 1997, and the results of their operations and their
cash flows for each of the two years ended December 31, 1995 and 1996, and for
the nine months ended September 30, 1997, in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
Dallas, Texas
December 12, 1997

F-75
<PAGE>

INVISION TELECOM, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 48,450 $ 11,710
Accounts receivable............................... 4,841,516 5,648,797
Prepaid expenses and other assets................. 325,175 359,609
Refundable income taxes........................... 418,310 420,366
----------- -----------
Total current assets............................ 5,633,451 6,440,482
PROPERTY AND EQUIPMENT.............................. 9,235,782 9,126,405
INTANGIBLE AND OTHER ASSETS......................... 29,337,909 27,193,875
----------- -----------
TOTAL............................................... $44,207,142 $42,760,762
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................. $ 514,978 $ 3,358,643
Bank overdraft.................................... 1,562,272 1,388,915
Accrued expenses.................................. 3,076,092 3,415,337
Current portion of long-term debt................. 176,550
----------- -----------
Total current liabilities....................... 5,329,892 8,162,895
DEBT OWED TO RELATED PARTY.......................... 40,775,115 42,819,792
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value; 75,500 shares
authorized; no shares issued and outstanding.....
Common stock, $0.01 par value; 124,500 shares
authorized, issued and outstanding............... 1,254 1,254
Additional paid-in capital........................ 1,688,031 1,688,031
Retained earnings (deficit)....................... (3,587,150) (9,911,210)
----------- -----------
Total stockholders' equity (deficit)............ (1,897,865) (8,221,925)
----------- -----------
TOTAL............................................... $44,207,142 $42,760,762
=========== ===========
</TABLE>

See notes to financial statements.

F-76
<PAGE>

INVISION TELECOM, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER ENDED
31, SEPTEMBER
------------------------ 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUE........................ $39,730,868 $48,892,806 $31,623,804
OPERATING EXPENSES:
Telecommunication costs................ 19,364,419 27,242,987 19,080,847
Facility commissions................... 9,291,116 12,557,577 8,787,712
Field operations and maintenance....... 1,443,633 1,870,146 1,744,635
Selling, general and administrative.... 2,610,347 4,504,908 2,994,535
Depreciation........................... 956,703 1,336,017 1,123,162
Amortization of intangibles............ 2,398,024 3,499,344 2,594,801
----------- ----------- -----------
Total operating expenses............. 36,064,242 51,010,979 36,325,692
----------- ----------- -----------
OPERATING INCOME (LOSS).................. 3,666,626 (2,118,173) (4,701,888)
OTHER (INCOME) EXPENSE:
Interest expense, related party........ 2,975,320 3,401,834 2,483,358
Other interest expense, net............ 8,950 13,965
Other, net............................. (3,933) (154,953) (859,130)
----------- ----------- -----------
Total other (income) expense......... 2,980,337 3,260,846 1,624,228
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........ 686,289 (5,379,019) (6,326,116)
INCOME TAX EXPENSE (BENEFIT)............. 260,789 (284,841) (2,056)
----------- ----------- -----------
NET INCOME (LOSS)........................ $ 425,500 $(5,094,178) $(6,324,060)
=========== =========== ===========
</TABLE>

See notes to financial statements.

F-77
<PAGE>

INVISION TELECOM, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.. 125,400 $1,254 $1,688,031 $ 1,081,528 $ 2,770,813
Net income.............. 425,500 425,500
------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31,
1995..................... 125,400 1,254 1,688,031 1,507,028 3,196,313
Net loss................ (5,094,178) (5,094,178)
------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31,
1996..................... 125,400 1,254 1,688,031 (3,587,150) (1,897,865)
Net loss................ (6,324,060) (6,324,060)
------- ------ ---------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997..................... 125,400 $1,254 $1,688,031 $(9,911,210) $(8,221,925)
======= ====== ========== =========== ===========
</TABLE>

See notes to financial statements.

F-78
<PAGE>

INVISION TELECOM, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ 425,500 $(5,094,178) $(6,324,060)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities--depreciation
and amortization................... 3,354,727 4,835,361 3,717,963
Changes in operating assets and
liabilities:
Accounts receivable............... (2,875,674) 1,257,696 (807,281)
Accounts payable.................. 132,922 344,506 2,843,665
Accrued expenses.................. (607,310) 917,845 339,245
Income taxes...................... (577,758) (284,881) (2,056)
Other assets...................... 4,805 (8,894) (34,434)
------------ ----------- -----------
Net cash (used in) provided by
operating activities........... (142,788) 1,967,455 (266,958)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (5,657,389) (2,458,893) (1,464,552)
Cash outflows for acquisitions...... (18,776,716)
------------ ----------- -----------
Net cash used in investing
activities..................... (24,434,105) (2,458,893) (1,464,552)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft...................... 500,822 368,915 (173,357)
Proceeds from issuance of debt-
related party...................... 24,418,403 74,873 2,044,677
Proceeds from issuance of other
debt............................... 450,000
Payments of long-term debt.......... (256,200) (443,700) (176,550)
------------ ----------- -----------
Net cash provided by financing
activities..................... 24,663,025 450,088 1,694,770
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... 86,132 (41,350) (36,740)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................ 3,668 89,800 48,450
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 89,800 $ 48,450 $ 11,710
============ =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid....................... $ 8,950 $ 13,965 $ --
============ =========== ===========
Taxes paid.......................... $ -- $ -- $ --
============ =========== ===========
Noncash transactions--note payable
issued for acquisition of assets... $ 212,400 $ -- $ --
============ =========== ===========
</TABLE>

See notes to financial statements.

F-79
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--InVision Telecom, Inc. (the "Company") was a wholly owned
subsidiary of Communications Central, Inc. (the "Parent Company"). The Company
provides fully automated pay telephone services to jail inmates in
correctional facilities located throughout the United States. The Company
accumulates call activity from its various installations and bills its
revenues related to this call activity through third-party billing services
that are granted credit in the normal course of business with terms of between
30 and 60 days. The Company performs ongoing credit evaluations of its
customers and maintains allowances for unbillable and uncollectible losses
based on historical experience.

Preparation of Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management of the Company to make estimates and assumptions, such as estimates
of allowances and reserves for unbillable and uncollectible chargebacks, that
affect the amount reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Accounts Receivable--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various local
exchange carriers ("LECs") or third-party billing services and an allowance
for unbillable and uncollectible calls, based upon historical experience, for
estimated chargebacks to be made by the LECs.

<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Telephone system............................................. 10 years
Vehicles..................................................... 3 years
Office equipment............................................. 3 to 5 years
Leasehold improvements....................................... 5 years
</TABLE>

Intangible and Other Assets--Intangible and other assets primarily include
amounts allocated to acquired facility contracts, noncompete agreements,
goodwill and other intangible assets, which are stated at cost. Amortization
of intangible assets is provided on a straight-line basis over the estimated
useful lives of the related assets. The following is a summary of useful lives
for the major categories of intangible assets:

F-80
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flow, undiscounted and without interest charges, to the
carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.

Revenue Recognition--Revenues are recognized during the periods the calls
are made. In addition, during the same period, the Company accrues the related
telecommunications costs for validating, transmitting, billing and collection,
and line and long distance, along with commissions payable to the facilities.

Income Taxes--The Company accounts for income tax using the liability method
in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are provided for differences between
financial statement and tax bases of assets and liabilities using current tax
rates.

Financial Instruments--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," includes cash
and cash equivalents, accounts receivable, accounts payable and long-term
debt. The Company believes that the carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt are a
reasonable estimate of their fair value because of the short-term maturities
of such instruments or, in the case of debt owed to related parties, because
such debt does not have repayment terms.

2. ACQUISITIONS

During the year ended December 31, 1995, the Company acquired facility
contracts and the related facility equipment from various other independent
inmate phone operators for purchase prices aggregating $18,989,116.

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Purchase prices:
Net cash paid.............................................. $ 18,776,716
Amounts payable to sellers................................. 212,400
------------
Total purchase price......................................... 18,989,116
Estimated fair value of tangible and identifiable intangible
assets acquired............................................. (10,133,834)
------------
Goodwill..................................................... $ 8,855,282
============
</TABLE>

F-81
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following table presents unaudited pro forma results of operations of
the Company for the year ended December 31, 1995, as if the acquisitions had
occurred at the beginning of 1995:

<TABLE>
<CAPTION>
DECEMBER
31, 1995
-----------
<S> <C>
Net sales....................................................... $47,651,868
===========
Net loss........................................................ $ (448,500)
===========
</TABLE>

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER SEPTEMBER 30,
31, 1996 1997
----------- -------------
<S> <C> <C>
Trade accounts receivable, net of advance
payments at December 31, 1996, and September
30, 1997, of $0 and $1,250,000, respectively.. $ 8,433,152 $ 8,862,649
Other receivables.............................. 404,887
----------- -----------
8,433,152 9,267,536
Less allowance for unbillable and uncollectible
chargebacks................................... (3,591,636) (3,618,739)
----------- -----------
$ 4,841,516 $ 5,648,797
=========== ===========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1997
----------- -----------
<S> <C> <C>
Telephone systems equipment........................ $11,133,706 $11,954,363
Furniture and fixtures............................. 101,544 102,344
Computer system.................................... 620,505 778,459
Vehicles........................................... 7,500 41,875
Leasehold improvements............................. 672 672
----------- -----------
11,863,927 12,877,713
Less accumulated depreciation...................... (2,628,145) (3,751,308)
----------- -----------
$ 9,235,782 $ 9,126,405
=========== ===========
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1997
----------- -----------
<S> <C> <C>
Intangible assets:
Acquired telephone contracts..................... $10,803,166 $11,247,265
Noncompete agreements............................ 163,600 163,600
Goodwill......................................... 24,512,287 24,512,287
----------- -----------
35,479,053 35,923,152
Less accumulated depreciation...................... (6,141,144) (8,729,277)
----------- -----------
$29,337,909 $27,193,875
=========== ===========
</TABLE>

F-82
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Billing and collection fees....................... $ 683,980 $ 805,479
Facility commissions.............................. 960,514 1,419,679
Telephone charges................................. 944,923 745,729
Other............................................. 486,675 444,450
---------- ----------
$3,076,092 $3,415,337
========== ==========
</TABLE>

7. LONG-TERM DEBT

The Company's long-term debt as of December 31, 1996, and September 30,
1997, is composed of the following:

<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1997
----------- -----------
<S> <C> <C>
Debt owed to related party.......................... $40,775,115 $42,819,792
Other............................................... 176,550
----------- -----------
40,951,665 42,819,792
Less current portion of long-term debt.............. 176,550
----------- -----------
$40,775,115 $42,819,792
=========== ===========
</TABLE>

Debt Owed to Related Party--The Company has borrowed from the Parent Company
to provide the necessary capital to fund acquisitions and to provide for its
working capital needs. The related party debt does not have repayment terms or
specific interest terms. The Company was charged an effective rate of interest
of approximately 8% for each of the two years ended December 31, 1995 and
1996, and for the nine months ended September 30, 1997.

Other Debt--Other debt at December 31, 1996, consists of two notes payable
issued in conjunction with acquisitions of telephone contracts in 1994 and
1995. This debt was paid off in 1997.

Because the Company's outstanding debt as of September 30, 1997, does not
have repayment terms and consists solely of debt owed to the Parent Company,
the debt is classified as long-term.

Parent Company Debt--All of the Company's assets and stock serve as
collateral for long-term debt of the Parent Company.

8. STOCKHOLDERS' EQUITY

Common Stock--The Company has 124,500 shares of common stock issued and
outstanding.

Preferred Stock--The Company has authorized 75,500 shares of preferred stock
that may have voting rights as authorized by the Company's board of directors.
The preferred stock does not have any rights to cumulative dividends and does
not have any liquidation preferences. No preferred stock has been issued as of
September 30, 1997.

F-83
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

9. INCOME TAXES

The operating results of the Company are included in the consolidated income
tax return of the Parent Company. In the Company's financial statements,
income taxes have been calculated as if the Company were a stand-alone entity.

The provision for income taxes (benefit) for the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1997, are as follows:

<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current taxes payable (refund):
Federal........................... $ 1,542,207 $(1,803,136) $(2,326,333)
State............................. 181,436 (212,134) (273,686)
Deferred income taxes............... (1,462,854) (28,757) 196,095
Deferred income tax asset valuation
allowance.......................... 1,759,186 2,401,868
----------- ----------- -----------
$ 260,789 $ (284,841) $ (2,056)
=========== =========== ===========
</TABLE>

The provision for income taxes (benefit) differs from statutory rates
primarily as a result of state income taxes and permanent differences. The
following is a reconciliation of income taxes reported in the statement of
operations:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- ----------- -------------
<S> <C> <C> <C>
Tax at statutory rates................. $233,338 $(1,828,866) $(2,150,879)
Effect of state income taxes........... 27,451 (215,161) (253,045)
Deferred income tax asset valuation
allowance............................. 1,759,186 2,401,868
-------- ----------- -----------
$260,789 $ (284,841) $ (2,056)
======== =========== ===========
</TABLE>

The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:

<TABLE>
<CAPTION>
DECEMBER SEPTEMBER 30,
31, 1996 1997
----------- -------------
<S> <C> <C>
Deferred income tax assets:
Allowance for unbillable and uncollectible
revenues..................................... $ 1,364,822 $ 1,375,121
Depreciation and amortization................. 394,364 187,969
Net operating loss carryforward............... 2,597,963
Deferred tax asset valuation allowance........ (1,759,186) (4,161,053)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

Leases--The Company leases certain personal property under noncancelable
operating leases.

Future minimum lease payments under operating leases with terms greater than
one year are as follows:

<TABLE>
<S> <C>
Year ending September 30,
1997 (three months)............................................ $ 92,000
1998........................................................... 309,000
1999........................................................... 152,000
2000........................................................... 42,000
--------
$595,000
========
</TABLE>

F-84
<PAGE>

INVISION TELECOM, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. SUBSEQUENT EVENTS

On October 6, 1997, the Company was sold to Talton Holdings, Inc. for a
purchase price of $42.0 million, subject to adjustment as provided in the
acquisition agreement and subject to a provision for working capital of
approximately $1.2 million provided to the purchaser pursuant to the purchase
agreement.

* * * * * *

F-85
<PAGE>

PROSPECTUS (Subject to Completion)
Issued September 10, 1998

Shares
Evercom, Inc.
COMMON STOCK

-----------

OF THE SHARES OF COMMON STOCK (THE "COMMON STOCK") BEING OFFERED, SHARES
ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS (THE "INTERNATIONAL OFFERING") AND SHARES
ARE BEING OFFERED INITIALLY INSIDE THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS (THE "U.S. OFFERING," AND, TOGETHER WITH THE
INTERNATIONAL OFFERING, THE "OFFERING"). SEE "UNDERWRITERS." PRIOR
TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ .
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.

-----------

APPLICATION WILL BE MADE FOR LISTING OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

PRICE $ A SHARE
-----------

-----------

The shares are offered, subject to prior sale, when, as, and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Common Stock will be made on or about , 1998, at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.

-----------

MORGAN STANLEY DEAN WITTER

BEAR, STEARNS INTERNATIONAL LIMITED

CIBC WOOD GUNDY OPPENHEIMER

CREDIT SUISSE FIRST BOSTON

, 1998
<PAGE>

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table indicates the estimated expenses to be incurred in
connection with the Offering, all of which will be paid by the Company.

<TABLE>
<S> <C>
SEC registration fee................................................... $36,875
NASD fee............................................................... 13,000
NYSE listing fee.......................................................
Accounting fees and expenses...........................................
Legal fees and expenses................................................
Printing and engraving.................................................
Transfer Agent's fees..................................................
Blue Sky fees and expenses (including counsel fees)....................
Directors and Officers Liability Insurance Premium.....................
Miscellaneous expenses.................................................
Total................................................................
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation provides 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, with certain limited expectations. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Liability of
Directors; Indemnification" in the Prospectus.

Pursuant to the provisions of Section 145 of the DGCL, every Delaware
corporation has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee, or agent of any corporation, partnership, joint venture,
trust, or other enterprise, against any and all expenses, judgments, fines,
and amounts paid in settlement and reasonably incurred in connection with such
action, suit, or proceeding. The power to indemnify applies only if such
person acted in good faith and in a manner such person reasonably believed to
be in the best interest, or not opposed to the best interest, of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.

The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself,
and with the further limitation that in such actions no indemnification will
be made in the event of any adjudication of negligence or misconduct unless
the court, in its discretion, believes that in light of all the circumstances
indemnification should apply.

To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of such actions, such person
is entitled, pursuant to Section 145, to indemnification as described above.

The Company's Certificate of Incorporation and Bylaws provide for
indemnification to officers and directors of the Company to the fullest extent
permitted by the DGCL. See "Description of Capital Stock--Certificate of
Incorporation and Bylaw Provisions--Liability of Directors; Indemnification"
in the Prospectus.

The form of Underwriting Agreement filed as Exhibit 1.1 contains agreements
of indemnity between the Company and the Underwriters and controlling persons
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments which the Underwriters or any such
controlling persons may be required to make in respect thereof.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

All sales were completed in reliance upon Section 4(2) of the Securities Act
of 1933, as amended.

<TABLE>
<CAPTION>
TERMS OF
PERSON ACQUIRING CONVERSION OR
SECURITIES SOLD DATE SECURITIES AMOUNT CONSIDERATION USE OF PROCEEDS EXERCISE
---------------- -------- ------------------ ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Class A 12/27/96 investor group 9805 shares $9,805,000.00 Working N/A
Common Stock cash Capital
Class A 12/27/96 former 970 shares contribution Acquisition of N/A
Common Stock shareholders of of stock Business
AmeriTel Pay valued at
Phones, Inc. $970,000.00
Class A 12/27/96 former 4125 shares contribution Acquisition of N/A
Common Stock shareholders of of stock Business
Talton valued at
Telecommunications $4,125,000.00
Class A 06/27/97 Security Telecom 900 shares acquisition of Acquisition of N/A
Common Stock Corporation asset valued Business
at $900,000.00
Class B 12/27/96 Class B Investor 400 shares $400,000.00 Working Each shares is
Common Stock Group(1) cash(2) Capital convertible
into
shares of
Class A Common
Stock
Warrants 12/27/96 Class B Investor 1736.8421 (2) N/A $ strike
Group shares price per
share
Warrants 12/27/96 Class B Investor 1302.6316 (2) N/A $ strike
Group shares price per
share
Warrants 12/27/96 Class B Investor 1269.9751 (2) N/A $ strike
Group shares price per
share
Senior 12/27/96 former 925 shares contribution Acquisition of Each share is
Preferred Stock shareholders of of stock Business convertible
AmeriTel Pay valued at into
Phones, Inc. $925,000.00 shares of
Class A Common
Stock
Senior 12/27/96 former 5000 shares contribution Acquisition of Each share is
Preferred Stock shareholders of of stock Business convertible
Talton valued at into
Telecommunications $5,000,000.00 shares of
Class A Common
Stock
Subordinated 12/27/96 former $5,000,000.00 $5,000,000.00 Acquisition N/A
Note shareholders of cash financing
Talton
Telecommunications
Subordinated 12/27/96 CIBC WG Argosy $7,500,000.00 7,500,000.00 Acquisition N/A
Note Merchant Fund 2, cash financing
L.L.C.
Subordinated 12/27/96 Regent Capital $1,000,000.00 $1,000,000 Acquisition
Note Partners, L.P. cash financing
Warrants 12/27/96 CIBC Wood Gundy 1085.5263 Additional $ strike
Ventures, Inc. shares consideration price per
for financing share
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
TERMS OF
PERSON ACQUIRING CONVERSION OR
SECURITIES SOLD DATE SECURITIES AMOUNT CONSIDERATION USE OF PROCEEDS EXERCISE
- --------------- -------- ------------------ ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contingent 12/27/96 Regent Capital 141.1674 Additional $ strike
Warrants(3) Partners, L.P. shares consideration price per
for financing share
Contingent 12/27/96 CIBC Wood Gundy 1058.7553 Additional $ strike
Warrants(3) Ventures, Inc. shares consideration price per
for financing share
Contingent 12/27/96 former 719.9536 Additional $ strike
Warrants(3) shareholders of shares consideration price per
Talton for financing share
Telecommunications
Options 06/27/97 former officer of 100 shares Additional $ strike
Security Telecom consideration price per
Corporation for asset share
acquisition
Options 06/27/97 officer of Talton 165 shares Additional $ strike
Holdings, Inc. consideration price per
for employment share
Options(3) 07/31/97 former 166.666 Additional $ strike
shareholders of shares consideration price per
Correctional for asset share
Communications acquisition
Corporation
Series A 11% 06/24/97 CIBC Wood Gundy $115 million $115 million (1) To repay N/A
Senior Notes Securities Corp. principal gross proceeds debt; (2) to
Due 2007 as Initial amount consummate the
Purchaser acquisition of
STC; (3) to
fund future
acquisitions;
(4) for
general
corporate
purposes. See
"Management's
Discussion and
Analysis of
Financial
Condition and
Results of
Operations."
Convertible 02/18/98 former 158 1/3 additional Acquisition of $ strike
Note shareholders of shares consideration business price per
MOG for asset share
Communications, acquisition
Inc.
</TABLE>
- --------
(1) Class B Investor Group consists of Gregg L. Engles, Todd W. Follmer, Joseph
P. Urso and Onyx Talton Partners, L.P.
(2) Consideration for Class B Shares and associated warrants
(3) Lapsed or expired

II-3
<PAGE>

ITEMS 16. EXHIBITS

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1** Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated as of August 21, 1997, among the
Company, InVision Telecom, Inc., and Communications Central, Inc.
(filed as Exhibit 2.1 to the Company's Registration Statement No. 333-
33639 and incorporated herein by reference).
2.2 Contribution Agreement, dated as of December 20, 1996, among the
Company, Richard C. Green, Jr., Robert K. Green, T.R. Thompson, Roger
K. Sallee, and certain other stockholders, and AmeriTel Pay Phones,
Inc. (filed as Exhibit 2.2 to the Company's Registration Statement No.
333-33639 and incorporated herein by reference).
2.3 Contribution Agreement, dated as of December 20, 1996, among the
Company, Julius E. Talton, Julius E. Talton, Jr., and James E. Lumpkin
(filed as Exhibit 2.3 to the Company's Registration Statement No. 333-
33639 and incorporated herein by reference).
2.4 Stock Acquisition Agreement, dated as of December 20, 1996, among the
Company, Richard C. Green, Jr., Robert K. Green, T. R. Thompson, Roger
K. Sallee, and certain other stockholders, and AmeriTel Pay Phones,
Inc. (filed as Exhibit 2.4 to the Company's Registration Statement No.
333-33639 and incorporated herein by reference).
2.5 Stock Acquisition Agreement, dated as of December 20, 1996, among the
Company, Julius E. Talton, Julius E. Talton, Jr., James E. Lumpkin,
Carrie T. Glover, Talton Telecommunications Corporation, and Talton
Telecommunications of Carolina, Inc. (filed as Exhibit 2.5 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Registration Statement No. 333-33639 and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
3.3 Certificate of Amendment to Restate Certificate of Incorporation of
the Company, dated as of July 23, 1998 (filed as Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q, dated as of August 14, 1998,
and incorporated herein by reference).
4.1 Indenture, dated as of June 27, 1997, between the Company and U.S.
Trust Company of Texas, N.A. (filed as Exhibit 4.1 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.2 Form of Subsidiary Guaranty (contained in Indenture filed as Exhibit
4.3 to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
4.3 Registration Rights Agreement, dated as of June 27, 1997, between the
Company and the Initial Purchaser (filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.4 Registration Rights Agreement, dated as of December 27, 1996, by and
among the Company and certain Holders named therein (filed as Exhibit
4.5 to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
4.5 Shareholders Agreement, dated as of December 27, 1996, by and among
the Company and certain Persons named therein (filed as Exhibit 4.6 to
the Company's Registration Statement No. 333-33639 and incorporated
herein by reference).
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.6 Warrant Agreement, dated as of December 27, 1996, between the Company
and CIBC Wood Gundy Ventures, Inc. (filed as Exhibit 4.7 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.7 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.8 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.8 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.9 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.9 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.10 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.10 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.11 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.11 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.12 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.12 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.13 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.13 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.14 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.14 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.15 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.15 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.16 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.16 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.17 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.17 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.18 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.18 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.19 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
5.1** Opinion of Hughes & Luce, L.L.P. respecting the Common Stock
registered hereby.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.1 Amended and Restated Credit Agreement, dated as of July 30, 1997,
among the Company, Canadian Imperial Bank of Commerce, CIBC Inc., and
First Source Financial LLP (filed as Exhibit 10.2 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
10.2 Asset Purchase Agreement, dated as of May 9, 1997, among the Company,
Security Telecom Corporation, and William H. Ohland (filed as Exhibit
10.3 to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
10.3 First Amendment to Asset Purchase Agreement, dated as of June 21,
1997, among the Company, Security Telecom Corporation, and William H.
Ohland (filed as Exhibit 10.4 to the Company's Registration Statement
No. 333-33639 and incorporated herein by reference).
10.4 Consulting Agreement, dated as of December 27, 1996, between the
Company and James E. Lumpkin (filed as Exhibit 10.6 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
10.5 Consulting Agreement, dated as of December 27, 1996, between the
Company and Julius E. Talton (filed as Exhibit 10.7 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
10.6 Consulting and Strategic Services Agreement, dated as of December 27,
1996, between the Company and EUF Talton, L.P. (filed as Exhibit 10.8
to the Company's Registration Statement No. 333-33639 and incorporated
herein by reference).
10.7 Employment Agreement, dated as of December 27, 1996, between the
Company and Julius E. Talton, Jr. (filed as Exhibit 10.9 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
10.8 Employment Agreement, dated as of November 17, 1997, between the
Company and Jeffrey D. Cushman (filed as Exhibit 10.12 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
10.9** Employment Agreement, dated as of June 26, 1998, between the Company
and Donald B. Vaello.
10.10** Letter Agreement, dated as of , 1998, between the Company and
Keith S. Kelson.
10.11** Form of Employment Agreement between the Company and Dennis L.
Whipple.
21.1** Subsidiaries of the Company.
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Arthur Andersen LLP.
23.4* Consent of Borland, Benefield, Crawford & Webster, P.C.
23.5* Consent of Davis, Clark and Company, P.C.
23.6* Consent of Ginsberg, Weiss & Company
23.7** Consent of Hughes & Luce, L.L.P (contained in Exhibit 5.1 hereto).
24.1* Power of Attorney (included on signature page of Registration
Statement).
27.1* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.

II-6
<PAGE>

(b) Financial Statement Schedules:

Financial statement schedules are omitted as not required or not applicable
or because the information is included in the Financial Statements or notes
thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the underwriting agreements, the
Company's Certificate of Incorporation, Bylaws, Delaware law or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-7
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF IRVING, STATE OF TEXAS,
ON SEPTEMBER 10, 1998.

EVERCOM, Inc.

By: /s/ Todd W. Follmer
---------------------------------
TODD W. FOLLMER
CHAIRMAN OF THE BOARD

POWER OF ATTORNEY

EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
TODD W. FOLLMER, DONALD B. VAELLO, AND JEFFREY D. CUSHMAN, AND EACH OF THEM,
SUCH PERSON'S TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE, AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY ADDITIONAL
REGISTRATION STATEMENTS RELATED TO THE OFFERING CONTEMPLATED BY THIS
REGISTRATION STATEMENT AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND HEREBY GRANTS TO SUCH ATTORNEY-IN-FACT AND AGENT FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-
FACT AND AGENT OR HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.

SIGNATURE TITLE DATE

/s/ Dennis L. Whipple Chief Executive September 10,
- ------------------------------------- Officer 1998
DENNIS L. WHIPPLE

/s/ Donald B. Vaello Chief Operating September 10,
- ------------------------------------- Officer 1998
DONALD B. VAELLO

/s/ Keith S. Kelson Vice-President, September 10,
- ------------------------------------- Assistant 1998
KEITH S. KELSON Secretary, and
Assistant Treasurer

II-8
<PAGE>

SIGNATURE TITLE DATE

/s/ Todd W. Follmer Director September 10,
- ------------------------------------- 1998
TODD W. FOLLMER

/s/ Gregg L. Engles Director September 10,
- ------------------------------------- 1998
GREGG L. ENGLES

/s/ Richard H. Hochman Director September 10,
- ------------------------------------- 1998
RICHARD H. HOCHMAN

/s/ Nina E. Mclemore Director September 10,
- ------------------------------------- 1998
NINA E. MCLEMORE

/s/ David A. Sachs Director September 10,
- ------------------------------------- 1998
DAVID A. SACHS

/s/ Bruce I. Raben Director September 10,
- ------------------------------------- 1998
BRUCE I. RABEN

/s/ Roger K. Sallee Director September 10,
- ------------------------------------- 1998
ROGER K. SALLEE

/s/ Joseph P. Urso Director September 10,
- ------------------------------------- 1998
JOSEPH P. URSO

/s/ Jay R. Levine Director September 10,
- ------------------------------------- 1998
JAY R. LEVINE

/s/ Julius E. Talton, Sr. Director September 10,
- ------------------------------------- 1998
JULIUS E. TALTON, SR.

/s/ Jeffrey D. Cushman Chief Financial September 10,
- ------------------------------------- Officer, Vice 1998
JEFFREY D. CUSHMAN President,
Secretary and
Treasurer

II-9

<PAGE>

Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Evercom, Inc. (formerly
Talton Holdings, Inc.) on Form S-1 of our report dated March 18, 1998 with
respect to the consolidated financial statements of Evercom, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the one month period ended
December 31, 1996, and the year ended December 31, 1997; our report dated April
4, 1997, with respect to the financial statements of AmeriTel Pay Phones, Inc.
as of November 30, 1996 and for the eleven months ended November 30, 1996; our
report dated April 4, 1997 with respect to the consolidated financial statements
of Talton Telecommunications Corporation and subsidiary as of November 30, 1996,
and for the eleven months ended November 30, 1996; our report dated October 10,
1997, with respect to the consolidated financial statements of Security Telecom
Corporation as of June 30, 1997 and for the six-month period ended June 30,
1997; our report dated December 12, 1997 with respect to the financial
statements of InVision Telecom, Inc. as of December 31, 1996 and September 30,
1997 and for each of the two years ended December 31, 1996 and 1995, and for the
nine months ended September 30, 1997; all appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading of "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP
Dallas, Texas
September 9, 1998

<PAGE>

Exhibit 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated March 22, 1996, and to all references to our firm, included or made in a
part of this Form S-1 Registration Statement.

ARTHUR ANDERSEN LLP
Kansas City, Missouri
September 9, 1998

<PAGE>

Exhibit 23.4

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Evercom, Inc. (formerly
Talton Holdings, Inc.) on Form S-1 of our report dated March 4, 1996, with
respect to the consolidated financial statements of Talton Telecommunications
Corporation as of December 31, 1995, and for the year ended December 31, 1995;
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading of "Experts" in such
Prospectus.

BORLAND, BENEFIELD, CRAWFORD & WEBSTER, P.C.
Birmingham, Alabama
September 9, 1998

<PAGE>

Exhibit 23.5

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Evercom, Inc. (formerly
Talton Holdings, Inc.) on Form S-1 of our report dated May 23, 1997, with
respect to the consolidated financial statements of Security Telecom Corporation
and subsidiary as of December 31, 1995 and 1996, and for the three years ended
December 31, 1996; appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
of "Experts" in such Prospectus.

DAVIS, CLARK AND COMPANY, P.C.
Dallas, Texas
September 9, 1998

<PAGE>

Exhibit 23.6

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Evercom, Inc. (formerly
Talton Holding, Inc.) on Form S-1 of our report dated June 27, 1997 (October 6,
1997, as to Note 10), with respect to the financial statements of Correctional
Communications Corporation as of December 31, 1995 and 1996, and for the three
years ended December 31, 1996; appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under the
heading of "Experts" in such Prospectus.

GINSBERG, WEISS & CO.
Pearl River, New York
September 9, 1998

<PAGE>

<ARTICLE> 5

<S> <C> <C>
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