-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IzaKiYz6ZFqRTwAGUJBZahzInCF6H9CVqaGZSSAWHovPERUo3WsLVHOotW8IQcMf n9uEMKi6DkL8PsslKNNKpg== 0000912057-02-012677.txt : 20020415 0000912057-02-012677.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-012677 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20011230 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APAC CUSTOMER SERVICE INC CENTRAL INDEX KEY: 0000949297 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 362777140 STATE OF INCORPORATION: IL FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-26786 FILM NUMBER: 02594733 BUSINESS ADDRESS: STREET 1: ONE PARKWAY N CTR STREET 2: STE 510 CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 8473744980 MAIL ADDRESS: STREET 1: ONE PARKWAY N CTR STREET 2: STE 510 CITY: DEERFIELD STATE: IL ZIP: 60015 FORMER COMPANY: FORMER CONFORMED NAME: APAC CORP DATE OF NAME CHANGE: 19950811 FORMER COMPANY: FORMER CONFORMED NAME: APAC TELESERVICES INC DATE OF NAME CHANGE: 19950915 10-K405 1 a2073275z10-k405.htm FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

/x/: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2001
OR

/

/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number: 0-26786

APAC Customer Services, Inc.
(Exact name of registrant as specified in its charter)

Illinois		36-2777140
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

Six Parkway North Center, Suite 400, Deerfield, Illinois 60015
(Address of principal executive offices)

Registrant's telephone number, including area code: (847) 374-4980
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Names of each exchange on which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, $0.01 Par Value
(Title of class)

Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes /x/ No / /

As of March 28, 2002, 49,531,811 Common Shares were outstanding.

The aggregate market value of the Registrant's Common Shares held by non-affiliates on March 28, 2002 was approximately $160,483,068.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 7, 2002 are incorporated by reference in Part III

PART I

Item 1. Business.

General

APAC Customer Services, Inc. ("APAC Customer Services", "APAC" or the "Company") is a leading provider of customer interaction solutions and electronic solutions for market leaders in financial services, insurance, telecommunications, healthcare and logistics. To help its clients better manage relationships with their customers, APAC Customer Services develops and delivers end-to-end customer care, customer acquisition and Web-enabled programs. The Company operates and manages approximately 10,200 workstations in 48 Customer Interaction Centers. The Customer Interaction Centers are managed centrally through the application of telecommunications and computer technology to promote the consistent delivery of quality service. The Company delivers a full suite of electronic products and services, including e.PAC^SM, a multi-channel platform that supports a broad range of integrated, e-commerce-based customer interaction capabilities and solutions integration services. The Company has two primary service offerings: Customer Acquisition and Customer Care. In 2001, the Company reorganized its operating structure along client lines, combining operations into one unit and account management, marketing, sales and other client-facing functions across service offering lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and Customer Acquisition services. It is therefore impractical to separate the results by these service offerings as shown in prior years. Accordingly, the Company no longer presents operating results in reportable segments.

Services

Customer Care. Customer Care services include customer relationship management solutions including supporting inbound customer care, customer retention, direct mail response, integrated voice response, "help" line support, and customer order processing. Certain Customer Care services include specialized customer service representatives such as insurance agents and licensed pharmacists capable of responding to more technical inquiries from customers and prospects.

Customer Care services involve the receipt of a call from a client's customer or prospect, and the identification and routing of the call to the appropriate APAC customer service representative. The caller typically uses a toll-free "800" number to request product or service information, place an order for a product or service or obtain assistance regarding a client's products or services. APAC utilizes automated call distributors and digital switches to identify each inbound call by "800" number and route the call to an APAC customer service representative trained for the client's program. Simultaneously with receipt of the call, the customer service representative's computer screen displays customer, product and service information relevant to the call. The Company reports information and results captured during the call to its client for order processing, customer service and database management.

Customer Acquisition. Customer Acquisition services include sales support to consumers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. Customer Acquisition services typically begin when APAC Customer Services calls a consumer or business prospect targeted by one of its clients to offer the client's products or services. Prospect information, which APAC Customer Services typically receives electronically from its clients, is selected to match the demographic profile of the targeted customer for the product or service being offered. APAC's data management system sorts the prospect information and delivers it to one of the Customer Interaction Centers. Computerized call-management systems utilizing predictive dialers automatically dial the telephone numbers, determine if a live connection is made, and present connected calls to a sales representative who has been specifically trained for the client's program. When a call is presented, the prospect's name, other information about the prospect, and the program script simultaneously appear on the sales representative's computer screen. The sales representative then uses the script to solicit an order for the client's product or service or to request information, which will be added to the

client's database. APAC's advanced systems permit on-line monitoring of marketing campaigns allowing its clients to refine programs while in progress.

Clients

APAC directs its business development efforts primarily towards large companies with substantial customer acquisition and customer care activity. APAC often targets those companies that operate in high cost metropolitan areas, that are currently utilizing inefficient or expensive technology in their customer service and/or acquisition operations, or that have the greatest potential to generate recurring revenue driven by their ongoing telephone based direct sales and marketing programs. Contracts for customer care services provide for terms of up to five years, and can be terminated for convenience subject to a negotiated phase-out period. Contracts for customer acquisition services may generally be terminated or modified on short notice, although the Company tends to establish long term relationships with many of the clients for which it provides such services. The Company is generally paid on the basis of time billed by the Company representative providing either customer care or customer acquisition services. The Company's fees are often subject to performance standards such as sales per hour, average handle time, occupancy rate, abandonment rate and standards as agreed with the client. In the case of Customer Acquisition the Company's services are also occasionally priced on a per sale basis, rather than the predominant time-based method.

The Company's significant relationships include United Parcel Service General Services, Inc. ("UPS") which accounted for 15.2% and 15.3%, respectively of the Company's consolidated net revenue in fiscal 2001 and 2000. In addition 10.1 and 9.1% of the Company's consolidated net revenues in 2001 and 2002 respectively were provided by AEGON, a large insurance company. See Management's Discussion and Analysis of Financial Condition and Results of Operations.

Technology Resources

APAC Customer Services has successfully integrated interaction management, database marketing and management information systems within its Customer Interaction Centers. APAC's multichannel CRM platform, known as e.PAC^SM, is a best-of-breed application that leverages off-the-shelf applications, in-house developed software, and real-time integrated reporting.

e.PAC^SM provides a 360-degree view of the customer through the use of an integrated routing layer and a contact management application layer. Multiple communications channels are linked into the contact management layer to allow clients' customers to contact APAC using any communication medium they choose, including voice, e-mail, Internet chat and web collaboration. Information obtained from interacting with customers is captured in the contact management layer to ensure that regardless of the medium of communication, APAC's customer service representatives will always be able to provide applicable and current information to the customer. These technologies allow APAC to provide customer service representatives with real-time access to customer and product information and allows the Company to design and implement application software for each client's program.

e.PAC^SM incorporates PC-based workstations, object-oriented software modules, relational database management systems, call tracking and workforce management systems, computer telephony and Internet based services integration, and interactive voice response. The technologies used by APAC Customer Services enable customer service representatives to focus on assisting the customer, rather than on technology, by providing all necessary customer information at interaction arrival. In addition, the e.PAC^SM platform also helps to decrease training time and increase the interaction handling efficiencies.

Supporting the integration of the call handling technologies and call management for acquisition systems is First Alert, a proprietary agent productivity system, which provides real-time information on each customer contact. First Alert captures all contact information and reports on each sales representative's activities so that the Company and its clients can make real-time decisions with respect to quality and performance.

The UNIX-based computer system that the Company has developed utilizes a "hub and spoke" configuration to electronically link each Customer Interaction Center's systems to the Company's data center. This open architecture system provides APAC Customer Services with the flexibility to integrate its client server and mid-range systems with the variety of systems maintained by its clients. By integrating with its clients' systems, APAC Customer Services is able to receive calls and data directly from its clients' in-house systems, forward calls to its clients' in-house telephone representatives when appropriate, and report, on a real-time basis, the status and results of the Company's services. APAC's custom software is built on relational database technology that enables the Company to quickly design tailored software applications that enhance the efficiency of its interaction services, while providing flexible scripting and readily accessible screen navigation.

Sales and Marketing

The Company seeks to differentiate itself from other providers of customer interaction solutions by offering tailored solutions that address the specialized needs of its clients. The Company's organization structure is focused on providing value-added industry specific solutions to companies in the financial services, insurance, telecommunications, healthcare and logistics industries. The Company has developed a targeted approach to identifying new clients and additional needs of existing clients. Often, APAC Customer Services initially develops a pilot program for a new client to demonstrate the Company's abilities and effectiveness in telephone-based and web-enabled marketing and customer service. The Company's account management and sales personnel also assist clients in identifying high potential customers and developing programs to reach those customers, communicate results of the program and assist clients in modifying programs for future use. The Company markets its services by targeting companies within vertical sectors for proactive development of industry specific solutions, expanding relationships with existing clients, responding to requests for proposals, pursuing client referrals and participating in trade shows and advertising in business publications. The Company believes its increasingly consultative approach will enhance its ability to successfully identify additional business opportunities and secure new business.

Human Resources

The Company believes a key component of APAC's success is the quality of its employees. Therefore, the Company is continually refining its systematic approach to hiring, training and managing qualified personnel. APAC Customer Services locates Customer Interaction Centers primarily in small to mid-sized communities in an effort to lower its operating costs and attract a high quality, dedicated work force. The Company believes that by employing a significant number of full-time employees it is able to maintain a more stable work force and reduce the Company's recruiting and training expenditures. At each Customer Interaction Center, the Company utilizes a management structure designed to ensure that its sales and service representatives are properly supervised, managed and developed.

The Company offers extensive classroom and on-the-job training programs for its people, including instruction about the client's company and its product and service offerings as well as proper telephone-based sales or customer service techniques. Once hired, each new sales and service representative receives on-site training lasting from two to over twenty days. The amount of initial training each employee receives varies depending upon the nature of the services being offered for the client to which the representative will be assigned. In addition, the Company offers one and two week courses to its sales and service representatives who are preparing for the insurance agent license exam. The Company believes in developing and challenging all employees to grow personally and professionally.

For employee recruitment and job tracking, the e-SMART System (SiMple Accurate Record Tracking) assists the Company in selecting people who can meet and exceed expectations. The e-SMART System is a comprehensive electronic process for applicant tracking and performance evaluation. The process begins with an applicant's search of a database to find available positions, review job information, and

learn more about the Company. After a candidate completes a series of online templates and tests, a recruiter reviews qualifications and skills, sets appointments and tracks progress of the application.

The Company had approximately 12,400 full-time and 4,300 part-time employees for a total of 16,700 employees on March 28, 2002. None of APAC's employees are subject to a collective bargaining agreement. The Company considers its relations with its employees to be good.

Quality Assurance

Since APAC's services involve direct contact with its clients' customers, the Company's reputation for quality service is critical to acquiring and retaining clients. Therefore, the Company and its clients monitor the Company's sales and service representatives for strict compliance with the clients scripts and to maintain quality and efficiency. The Company also regularly measures the quality of its services by benchmarking such factors as customer service levels, average handle times, first call resolutions, sales per hour and average speed of answer. The Company's information systems enable APAC to provide clients with reports on a real-time basis as to the status of ongoing services and can transmit summary data and captured information electronically to clients. This data enables APAC and its clients to modify or enhance ongoing services to improve effectiveness.

Competition

The industry in which the Company operates is very competitive and highly fragmented. APAC's competitors range in size from very small firms offering specialized applications or short term projects, to large independent public firms and the in-house operations of many clients and potential clients. A number of competitors have capabilities and resources equal to, or greater than, the Company's. The market includes non-captive customer acquisition and customer service operations as well as in-house telemarketing and customer service organizations throughout the United States. In-house telemarketing, customer relationship management, and customer service organizations comprise by far the largest segment of the industry. In addition, some of the Company's services also compete with other forms of direct marketing such as mail, television and radio. The Internet and other new technologies are creating new and competing forms of marketing and data collection, such as interactive television and targeted electronic mail and advertisements, which, if successful, may cause new competitors to enter the field and increase competition. The Company believes the principal competitive distinctions in the telephone-based and web enabled marketing and customer service industry are reputation for quality, sales and marketing results, price, technological expertise, and the ability to promptly provide clients with customized solutions for their sales, marketing and customer service needs.

Government Regulation

Telephone sales practices are regulated at both the Federal and state level. The Federal Communications Commission's (the "FCC") rules under the Federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibit the initiation of telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time, and prohibit the use of certain automated sequential telephone-dialers and their ability to call certain numbers. In addition, the FCC's rules require the maintenance of a list of residential consumers who have stated that they do not want to receive telephone solicitations from the caller and requires that such caller cease making calls to such consumers' telephone numbers.

In addition to the TCPA, the Federal Telemarketing Consumer Fraud and Abuse Protection Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations designed to prevent deceptive and abusive telemarketing acts and practices. The FTC's Telemarketing Sales Rule (the "TSR") went into effect in January 1996. The TSR applies to most direct telemarketing calls and generally prohibits a variety of deceptive, unfair or abusive practices in telemarketing sales. In February of 2001 the FTC initiated administrative rulemaking proceedings to amend the TSR, including, among other provisions, the addition of a provision that would create a national "Do-Not-Call" registry. Under the amendment proposed by the FTC, it would be illegal for telemarketers to call consumers who

place their phone numbers on the national registry. The FTC's proposal also includes a provision that would prohibit the practice of receiving any consumer billing information from any third party for use in telemarketing, among other things. The Company cannot predict whether the FTC's proposed modifications to the TSR will be made, in whole or in part, and if so, what impact such revisions would have on the Company or its industry.

In addition to the Federal legislation and regulations, there are numerous state statutes and regulations governing telemarketing activities, which do, or may, apply to the Company. For example, a recent trend among certain states has been the creation of statewide "Do-Not-Call" registries, which prohibit telemarketers from contacting those who have registered with the state. Additional trends include placing restrictions on the methods and timing of telemarketing calls, placing restrictions on the percentage of abandoned calls generated by automated telephone-dialing equipment, and specifying the types of disclosures that must be made during the course of a telemarketing call. States have also begun to pass legislation prohibiting telemarketers from using any method or device to block consumers' use of caller identification devices. The Company believes that states will continue to adopt similar legislation and regulations aimed at protecting consumers' privacy rights and at reducing fraudulent and abusive sales and marketing acts, which may or may not impact the Company's operations.

In addition to the Federal and state laws regulating telemarketing activity, there are additional Federal and state laws and regulations governing consumer privacy and the collection and use of consumer data. Key Federal laws include the Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act. There is increasing Federal and State interest in privacy protections, some aspects of which could impose additional regulatory pressure on the business of the Company's clients and, less directly, on the Company's business.

The industries served by the Company are also subject to varying degrees of government regulation. The Company and its employees who are involved in certain types of sales activities, such as the sale of insurance products, are required to be licensed by various state commissions or regulatory bodies and to comply with regulations enacted by those entities. Other examples of activities requiring licensing include gaming, pharmaceutical and mortgage banking activities. In its contracts the Company generally assumes responsibility to companies with federal and stock laws regulating telemarketing. The Company does, however rely on its clients and their advisors to develop the scripts to be used by the Company in making consumer solicitations. The Company generally requires its clients to indemnify it against claims and expenses arising in connection with the scripts provided or approved by a client, actions taken at a client's direction, a client's failure to provide purchased products or services to customers, and any defect or deficiency in such products or services.

The Company believes it is in compliance in all material respects with federal and state telemarketing laws and regulations.

Item 2. Properties

The Company leases approximately 91,000 square feet of office space in Deerfield, Illinois. The term of this lease expires in August 2008. This space houses corporate headquarters, business unit management, the technology demonstration center, and a customer interaction center. The Company has approximately 79,000 square feet of office space in Cedar Rapids, Iowa. This office space is located on all or part of six floors which are owned by the Company and is part of an office condominium. The Company has approximately 87,000 square feet of office space in Omaha, Nebraska and 22,000 square feet of office space in Atlanta, Georgia. The Omaha space was acquired with the purchase of ITI. The lease for the Omaha office space expires in August 2007. Approximately 49,000 square feet of this space is sublet. The lease for the Atlanta space expires in December 2004. All of this space has been sublet.

The Company also leases the facilities listed below, except for the Eau Claire, Newport News, Fort Worth and High Point facilities which are not leased by the Company, but are managed, staffed and operated by the Company on behalf of its clients. As of December 30, 2001, the Company operated the following Customer Interaction Centers and workstations:

Customer Interaction Centers

Location		Date Opened or Acquired	Number of Workstations(1)
Dubuque, Iowa		September, 1990	88
Clinton, Iowa		October, 1990	80
Burlington, Iowa		October, 1991	80
Oskaloosa, Iowa		September, 1992	96
Cedar Falls, Iowa		February, 1993	64
Ottumwa, Iowa		November, 1993	144
Decorah, Iowa		January, 1994	80
Fort Madison, Iowa		March, 1994	112
Keokuk, Iowa		May, 1994	80
Mason City, Iowa		December, 1994	96
Cedar Rapids, Iowa-Park Place I		January, 1995	120
Knoxville, Iowa		March, 1995	80
Spencer, Iowa		May, 1995	64
Newport News, Virginia		August, 1995	717
Fort Worth, Texas		October, 1995	638
Cedar Rapids, Iowa-Park Place II		November, 1995	162
High Point, North Carolina		November, 1995	620
Maquoketa, Iowa		February, 1996	80
Kewanee, Illinois		February, 1996	96
Quincy, Illinois		February, 1996	96
Rock Falls, Illinois		March, 1996	96
Jacksonville, Illinois		April, 1996	96
Canton, Illinois		May, 1996	96
Lincoln, Illinois		May, 1996	96
Pekin, Illinois		May, 1996	88
Peoria, Illinois		May, 1996	160
Galesburg, Illinois		June, 1996	96
Waterloo, Iowa		October, 1996	304
Corpus Christi, Texas		October, 1996	793
Alton, Illinois		December, 1996	152
Columbia, South Carolina		December, 1996	577
Marion, Illinois		December, 1996	192
LaCrosse, Wisconsin		May, 1997	350
Aberdeen, South Dakota		May, 1998	88
Grand Island, Nebraska		May, 1998	88
Green Bay, Wisconsin		May, 1998	277
Lawton, Oklahoma		May, 1998	120
Oklahoma City, Oklahoma		May, 1998	386
Omaha, Nebraska		May, 1998	320
Pawnee, Kansas		May, 1998	96
St. Joseph, Missouri		May, 1998	96
Westminster, Oklahoma		May, 1998	120
Davenport, Iowa		September, 1998	668
Utica, New York		December, 1998	405
Deerfield, Illinois		October, 1999	55
Greenbay, Wisconsin		October, 2000	208
Eau Claire, Wisconsin		December, 2000	167
Tucson, Arizona		June, 2001	425

	Total		10,208

(1): The Company closed or combined ten Customer Interaction Centers in fiscal 2001 resulting in the net elimination of 739 workstations. During fiscal 2001 the Company opened a new Customer Interaction Center in Tucson, Arizona to service the needs of a significant new client which added 425 seats. The leases of the Customer Interaction Centers have terms ranging from two to twelve years and typically contain renewal options and early termination buyouts. The Company believes that its existing facilities are suitable and adequate for its current operations.

The Company's profitability is influenced significantly by its Customer Interaction Center capacity utilization. Customer Interaction Centers providing primarily Customer Acquisition services tend to be utilized primarily in the early evening hours on weekdays and to a limited extent on weekends. Customer Care services tend to be utilized primarily during normal business hours on weekdays and to a limited extent on weekends. In an attempt to improve profitability and maximize utilization, the Company manages its Customer Interaction Centers with the intention of achieving higher levels of fixed cost absorption. The Company closely monitors the capacity utilization of its Customer Interaction Centers and considers the costs associated with maintaining excess capacity in relationship to the flexibility needed to quickly respond to incremental client demands. To enable the Company to respond rapidly to changing market demands, implement new programs and expand existing programs, Customer Interaction Center capacity may be expanded or contracted in the future. As part of the Company's efforts to improve capacity utilization, the Company will continue to increase the amount of Customer Acquistion services provided at Customer Interaction Centers previously dedicated to Customer Care services.

Item 3. Legal Proceedings

In March, 2000, the Company agreed to the settlement of a collective action instituted by present and former employees. This settlement remains subject to court approval. The settlement did not have a material impact on the Company's results of operations.

The Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of its business. Management does not believe the outcome of any pending claims will have a materially adverse impact on the Company's consolidated financial position. Although the Company does not believe that any of these proceedings will result in a materially adverse effect on its consolidated financial position, no assurance to that effect can be given.

Item 4. Submission of Matters to a Vote of Security Holders

None

Executive Officers of the Registrant

The executive officers of the Company are as follows:

Name	Age	Position
Theodore G. Schwartz	48	Chairman, Director and Chief Executive Officer
John R. Bowden	47	Senior Vice President, Operations
Carlos E. Galarce	41	Senior Vice President and Chief Information Officer
Steven A. Shlensky	40	Senior Vice President, Human Resources and Corporate Development
L. Clark Sisson	40	Senior Vice President, Relationship Management
Marc T. Tanenberg	50	Senior Vice President and Chief Financial Officer
Linda R. Witte	49	Senior Vice President, General Counsel and Secretary
Daniel S. Hicks	37	Vice President, Relationship Management
J. Eric Smith	44	Vice President, Business Development

Theodore G. Schwartz has served as the Company's Chairman since its formation in May 1973 and resumed the position of CEO effective May, 2001.

John R. Bowden joined the Company as Senior Vice President, in October 1999. From January 1996 to May 1999 Mr. Bowden was Vice President-Consumer Sales and Customer Service for Ameritech, Inc. Prior to January 1996 he held the office of Vice President for LCI, Inc. and MCI Communications, Inc.

Carlos E. Galarce joined the Company as Vice President and Chief Information Officer in November 1999 and was promoted to Senior Vice President in November, 2000. From October 1997 through October 1999 Mr. Galarce was Director- Information Technology for Sears, Roebuck, and Co. Home Services Division. From October 1995 through September 1997 Mr. Galarce was Division Vice President for Automatic Data Processing, Dealer Service Division. Prior to October 1995 Mr. Galarce was Director of Development-Auburn Hills Region, Automatic Data Processing.

Steven A. Shlensky joined the Company in November 1999 as Senior Vice President, Strategic Planning and Corporate Development. In July 2001 he became the Senior Vice President, Human Resources and Corporate Development. From March 1996 through October 1999 Mr. Shlensky served as Managing Director of TCS Group, L.L.C., the private investment office of Theodore G. Schwartz. Prior to March 1996 Mr. Shlensky was a Senior Tax Manager for Arthur Andersen LLP.

L. Clark Sisson, Senior Vice President, joined the Company in October 1998. Prior to joining the Company, Mr. Sisson served as the Vice President-Inbound of ITI Marketing Services, Inc. from November 1993 to September 1998.

Marc T. Tanenberg joined the Company in August 2001 as Senior Vice President and Chief Financial Officer. From November, 1993 to August, 2001 Mr. Tanenberg was employed by International Jensen Incorporated where he held a variety of positions, most recently as Executive Vice President—Operations and Chief Financial Officer.

Linda R. Witte joined the Company as Vice President, General Counsel and Secretary in June 1999 and was promoted to Senior Vice President in March 2000. From July 1997 to May 1999 Ms. Witte was Senior Vice President, General Counsel and Secretary of Beloit Corporation, an 80% owned subsidiary of Harnischfeger Industries, Inc. Prior to that Ms. Witte was Vice President and General Counsel of Wheelabrator Water Technologies, Inc. a division of Waste Management, Inc. Before joining Waste Management, Ms. Witte was a partner in Jenner & Block, a national law firm headquartered in Chicago, IL.

Daniel S. Hicks, Vice President of Relationship Management joined the Company in May 1998. Prior to joining the Company Mr. Hicks was Vice President of Account Management for ITI Marketing Services from January 1995 to May 1998. From 1993 to 1995 Mr. Hicks was the Director of Vendor Management for Time, Inc.

J. Eric Smith joined the Company in November 2000 as Vice President. Prior to joining the Company Mr. Smith was employed by Country Companies Group for over twenty years where he held various executive positions, most recently as Vice President, E-Commerce.

PART II

Item 5. Market for Registrant's Common Equity and Related Share Owner Matters

The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "APAC." The following table sets forth, for the periods indicated, the high and low sale prices of the Common Shares as reported on the Nasdaq National Market during such period.

		High		Low
Fiscal 2001:
	First Quarter	$	6.00	$	3.14
	Second Quarter	$	5.25	$	2.45
	Third Quarter	$	3.27	$	1.55
	Fourth Quarter	$	3.52	$	1.42

		High		Low
Fiscal 2000:
	First Quarter	$	16.50	$	6.38
	Second Quarter	$	11.75	$	5.50
	Third Quarter	$	12.48	$	4.06
	Fourth Quarter	$	5.69	$	2.75

As of March 28, 2002 there were 267 holders of record of the Common Shares. The Company did not pay any dividends on its Common Shares in fiscal years 2001 or 2000. The Company currently intends to retain future earnings to finance its growth and development and therefore does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's Credit Facility restricts the payment of cash dividends by the Company. Payment of any future dividends will depend upon the future earnings and capital requirements of the Company and other factors the Board of Directors considers appropriate.

Item 6. Selected Financial Data

APAC CUSTOMER SERVICES, INC.

SELECTED FINANCIAL DATA

(Unaudited)

		For the Fiscal Years Ended (1)
		December 30, 2001			December 31, 2000		January 2, 2000		January 3, 1999			December 28, 1997
		(In thousands, except per share and selected data)
OPERATING DATA:
Net revenue		$	428,844		$	464,355	$	427,645	$	425,028		$	350,533
Cost of services(8)			356,221			359,669		347,005		353,979			268,177
Selling, general and administrative expenses(3)			65,971			68,610		58,045		65,230			45,810
Asset impairment charges(2)			8,608			—		—		71,172			3,238

	Operating income (loss)		(1,956	)		36,076		22,595		(65,353	)		33,308
Interest expense, net			7,778			9,350		13,365		8,139			1,499
Income taxes (benefit)			(4,770	)		10,056		3,580		(5,200	)		12,100

	Income (loss) from continuing operations		(4,964	)		16,670		5,650		(68,292	)		19,709
Gain (loss) from discontinued operations(4)			—			511		—		(11,028	)		(18,726	)
Cumulative effect of accounting change(5)			—			—		—		—			(2,200	)

Net income (loss)		$	(4,964	)	$	17,181	$	5,650	$	(79,320	)	$	(1,217	)

Net income (loss) per share:
Basic:
	Continuing operations	$	(0.10	)	$	0.35	$	0.12	$	(1.40	)	$	0.36
	Discontinued operations		—			0.01		—		(0.23	)		(0.39	)

	Net Income (loss)	$	(0.10	)	$	0.36	$	0.12	$	(1.63	)	$	(0.03	)

Diluted:
	Continuing operations	$	(0.10	)	$	0.33	$	0.12	$	(1.40	)	$	0.36
	Discontinued operations		—			0.01		—		(0.23	)		(0.39	)

	Net Income (loss)	$	(0.10	)	$	0.34	$	0.12	$	(1.63	)	$	(0.03	)

Weighted average shares outstanding:
	Basic		48,780			48,286		47,341		48,609			47,453
	Diluted		48,780			50,952		47,822		48,609			48,505

			For the Fiscal Years Ended(1)
			December 30, 2001		December 31, 2000		January 2, 2000		January 3, 1999		December 28, 1997
			(In thousands, except per share and selected statistical data)
STATISTICAL DATA:
	Number of Customer Interaction Centers(6):			48		57		59		77		68
	Number of workstation(6):			10,208		10,522		10,866		12,720		10,770
	Net Revenue per workstation(7):		$	41,563	$	43,848	$	37,300	$	37,640	$	33,381
BALANCE SHEET DATA:
		Cash and short-term investments	$	21,213	$	41,192	$	18,876	$	3,543	$	17
		Net assets of discontinued operations(4)						10,028		7,096		15,318
		Working capital		27,793		51,060		51,957		17,748		34,090
		Capital expenditures		8,971		15,236		7,789		17,076		43,742
		Total assets		183,710		231,795		236,480		267,502		185,831
		Long-term debt, less current maturities		42,968		84,483		115,987		132,427		1,863
		Share owners' equity		67,997		73,811		48,622		41,824		124,783

NOTES (000's except for Note 7):

(1): The Company operates on a 52/53week fiscal year that ends on the Sunday closest to December 31. Fiscal 1998, which ended January 3,1999, is the only period presented that consists of 53 weeks. Prior years have been restated to conform to current year presentation.
(2): Asset impairment charges in fiscal 2001 of $8,608 related to the write-off of certain non-performing IT hardware and software costs. The asset impairment charges in fiscal 1998 consist of $69,700 for the write-down of long-lived assets acquired with the purchase of ITI Holdings, Inc. ("ITI") in May 1998, and $1,472 of capitalized software abandoned by the Company during the year. The asset impairment charge in fiscal 1997 consists of a provision for software impairment of $3,238 recorded as a result of plans to replace software platforms used by the Company.
(3): Including restructuring and non-recurring charges in fiscal 2001 of $9,004 related to the closing of seven customer interaction centers and charges associated with the settlement of litigation and additional bad debt provision. Fiscal 2000 includes non-recurring charges of $8,689 related to one time costs in the area of people, technology and the move to the new headquarters in Deerfield, Illinois. Fiscal 1999 includes restructuring charges of $7,600 related to a program to close 24 Customer Interaction Centers and to reduce the supporting salaried workforce and $9,000 in fiscal 1998 related to a similar program to close Customer Interaction Centers, reconfigure certain administrative support facilities and reduce the salaried workforce.
(4): In January 2000, pursuant to an agreement executed in December 1999, the Company sold the stock of Paragren Technologies, Inc. (representing substantially all of the assets of Paragren). Accordingly, Paragren is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. Fiscal 2000 includes a gain of $0.5 million, net of $0.3 million of income tax expense related to the sale of Paragren in January 2000. For fiscal year 1999, Paragren's net loss from discontinued operations of $5,500 was offset by the provision for anticipated losses established in fiscal 1998. In fiscal 1998, the reported loss from discontinued operations includes an estimated loss on disposal of $8,400, net of income tax benefit of $1,100. In fiscal 1997, the reported loss from discontinued operations includes a special charge of $19,800 to write-off in-process research and development acquired in connection with the purchase of Paragren in August 1997.

(5): Cumulative effect of accounting change in 1997 reflects the adoption of EITF Bulletin No. 97-13 which requires that business process reengineering costs be expensed as incurred. Approximately $2,200 of previously capitalized and unamortized reengineering costs at November 20, 1997, have been expensed as the cumulative effect of the accounting change, net of income tax benefit of $1,349.
(6): Represents the number of Customer Interaction Centers and workstations in service as of the end of each fiscal year.
(7): Net revenue per workstation was based on the weighted average number of workstations in service for each of the fiscal years presented. Net revenue per workstation, exclusive of revenue earned from client-owned workstations managed for the Company's clients, was as follows: $43,583, 2001, $45,913, 2000; $39,350, 1999; $41,372, 1998; and $33,230, 1997. The Company's net revenue from the management of client-owned workstations is less than net revenue from the management of Company-owned workstations because the Company does not have the investment in facilities and technology required to provide the teleservices to client-owned facilities.
(8): Cost of Services includes the reversal of nonrecurring telephone charges originally recorded during fiscal 1998. The Company reversed $1.4 million in 2000 and $4.9 million in 1999, respectively, of accrued telephone charges originally recorded in the fourth quarter of 1998. This reversal resulted from the Company negotiating favorable dispositions of costs associated with certain guaranteed minimum usage telecommunications contracts. Excluding both the charge in 1998 and the reversals in 2000 and 1999, cost of services were $361.1 million in 2000 and $351.9 million in 1999 compared to $347.7 million in 1998.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the Company's results of operations and liquidity and capital resources should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements of the Company and related notes thereto appearing elsewhere in this report.

Description of Business

Significant Clients

The nature of the industry is such that the Company is dependent on several large clients for a significant portion of its annual net revenue. The Company's ten largest clients collectively accounted for 65.6% of the Company's net revenue in fiscal 2001. The Company has one client, United Parcel Service

General Services, Inc. ("UPS") which accounted for 15.2% of the Company's consolidated net revenues and AEGON, a large insurance company which accounted for 10.1% of the Company's consolidated net revenues.

The Company's contract with UPS is a facilities management contract. The cost characteristics and capital requirements of the Company's fully outsourced programs differ significantly from the cost characteristics and capital requirements of its facilities management programs. Under this facilities management program, the Customer Interaction Centers where the work is performed are owned by the client, but are staffed and managed by the Company. Accordingly, facilities management programs have higher costs of services as a percentage of net revenue and lower selling, general and administrative expenses as a percentage of net revenue compared to fully outsourced programs.

The Company, whose contract with UPS expires September 30, 2002, is engaged in active negotiations with UPS seeking a new agreement. The Company presently provides services for UPS at three UPS owned facilities. UPS has indicated that it will be closing one of these facilities and that it will not be renewing the Company's services at a second facility. The Company is negotiating to provide a greater volume of services at its largest facility, which it believes should result in greater capacity utilization and therefore higher margins at that facility. However, the Company's sales and gross profits from its services to UPS are expected to decline as a result of these changes. There are no assurances at this time that the Company's negotiations with UPS will lead to a contract or as to the terms of such contract.

In 2001 AEGON acquired the direct marketing business of JCPenney, to which the Company had provided Customer Care and Customer Acquisition services since 1994. Since AEGON acquired this business segment, AEGON has been decreasing its spending on these services, both overall and with respect to the Company relative to other providers. It is not anticipated that AEGON will constitute 10% of the Company's revenues in 2002.

There can be no assurance that the Company will be able to retain any of its largest clients or that the volumes of its most profitable or largest programs will not be reduced, or that the Company would be able to replace such clients or programs with clients or programs that generate a comparable amount of revenue or profits. Consequently, the loss of one or more of its significant clients could have a materially adverse effect on the Company's business, results of operations and financial condition.

Results of Operations

The following table sets forth statement of operations data as a percent of net revenue from services performed by the Company for the fiscal years ended December 30, 2001, December 31, 2000 and January 2, 2000, (fiscal 2001, fiscal 2000 and fiscal 1999, respectively).

			2001		2000		1999
Net revenue:			100.0	%	100.0	%	100.0	%
Operating expenses:
	Cost of services		83.1		77.4		81.1
	Selling, general and administrative expenses		13.3		13.0		11.8
	Restructuring and other nonrecurring charges		2.1		1.8		1.8
	Asset impairment charges		2.0		—		—

		Total operating expenses	100.5		92.2		94.7

Operating income (loss)			(0.5	)	7.8		5.3
Interest expense, net			1.8		2.0		3.2

Income (loss) from continuing operations before income taxes			(2.3	)	5.8		2.1
Provision (benefit) for income taxes			(1.1	)	2.2		0.8

Income (loss) from continuing operations			(1.2	)	3.6		1.3
Gain from discontinued operations, less income tax provision			—		0.1		—

Net income (loss)			(1.2	)%	3.7	%	1.3	%

Fiscal 2001 Compared to Fiscal 2000

Net revenue decreased $35.6 million, or 7.6%, to $428.8 million in fiscal 2001 from $464.4 million in fiscal 2000, primarily as a result of reduced market spending by certain telecommunications and financial services clients, which lowered the demand for customer acquisition services. Revenues for customer care services increased as a result of revenue growth principally from two significant new clients which more than offset the loss of certain clients programs.

Cost of services decreased $3.5 million in fiscal 2001, or 1.0%, to $356.2 million from $359.7 million in fiscal 2000. This decrease was primarily the result of volume related reductions substantially offset by higher wage rates, increased training related to new clients and center consolidation, additional operating costs associated with certain clients and excess workstation capacity in the first half of fiscal 2001. Cost of services in 2000 includes the reversal of $1.4 million of accrued telephone charges recorded in the fourth quarter of 1998. Cost of services for 2001 decreased $4.9 million or 1.4% versus 2000 absent this reversal.

Selling, general and administrative expenses excluding the impact of restructuring and other non-recurring charges and asset impairment charges, decreased $2.9 million, or 4.9%, to $57.0 million in fiscal 2001 from $59.9 million in fiscal 2000. This decrease was primarily due to the strategic cost savings initiatives implemented early in the second half of fiscal 2001. As a percent of net revenue, selling, general and administrative expenses were 13.3% in fiscal 2001 versus 13.0% in fiscal 2000. The percentage increase was due to a reduction in revenues disproportionately higher than the decrease in headcount and administrative expenses related to the general volume shortfall.

The Company recorded $6.6 million in restructuring charges in the second quarter of fiscal 2001. These costs related to the closing of seven Customer Interaction Centers. This charge included $0.6 million for the write down of property and equipment, $4.1 million of severance costs related to 900 employees and $1.9 million of lease termination and other costs.

Non-recurring charges of $2.4 million associated with the settlement of litigation and additional bad debt provisions were recorded in the first half of fiscal 2001. Non-recurring charges in the same period of 2000 were $8.7 million.

The Company generated an operating loss of $2.0 million for fiscal 2001 compared to $36.1 million of operating income for fiscal 2000. Operating income excluding the impact of restructuring and other non-recurring charges and asset impairment charges for fiscal 2001 was $15.7 million versus $44.8 million in fiscal 2000. The decrease was primarily the result of reduced revenue, higher wages and training expenses related to new clients and excess capacity in the first half of fiscal 2001 as previously discussed.

Net interest expense for fiscal 2001 decreased by $1.6 million compared to fiscal 2000. This decrease reflects the $30 million reduction in the term loan during fiscal 2001, and positive results from the Company's working capital management efforts partially offset by lower interest income associated with a reduction in rates and investment balances.

The Company's effective income tax rate benefit is 49.0% for fiscal 2001, compared to a 37.6% effective income tax expense rate for fiscal 2000. The increase in the effective rate is primarily the result of net favorable benefits related to the finalization and filing of 2000 tax returns which increased the tax benefit for 2001.

Fiscal 2000 Compared to Fiscal 1999

Net revenue increased to $464.4 million in fiscal 2000 from $427.6 million in fiscal 1999, an increase of $36.8 million. The increase was due primarily to growth in call volumes with new and existing clients, higher rates, new programs for existing clients, new clients and a more favorable business mix partially offset by the reduction in volumes from under performing and expired contracts.

Cost of Services increased $12.7 million, or 3.7%, to $359.7 million from $347.0 million in fiscal 1999. This smaller increase in comparison to the 8.6% revenue growth was primarily due to operational improvements. Cost of services for fiscal 1999 include the reversal of $4.9 million in 1999 of accrued telephone charges that had been recorded in the fourth quarter of 1998. Cost of services in 2000 included $1.4 million of such credits in the third and fourth quarters. Gross profit margins improved to 22.5% in fiscal 2000 from 18.9% in the previous year on improved business mix, better capacity utilization, increased productivity, a reduction in fixed costs which resulted from the restructuring plans implemented in fiscal 1999 and, improved workforce management efforts.

Selling, general and administrative expenses increased to $68.6 million in fiscal 2000 from $58.0 million in fiscal 1999, an increase of $10.6 million or 18.3%. Fiscal 1999 expenses included $7.6 million of restructuring expenses. Excluding these charges, selling, general and administrative expenses increased $18.2 million in fiscal 2000 or 36%. As a percent of net revenue, selling, general and administrative expenses including restructuring and nonrecurring charges increased to 14.8% in fiscal 2000 from 13.6% in fiscal 1999. This increase was primarily due to costs related to additional investments in the areas of people, adding marketing, sales and senior management personnel and $8.7 million of non-recurring costs related to the development of a new technology platform, e.PAC^SM, the development of new product service offerings and the new headquarters, operational facilities and associated personnel relocation in Deerfield, IL.

During fiscal 1999, the Company recorded restructuring charges of $7.6 million associated with the closure of 24 Customer Interaction Centers and reductions in the salaried workforce. The facility closure charge included $5.4 million for the write-down of property and equipment. $0.9 million for employee severance costs and $1.3 million for lease termination costs.

The Company generated operating income of $36.1 million for fiscal 2000 compared to $22.6 million in fiscal 1999. The increase was due to higher gross profit dollars in 2000 resulting from higher gross profit margins and the successful implementation of the restructuring plans initiated in fiscal 1999 to reduce

excess capacity and improve operating performance partially offset by higher selling, general and administrative expenses as previously discussed.

Net interest expense for fiscal 2000 decreased by $4.0 million compared to fiscal 1999. This decrease reflects the $27 million reduction of the term loan during fiscal 2000, and positive results from the Company's working capital management efforts that have contributed to increased cash balances and interest income from short-term investments.

The Company's effective income tax rate was 37.6% in fiscal 2000, compared to 38.8% for fiscal 1999. The decrease in the effective rate was primarily the result of the utilization by the Company of $12.8 million of net operating loss carry-forwards that had previously been fully reserved, partially offset by the tax impact from the sale of Paragren.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company believes its estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such amounts could differ from those estimates. The Company has identified the following critical accounting policies and estimates utilized by management in the preparation of the Company's financial statements: revenue recognition, accounting for long-lived assets, allowance for doubtful accounts, and employee benefit accounting. Any deviation from these policies or estimates could have a material impact on the financial statements of the Company.

Revenue recognition

The Company recognizes customer services revenue as services are performed for its clients which is generally based upon hours incurred, in accordance with Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition".

Accounting for long-lived assets

The Company has approximately $86.4 million of long-lived assets as of December 30, 2001. These assets are comprised primarily of property and equipment, capitalized software and intangible assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections made by the Company, including estimated useful lives, salvage values and impairment charges. In addition, any decision by the Company to reduce capacity by closing Customer Interaction Centers or to abandon software would result in a writeoff of the net book value of these affected assets. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), the Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair market value of the assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company's operations and estimated salvage values. During 2001, the Company recorded an asset impairment charge of $8.6 million related to the write-off of certain non-performing IT hardware and software costs under SFAS 121. The Company has adopted the Statement of Financial Accounting Standards Number 142, Goodwill and Other Intangible Assets in January 2002. See discussion on page 18 regarding the effect of this adoption.

Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on a quarterly assessment of the probable estimated losses in trade accounts receivable. This estimate is based on specific allowances for identified problem receivables and a general valuation for all other receivables based on their age and collection history.

Accounting for employee benefits

The Company records an accrued liability for group health and workers compensation based on an estimate of claims incurred but not reported as well as asserted claims at the end of the year. This estimate is derived from analysis performed by actuaries hired by the Company who have expertise in this area. However, although these estimates are generally reliable, changes in the employee mix and unforeseen events could result in an adjustment to the financial statements of the Company.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard Number 133, Accounting for Derivative and Hedging Activities

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended (SFAS 133). SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives' change in fair value will be immediately recognized in earnings. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in accounting. However, the Company recorded a transition and current year adjustment aggregating $1.4 million (net of tax of $0.7 million) in Accumulated Other Comprehensive Income for fiscal 2001 related to the unrealized loss on interest rate swaps.

Statements of Financial Accounting Standards Number 141, Business Combination and 142, Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible assets" ("SFAS 142"). SFAS 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests. The Company has adopted these standards for fiscal 2002. The elimination of goodwill amortization in fiscal 2002 as required by SFAS 142 will increase earnings per diluted share by approximately two cents.

Liquidity and Capital Resources

The following table sets forth consolidated statements of cash flow data for the Company for years ended December 30, 2001 December 31, 2000, and January 2, 2000, respectively.

	2001			2000			1999
Net cash provided by operating activities	$	19.0		$	41.4		$	47.3
Net cash provided (used) by investing activities		(6.2	)		1.7			(7.8	)
Net cash used by financing activities		(32.8	)		(20.8	)		(24.2	)

Net increase (decrease) in cash	$	(20.0	)	$	22.3		$	15.3

Cash provided by operating activities during fiscal 2001 decreased $22.4 million from fiscal 2000 primarily as a result of weaker operating results relating to a decline in revenue and lower margins. Net cash used by investing activities in fiscal 2001 was $6.2 million versus $1.7 million provided in fiscal 2000. This change is primarily due to the fact that capital expenditures of $15.2 million in fiscal 2000 were more than offset by $17.0 million of proceeds from the sale of Paragren. The Company also received $2.8 million from the sale of Paragren in fiscal 2001, which were offset by capital expenditures of $9.0 million.

Capital expenditures in fiscal 2001 related primarily to the build-out and furnishing of a customer interaction center in Tucson, Arizona for a new client and for information technology. Expenditures for fiscal 2000 related primarily to information technology. These capital expenditures were funded with cash provided by operations. In March, 2000 the company sold an aggregate of 695,652 common shares held in treasury to a member of the Board of Directors, for $5.0 million in cash, or $7.185 per share.

At December 31, 2000, the Company had a term loan of $103.0 million and a $50.0 million Revolving Credit Facility ("Revolving Facility") available for general working capital purposes and capital expenditures. In May, 2001 the Company completed an amendment to the amended and restated Credit Facility which revised several covenants. In conjunction with the amendment, the Company paid an additional $10 million of the balance outstanding on the Term Loan and the Total Facility was reduced to $119.0 million consisting of an $89.0 million Term Loan and a $30 million Revolving Facility. As of December 30, 2001 and the date of this filing there were no borrowings outstanding under the Revolving Facility but approximately $5.5 million was utilized through the issuance of standby letters of credit primarily to support self insurance reserves. The Company made $30 million of repayments on its Term Loan during fiscal 2001 including the additional $10 million payment made June 1, 2001, resulting in a balance outstanding at December 30, 2001 of $73.0 million.

Subsequent to December 30, 2001 the Company completed another amendment to the amended and restated Credit Facility which further revised several covenants and required an additional $5 million repayment of principal on the Term Loan. This additional payment has been included in current maturities of long term debt in the balance sheet of December 30, 2001 and was paid on February 1, 2002. A total of $31 million in principal payments are expected to be made in fiscal 2002.

The Company's amended and restated Credit Facility expires in June, 2003. It is the Company's intent to refinance the debt related to this agreement and negotiate a new revolving credit facility prior to the expiration date. At the time of refinancing, the Company will have to writeoff the remaining unamortized balance of finance costs and unwind the Swap Agreement associated with the term loan which, depending on the timing, could have a material impact. Terms of the refinancing could result in higher interest rates and tighter debt covenant restrictions due to market conditions and/or fluctuations in the Company's financial condition.

In addition to debt the Company has other contractual obligations. The following table set forth these obligations by maturity and type of obligation.

		Payment due by period
		2002		2003/ 2004		2005/ 2006		After 2006		Total
CONTRACTED OBLIGATIONS
	Term Loan	$	31,000	$	42,000	$	—	$	—	$	73,000
	Capital lease obligations		145		12		—		—		157
	Operating leases		11,574		17,463		12,320		8,821		50,178
	Other debt		355		436		319		201		1,311

		$	43,074	$	59,911	$	12,639	$	9,022	$	124,646

The Company expects that its cash balances, cash flow from future operations and available borrowings under the Revolving Facility will be sufficient to meet normal operating needs, fund any planned capital expenditures and repay debt obligations during fiscal year 2002. However a significant change in operating cash flow could have a material impact on the company's ability to meet its cash requirement needs and comply with the covenants of its credit facility.

Quarterly Results

The Company's operating results in any single period should not be viewed as indicative of future operating results as the services offered by the Company are subject to variations in profitability. The Company could experience variations in net revenue and income as a result of many factors, including the timing of clients' marketing campaigns and customer service programs, the timing of additional selling, general and administrative expenses to acquire and support such new business and changes in the Company's revenue mix among its various service offerings. In connection with certain contracts, the Company could incur costs in periods prior to recognizing revenue under those contracts. In addition, the Company must plan its operating expenditures based on revenue forecasts, and a revenue shortfall below such forecast in any quarter would likely adversely affect the Company's operating results for that quarter. While the effects of seasonality on the Company's business have historically been obscured by its growing net revenue, the Company's business tends to be slower in the first and third quarters of its fiscal year due to client marketing programs which are typically slower in the post-holiday and summer months.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This Report on Form 10-K may contain forward-looking statements that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, which could cause future results to differ materially from historical results or those anticipated. The words "believe," "expect," "anticipate," "intend," "estimate," "goals," "would," "could," "should," and other expressions which indicate future events and trends identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward- looking statements, which speak only as of their dates. If no date is provided, such statements speak only as of the date of this Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements in connection with new information or future events or otherwise. Factors that could cause future results to differ materially from historical results or those anticipated include, but are not limited to, reliance by the Company on a small number of principal clients for a substantial proportion of its total revenue; possible changes in or events affecting the business of the Company's clients, including changes in customers' interest in, and use of, clients' products and services; fluctuations in quarterly results of operations due to timing of clients' initiation and termination of large programs; changes in competitive conditions affecting the Company's industry; the ability of the

Company's clients to terminate contracts with the Company on a relatively short notice; changes in the availability and cost of qualified employees; variations in the performance of the Company's automated system and other technological factors; changes in government regulations affecting the teleservices and telecommunications industries; and competition from other outside providers of customer interaction solutions and in-house customer interaction operations.

In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the Company contained in this Report on Form 10-K are also subject to the following risks and uncertainties:

Reliance on Major Clients

Because a substantial portion of the Company's revenue is generated from relatively few clients, the loss of a significant client or clients could have a materially adverse effect on the Company. The Company had clients which individually accounted for more than 10% of the Company's net revenue for fiscal years 2001, 2000, and 1999. The Company's ten largest clients collectively accounted for 65.6% of the Company's net revenue in fiscal 2001. The Company's largest client in fiscal 2001 was UPS, which accounted for 15.2% of the Company's net revenue in fiscal 2001. The Company's second largest client in fiscal 2001 was AEGON, which accounted for 10.1% of the Company's net revenue during that period. No other clients exceeded 10% of the Company's net revenue in fiscal 2001. In fiscal 2000, two clients accounted for 15.3% and 9.1% of the Company's net revenue and in fiscal 1999, two clients accounted for 14.5% and 10.1% of the Company's net revenue, respectively. Many of the Company's clients are concentrated in the business and consumer products, parcel delivery, financial services, insurance, retail, health care and pharmaceuticals, and telecommunications industries. A significant downturn in any of these industries or a trend in any of these industries not to use, or to reduce their use of, telephone-based sales, marketing or customer management solutions could have a materially adverse effect on the Company's business. The Company generally operates under contracts, which may be terminated on short notice, most of which do not have minimum volume requirements. Additionally, the Company's contracts do not typically ensure that it will generate a minimum level of revenues or generate a minimum level of volume, and the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of such program.

In 2001 AEGON acquired the direct marketing business of JCPenney, to which the Company had provided customer care and customer acquisition services since 1994. Since AEGON acquired this business segment, AEGON has been decreasing its spending on these services, both overall and with respect to the Company relative to other providers. It is not anticipated that AEGON will constitute 10% of the Company's revenues in 2002.

There can be no assurance that the Company will be able to retain any of its largest clients, that such clients will not terminate their contracts before their scheduled expiration date or that the volumes of its most profitable or largest programs will not be reduced, or that the Company would be able to replace such clients or programs with clients or programs that generate a comparable amount of revenue or profits. Consequently, the loss of one or more of its significant clients could have a materially adverse effect on the Company's business, results of operations and financial condition.

Factors Affecting Ability to Manage and Sustain Growth

Future growth will depend on a number of factors, including the effective and timely initiation and development of client relationships, opening of new Customer Interaction Centers, and recruitment, motivation and retention of qualified personnel. Sustaining growth will also require the implementation of enhanced operational and financial systems and will require additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to maintain or accelerate its growth.

Competitive and Fragmented Industry; International Capacity; Potential Future Competing Technologies and Trends

The industry in which the Company competes is extremely competitive and highly fragmented. The Company's competitors range in size from very small firms offering special applications or short-term projects to large independent firms and the in-house operations of many clients and potential clients. A number of competitors have capabilities and resources equal to, or greater than, the Company's. A number of the Company's competitors have announced the opening of customer interaction centers in Canada, the Caribbean, India, the Philippines or other offshore locations in order to provide services to North American clients at reduced cost. It is uncertain whether these offshore capabilities will be as effective on a large scale basis as the same competitors' United States facilities. Nonetheless, the potential movement of business offshore at reduced prices may result in pressure on the Company's gross profit margin or a loss of business to such competitors. Some of the Company's services also compete with direct mail, television, radio and other advertising media, including the Internet. There can be no assurance that, as the Company's industry continues to evolve, additional competitors with greater resources than the Company will not enter the industry (or particular segments of the industry) or that the Company's clients will not choose to conduct more of their telephone-based sales, marketing or customer service activities internally.

Because the Company's primary competitors are the in-house operations of existing or potential clients, the Company's performance and growth could be adversely affected if its existing or potential clients decide to provide in-house customer care services that are currently outsourced or to retain or increase their in-house customer service and product support capabilities.

The development of new forms of direct sales and marketing techniques, such as interactive home shopping through television, computer networks and other media, could have an adverse effect on the demand for the Company's Customer Acquisition services. In addition, the increased use of new telephone-based technologies, such as interactive voice response systems and increased use of the Internet, could reduce the demand for certain of the Company's Customer Care offerings. Moreover, the effectiveness of marketing by telephone could also decrease as a result of consumer saturation and increased consumer resistance to this direct marketing tool as well as technologies and service devices to screen calls from marketers. Although the Company attempts to monitor industry trends and respond accordingly, there can be no assurance that the Company will be able to anticipate and successfully respond to all such trends in a timely manner.

Reliance on Technology

The Company has invested significantly in sophisticated and specialized telecommunications and computer technology, and has focused on the application of this technology to provide customized solutions to meet its clients needs. The Company anticipates that it will be necessary to continue to select, invest in and develop new and enhanced technology on a timely basis in the future in order to maintain its competitiveness. The Company's future success will depend in part on its ability to continue to develop information technology solutions which keep pace with evolving industry standards and changing client demands. In addition, the Company's business is highly dependent on its computer and telephone equipment and software systems, and the temporary or permanent loss of such equipment or systems,

through casualty or operating malfunction, could have a materially adverse effect on the Company's business.

Dependence on Key Personnel

The success of the Company depends in large part upon the abilities and continued service of its executive officers and other key employees. There can be no assurance that the Company will be able to retain the services of such officers and employees. The loss of key personnel could have a materially adverse effect on the Company. The Company has non-competition agreements with each of its existing key personnel. However, courts are at times reluctant to enforce such agreements. In order to support growth, the Company will be required to effectively recruit, develop and retain additional qualified management personnel.

Dependence on Labor Force

The Company's industry is very labor intensive and has experienced high personnel turnover. Many of the Company's employees receive modest hourly wages and many are employed on a part-time basis. A higher turnover rate among the Company's employees would increase the Company's recruiting and training costs and decrease operating efficiencies and productivity. Some of the Company's operations, particularly insurance product sales and technology-based inbound customer service, require specially trained employees. Growth in the Company's business will require it to recruit and train qualified personnel at an accelerated rate from time to time. There can be no assurance that the Company will be able to continue to hire, train and retain a sufficient labor force of qualified employees. A significant portion of the Company's costs consists of wages to hourly workers. An increase in hourly wages, costs of employee benefits or employment taxes could have a materially adverse effect on the Company.

Dependence on Telephone Service

The Company's business is materially dependent on service provided by various local and long distance telephone companies. A significant increase in the cost of telephone services that is not recoverable through an increase in the price of the Company's services, or any significant interruption in telephone services, could have a materially adverse impact on the Company.

Government Regulation

Both the FCC and FTC have enacted rules that govern the methods and processes of making and completing telephone solicitations and sales. Furthermore, states are increasingly passing legislation aimed at controlling telemarketing activities affecting persons residing therein. The Company believes that its operating procedures comply in all material respects with the current telephone solicitation and sales rules of the FCC, FTC and applicable state agencies. There can be no assurance, however, that the Company would not be subject to agency or state proceedings alleging violation of such rules.

In 2002 the FTC initiated administrative rulemaking proceedings to modify the current Telemarketing Sales Rule. The proposed modifications include the creation of a national "Do Not Call" registry and restrictions on the transfer of consumer billing information. Along similar lines, state governments continue to propose legislation that regulates the telemarketing industry, including laws creating statewide "Do Not Call" registries, law restricting the methods and timing of telemarketing calls, and laws effectively prohibiting the use of automated telephone-dialing devices. Many of the proposed laws and regulations are in the early stages of consideration and so the Company cannot determine the impact these proposed laws and regulations may have on the Company's business. Future laws and regulations may require the Company to modify its operations or service offerings in order to effectively meet its clients' service requirements. There can be no assurance that additional Federal or state legislation or regulations, or

changes in regulatory implementation, would not limit the activities of the Company or significantly increase the cost of regulatory compliance.

Several of the industries in which the Company's clients operate are subject to varying degrees of government regulation, particularly in the telecommunications, insurance and financial services industries. The Company could be subject to a variety of enforcement or private actions for its failure or the failure of its clients to comply with such regulations. There is increasing Federal and state interest in privacy protection, some aspects of which could impose additional regulatory pressure on the business of the Company's clients and, less directly, on the Company's business.

Sales of certain client products and services may also be subject to Federal and state regulation, thus requiring the Company to comply with the regulations. For example, the Company's telephone representatives who sell insurance products are required to be licensed by various state insurance commissions. Changes in the licensing regulations or their implementation could materially increase the Company's operating costs.

Potential Fluctuations in Quarterly Operating Results

The Company could experience quarterly variations in revenue and operating income as a result of many factors, including the timing of clients' marketing campaigns and customer service programs, the timing of additional selling, general and administrative expenses to acquire and support such new business and changes in the Company's revenue mix among its various service offerings. In connection with certain contracts, the Company could incur costs in periods prior to recognizing revenue under those contracts. In addition, the Company must plan its operating expenditures based on revenue forecasts, and a revenue shortfall below such forecast in any quarter would likely adversely affect the Company's operating results for that quarter. The effects of seasonality on the Company's business have historically been obscured by its growing net revenue. However, the Company's business tends to be slower in the first and third quarters due to client marketing programs which are typically slower in the post-holiday and summer months.

Volatility of Stock Price

The market price of the Company's Common Shares has fluctuated over a wide range during the past several years and may continue to do so in the future. See "Market for Registrant's Common Equity and Related Share Owner Matters." The market price of the Common Shares could be subject to significant fluctuations in response to various factors or events, including among other things, the depth and liquidity of the trading market of the Common Shares, quarterly variations in actual liquidity of the trading market of the Common Shares, quarterly variations in actual and anticipated operating results, growth rates, changes in estimates by analysts, loss of analyst coverage, market conditions in the industry in which the Company competes, announcements by competitors, the loss of a significant client or a significant change in the Company's relationship with a significant client, regulatory actions, litigation, including class action litigation, and general economic conditions.

Control by Principal Share Owner

Mr. Schwartz, the Company's Chairman, beneficially owns approximately 39.8% of the outstanding Common Shares. In addition, two trusts, established by Mr. Schwartz, each beneficially owns approximately 5.3% of the outstanding Common Shares. As a result, Mr. Schwartz is able to exercise significant control over the outcome of substantially all matters requiring action by the Company's share owners. Such voting concentration may have the effect of discouraging, delaying or preventing a change in control of the Company.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to the impact of U.S. interest rate changes directly related to its normal operating and funding activities. The Company enters into derivatives in order to minimize these risks, but not for trading purposes and has entered into interest rate agreements which effectively fix or limit the rates on all of its term loan obligations. As a result, the interest rate on approximately 70% of debt obligations as of December 30, 2001 is fixed and rates on the balance of the obligations are capped.

The Company prepared a sensitivity analysis of its derivatives assuming a one percentage point adverse change in interest rates. Holding all other variables constant, the hypothetical adverse change would not significantly increase interest expense due to the fact that most all debt is at fixed rate. The effect of the interest change on the fair market value of the outstanding debt is insignificant and the sensitivity analysis assumes no changes in the Company's financial structure.

Item 8. Financial Statements and Supplementary Data

The following financial information is included in this Report:

		Page
Report of Independent Public Accountants		27
	Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000	28
	Consolidated Balance Sheets as of December 30, 2001 and December 31, 2000	29
	Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000	30
	Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000	31
	Notes to Consolidated Financial Statements	32-50

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
APAC Customer Services, Inc.:

We have audited the accompanying consolidated balance sheets of APAC CUSTOMER SERVICES, INC. and subsidiaries as of December 30, 2001 and December 31, 2000, and the related consolidated statements of operations, share owners' equity and cash flows for the years ended December 30, 2001, December 31, 2000 and January 2, 2000. 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 auditing standards generally accepted in the United States. 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, the financial statements referred to above present fairly, in all material respects, the financial position of APAC Customer Services, Inc. and Subsidiaries as of December 30, 2001 and December 31, 2000, and the results of its operations and its cash flows for the years ended December 30, 2001, December 31, 2000 and January 2, 2000, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 30, 2002

APAC CUSTOMER SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands)

				For the Fiscal Years Ended
				December 30, 2001			December 31, 2000		January 2, 2000
Net Revenue				$	428,844		$	464,355	$	427,645
Operating Expenses:
	Cost of services				356,221			359,669		347,005
	Selling, general and administrative expenses				56,967			59,921		50,445
	Restructuring and other non recurring charges				9,004			8,689		7,600
	Asset impairment charges				8,608			—		—

			Total operating expenses		430,800			428,279		405,050

	Operating income (loss)				(1,956	)		36,076		22,595
Interest Expense					7,778			9,350		13,365

	Income (loss) from continuing operations before income taxes				(9,734	)		26,726		9,230
Provision (Benefit) for Income Taxes					(4,770	)		10,056		3,580

	Income (loss) from continuing operations				(4,964	)		16,670		5,650
Discontinued Operations:
	Gain on disposal of Paragren Technologies, Inc., net of income tax provision of $321.				—			511		—

			Total discontinued operations		—			511		—

Net Income (Loss)				$	(4,964	)	$	17,181	$	5,650

Net Income (Loss) Per Share:
	Basic:
		Income (loss) from continuing operations		$	(0.10	)	$	0.35	$	0.12
		Gain from discontinued operations			—			0.01		—

			Net income (loss)	$	(0.10	)	$	0.36	$	0.12

	Diluted:
		Income loss from continuing operations		$	(0.10	)	$	0.33	$	0.12
		Gain from discontinued operations			—			0.01		—

			Net income (loss)	$	(0.10	)	$	0.34	$	0.12

Weighted Average Shares Outstanding:
	Basic				48,780			48,286		47,341
	Diluted				48,780			50,952		47,822

See Notes to Consolidated Financial Statements.

APAC CUSTOMER SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

			December 30, 2001			December 31, 2000
ASSETS
Current assets
	Cash and cash equivalents		$	21,213		$	41,192
	Accounts receivable, less allowances of $3,956 and $3,089, respectively			64,496			65,346
	Other current assets			11,627			13,333

		Total current assets		97,336			119,871
Property and equipment, net				36,404			54,480
Goodwill and other intangible assets, net				43,605			47,757
Deferred taxes				4,336			2,789
Other assets				2,029			6,898

			$	183,710		$	231,795

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Current maturities of long-term debt		$	31,500		$	20,508
	Accounts payable			4,625			8,210
	Accrued liabilities			33,418			40,093

		Total current liabilities		69,543			68,811

Long-term debt, less current maturities				42,968			84,483
Other liabilities				3,202			4,690
Commitments and contingencies
Shareholders' equity
	Common shares, $0.01 par value; 200,000,000 shares authorized issued: 49,541,866 shares in 2001 and 49,520,906 shares in 2000			495			495
	Additional paid-in capital			100,229			100,344
	Accumulated deficit			(28,946	)		(23,982	)
	Accumulated other comprehensive income			(1,393	)		—
	Treasury shares; 679,901 and 866,704 shares, respectively, at cost			(2,388	)		(3,046	)

		Total shareholders' equity		67,997			73,811

			$	183,710		$	231,795

See Notes to Consolidated Financial Statements.

APAC CUSTOMER SERVICES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in Thousands)

	Common Shares Issued	Amount		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Treasury Shares			Share Holders' Equity
Balance, January 3, 1999	48,893,873	$	489	$	93,799		$	(46,813	)	$	—		$	(5,651	)	$	41,824
Net income	—		—		—			5,650						—			5,650
Exercise of employee stock options, including related income tax benefits	93,418		1		546			—						—			547
Issuance of Common Shares through employee stock purchase plan	92,326		1		266			—						—			267
Stock option and warrant transactions	—		—		334			—						—			334

Balance, January 2, 2000	49,079,617		491		94,945			(41,163	)		—			(5,651	)		48,622
Net income	—		—		—			17,181						—			17,181
Exercise of employee stock options, including related income tax benefits	370,974		3		2,485			—						—			2,488
Issuance of Common Shares through employee stock purchase plan	70,315		1		362			—						—			363
Sale of 742,296 treasury shares	—		—		2,395			—						2,605			5,000
Stock option and warrant transactions	—		—		157			—						—			157

Balance, December 31, 2000	49,520,906		495		100,344			(23,982	)		—			(3,046	)		73,811
Net loss	—		—		—			(4,964	)		—			—			(4,964	)
Exercise of employee stock options, including related income tax benefits	20,960		—		63			—			—			94			157
Issuance of Treasury Shares through employee stock purchase plan	—		—		(228	)		—			—			564			336
Stock option and warrant transactions	—		—		50			—			—						50
Other Comprehensive income:
Unrealized loss on derivatives	—		—		—			—			(1,393	)		—			(1,393	)

Balance, December 30, 2001	49,541,866	$	495	$	100,229		$	(28,946	)	$	(1,393	)	$	(2,388	)	$	67,997

See Notes to Consolidated Financial Statements.

APAC CUSTOMER SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

				For the Fiscal Years Ended
				December 30, 2001			December 31, 2000			January 2, 2000
Operating Activities:
	Net income (loss)			$	(4,964	)	$	17,181		$	5,650
	Depreciation and amortization				25,096			31,177			34,420
	Deferred income taxes				(1,647	)		(4,761	)		5,932
	Non— cash restructuring charges				2,639			—			—
	Tax effect of stock option exercises				641			—			—
	Asset impairment charges				8,608			—			—
	Changes in operating assets and liabilities, net of effects of acquisition and restructuring charges:
		Receivables			250			6,685			3,346
		Recoverable income taxes			(1,630	)		—			—
		Other current assets			680			(2,393	)		1,289
		Accounts payable			(3,585	)		622			1,883
		Accrued expenses			(8,444	)		12			(2,121	)
		Discontinued operations			—			(8,330	)		(2,932	)
		Increase in other assets			1,791			1,208			(105	)

			Net cash provided by operating activities		19,435			41,401			47,362
Investing Activities:
	Proceeds from sale of Paragren Technologies, Inc				2,756			17,000
	Purchase of property and equipment, net of disposals				(8,971	)		(15,236	)		(7,789	)

			Net cash provided (used) by investing activities		(6,215	)		1,764			(7,789	)
Financing Activities:
	Payments on long-term debt				(30,523	)		(27,804	)		(15,754	)
	Decrease in customer deposits and other liabilities				(3,222	)		(1,052	)		(9,634	)
	Stock option and warrant transactions including related income tax benefits				546			3,007			1,148
	Sale of treasury shares				—			5,000			—

			Net cash used by financing activities		(33,199	)		(20,849	)		(24,240	)

Net Increase (Decrease) In Cash And Cash Equivalents					(19,979	)		22,316			15,333
Cash And Cash Equivalents:
	Beginning of year				41,192			18,876			3,543

	End of year			$	21,213		$	41,192		$	18,876

Supplemental Disclosures:
	Cash flow information:
		Cash payments for interest (net of amounts capitalized)		$	8,615		$	11,104		$	12,797
		Cash payments for income taxes		$	1,980		$	7,325		$	106

See Notes to Consolidated Financial Statements.

APAC CUSTOMER SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except as otherwise indicated)

1. Summary of Significant Accounting Policies and Estimates

Description of Business

Significant Clients

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Results of operations of business combinations accounted for as a purchase have been included in the consolidated financial statements for all periods subsequent to the dates of acquisition.

Certain reclassifications of prior years' amounts have been made to conform with the current year presentation.

Critical Accounting Policies and Estimates

employee benefit accounting. Any deviation from these policies or estimates could have a material impact on the financial statements of the Company.

Accounting for long-lived assets

The Company has approximately $86.4 million of long-lived assets as of December 30, 2001. These assets are comprised primarily of property and equipment, capitalized software and intangible assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections made by the Company, including estimated useful lives, salvage values and impairment charges. In addition, any decision by the Company to reduce capacity by closing Customer Interaction Centers or to abandon software would result in a writeoff of the net book value of these affected assets. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), the Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those APAC assets. In this circumstance, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair market value of the assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company's operations and estimated salvage values. During 2001, the Company recorded an asset impairment charge of $8.6 million related to the write-off of certain non-performing IT hardware and software costs under SFAS 121. The Company has adopted the "Statement of Financial Accounting Standards Number 142, Goodwill and Other Intangible Assets" in January 2002. See discussion on page 36 regarding the effect of this adoption.

Allowance for doubtful accounts

Accounting for employee benefits

Revenue recognition

Fiscal Year

The Company operates on a 52/53 week fiscal year that ends on the Sunday closest to December 31. Fiscal years for the consolidated financial statements included herein, ended on December 30, 2001, December 31, 2000, and January 2, 2000, are all in 52 weeks.

Cash Equivalents

Cash equivalents consist of highly liquid, short-term investments readily converted to cash.

Trade Receivables

Concentration of credit risk is limited to trade receivables and is subject to the financial conditions of its clients. The Company generally does not require collateral or other security to support clients' receivables. The Company conducts periodic reviews of its clients' financial conditions and vendor payment practices to minimize collection risks on trade receivables.

Long-Lived Assets

Property and Equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis, using estimated useful lives of up to 15 years for building and leasehold improvements, 3 to 7 years for telecommunications equipment, and 3 to 7 years for workstations and office equipment. Total depreciation expense for property and equipment for fiscal years 2001, 2000 and 1999 was $17,801, $23,231 and $25,770 respectively.

Capitalized Software. The Company capitalizes certain costs related to the purchase and installation of computer software for internal use. Amortization is provided on a straight-line basis over estimated useful lives ranging up to 5 years. Amortization of capitalized software costs for fiscal years 2001, 2000 and 1999 was $3,143, $3,408 and $3,721 respectively.

Intangible Assets. Goodwill and other intangible assets have been amortized on a straight-line basis over the expected period of benefit ranging from 4 to 21 years. Total amortization of goodwill and other intangible assets for fiscal years 2001, 2000 and 1999 was $4,152, $4,185 and $4,494, respectively. Subsequent to fiscal 2001 the Company will no longer amortize goodwill as discussed in footnote 2.

Accounting for Stock-Based Compensation

For stock-based employee compensation plans, the Company has elected to use the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense is recognized for stock options issued to employees when the option price equals or exceeds the fair market value of the Company's Common Shares at the date of grant. In accordance with Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," the Company provides pro forma disclosures of net income and net income per share as if the fair value based method had been used. Stock-based compensation expense for non-employees is recognized in accordance with SFAS No. 123.

Interest Rate Agreements

The Company uses interest rate swaps and caps to effectively hedge interest rate exposures. Amounts due to or from interest rate swap counterparties are recorded in interest expense in the period in which they accrue. The premiums paid to purchase interest rate caps, as well as any gains and losses on terminated interest rate swap and cap agreements, are amortized to interest expense over the life of the debt to which they are matched. (See Note 2 regarding the adoption of SFAS 133).

Comprehensive Income

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," which established standards for reporting of comprehensive income, was adopted by the Company in January 1998. As of January 2, 2000 and January 3, 1999, the Company had no transactions separately identified as components of "other comprehensive income" under SFAS No. 130. Comprehensive income for fiscal 2001, 2000 and 1999 is as follows:

		2001			2000		1999
Net income (loss)		$	(4,964	)	$	17,181	$	5,650
Other comprehensive income(1)			(1,393	)		—		—

	Total	$	(6,357	)	$	17,181	$	5,650

(1): Other comprehensive income for fiscal 2001 related to the Company's adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Investments and Hedging Activities" as discussed in Note 2.

2. New Accounting Pronouncements

Statement of Financial Accounting Standard Number 133, Accounting for Derivative and Hedging Activities:

Statements of Financial Accounting Standards Number 141, Business Combination and 142, Goodwill and Other Intangible Assets:

3. Supplemental Balance Sheet Data

Consolidated Balance Sheet		December 30, 2001			December 31, 2000
Deferred tax assets		$	4,960		$	4,860
Refundable Federal income taxes			1,630			—
Prepaid expenses			4,954			4,901
Non-trade receivables			83			3,572

	Other current assets	$	11,627		$	13,333

Building and leasehold improvements		$	31,630		$	32,554
Telecommunications equipment			62,269			74,928
Workstations and office equipment			17,484			16,228
Capitalized software			15,539			15,778
Construction in progress			2,154			3,232
Accumulated depreciation and amortization			(92,672	)		(88,240	)

	Property and equipment, net	$	36,404		$	54,480

Goodwill		$	28,317		$	28,317
Assembled workforce			3,600			3,600
Customer relationships			28,493			28,493
Accumulated amortization			(16,805	)		(12,653	)

	Goodwill and other intangibles, net	$	43,605		$	47,757

Payroll and related items		$	23,023		$	23,128
Restructuring charges			1,500			94
Accrued relocation and severance			847			4,321
Accrued professional fees			1,342			1,146
Income taxes payable			—			3,174
Telecommunications expenses			604			1,145
Other accrued liabilities			6,102			7,085

	Accrued liabilities	$	33,418		$	40,093

4. Acquisition of ITI Holdings, Inc.

Acquisition

On May 20, 1998, the Company acquired through merger all of the common stock of ITI Holdings, Inc., the sole shareholder of ITI Marketing Services, Inc. ("ITI"), a leading teleservices provider based in Omaha, Nebraska. In exchange for all of the common stock of ITI, the Company paid $149.2 million, net of cash acquired. The initial purchase price was funded with proceeds from a $150 million Term Loan. ITI's business consisted of telephone-based sales, marketing and customer management services to corporate clients with high volumes of outgoing or incoming calls through a network of customer interaction centers. The acquisition was accounted for as a purchase and, accordingly, the assets and liabilities and results of operations of ITI have been included in the Company's consolidated financial statements since the date of acquisition.

The excess of purchase price over the fair value of tangible assets acquired, liabilities assumed and additional liabilities recorded of $136.7 million was initially allocated to intangible assets based upon their estimated fair values as determined by independent appraisal. Purchased intangibles consisted of assembled workforce of $3.6 million, customer relationships of $36.8 million and goodwill of $96.3 million. The intangible assets are being amortized over their estimated useful lives ranging from 7 to 21 years. In addition, ITI had accumulated net operating loss carryforwards of $12.8 million as of the date of acquisition, which were fully reserved through a valuation allowance. In fiscal 2000 all net operating loss carryforwards were utilized (see note 7 Income Taxes.)

In connection with the acquisition, the Company provided a total of $21.2 million in estimated costs to close facilities, terminate unfavorable contracts, write-off uncollectible trade receivables and reduce the workforce by 135 employees. The amounts provided included $6.5 million for facilities, $9.7 million for contracts, $2.4 million for trade receivables and $2.6 million for employee severance. Of this reserve, $13.4 million has been utilized or paid through December 31, 2000 and $6.7 million has been taken as a reduction of goodwill. The remaining balance of acquisition related reserves was $1.1 million and $1.6 million as of December 30, 2001, and December 31, 2000, respectively. To the extent that unused facilities covered by long-term leases were subleased and unfavorable contracts were renegotiated, a reduction in the acquisition-related reserves and goodwill recorded as of the end of fiscal year 1998 was required during fiscal year 1999, as discussed below. The remaining reserve is being utilized for the reduction of lease obligations over the term of such leases.

Valuation Adjustments

During fiscal year 1999, the Company recorded a $7.8 million reduction in goodwill related to the 1998 acquisition of ITI. The decrease in goodwill did not affect the reported results of operations. The Company reduced liabilities relating to the ITI purchase by $6.1 million due to a reduction in the estimated costs to close facilities and renegotiate contracts, and the Company revalued and increased certain deferred income tax assets by $1.7 million. In fiscal year 2000 the final accounting related to the acquisition was completed and excess reserves of $0.6 million were taken as a reduction to goodwill.

Nonrecurring Charges

During fiscal year 1998, the Company recorded two nonrecurring charges in cost of services in connection with the ITI purchase. The Company provided allowances for doubtful accounts of $2.5 million

to fully reserve trade accounts receivable balances due from two ITI clients who had filed for protection under Federal bankruptcy law. The Company also accrued a total of $7.1 million in future telecommunications costs guaranteed under two minimum usage contracts scheduled to expire in the year 2000. As a result of the downturn in ITI's business, the Company had not expected to achieve the minimum volumes under these contracts and, accordingly, did not expect to recover the guaranteed costs from future results of operations.

During fiscal year 2000 and 1999, results of operations were favorably affected by the reversal of $1.4 million and $4.9 million, respectively, of telecommunications charges that had been accrued in fiscal 1998. These reversals, which were reflected in cost of services, were realized when the Company was able to negotiate the favorable dispositions of costs associated with guaranteed minimum usage telecommunications contracts.

Asset Impairment

During fiscal year 1998, fourth quarter reductions in clients' use of outbound telemarketing programs as a method of customer acquisition had reduced ITI's Customer Acquisition division net revenue and profitability substantially below levels that existed at the date of acquisition. Six clients, comprising approximately 65% of ITI's Customer Acquisition net revenue, had either ceased or substantially reduced their telemarketing activities due to apparent financial impairment or consolidation in the consumer and financial services industries. In addition, lower than expected outbound telemarketing volume had prevented the Company from realizing synergies anticipated with and valued in the ITI acquisition.

These events required the Company to evaluate the recoverability of the long-lived assets of the Customer Acquisition division of ITI in the fourth quarter of fiscal year 1998. As a result of the loss of ITI's client base, estimated future undiscounted cash flows from ITI's Customer Acquisition business were less than the carrying value of its long-lived assets. Accordingly, the Company adjusted the carrying value of the Customer Acquisition division's long-lived assets to their fair value of $13.6 million resulting in an impairment loss of $69.7 million ($65.9 million, or $1.36 per share, net of income tax benefit). The impairment loss was comprised of a write-off of property and equipment of $1.9 million, customer relationships of $8.3 million and goodwill of $59.5 million. The fair market valuation was based upon the appraised value of the remaining customer base of the Customer Acquisition division as determined from projections of discounted future cash flows. The remainder of ITI's business had not been impaired.

5. Discontinued Operations

On August 19, 1997, the Company acquired all of the common and preferred stock of Paragren Technologies, Inc. ("Paragren"), a specialist in software-based marketing products. The acquisition was accounted for as a purchase. The purchase price of approximately $32.9 million was allocated to the assets acquired and the liabilities assumed based upon their estimated fair values as determined by an independent appraisal. The allocation of values to intangible assets consisted of $1.5 million to assembled workforce and non-compete covenants, $19.8 million to in-process research and development, and $12.0 million to goodwill.

In December 1998, the Company's management approved a plan to sell Paragren. Accordingly, Paragren was reported as a discontinued operation, and the consolidated financial statements for fiscal year 1998 were reclassified to segregate the operating results and net assets of the business.

In January 2000, pursuant to an agreement executed in December 1999, the Company sold the stock of Paragren Technologies, Inc. (representing substantially all of the assets of Paragren) and received $17 million in cash proceeds. After selling expenses and other costs, $11 million of the proceeds were used to reduce outstanding borrowings under the Term Loan in accordance with the financial covenants concerning the sale of assets. In January 2001, the Company received an additional $2.8 million of proceeds related to the terms of escrow and earn-out agreements. As a result of the sale, the Company recorded a net gain on the sale of Paragren of $0.5 million, net of $0.3 million of income tax expenses in fiscal 2000.

The operations and anticipated disposal of Paragren did not affect the Company's results of operations in 1999 as the loss provision established in fiscal 1998 was sufficient to absorb these losses. The proceeds from the sale of Paragren exceeded the amount estimated in 1998, and, accordingly, asset values were increased by $3.6 million. However, actual losses from operations for Paragren in fiscal 1999 were $3.6 million greater than the amount estimated in 1998 and offset the increase in the estimated proceeds. As a result, there was no income statement impact to the Company in 1999. Due to the sale of Paragren in January 2000, there were no operating results for fiscal 2000.

Summary operating results for Paragren for fiscal year 1999 are as follows (in thousands):

			1999
Net revenue			$	7,465
Operating expenses:
	Cost of services			5,190
	Selling, general and administrative expenses			10,603

		Total operating expenses		15,793

	Loss from operations			(8,328	)
Interest income, net				(286	)

	Loss before income taxes			(8,614	)
Income taxes benefit				(3,139	)

Net loss			$	(5,475	)

6. Restructuring and Other Nonrecurring Charges/Asset Impairment Charges

During the second quarter of fiscal 2001, the Company conducted a review of its capacity, overhead and operating performance with the goal of improving its operations and profitability. In connection with this effort, the Company closed seven Customer Interaction Centers, eliminated certain administrative and support positions, implemented specific plans to improve operational performance and wrote off certain non-performing assets. Restructuring charges of $6.6 million related to this review were recorded in the second quarter and included $0.6 million for the write down of property and equipment, $4.1 million of

severance costs related to 900 employees and $1.9 million of lease termination and other costs. Cash charges relating to the restructuring of approximately $4.3 million have been paid through December 30, 2001, the remainder of $1.7 million, primarily related to severance costs, is payable in 2002 and thereafter.

Nonrecurring charges of $2.4 million associated with the settlement of litigation and additional bad debt provisions were also recorded in the first half of 2001.

Asset impairment charges of $8.6 million recorded in the second quarter of fiscal 2001 were related to the write off of certain non-performing IT hardware and software costs.

Nonrecurring charges for fiscal 2000 totaling $8.7 million were related to the development of a new technology platform, e.PAC^SM, the development of new product service offerings and the new headquarters, operational facilities and associated personnel relocation in Deerfield, IL.

Fiscal year 1999 results include three separate restructuring charges totaling $7.6 million related to a program to close a total of 24 Customer Interaction Centers and to reduce the supporting salaried workforce. A charge of $2.0 million was recorded in the first quarter, including $1.4 million for the write-down of property and equipment and $0.6 million for employee severance costs. An additional charge of $4.0 million was recorded in the second quarter, including $2.7 million for the write-down of property and equipment, $0.3 million for employee severance costs and $1.0 million for lease termination costs. The final charge of $1.6 million was recorded in the third quarter, including $1.3 million for the write-down of property and equipment and $0.3 for lease termination costs. All restructuring charges were fully utilized by the end of fiscal 2000 except for a balance of $0.5 million, related to one center that was not closed. This amount was credited to cost of services in fiscal 2000.

7. Income Taxes

The provision (benefit) for income taxes for continuing operations for fiscal years 2001, 2000 and 1999 consisted of the following:

		2001			2000			1999
Current provision (benefit)		$	(3,123	)	$	14,817		$	(2,352	)
Deferred provision (benefit)			(1,647	)		(4,761	)		5,932

	Total provision (benefit) for income taxes	$	(4,770	)	$	10,056		$	3,580

A reconciliation of the statutory Federal income tax expense (benefit) to the actual effective income tax expense (benefit) for continuing operations for fiscal years 2001, 2000 and 1999 is as follows:

		2001			2000			1999
Statutory tax expense (benefit)		$	(3,407	)	$	9,354		$	3,231
State taxes, net of Federal benefit and state credits			(341	)		962			332
Non-deductible goodwill(1)			178			5,051			434
Utilization of net operating losses previously benefited(2)			—			(4,490	)		—
Adjustment for fiscal 2000 tax return(3)			(1,703	)		—			—
Work Opportunity Tax credit			(779	)		(1,203	)		(535	)
Other(4)			1,282			382			118

	Actual tax expense (benefit)	$	(4,770	)	$	10,056		$	3,580

(1): Primarily relates to the disposal of non-tax deductible goodwill in connection with the sale of Paragren in fiscal 2000.
(2): Represents the Company's ability to utilize all net operating losses in fiscal 2000 including those previously benefited but fully reserved.
(3): Represents the net favorable adjustments related to the finalization and filing of the fiscal 2000 income tax return in fiscal 2001.
(4): Represents the effect of permanent differences utilized in the calculation of taxable income for 2001.

The significant components of deferred income tax assets and liabilities for continuing operations are as follows:

		December 30, 2001		December 31, 2000
Deferred tax assets:
Vacation accrual		$	1,316	$	940
Self-insurance related costs			2,432		1,669
Acquisition-related costs			350		683
Restructuring charge			894		—
Revenue recognition			—		1,155
Allowance for doubtful accounts			1,523		1,234
Excess depreciation			2,582		—
Other			361		2,551

	Total deferred tax assets		9,458		8,232

Deferred tax liabilities:
Excess depreciation			—		350
Change in accounting methods			—		146
Other			162		87

	Total deferred tax liabilities		162		583

Net deferred tax assets		$	9,296	$	7,649

At January 2, 2000, the Company had a net operating loss carryforward for tax purposes of $4.9 million from operations in fiscal 1999 and $12.8 million acquired in connection with the purchase of ITI. For financial reporting purposes, a valuation allowance in the amount of approximately $4.5 million was recorded in 1998 as an offset to the deferred tax assets of ITI that could only be realized to the extent that the Company generates sufficient future book and taxable income. In fiscal 2000 the Company generated taxable income sufficient to utilize all $17.7 million of these net operating loss carryforwards including the $12.8 million of such carryforwards fully reserved in previous years.

8. Long-Term Debt

Long-term debt consisted of the following:

		December 30, 2001		December 31, 2000
Term Loan, average fixed interest rate of 8.7% and 9.3% respectively, final payment due June 2003.		$	73,000	$	103,000
Industrial Revenue Bonds, payable monthly at 7%, final payment due June 2008			922		1,036
County Development Note, payable monthly at 4%, final payment due January 2004			323		471
Promissory Note, payable monthly at 9%, final payment due September 2002			66		155
Capital leases, payable monthly at 7.8% average rate, final payment due January 2003			157		329

	Total long-term debt		74,468		104,991
	Less-current maturities		31,500		20,508

Long-term debt, net		$	42,968	$	84,483

As of December 30, 2001, the carrying value of future debt obligations reasonably approximates their fair value, and the principal payments of long-term debt are due as follows:

2003		$	42,293
2004			155
2005			154
2006			165
Thereafter			201

	Total payments	$	42,968

On May 20, 1998, the Company entered into a $250 million Senior Credit Facility ("Credit Facility") with a group of lending institutions and at the same time repaid all amounts outstanding on its prior $80 million credit facility. The Credit Facility consisted of a $150 million Term Loan and a $100 million Revolving Facility. Borrowings under the Revolving Facility would be used to provide working capital and fund capital expenditures. Proceeds from the Term Loan were used to acquire the common stock of ITI Holdings, Inc. The common stock of ITI and all existing or acquired subsidiaries serve as collateral under the terms of the Credit Facility.

On September 8, 1998, the Credit Facility was amended and restated, reducing the available borrowings to $225 million consisting of a $150 million Term Loan and a $75 million Revolving Facility. Subsequently, there have been six amendments to the September 8, 1998 amended and restated Credit Facility. Most recently, the Sixth Amendment was adopted on January 10, 2002.

Under the terms of the Credit Facility as amended and in effect at the end of fiscal 2001, the total facility is $103 million, consisting of a $73 million Term Loan and a $30 million Revolving Facility. The Company is required to make quarterly principal payments on the Term Loan, ranging from $6 million to $7 million per quarter, with a specified final payment of $35 million due June 1, 2003. At December 30,

2001, the Company had $73 million outstanding under the Term Loan and zero outstanding on the Revolving Facility. As of December 30, 2001, the Company had $5.5 million of outstanding standby letters of credit under the revolving facility primarily to support self insurance reserves.

In conjunction with the Sixth Amendment to the Credit Facility, the Company was required to make an additional $5 million repayment of principal which was made on February 1, 2002. This amount has been included in current maturities of long term debt of December 30, 2001.

Under the terms of the Credit Facility, the Company is required to maintain certain financial covenants which limit the Company's ability to incur additional indebtedness, repurchase outstanding common shares, create liens, acquire, sell or dispose of certain assets, engage in certain mergers and acquisitions, and to make certain restricted payments. As a result, the Company is not allowed to pay dividends on its Common Shares. The Company is currently in compliance with all covenants and restrictions imposed by the terms of the Credit Facility as of December 30, 2001.

Borrowings under the Credit Facility incur a floating interest rate usually based on the LIBOR index rate, although the Company has the option of using an alternate base rate defined in the agreement. In addition, the Company pays a commitment fee on the unused portion of the Revolving Facility as well as an annual fee on the outstanding letters of credit.

In connection with securing the Credit Facility in 1998, the Company paid fees and expenses of $2.7 million. The debt issuance costs are recorded as deferred charges and are being amortized over the term of the Credit Facility of five years. The amortization of deferred debt costs for fiscal years 2001, 2000 and 1999 was $0.5 million, $0.4 million and $0.4 million, respectively.

Interest Rate Agreements

The Company has entered into various interest rate agreements with one of the parties to the Credit Facility. On May 20, 1998, the Company entered into an interest rate swap agreement ("Swap") and an interest rate cap agreement ("Cap") to hedge a portion of the interest rate risk associated with its floating rate debt. Under the terms of the Swap, through June 1, 2003, the Company pays a fixed interest rate of 6.0% and receives a floating rate payment based on the 30-day LIBOR rate. The Swap had an initial notional amount of $100 million and amortizes, pro rata, with principal payments on the Term Loan. Under the terms of the Cap, through June 1, 2003, the Company will make payments based on .63% of the outstanding notional amount of the Term Loan, and the Company will receive payments any time the 30-day LIBOR rate exceeds 6.0%. The Cap had an initial notional amount of $50 million and amortizes, pro rata, with principal payments on the Term Loan. At December 30, 2001, the fair market values of the Swap and Cap were $(2,069) and $8, respectively. The Company has recorded a transition and current year adjustment aggregating $1.4 million (net of tax of $0.7 million) in Accumulated Other Comprehensive Income for fiscal 2001 related to the Swap Agreement.

9. Commitments and Contingencies

Lease Commitments

The Company leases its Customer Interaction Centers, administrative offices and certain equipment. Rent expense for the fiscal years 2001, 2000, and 1999 was $10,829, $9,370 and $7,548 respectively.

Minimum future rental payments at December 30, 2001 are as follows (in thousands):

		Operating Leases
2002		$	11,574
2003			8,973
2004			8,490
2005			6,183
2006			6,137
Thereafter			8,821

	Total payments	$	50,178

Legal Proceedings

The Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of business. Management does not believe the outcome of any pending claims will have a materially adverse impact on the Company's consolidated financial position. Although the Company does not believe that any of these proceedings will result in a materially adverse effect on its consolidated financial position, no assurance to that effect can be given.

Training Bonds

At the end of the 2001, 2000 and 1999 fiscal years, the Company had guaranteed the repayment of approximately $441, $625 and $887 respectively, of the remaining outstanding community college bond obligations, which were issued in connection with various job-training agreements. At December 30, 2001, the Company estimates that the deposits made into escrow will be adequate to cover the cost of the maturing bonds.

10. Shareholders' Equity

The authorized capital stock of APAC Customer Services, Inc. consists of (a) 200 million Common Shares, $.01 par value per share, of which 49,541,866 were issued as of December 30, 2001, and (b) 50 million Preferred Shares, $.01 par value per share, of which no shares have been issued. On August 31, 1998, the Board of Directors authorized the Company to repurchase, from time to time at management's discretion, up to 2,500,000 shares of its outstanding Common Shares at market prices. During fiscal 1998, the Company repurchased 1,609,000 shares at an average price of $3.50 per share. The remaining authorization has expired. In fiscal 2000, 742,296 of the treasury shares previously purchased were sold primarily to a member of the Board of Directors. In fiscal 2001, 186,803 treasury shares were issued through the Company's employee stock purchase plan and certain stock option exercises.

11. Equity Instruments

Stock Options

The Company has granted options to purchase Common Shares under three plans all established in 1995. Under the Executive Plan, on May 26, 1995, the Company granted an officer options to purchase 565,034 Common Shares at an aggregate price of $1,765 or an average exercise price of $3.12 per share. The options, now fully vested, will expire in February, 2003. The weighted average fair value of the options at the date of grant was $1.83 per share, based upon the assumptions described below using the Black-Scholes option pricing model.

Under the Incentive Stock Option Plan, which is the result of a merger of the Incentive Stock Option Plan and the Non-employee Director Stock Option Plan, directors, officers, key employees and non-employee consultants may be granted nonqualified stock options, incentive stock options, stock appreciation rights, performance shares and stock awards, all as determined by a committee of the Board of Directors or by the full board in the case of non-employee Directors. A total of 11.8 million shares have been authorized for grant under the Incentive and Director Stock Option Plans. The exercise price of incentive stock options granted may not be less than 100% of the fair market value of the Common Shares at the date of grant. The exercise price of non-qualified stock options granted may not be less than 85% of the fair market value of the Common Shares at the date of grant.

Non-employee Directors receive annual grants of 20,000 non-qualified stock options. In addition, the Company provides attendance grants for the non-affiliated directors. For each meeting, 1,000 options are awarded for attendance and 500 options are awarded for participation by telephone. The exercise price of the directors' options granted is equal to the fair market value of the Common Shares at the date of grant.

Options under both the Incentive Stock Option Plan and the Non-employee Director Stock Option Plan expire at periods between 5 and 15 years after date of grant.

Stock option activity under the Company's Executive Plan, Incentive Stock Option Plan, and Non-employee Director Stock Option Plan for fiscal years 2001, 2000 and 1999 is as follows:

Description	Shares		Price Range		Weighted Average Exercise Price
Outstanding as of January 3, 1999	5,388,501		$	0.97-$38.13	$	6.70
Granted	4,372,271		$	2.34-$13.13	$	4.17
Exercised	(93,418	)	$	0.97-$8.50	$	5.72
Canceled	(2,495,744	)	$	0.97-$38.13	$	5.66

Outstanding as of January 2, 2000	7,171,610		$	0.97-$38.13	$	5.71
Granted	1,999,000		$	3.06-$15.31	$	7.84
Exercised	(370,974	)	$	0.97-$8.50	$	5.55
Canceled	(935,200	)	$	2.34-$25.00	$	9.53

Outstanding as of December 31, 2000	7,864,436		$	0.97-$38.13	$	5.66
Granted	1,217,000		$	1.59-$5.69	$	3.85
Exercised	(47,260	)	$	2.34-$4.03	$	3.30
Canceled	(3,000,940	)	$	2.34-$37.25	$	6.49

Outstanding as of December 30, 2001	6,033,236		$	0.97-$38.13	$	4.90

Stock options exercisable at December 30, 2001	3,100,338		$	0.97-$38.13	$	5.00

The following table summarizes information concerning stock options outstanding as of December 30, 2001:

		Exercise Price Ranges			Total
		$0.97-$6.00	$6.01-$11.00	$11.01-$38.13	$0.97-$38.13
Outstanding as of December 30, 2001		4,212,925	1,579,395	240,916	6,033,236
	Remaining life	7.5 years	6.2 years	7.1 years	7.1 years
	Weighted Average Exercise Price	$3.54	$5.36	$13.95	$4.90
Exercisable as of December 30, 2001		1,961,561	1,021,195	117,582	3,100,338
	Remaining life	6.4 years	5.4 years	6.0 years	6.0 years
	Weighted Average Exercise Price	$3.42	$6.77	$15.85	$5.00

The Company applies APB No. 25 in accounting for the stock option plans above. No compensation expense has been recognized for stock options when the option price equals or exceeds the fair market value at date of grant. In order to calculate the pro forma information below, the fair value of each option is estimated on the date of grant based on the Black-Scholes option pricing model. Assumptions include no dividend yield, risk-free interest rates ranging from 5% to 7%, expected volatility ranging between 70% and 90%, and an expected life ranging from 7 years to 10 years. Pro forma results of operations for fiscal

years 2001, 2000 and 1999 which reflect the adjustment to compensation expense to account for stock options in accordance with SFAS No. 123 are as follows:

	2001			2000			1999
Net income (loss) as reported	$	(4,964	)	$	17,181		$	5,650
Less-compensation expense on stock options, net of income tax benefit		(2,222	)		(3,855	)		(5,189	)

Pro forma net income (loss)	$	(7,186	)	$	13,326		$	461

Pro forma net income (loss) per diluted share	$	(0.15	)	$	0.26		$	0.01

The pro forma disclosure is not likely to be indicative of pro forma results of operations which may be expected in future years because of the fact that options vest over several years, compensation expense is recognized as the options vest and additional awards may also be granted.

Stock Purchase Warrants

In March 1998, the Company entered into a Sales Agreement with a client and issued 75,000 stock purchase warrants at an exercise price of $14.25 per share in exchange for services to be performed. Each warrant represents the right to purchase one share of the Company's Common Shares at the exercise price. Warrants representing 35,000 shares vested in fiscal year 1998 with the balance vesting over the next four years. The warrants became exercisable on March 10, 1998, and expire on March 9, 2007. The estimated fair value of the warrants on the date issued was $7.14 per share using the Black-Scholes option pricing model and assumptions similar to those used for valuing the Company's stock options described above. The Company recorded $50, $82, and $153 in selling expense in fiscal years 2001, 2000 and 1999, respectively, for warrants that vested during the year.

12. Benefit Plans

In October 1995, the Company adopted a 401(k) savings plan. Employees, meeting certain eligibility requirements as defined, may contribute up to 15% of pretax gross wages, subject to certain restrictions. The Company makes matching contributions of 50% of the first 6% of employee wages contributed to the plan. Company matching contributions vest 20% per year over a five-year period. For fiscal years 2001, 2000 and 1999, the Company made matching contributions to the plan of $1,316, $411 and $365, respectively.

In fiscal year 1996, share owners of the Company adopted an employee stock purchase plan. The plan is administered by the compensation committee and permits eligible employees to purchase an aggregate of 600,000 Common Shares at 85% of the lesser of the current market closing price of the Company's Common Shares at the beginning or end of a quarter. Employees may annually purchase Common Shares up to the lesser of 15% of their gross wages or $25. During the fiscal years 2001, 2000 and 1999, 160,503, 70,315, and 92,326, Common Shares, respectively, were issued to employees under this plan.

13. Segment Information

Prior to fiscal 2001, the Company had three reportable segments organized around divisions providing separate and distinct services to clients. The operating divisions were managed separately because the service offerings required different technology and marketing strategies and had different operating models and performance metrics. The Customer Care business unit provided inbound customer service, direct mail response, "help" line support and customer order processing. The Customer Acquisition business unit provided outbound sales support to customers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. CustomerAssistance.com provided Web-based customer relationship management products and services for Fortune 1000 and "dot.com" companies. In 2001, the Company reorganized its structure along client lines, commingling operations into one unit and commingling account management, marketing, sales and other functions across service offering lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and Customer Acquisition services. It is therefore impractical to separate the results by these service offerings. Accordingly the Company no longer presents operating results in reportable segments.

14. Related Party Transactions

The Company utilizes McLeod USA to provide telecommunications services at certain of the Company's call centers. Clark McLeod, the Chairman of McLeod USA is a member of the Board of Directors of the Company. During the fiscal years 2001, 2000 and 1999 the Company purchased $398, $471 and $372, respectively of telecommunications services. In addition, beginning in fiscal 2001 the Company provided customer interaction solutions for McLeod for which it received $2,900.

During fiscal 2001 the Company purchased $348 of consulting services from Form and Function Consulting, and $118 from marchFIRST. Additionally in fiscal 2000, the Company purchased $2.4 million of consulting services from marchFIRST. Robert Bernard, Chairman and CEO of Form and Function and former Chairman and CEO of marchFIRST is a member of the Board of Directors of the Company.

15. Quarterly Data (Unaudited)

The following is a summary of the quarterly results of operations, including income per share, for APAC Customer Services, Inc. for the quarterly periods of 2001 and 2000 fiscal years (in thousands, except per share data):

Fiscal Years Ended		First Quarter			Second Quarter			Third Quarter		Fourth Quarter		Full Year
2001 Fiscal year ended December 30, 2001:
	Net revenue	$	111,778		$	102,564		$	103,918	$	110,584	$	428,844
	Gross profit		17,755			15,785			18,581		20,502		72,623
	Income (loss) from continuing operations(b)		(161	)		(10,018	)		2,257		2,958		(4,964	)
	Net income (loss)(b)		(161	)		(10,018	)		2,257		2,958		(4,964	)
Net income (loss) per share:
	Income (loss) from continuing operations(b)	$	0.00		$	(0.21	)	$	0.05	$	0.06	$	(0.10	)
	Net income (loss)(b)	$	0.00		$	(0.21	)	$	0.05	$	0.06	$	(0.10	)
2000 Fiscal year ended December 31, 2000:
	Net revenue	$	118,364		$	118,594		$	113,311	$	114,086	$	464,355
	Gross profit		27,342			29,983			24,852		22,509		104,686
	Income (loss) from continuing operations(a)		3,556			3,998			4,553		4,563		16,670
	Gain on disposal of Paragren Technologies, Inc.(c)		115			—			—		396		511
	Net income (loss)(a)		3,671			3,998			4,553		4,959		17,181
Net income (loss) per share:
	Income (loss) from continuing operations(a)	$	0.07		$	0.08		$	0.09	$	0.09	$	0.33
	Net income (loss)(a)	$	0.07		$	0.08		$	0.09	$	0.10	$	0.34

Notes:

(a): The third and fourth quarters of fiscal 2000 include favorable impacts in the amount of $947 and $490, respectively, relating to the reversal of telephone charges which had been accrued in the fourth quarter of 1998. Fiscal 2000 also includes $8,689 of non recurring charges as discussed in Note 6.
(b): Fiscal year 2001 results include restructuring and non recurring charges of $1,400 in the first quarter and $7,604 in the second quarter and, asset impairment charges of $8,608 recorded in the second quarter. These charges related to a restructuring plan involving the closing of selected customer interaction centers, reconfiguration of certain administrative support facilities and reduction in the salaried work force.
(c): In December 1998, the Company's management approved a plan to sell the Paragren software development business. This sale was completed in January 2000. Accordingly, Paragren is reported as a discontinued operation. In fiscal 2000 the Company recorded a gain of $0.5 million net of $0.3 million of tax expense related to the sale of Paragren.

PART III

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 10. Directors and Executive Officers of the Registrant.

The information required by this Item (except for the information regarding executive officers required by Item 401 of Regulation S-K which is included in Part I under the caption "Executive Officers of Registrant") is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002, under the caption "Election of Directors," which information is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002, under the caption "Compensation of Executive Officers," which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002, under the caption "Securities Beneficially Owned by Principal Share Owners and Management," which information is incorporated hereby by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002, under the caption "Certain Transactions" which information is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)1. Financial Statements

The following financial statements of the Company are included in Part II, Item 8:

(i): Report of Independent Public Accountants
(ii): Consolidated Balance Sheets as of December 30, 2001 and December 31, 2000
(iii): Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2001, December 31, 2000, and January 2, 2000
(iv): Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000
(v): Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000
(vi): Notes to Consolidated Financial Statements

2. Financial Statement Schedules

The following financial statement schedules are submitted as part of this report:

(i): Report of Independent Public Accountants
(ii): Schedule II-Valuation and Qualifying Accounts

All other schedules are not submitted because they are not applicable or are not required under Regulation S-X or because the required information is included in the financial statements or notes thereto.

3. Exhibits

The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto.

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		APAC CUSTOMER SERVICES, INC.
		By:	/s/ MARC T. TANENBERG Marc T. Tanenberg Senior Vice President and Chief Financial Officer

Dated: March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date

/s/ THEODORE G. SCHWARTZ* Theodore G. Schwartz	Chairman of the Board of Directors	March 29, 2002
/s/ MARC T. TANENBERG Marc T. Tanenberg	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	March 29, 2002
/s/ KENNETH R. BATKO Kenneth R. Batko	Vice President and Controller (Principal Accounting Officer)	March 29, 2002
/s/ ROBERT F. BERNARD* Robert F. Bernard	Director	March 29, 2002
/s/ THOMAS M. COLLINS* Thomas M. Collins	Director	March 29, 2002
/s/ JOHN W. GERDELMAN* John W. Gerdelman	Director	March 29, 2002
/s/ CLARK E. MCLEOD* Clark E. McLeod	Director	March 29, 2002
/s/ PAUL G. YOVOVICH* Paul G. Yovovich	Director	March 29, 2002

*: Marc T. Tanenberg, as attorney in fact for each person indicated.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of APAC Customer Services, Inc.:

We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of APAC Customer Services, Inc. and issued our unqualified opinion thereon dated January 30, 2002. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements. The schedule of Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subject to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 30, 2002

Schedule II

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Column A	Column B	Column C			Column D	Column E
		Additions
Description	Balance at Beginning of Period	Charged to Costs and Expenses		Charged to Other Accounts	Deductions(a)	Balance at End of Period
Allowance for doubtful accounts:
Year ended January 2, 2000	4,250	1,080		—	3,770	1,560
Year ended December 31, 2000	1,560	1,730		—	201	3,089
Year ended December 30, 2001	3,089	1,789		—	922	3,956
Accrued Restructuring Charge:
Year ended January 2, 2000	3,736	7,600		—	9,086	2,250
Year ended December 31, 2000	2,250	(500	)	—	1,656	94
Year ended December 30, 2001	94	6,600		—	5,194	1,500

Notes:

(a): Represents charges for which the allowance and reserve accounts were created.

EXHIBIT INDEX

Exhibit Number		Description
3.1		Articles of Incorporation of APAC Customer Services, Inc. are incorporated by reference to APAC Customer Services, Inc.'s quarterly Report on Form 10-Q for the quarter ended October 3, 1999.
3.2		Amended and Restated Bylaws of APAC Customer Services, Inc. as amended through April 30, 2000 incorporated by reference to Exhibit 3.2 to APAC Customer Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 2, 2000.
4.1		Specimen Common Stock Certificate incorporated by reference to APAC Customer Services, Inc.'s Annual Report on Form 10K for the fiscal year ended December 31, 2000.
*10.1		APAC TeleServices, Inc. Amended and Restated 1995 Incentive Stock Plan, as amended, incorporated by reference to Exhibit 99.1 to APAC TeleServices, Inc.'s Current Report on Form 8-K dated April 10, 1998.
*10.2		Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995 Incentive Stock Plan incorporated by reference to Exhibit 10.11 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
*10.3		Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended July 2000.
*10.4		First Amendment to the Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.s quarterly report on Form 10Q for the Quarter ended July 2, 2000.
*10.5		Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director Stock Option Plan incorporated by reference to Exhibit 10.2 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
*10.6		Employment Agreement with Peter M. Leger incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended October 3, 1999.
*10.7		Amendment to the Employment Agreement with Peter M. Leger dated January 31, 2001 incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10K for the fiscal year ended December 31, 2000.
*10.8		Employment Agreement with John L. Gray incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended April 1, 2001.
*10.9		Separation Agreements with Peter M. Leger dated May 2, 2001.
*10.10		Separation Agreements with John L. Gray dated July 10, 2001.
*10.11		Employment Agreement with John R. Bowden dated October 1, 1999.
*10.12		Employment Agreement with Marc T. Tanenberg.
*10.13		Employment and Relocation Agreements with Daniel S. Hicks.
*10.14		Employment and relocation agreement with L. Clark Sisson incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.
*10.15		Fiscal 2001 Management Incentive Plan incorporated by reference to APAC Customer Services, Inc.'s Quarterly Report on Form 10Q for the quarter ended July 1, 2001.

*10.16		Revised form of Employment Security Agreement between the Company and its Senior Management Team incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10K for the fiscal year ended December 31, 2000.
10.17		Amended and Restated Credit Agreement dated September 8, 1998 and First Amendment to Agreement, incorporated by reference to APAC TeleServices, Inc.'s Quarterly Report on Form 10-Q for the period ended September 27, 1998.
10.18		Second Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.
10.19		Third Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.
10.20		Fourth Amendment to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.
10.21		Fifth Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Current Report on Form 8-K dated May 30, 2001.
10.22		Sixth Amendment to Amended and Restated Credit Agreement.
**10.23		Agreement with United Parcel Service General Services Inc. incorporated by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
**10.24		Amendment, dated September 22, 1999, to Agreement for In-Bound Telemarketing with United Parcel Services Global Services Co. incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended October 3, 1999.
10.25		Registration Rights Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
10.26		Tax Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
**10.27		Agreement with J.C. Penney Insurance Company, dated November 1, 1994 incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.
21.1		Subsidiaries of APAC Customer Services, Inc.
23.1		Consent of Arthur Andersen LLP.
24.1		Power of attorney executed by Theodore G. Schwartz, Robert F. Bernard, Thomas M. Collins, John W. Gerdelman, Clark E. McLeod,, Paul G. Yovovich.
99.1		Letter regarding independent public accountants.

*: Indicates management employment contracts or compensatory plans or arrangements.
**: Portions of this Exhibit were omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
PART I
Customer Interaction Centers
PART II
APAC CUSTOMER SERVICES, INC. SELECTED FINANCIAL DATA (Unaudited)
Description of Business
NEW ACCOUNTING PRONOUNCEMENTS
Liquidity and Capital Resources
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
APAC CUSTOMER SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands)
APAC CUSTOMER SERVICES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
APAC CUSTOMER SERVICES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands)
APAC CUSTOMER SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
APAC CUSTOMER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except as otherwise indicated)
PART III
PART IV
SIGNATURES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
EXHIBIT INDEX
EX-10.9 3 a2073275zex-10_9.htm EXHIBIT 10.9

EXHIBIT 10.9

SEPARATION AND GENERAL RELEASE AGREEMENT

This SEPARATION AND GENERAL RELEASE AGREEMENT (the “Agreement”), executed this 2^nd day of May, 2001, is entered into by and between APAC Customer Services, Inc., an Illinois corporation (the “Company”), and Peter M. Leger (“Executive”).

W I T N E S S E T H

WHEREAS, Executive has been employed as Chief Executive Officer and President of the Company and has served as a member of the Board of Directors of the Company (the “Board”) pursuant to the terms and conditions set forth in that certain Employment Agreement, made effective as of 11:59 p.m. September 21, 1999, by and between Executive and the Company, as amended by that certain Amendment, dated January 31, 2001, by and between the Company and Executive (together, the “Employment Agreement”), which Employment Agreement incorporates by reference the Restrictive Covenant Agreement made as of September 21, 1999 by and between the Company and Executive (the “Restrictive Covenant Agreement”);

WHEREAS, Executive has decided to resign from his positions as Chief Executive Officer and President of the Company and as a member of the Board; and

WHEREAS, the Company has agreed to accept such resignation.

NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. TERMINATION OF SERVICE; BENEFITS.

(a) Resignation of Employment. Effective as of May 1, 2001 (the “Separation Date”), Executive hereby resigns his employment with the Company, including his positions as Director, Chief Executive Officer and President of the Company, and resigns as director, officer and trustee of each of the Company’s subsidiaries and affiliates of which he holds any such positions, and shall no longer serve in any of these capacities.

(b) Payments and Benefits. The Company shall provide Executive with the payments and benefits set forth in this subsection (b).

(i) Severance Payments. The Company shall make periodic payments to Executive at a rate of $393,750 per annum (equal to 75% of Executive’s annual base salary as of the date hereof) for a period of twenty-four (24) months (the “Severance Payments”), payable according to the customary payroll practices of the Company, but in no event less frequently than once each month. Notwithstanding the foregoing, the Company shall pay to Executive, in accordance with its customary payroll practices (but not later than May 4, 2001) and to the extent not previously paid, Executive’s base salary accrued through the Separation Date (“Accrued Base Salary”), and such payment or payments of Accrued Base Salary shall not reduce or offset the Company’s obligation to make the Severance Payments. If a Change in Control (as defined below) occurs after the Separation Date, the Company shall use its best efforts to pay the remaining Severance Payments due to Executive under this paragraph (i) in a lump sum as soon as practicable and, if reasonably feasible, before consummation of the Change in Control, but in any event not later than within thirty (30) days after the Change in Control. For purposes of this paragraph (i), a “Change in Control” shall be deemed to have occurred if (A) a tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the Company, (B) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as the same shall have existed immediately prior to such merger or consolidation, (C) the Company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate, (D) as the result of, or in connection with, any contested election for the Board, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board or the board of directors of any successor to the Company or (E) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the Company, shall acquire more than 50% of the

outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act. Notwithstanding the foregoing, (x) a Change in Control will not occur for purposes of this Agreement merely due to the death of Theodore G. Schwartz, or as a result of the acquisition by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the Company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (y) if the Schwartz Entities control, directly or indirectly, less than twenty-seven percent (27%) of the Company’s voting securities while it is a public company, then “33-1/3%” shall be substituted for “50%” in clauses (A), (B) and (E) of this paragraph (i).

(ii) Stock Options. Executive acknowledges and agrees that (A) as of the Separation Date, the option granted to him pursuant to the Nonqualified Stock Option Agreement number 99-00004763, dated as of September 21, 1999, shall be exercisable in accordance with its terms relating to a termination of employment by the Company without cause as to a total of 40,000 common shares of the Company, (B) as of the Separation Date, the option granted to him pursuant to the Nonqualified Stock Option Agreement number 99-00004764, dated as of September 21, 1999, shall be exercisable in accordance with its terms relating to a termination of employment by the Company without cause as to a total of 400,000 common shares of the Company and (C) as of the Separation Date, such options and such option agreements shall otherwise expire and be of no further force or effect.

(iii) Health Insurance. Subject to Executive electing continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), Executive shall be entitled to payment, when due, by the Company of any premiums for continued Company health care coverage under COBRA until such date as Executive is no longer

eligible therefor. Executive acknowledges that his resignation hereunder shall constitute a “qualifying event” for purposes of determining his rights under COBRA, and that the continuation of health benefits hereunder shall be credited against the Company’s obligations to Executive under COBRA.

(iv) Other Benefits. Executive shall receive payment for 11.3 days of accrued but unused vacation no later than May 4, 2001 and shall otherwise receive his accrued benefits under the terms of the plans, policies and procedures of the Company; provided that Executive shall not be entitled to receive any bonus for 2001, including, without limitation, any Annual Incentive Bonus for 2001 under the Company’s Incentive Bonus Plan; provided further that nothing in this Agreement shall be deemed to constitute a waiver by Executive of Executive’s rights, as of the Separation Date, under the terms of the plans, policies and procedures of the Company, to convert Executive’s participation in a Company group benefit plan to an individual policy, participation in and payment for which individual policy is solely at the expense of Executive.

(v) References. The Company agrees to provide, upon request, an employment reference for Executive, indicating that the dates on which he was employed as Chief Executive Officer and President of the Company and was a member of the Board of Directors. The Company agrees to inform anyone requesting a reference that Executive resigned on May 2, 2001. The Company also agrees to indicate, to anyone who requests a reference, that there were no negative issues with regard to Executive’s performance. The Company also agrees to describe Executive’s performance consistent with the press release dated May 2, 2001 regarding this issue.

Section 2. MUTUAL RELEASE.

(a) Executive’s Release.

agent of the Company or its subsidiaries or affiliates (collectively, “Releasees”) from any and all claims, charges, complaints, promises, agreements, controversies, liens, demands, causes of action, obligations, attorney’s fees, damages and liabilities of any nature whatsoever, known or unknown, suspected or unsuspected, which Executive or his executors, administrators, successors or assigns ever had, now have, or may hereafter claim to have against any of the Releasees by reason of any matter, cause or thing whatsoever, whether or not previously asserted before any state or federal court or before any state or federal agency or governmental entity, even if such act or omission is found to have been an INTENTIONAL ACT OR OMISSION, OR A NEGLIGENT ACT OR OMISSION by the Releasees, from the beginning of time to the Separation Date (the “Executive’s Release”); provided that nothing herein shall be deemed to release any of Executive’s right to enforce this Agreement.

(ii) The Executive’s Release includes, without limitation, any rights or claims arising out of or relating in any way to Executive’s employment by or separation from the Company or otherwise relating to any of the Releasees, or arising under any state or federal statute or regulation including the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, the Employee Retirement Income Security Act of 1974, and the Family Medical Leave Act of 1993, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act of 1988, the Illinois Human Rights Act, each as amended, or any other federal, state or local law, regulation, ordinance or common law (including, without limitation, claims based on breach of contract, tort, fraud or fraudulent inducement), or under any policy, agreement, understanding or promise, whether written or oral, formal or informal, between any of the Releasees and Executive.

Executive Released Parties arising out of or relating in any way to Executive’s employment by or separation from the Company or its subsidiaries or affiliates, whether or not previously asserted before any state or federal court or before any state, federal or regulatory agency or governmental entity, from the beginning of time to the Effective Date; provided, that, nothing herein shall be deemed to release any of the Company’s rights under this Agreement or the Restrictive Covenant Agreement; provided further that this subsection (b) shall not be effective unless and until Executive has granted the Company an irrevocable waiver of claims under the Age Discrimination in Employment Act of 1967, as amended.

Section 3. REPRESENTATIONS.

(a) Executive represents and warrants that, to the knowledge of Executive, there is no reasonable basis for any third party to assert any claim against the Releasees acting in their capacities under any federal, state or local law, including a breach of any applicable duty under common law. Executive further represents and warrants that, to the knowledge of Executive, there are no claims, actions, suits, investigations or proceedings threatened against the Releasees under any federal, state or local law, including a breach of any applicable duty under common law. Executive further represents and warrants that there is no reasonable basis for the Company or its subsidiaries or affiliates to assert any claim against Executive for violation of any federal, state, or local law, or breach of any applicable duty under common law.

(b) Executive represents that the Company has advised him to consult with an attorney of his choosing prior to signing this Agreement. Executive represents that he understands and agrees that he has the right to have this Agreement and, specifically, Executive’s Release, reviewed by an attorney of Executive’s choice and that he has in fact reviewed this Agreement and, specifically, Executive’s Release, with an attorney of his choice. Executive further represents that he read and understood each and every provision in this Agreement and that he had the opportunity to consult with an attorney of his choice regarding the effect of each and every provision of this Agreement.

(d) Executive represents that he understands and agrees that the Company is under no obligation to offer him this Agreement, that Executive is under no obligation to consent to Executive’s Release, and that Executive has entered into this Agreement freely and voluntarily with complete understanding of all relevant facts, and that this Agreement and Executive’s Release are fair, adequate and reasonable.

Section 4. RESTRICTIVE COVENANT AGREEMENT. Executive acknowledges and agrees that the Restrictive Covenant Agreement, a copy of which is appended to this Agreement as Attachment I, remains in effect between the Company and Executive and is hereby made a part hereof and incorporated herein in its entirety by reference.

Section 5. COOPERATION. Executive agrees that he will fully cooperate in any claims, litigation or other legal actions in which the Company or its subsidiaries or affiliates may become involved. Such cooperation shall include Executive making himself available, upon the request of the Company and at the Company’s expense, for depositions, court appearances and interviews by Company’s counsel. To the maximum extent permitted by law, Executive agrees that he will notify the Board, in care of the Chairman of the Compensation Committee of the Board, if he is contacted by any government agency or any other person contemplating or maintaining any claim or legal action against the Company or its subsidiaries or affiliates or by any agent or attorney of such person.

Section 6. NOTICE. For purposes of this Agreement and the Restrictive Covenant Agreement, notices and all other communications provided for in this Agreement or the Restrictive Covenant Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered mail, return receipt requested, postage prepaid as follows:

If to the Company:

APAC Customer Services, Inc.

Six Parkway North Center, Suite 400

Deerfield, Illinois 60015

Attn: Chairman

with a copy to:

Skadden, Arps, Slate, Meagher & Flom (Illinois)

333 West Wacker Drive

Chicago, Illinois 60606

Attn: Charles W. Mulaney, Jr.

If to Executive:

Executive’s home address as reflected on the Company’s

records, with a copy to:

McDermott, Will & Emery

227 West Monroe Street

Chicago, Illinois 60606

Attn: William W. Merten, Esq.

or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Section 7. MISCELLANEOUS.

(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its conflicts of law principles. Executive hereby consents to the jurisdiction of the state and federal courts in Illinois in the event that any disputes arise under this Agreement.

(b) Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(c) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(d) Termination of Employment Agreement. Executive agrees and acknowledges that, on and after the Separation Date, he has no further rights under the Employment Agreement or any other agreement relating to the terms and conditions of his employment.

Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(f) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.

(g) Successors; Third-Party Beneficiaries. This Agreement shall be binding upon and shall inure to the benefit of each of the parties hereto, and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns; provided that the provisions of Section 2(a) hereof are intended to be for the benefit of, and shall be enforceable by, each Releasee and his, her or its heirs, legatees, executors, administrators, legal representatives, successors and assigns; and provided further that the provisions of Section 2(b) hereof are intended to be for the benefit of, and shall be enforceable by, each Executive Released Party and his, her or its heirs, beneficiaries and assigns. Except as set forth in the immediately preceding sentence, this Agreement is solely for the benefit of Executive and the Company and shall not inure to the benefit of any third party.

(h) Withholding. All payments made by the Company to Executive pursuant to Section 1(b) of this Agreement shall be reduced by all federal, state, city or other taxes that are required to be withheld pursuant to any law or governmental regulation. Executive agrees that he is fully and solely responsible for any and all other income tax or withholding liability, if any, and all other taxes that may attach to all amounts paid to him under this Agreement. Executive agrees to DEFEND, INDEMNIFY, AND HOLD FOREVER HARMLESS Releasees against any and all claims, demands, disputes, costs, or expenses of whatever kind or character, including but not limited to taxes, interest, and penalties that may result from any of the payments to him hereunder.

(i) No Assignments. Executive represents and warrants that he has not assigned, pledged, encumbered, or otherwise in any manner whatsoever sold or transferred, either by instrument in writing or otherwise, any right, claim, cause of action, title, interest, lien, or security interest released herein or relating in any way to the claims that were or could have been asserted by Executive against the Releasees.

Section 8. ENTIRE AGREEMENT. This Agreement and the Restrictive Covenant Agreement constitutes the entire understanding among the parties and may not be modified without the express written consent of the parties. This Agreement and the Restrictive Covenant Agreement supersede any and all prior agreements, understandings and negotiations regarding the subject matter hereof, both written and oral, between the parties hereto.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

		APAC CUSTOMER SERVICES, INC.

		By:	/s/ Linda R. Witte
			Name:	LINDA R. WITTE
			Title:	SENIOR VICE PRESIDENT


STATE OF ILLINOIS	§
	§
COUNTY OF LAKE	§

BEFORE ME, the undersigned authority, on this day personally appeared Peter M. Leger, who being by me first duly sworn, stated on his oath that he has read the above and foregoing Separation and General Release Agreement, that he is fully competent and authorized to execute the same on behalf of himself, that he understands the same, and that he executed the Separation and General Release Agreement for the purposes and consideration therein expressed.

SUBSCRIBED AND SWORN to before me on this 3^rd day of May, 2001.

	/s/ Sharon Kay Nelson
	Notary Public

[SEAL OF NOTARY PUBLIC]	/s/ Peter M. Leger
	Peter M. Leger

ADEA RELEASE AGREEMENT

This ADEA RELEASE AGREEMENT (the “Agreement”), executed this 2^nd day of May, 2001, is entered into by and between APAC Customer Services, Inc., an Illinois corporation (the “Company”), and Peter M. Leger (“Executive”).

W I T N E S S E T H

WHEREAS, Executive was employed as Chief Executive Officer and President of the Company and served as a member of the Board of Directors of the Company (the “Board”) pursuant to the terms and conditions set forth in that certain Employment Agreement, made effective as of 11:59 p.m. September 21, 1999, by and between Executive and the Company, as amended by that certain Amendment, dated January 31, 2001, by and between the Company and Executive (together, the “Employment Agreement”), which Employment Agreement incorporated by reference the Restrictive Covenant Agreement made as of September 21, 1999 by and between the Company and Executive (the “Restrictive Covenant Agreement”);

WHEREAS, Executive has resigned from his positions as Chief Executive Officer and President of the Company and as a member of the Board and from all offices Executive held with subsidiaries and affiliates of the Company;

WHEREAS, Executive and the Company have entered into a Separation and General Release Agreement, dated May 2, 2001 (the “Separation Agreement”), that addresses certain matters relating to termination of the employment relationship between Executive and the Company;

WHEREAS, in connection with Executive’s resignation, the parties hereto desire to resolve fully and finally all matters relating to the termination of the employment relationship between Executive and the Company.

Section 1. PAYMENTS. In consideration of the release by Executive set forth in Section 2(a), the Company shall make periodic payments to Executive at a rate of $131,250 per annum (equal to 25% of Executive’s annual base salary as of the date of the Separation Agreement) beginning on the eighth (8th) calendar day after the date this Agreement is signed by Executive and delivered to the Company (the “Effective Date”), payable according to the customary payroll

practices of the Company, but in no event less frequently than once each month. If a Change in Control (as defined below) occurs after the Effective Date, the Company shall use its best efforts to pay the remaining payments due to Executive under this Section 1 in a lump sum as soon as practicable and, if reasonably feasible, before consummation of the Change in Control, but in any event not later than within thirty (30) days after the Change in Control. For purposes of this Section 1, a “Change in Control” shall be deemed to have occurred if (A) a tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the Company, (B) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as the same shall have existed immediately prior to such merger or consolidation, (C) the Company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate, (D) as the result of, or in connection with, any contested election for the Board, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board or the board of directors of any successor to the Company or (E) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the Company, shall acquire more than 50% of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act. Notwithstanding the foregoing, (x) a Change in Control will not occur for purposes of this Agreement merely due to the death of Theodore G. Schwartz, or as a result of the acquisition by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the Company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (y) if the Schwartz Entities control, directly or indirectly, less than twenty-seven percent (27%) of the Company’s voting securities while it is a public company, then “33-1/3%” shall be substituted for “50%” in clauses (A), (B) and (E) of this Section 1.

Section 2. MUTUAL RELEASE.

(a) ADEA Release. Executive hereby knowingly and voluntarily RELEASES, INDEMNIFIES, AND FOREVER DISCHARGES the Company and the Company’s subsidiaries and affiliates, together with all of their respective past and present directors, managers, officers, partners, employees and attorneys, and each of their predecessors, successors and assigns, and any of the foregoing in their capacity as a shareholder or agent of the Company or its subsidiaries or affiliates (collectively, “Releasees”) from any and all claims arising under the Age Discrimination in Employment Act of 1967, as amended, which Executive or his heirs, legatees, executors, administrators, successors or assigns ever had, now have, or may hereafter claim to have against any of the Releasees by reason of any matter, cause or thing whatsoever, whether or not previously asserted before any state or federal court or before any state or federal agency or governmental entity, from the beginning of time to the Effective Date (the “Executive’s Release”).

(b) Release by the Company. Except as provided below, the Company, on its behalf and that of its subsidiaries and affiliates and their officers and directors, agents, employees, successors and assigns (solely in their capacity as officers or directors of the Company or its subsidiaries or affiliates) hereby knowingly and voluntarily releases and forever discharges Executive and his heirs, beneficiaries or assigns (the “Executive Released Parties”) from any and all claims, charges, complaints, promises, agreements, controversies, liens, demands, causes of action, obligations, damages and liabilities of any nature whatsoever that it had, now has, or may hereafter claim to have against the Executive Released Parties arising out of or relating in any way to Executive’s employment by or separation from the Company or its subsidiaries or affiliates, whether or not previously asserted before any state or federal court or before any state, federal or regulatory agency or governmental entity, from the beginning of time to the Effective Date; provided, that, nothing herein shall be deemed to release any of the Company’s rights under this Agreement, the Restrictive Covenant Agreement or the Separation Agreement.

Section 3. REPRESENTATIONS.

basis for the Company or its subsidiaries or affiliates to assert any claim against Executive for violation of any federal, state, or local law, or breach of any applicable duty under common law.

(c) Executive acknowledges that the Company is not entering into this Agreement because it believes that Executive has any cognizable legal claim against the Releasees. Executive acknowledges and agrees that the purpose of this agreement is to provide him with further assistance in the transition of his employment status, while at the same time protecting the Releasees from the expense and disruption which are often incurred in defending against even a groundless lawsuit. If Executive elects not to sign or revokes this Agreement, the fact that this Agreement was offered in the first place will not be understood as an indication that the Releasees believed Executive was treated unlawfully or unfairly in any respect.

Section 4. REVIEW AND REVOCATION PERIOD. Executive hereby acknowledges that he has twenty-one (21) calendar days after receipt of this Agreement to consider whether to sign it (although Executive may choose voluntarily to sign and deliver this Agreement sooner), and that he has been advised by the Company that he may consult with an attorney of his choice prior to signing and returning this Agreement. Executive further acknowledges that he may change his mind and revoke this Agreement at any time during the seven (7) calendar days immediately after he signs the Agreement, in which case none of the provisions of this Agreement will have any effect. Executive acknowledges and agrees that if he wishes to revoke this Agreement within the seven (7)-day revocation period, he must do so by delivering written notification addressed to the Chairman of the

Compensation Committee of the Board, APAC Customer Services, Inc., Six Parkway North Center, Suite 400, Deerfield, Illinois 60015, and that such revocation must be signed by Executive and received by the Company no later than 5:00 p.m. central time on the seventh (7th) calendar day after Executive has signed this Agreement. Executive acknowledges and agrees that, in the event he revokes this Agreement, he shall have no right to receive any of the benefits hereunder.

Section 5. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered mail, return receipt requested, postage prepaid as follows:

If to the Company:

APAC Customer Services, Inc.

Six Parkway North Center, Suite 400

Deerfield, Illinois 60015

Attn: Chairman

with a copy to:

Skadden, Arps, Slate, Meagher & Flom (Illinois)

333 West Wacker Drive

Chicago, Illinois 60606

Attn: Charles W. Mulaney, Jr.

If to Executive:

Executive’s home address as reflected on the Company’s

records, with a copy to:

McDermott, Will & Emery

227 West Monroe Street

Chicago, Illinois 60606

Attn: William W. Merten, Esq.

or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Section 6. MISCELLANEOUS.

(b) Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(c) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(d) Modification; Waiver or Discharge. This Agreement is entered into between the Company and Executive for the benefit of each of the Company (including its subsidiaries and affiliates) and Executive. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(e) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.

(f) Successors; Third-Party Beneficiaries. This Agreement shall be binding upon and shall inure to the benefit of each of the parties hereto, and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns; provided that the provisions of Section 2(a) hereof are intended to be for the benefit of, and shall be enforceable by, each Releasee and his, her or its heirs, legatees, executors, administrators, legal representatives, successors and assigns; and provided further that the provisions of Section 2(b) hereof are intended to be for the benefit of, and shall be enforceable by, each Executive Released Party and his, her or its heirs, beneficiaries and assigns. Except as set forth in the immediately preceding sentence, this Agreement is solely for the benefit of Executive and the Company and shall not inure to the benefit of any third party.

(g) Withholding. All Payments made by the Company to Executive pursuant to Section 1 of this Agreement shall be reduced by all federal, state, city or other taxes that are required to be withheld pursuant to any law or government regulation. Executive agrees that he is fully and solely responsible for any and all other income tax or withholding liability, if any, and all other taxes that may attach to all amounts paid to him under this Agreement. Executive agrees to DEFEND, INDEMNIFY, AND HOLD FOREVER HARMLESS Releasees against any and all claims, demands, disputes, costs, or expenses of whatever kind or character, including but not limited to taxes, interest, and penalties that may result from any of the payments to him hereunder.

Section 7. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding among the parties and may not be modified without the express written consent of the parties. This Agreement supersedes any and all prior agreements, understandings and negotiations regarding the subject matter hereof, both written and oral, between the parties hereto; provided that nothing herein shall modify or supersede any provision of the Restrictive Covenant Agreement or the Separation Agreement.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

		APAC CUSTOMER SERVICES, INC.

		By:	/s/ Linda R. Witte
			Name:	LINDA R. WITTE
			Title:	SENIOR VICE PRESIDENT
STATE OF ILLINOIS	§
	§
COUNTY OF LAKE	§

BEFORE ME, the undersigned authority, on this day personally appeared Peter M. Leger, who being by me first duly sworn, stated on his oath that he has read the above and foregoing ADEA Release Agreement, that he is fully competent and authorized to execute the same on behalf of himself, that he understands the same, and that he executed the ADEA Release Agreement for the purposes and consideration therein expressed.

SUBSCRIBED AND SWORN to before me on this 3^rd day of May, 2001.

	/s/ Sharon Kay Nelson
	Notary Public

[OFFICIAL SEAL-	/s/ Peter M. Leger
SHARON KAY NELSON	Peter M. Leger
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES [ILLEGIBLE]]

EX-10.10 4 a2073275zex-10_10.htm EXHIBIT 10.10

Exhibit 10.10

	APAC Customer Services, Inc.	Phone 847-374-4998
	Six Parkway North Center	Fax 847-236-5453
	Deerfield, IL 60015	wnrothman@apacmail.com
Warren N. Rothman Senior Vice President, Human Resources

SEPARATION AND GENERAL RELEASE AGREEMENT

This SEPARATION AND GENERAL RELEASE AGREEMENT (the “Agreement”), executed this 10^th day of July, 2001, is entered into by and between APAC Customer Services, Inc., an Illinois corporation (the “Company”), and John L. Gray (“Executive”).

W I T N E S S E T H

WHEREAS, Executive has been employed as Senior Vice President pursuant to the terms and conditions set forth in that certain letter agreement between Executive and Peter M. Leger, then President and Chief Operating Officer of the Company, dated December 17, 1999 and executed by Executive on December 19, 1999, which agreement incorporates by reference the Restrictive Covenant Agreement made as of December 19, 1999 by and between the Company and Executive (the “Restrictive Covenant Agreement”);

WHEREAS, the Company has determined that it is no longer in need of the services provided by Executive under the terms of the above-referenced letter agreement; and

WHEREAS, the Company has decided to terminate Executive’s employment with the Company other than for Cause, as defined in the above-referenced letter agreement.

Section 1. TERMINATION OF SERVICE; BENEFITS.

(a) Termination of Employment. Effective as of July 3, 2001 (the “Separation Date”), Executive’s employment with the Company ceases.

(b) Payments and Benefits. The Company shall provide Executive with the payments and benefits set forth in this subsection (b).

(i) Severance Payments. The Company shall pay Executive $350,625.00 in severance payments, paid in monthly payments of $19,479.17 for a period of eighteen (18) months (equal to 150% of Executive’s annual base salary plus a pro rata portion of his target bonus for 2001, less 25%, as of the date hereof). Notwithstanding the foregoing, the Company shall pay to Executive,

in accordance with its customary payroll practices (but not later than July 13, 2001) and to the extent not previously paid, Executive’s base salary accrued through the Separation Date (“Accrued Base Salary”), and such payment or payments of Accrued Base Salary shall not reduce or offset the Company’s obligation to make the Severance Payments. If a Change in Control (as defined below) occurs after the Separation Date, the Company shall use its best efforts to pay the remaining Severance Payments due to Executive under this paragraph (i) in a lump sum as soon as practicable and, if reasonably feasible, before consummation of the Change in Control, but in any event not later than within thirty (30) days after the Change in Control. For purposes of this paragraph (i), a “Change in Control” shall be deemed to have occurred if (A) a tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the Company, (B) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as the same shall have existed immediately prior to such merger or consolidation, (C) the Company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate, (D) as the result of, or in connection with, any contested election for the Board, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board or the board of directors of any successor to the Company or (E) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the Company, shall acquire more than 50% of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act. Notwithstanding the foregoing, (x) a Change in Control will not occur for purposes of this Agreement merely due to the death of Theodore G. Schwartz, or as a result of the acquisition by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the

Company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (y) if the Schwartz Entities control, directly or indirectly, less than twenty-seven percent (27%) of the Company’s voting securities while it is a public company, then “33-1/3%” shall be substituted for “50%” in clauses (A), (B) and (E) of this paragraph (i).

(ii) Stock Options. Executive acknowledges and agrees that (A) as of the Separation Date, the option granted to him pursuant to the Nonqualified Stock Option Agreement number 00-028, dated as of December 20, 1999, shall be exercisable in accordance with its terms relating to a termination of employment by the Company without cause, (B) as of the Separation Date, the option granted to him pursuant to the Stock Option Agreement number 00004927, dated as of February 6, 2001, shall be exercisable in accordance with its terms relating to a termination of employment by the Company without cause, (C) as of the Separation Date, such options and such option agreements shall otherwise expire and be of no further force or effect.

(iii) Health Insurance. Executive acknowledges that his termination of employment hereunder shall constitute a “qualifying event” for purposes of determining his rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), and that the continuation of health benefits hereunder shall be at the option of Executive, provided he makes the required premium payments within the prescribed time periods as outlined in the COBRA Information Package that will be sent separately to his home address of record.

(iv) Other Benefits. Executive shall receive payment for 116.976 hours of accrued but unused vacation on the next regularly scheduled payday on or after his separation date. Otherwise all other accrued benefits shall be governed by the terms of the plans, policies and procedures of the Company; provided that Executive shall not be entitled to receive any bonus for 2001, including, without limitation, any annual incentive bonus for 2001 under the Company’s Management Incentive Plan; provided further that nothing in this Agreement shall be deemed to constitute a waiver by Executive of Executive’s rights, as of the Separation Date, under

the terms of the plans, policies and procedures of the Company, to convert Executive’s participation in a Company group benefit plan to an individual policy, participation in and payment for which individual policy is solely at the expense of Executive.

(v) References. The Company agrees to provide, upon request, an employment reference for Executive, indicating the dates on which he was employed as Senior Vice President. The Company agrees to inform anyone requesting a reference that Executive ceased employment on July 3, 2001. The Company also agrees to indicate, to anyone who requests a reference, that there were no negative issues with regard to Executive’s performance.

Section 2. MUTUAL RELEASE.

(a) Executive’s Release.

(i) Executive hereby knowingly and voluntarily RELEASES, INDEMNIFIES, AND FOREVER DISCHARGES the Company and the Company’s subsidiaries and affiliates, together with all of their respective past and present directors, managers, officers, partners, employees and attorneys, and each of their predecessors, successors and assigns, and any of the foregoing in their capacity as a shareholder or agent of the Company or its subsidiaries or affiliates (collectively, “Releasees”) from any and all claims, charges, complaints, promises, agreements, controversies, liens, demands, causes of action, obligations, attorneys’ fees, damages and liabilities of any nature whatsoever, known or unknown, suspected or unsuspected, which Executive or his executors, administrators, successors or assigns ever had, now have, or may hereafter claim to have against any of the Releasees by reason of any matter, cause or thing whatsoever, whether or not previously asserted before any state or federal court or before any state or federal agency or governmental entity, even if such act or omission is found to have been an INTENTIONAL ACT OR OMISSION, OR A NEGLIGENT ACT OR OMISSION by the Releasees, from the beginning of time to the Separation Date (the “Executive’s Release”); provided that, nothing herein shall be deemed to release any of Executive’s right to enforce this Agreement.

(ii) The Executive’s Release includes, without limitation, any rights or claims arising out of or relating in any way to Executive’s employment by or separation from the Company or

otherwise relating to any of the Releasees, or arising under any state or federal statute or regulation, including the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, the Employee Retirement Income Security Act of 1974, and the Family Medical Leave Act of 1993, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act of 1988, the Illinois Human Rights Act, each as amended, or any other federal, state or local law, regulation, ordinance or common law (including, without limitation, claims based on breach of contract, tort, fraud or fraudulent inducement), or under any policy, agreement, understanding or promise, whether written or oral, formal or informal, between any of the Releasees and Executive.

(b) Except as provided below, the Company, on its behalf and that of its subsidiaries and affiliates and their officers and directors, agents, employees, successors and assigns (solely in their capacity as officers or directors of the Company or its subsidiaries or affiliates) hereby knowingly and voluntarily releases and forever discharges Executive and his heirs, beneficiaries or assigns (the “Executive Released Parties”) from any and all claims, charges, complaints, promises, agreements, controversies, liens, demands, causes of action, obligations, damages and liabilities of any nature whatsoever that it had, now has, or may hereafter claim to have against the Executive Released Parties arising out of or relating in any way to Executive’s employment by or separation from the Company or its subsidiaries or affiliates, whether or not previously asserted before any state or federal court or before any state, federal or regulatory agency or governmental entity, from the beginning of time to the Effective Date; provided, that, nothing herein shall be deemed to release any of the Company’s rights under this Agreement or the Restrictive Covenant Agreement; provided further that this subsection (b) shall not be effective unless and until Executive has granted the Company an irrevocable waiver of claims under the Age Discrimination in Employment Act of 1967, as amended.

Section 3. REPRESENTATIONS.

Executive for violation of any federal, state, or local law, or breach of any applicable duty under common law.

Section 5. COOPERATION. Executive agrees that he will fully cooperate in any claims, litigation or other legal actions in which the Company or its subsidiaries or affiliates may become involved. Such cooperation shall include Executive making himself available, upon the request of the Company and at the Company’s expense, for depositions, court appearances and interviews by Company’s counsel. To the maximum extent permitted by law, Executive agrees that he will notify the Company’s Senior Vice President, General Counsel and Secretary, if he is contacted by any government agency or any other person contemplating or

maintaining any claim or legal action against the Company or its subsidiaries or affiliates or by any agent or attorney of such person.

If to the Company:

APAC Customer Services, Inc.

Six Parkway North, Suite 400

Deerfield, Illinois 60015

Attn: Senior Vice President, Human Resources

If to Executive:

Executive’s home address as reflected on the Company’s

records

or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Section 7. MISCELLANEOUS.

(b) Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(c) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(d) Termination of Employment Agreement. Executive agrees and acknowledges that, on and after the Separation Date, he has no further

rights under that certain letter agreement between Executive and Peter M. Leger, dated December 17, 1999 and executed December 19, 1999 referenced above, or any other agreement relating to the terms and conditions of his employment.

(e) Modification; Waiver or Discharge. This Agreement is entered into between the Company and Executive for the benefit of each of the Company (including its subsidiaries and affiliates) and Executive. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

		APAC CUSTOMER SERVICES, INC.

		By:	/s/ Steven A. Shlensky
			Name: STEVEN A. SHLENSKY
			Title: SVP, STRATEGIC PLANNING AND CORPORATE DEVELOPMENT

STATE OF ILLINOIS	§
	§
COUNTY OF COOK	§

BEFORE ME, the undersigned authority, on this day personally appeared John L. Gray, who being by me first duly sworn, stated on his oath that he has read the above and foregoing Separation and General Release Agreement, that he is fully competent and authorized to execute the same on behalf of himself, that he understands the same, and that he executed the Separation and General Release Agreement for the purposes and consideration therein expressed.

SUBSCRIBED AND SWORN to before me on this 9 day of July, 2001.

	/s/ Stephanie L. Bryce
	Notary Public
[SEAL OF NOTARY PUBLIC]
	/s/ John L. Gray
	John L. Gray

	APAC Customer Services, Inc.	Phone 847-374-4980
	Six Parkway North Center	Fax 847-945-2938
	Deerfield, IL 60015	www.apaccustomerservices.com

ADEA RELEASE AGREEMENT

This ADEA RELEASE AGREEMENT (the “Agreement”), executed this 10^th day of July, 2001, is entered into by and between APAC Customer Services, Inc., an Illinois corporation (the “Company”), and John L. Gray (“Executive”).

W I T N E S S E T H

WHEREAS, Executive was employed as Senior Vice President pursuant to the terms and conditions set forth in that certain letter agreement between Executive and Peter M. Leger, then President and Chief Operating Officer of the Company, dated December 17, 1999 and executed by Executive on December 19, 1999, which agreement incorporates by reference the Restrictive Covenant Agreement made as of December 19, 1999 by and between the Company and Executive (the “Restrictive Covenant Agreement”);

WHEREAS, the Company has determined that it is no longer in need of the services provided by Executive under the terms of the above-referenced letter agreement and has decided to terminate Executive’s employment with the Company other than for Cause, as defined in the above-referenced letter agreement;

WHEREAS, Executive and the Company have entered into a Separation and General Release Agreement, dated July 10^th, 2001 (the “Separation Agreement”), that addresses certain matters relating to termination of the employment relationship between Executive and the Company;

WHEREAS, in connection with Executive’s termination of employment, the parties hereto desire to resolve fully and finally all matters relating to the termination of the employment relationship between Executive and the Company.

Section 1. PAYMENTS. In consideration of the release by Executive set forth in Section 2(a), the Company shall pay Executive a total of $116,875.00, paid in monthly payments of $6,493.06 for a period of eighteen (18) months (equal to 150% of Executive’s annual base salary plus a pro rata portion of his target bonus for 2001, less 75%, as of the date of the Separation Agreement) beginning on the eighth (8th) calendar day after the date this Agreement is signed by Executive and delivered to the Company (the “Effective Date”). If a Change in

Control (as defined below) occurs after the Effective Date, the Company shall use its best efforts to pay the remaining payments due to Executive under this Section 1 in a lump sum as soon as practicable and, if reasonably feasible, before consummation of the Change in Control, but in any event not later than within thirty (30) days after the Change in Control. For purposes of this Section 1, a “Change in Control” shall be deemed to have occurred if (A) a tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the Company, (B) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, as the same shall have existed immediately prior to such merger or consolidation, (C) the company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate, (D) as the result of, or in connection with, any contested election for the Board, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board or the board of directors of any successor to the Company or (E) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the Company, shall acquire more than 50% of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act. Notwithstanding the foregoing, (x) a Change in Control will not occur for purposes of this Agreement merely due to the death of Theodore G. Schwartz, or as a result of the acquisition by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the Company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (y) if the Schwartz Entities control, directly or indirectly, less than twenty-seven percent (27%) of the Company’s voting securities while it is a public company, then “33-1/3%” shall be substituted for “50%” in clauses (A), (B) and (E) of this Section 1.

Section 2. MUTUAL RELEASE.

(a) ADEA Release. Executive hereby knowingly and voluntarily RELEASES, INDEMNIFIES, AND FOREVER DISCHARGES the

Company and the Company’s subsidiaries and affiliates, together with all of their respective past and present directors, managers, officers, partners, employees and attorneys, and each of their predecessors, successors and assigns, and any of the foregoing in their capacity as a shareholder or agent of the Company or its subsidiaries or affiliates (collectively, “Releasees”) from any and all claims arising under the Age Discrimination in Employment Act of 1967, as amended, which Executive or his heirs, legatees, executors, administrators, successors or assigns ever had, now have, or may hereafter claim to have against any of the Releasees by reason of any matter, cause or thing whatsoever, whether or not previously asserted before any state or federal court or before any state or federal agency or governmental entity, from the beginning of time to the Effective Date (the “Executive’s Release”).

Section 3. REPRESENTATIONS.

(b) Executive represents that the Company has advised him to consult with an attorney of his choosing prior to signing this Agreement. Executive represents that he understands and agrees that he has the right to have this Agreement and, specifically, Executive’s Release reviewed by an attorney of Executive’s choice and that he has in fact reviewed this Agreement and, specifically, Executive’s Release, with an attorney of his choice. Executive further represents that he read and understood each and every provision in this Agreement and that he had the opportunity to consult with an attorney of his choice regarding the effect of each and every provision of this Agreement.

(c) Executive acknowledges that the Company is not entering into this Agreement because it believes that Executive has any cognizable legal claim against the Releasees. Executive acknowledges and agrees that the purpose of this Agreement is to provide him with further assistance in the transition of his employment status, while at the same time protecting the Releasees from the expense and disruption which are often incurred in defending against even a groundless lawsuit. If Executive elects not to sign or revokes this Agreement, the fact that this Agreement was offered in the first place will not be understood as an indication that the Releasees believed Executive was treated unlawfully or unfairly in any respect.

and agrees that, in the event he revokes this Agreement, he shall have no right to receive any of the benefits hereunder.

If to the Company:

APAC Customer Services, Inc.

Six Parkway North, Suite 400

Deerfield, Illinois 60015

Attn: Senior Vice President, Human Resources

If to Executive:

Executive’s home address as reflected on the Company’s

records

or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Section 6. MISCELLANEOUS.

(b) Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(c) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(d) Modification; Waiver or Discharge. This Agreement is entered into between the Company and Executive for the benefit of each of the

Company (including its subsidiaries and affiliates) and Executive. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(g) Withholding. All payments made by the Company to Executive pursuant to Section 1 of this Agreement shall be reduced by all federal, state, city or other taxes that are required to be withheld pursuant to any law or governmental regulation. Executive agrees that he is fully and solely responsible for any and all other income tax or withholding liability, if any, and all other taxes that may attach to all amounts paid to him under this Agreement. Executive agrees to DEFEND, INDEMNIFY, AND HOLD FOREVER HARMLESS Releasees against any and all claims, demands, disputes, costs, or expenses of whatever kind or character, including but not limited to taxes, interest, and penalties that may result from any of the payments to him hereunder.

modify or supersede any provision of the Restrictive Covenant Agreement or the Separation Agreement.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

		APAC CUSTOMER SERVICES, INC.

		By:	/s/ Steven A. Shlensky
		Name: STEVEN A. SHLENSKY
		Title: SVP, STRATEGIC PLANNING AND CORPORATE DEVELOPMENT

STATE OF ILLINOIS	§
	§
COUNTY OF COOK	§

BEFORE ME, the undersigned authority, on this day personally appeared John L. Gray, who being by me first duly sworn, stated on his oath that he has read the above and foregoing ADEA Release Agreement, that he is fully competent and authorized to execute the same on behalf of himself, that he understands the same, and that he executed the ADEA Release Agreement for the purposes and consideration therein expressed.

SUBSCRIBED AND SWORN to before me on this 9 day of July, 2001.

	/s/ Stephanie L. Bryce
	Notary Public
[SEAL OF NOTARY PUBLIC]
	/s/ John L. Gray
	John L. Gray

EX-10.11 5 a2073275zex-10_11.htm EXHIBIT 10.11

Exhibit 10.11

	APAC Customer Services, Inc.	Phone 847-374-4998
	One Parkway North Center, 5^th Floor	Fax 847-236-5453
	Deerfield, IL 60015	wnrothman@apacmail.com



	October 1, 1999

Warren N. Rothman

Senior Vice President

Human Resources

Mr. John R. Bowden

33 Duxbury

North Barrington, IL 60010

Dear John:

We are very happy that you have decided to join APAC. Your title will be Senior Vice President, Client Relationship Development and you will report to our President and Chief Operating Officer as a member of the Executive Committee. As agreed, the following employment terms will apply:

1. Your starting base salary will be $220,000 on an annualized basis payable bi-weekly (“Base Salary”). Your Basic Salary will be reviewed each year at the time when increases for executive personnel of APAC are considered. At the present time, that occurs on or about March 1st of each year.

2. You will be a participant in APAC’s annual incentive compensation plan (“Bonus”) as it exists from year-to-year with a maximum annual payout target for 1999 of fifty percent (50%) of Base Salary. The payout of your Bonus depends on APAC meeting its budgeted financial performance and you meeting your individual and team performance goals that will be established each year between you and the executive to whom you report. For 1999, assuming you are employed by APAC at the time bonuses are paid, your minimum bonus shall be $13,750, guaranteed.

3. You will be entitled to the benefits, paid vacation (four weeks) and perquisites normally available to Senior Vice President level employees.

4. Subject to the approval of the Compensation Committee at its October 12, 1999 meeting, you are being granted options to purchase 100,000 shares of APAC stock at a exercise price equal to the mean between the high and the low prices at which APAC’s common stock trades on the day you begin work at APAC as reported by Bloomberg Financial Markets, such options to be issued pursuant to the option grant materials enclosed with this letter. This option will vest at the rate of 20% per year during the first five years of the term of the option and the option will have a term of ten years. You will also be eligible for annual consideration for additional option awards subject to the terms and guidelines of the company’s going-forward stock option plan.

October 1, 1999

Mr. John R. Bowden

Page Two

		5. You will sign a Restrictive Covenant Agreement (form attached) concurrent herewith.

		6. Your employment will be full-time and best efforts.

		7. Your effective commencement date is to be on or before October 8, 1999.

		8. You will be based in APAC’s office in Deerfield, Illinois, but will be expected to travel regularly as part of your responsibilities.

		9. In the event your employment is terminated by APAC other than “ for cause” (as such term is defined in APAC’s option grant materials), APAC will pay you severance equal to the monthly amount of your then current Base Salary during each of the six (6) months following such termination.

		We are excited to have you join the team, and we look forward to working with you.

		Best personal regards.

		Sincerely,
		/s/ Warren N. Rothman
		Warren N. Rothman
		Senior Vice President
		Human Resources

		Enclosure

	Accepted By:

	/s/ John R. Bowden
	John R. Bowden

	Dated: October 7, 1999

EX-10.12 6 a2073275zex-10_12.htm EX-10.12

Exhibit 10.12

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is entered into this August 17, 2001, and made effective as of August 27, 2001 (the “Effective Date”), by and between APAC Customer Services, Inc., an Illinois corporation (the “Company”), and Marc T. Tanenberg (the “Executive”).

In consideration of the mutual covenants contained in this Agreement, the parties hereby agree as follows:

SECTION I
EMPLOYMENT

A. Employment

Subject to the terms and conditions provided in this Agreement, the Company agrees to employ the Executive, and the Executive agrees to be employed by the Company. Such employment hereunder shall commence as of the Effective Date and shall terminate on August 27, 2006, unless terminated earlier as provided below in Section III or extended as provided below (the “Period of Employment”).

B. Position, Responsibilities and Duties

While the Executive is employed with the Company, the Executive shall devote all of his business time, attention and skill to the business and affairs of the Company and its subsidiaries. The Executive shall report to the Chief Executive Officer of the Company and shall perform such duties on behalf of the Company as are customarily performed by the Chief Financial Officer or as may be directed by the Chief Executive Officer of the Company. The Executive shall serve as Senior Vice President and Chief Financial Officer. The Executive may serve on corporate, civic or charitable boards or committees so long as, in the judgment of the Chief Executive Officer, such activities do not interfere with the Executive’s responsibilities hereunder.

SECTION II
COMPENSATION AND BENEFITS

A. Base Salary

During the Period of Employment, the Company agrees to pay the Executive a base salary (“Base Salary”) of Two Hundred Fifty Thousand Dollars ($250,000) payable periodically on the same basis as other senior executives of the Company. The Executive’s Base Salary will be reviewed at the same time as other senior executives who report directly to the Chief Executive Officer during the Period of Employment by the Compensation Committee of the Board of Directors (the “Compensation Committee”), and may be increased or decreased as it deems appropriate. In no event shall the base salary for any 12 month period be less than $250,000, except if the Executive’s Base Salary is decreased in connection with a reduction of senior executives’ salaries generally, and all senior executives of the Company are subject to an equivalent percentage reduction in their base salaries.

B. Incentive Bonus

(a) For each fiscal year of the Executive’s employment with the Company, the Executive shall be eligible for an annual incentive bonus (“Annual Incentive Bonus”) under the Company’s Management Incentive Plan, as in effect from time to time or under a successor annual incentive plan (“Incentive Plan”), with a threshold award of 20%, a target award of 40%, and a stretch or maximum award of 60%, payable to the Executive in accordance with the Company’s Incentive Plan. The Compensation Committee shall establish the goals for each fiscal year (with corresponding goals established for the payment of threshold, target and maximum or stretch awards).

(b) For the balance of 2001, Executive will be a participant in the Company’s semi-annual incentive compensation plan with threshold, target and maximum or stretch awards as provided in such plan; provided, however, that the Company guarantees that Executive’s bonus for the period starting on the Effective Date and ending on December 31, 2001 shall be equal to at least $62,630. Executive’s bonus amount for the balance of 2001 shall be paid at the same time bonuses are paid under the Company’s semi-annual incentive compensation plan, presently expected to occur in April of 2002.

C. Equity Incentives

(a) As of the Effective Date, the Company shall grant to the Executive a nonstatutory stock option (one that is not intended to be an incentive stock option under Section 422 of the Code) under the APAC Customer Services, Inc. Second Amended and Restated 1995 Incentive Stock Plan (the “Stock Plan”) covering two hundred thousand (200,000) shares of the Common Stock of the Company (“Shares”) at an exercise price equal to the mean between the high and low prices at which the Company’s Common Stock trades on August 27, 2001, as reported by Bloomberg Financial Markets. As a condition to the receipt of this grant made as of the Effective Date, the Executive shall execute a Stock Option Agreement, in the form appended hereto as Attachment I.

(b) If the Executive is employed hereunder on the date in 2002 and each subsequent year of the Period of Employment that option grants are made to executives of the Company generally, the Executive shall be eligible to receive additional stock option grants under the Stock Plan based on the Compensation Committee’s assessment of his performance. The number of Shares covered by such option grants shall be determined by the Compensation Committee based on the Executive’s achievement of the performance goals established by the Compensation Committee under the Incentive Plan for each fiscal year. Each such option granted to the Executive pursuant to this paragraph shall be on such terms and conditions as the Compensation Committee shall determine and as evidenced by a written and executed Stock Option Agreement, consistent with other similarly situated senior executives of the Company with respect to options granted from and after the date of this Agreement.

D. Employee Benefits

During the Period of Employment, the Executive shall be entitled to participate in all employee benefit plans or programs provided to senior executives of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with plan or program provisions, subject in each case to the conditions, limitations and restrictions imposed on the receipt of benefits under such plan or program. These plans or programs may include group medical, life or other insurance, tax qualified pension, savings, thrift and profit sharing plans, sick leave plans, travel or accident insurance, and short and long term disability insurance. Notwithstanding the foregoing, the Executive shall not be eligible to participate in any severance or termination pay plan or program.

Nothing in this Agreement shall preclude the Company from amending or terminating any of the plans or programs applicable to senior executive employees of the Company. Notwithstanding anything to the contrary in this Section II.D., no amendment or termination of any employee benefit or program shall reduce or otherwise adversely affect Executive’s rights under Section II.C.(a) or III of this Agreement.

E. Business Expenses

The Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in connection with the performance of his duties and responsibilities under this Agreement. The Executive must support all expenditures with customary receipts and expense reports subject to review in accordance with the Company’s regular policy regarding expense reimbursement.

F. Additional Benefits

The Executive shall be entitled to receive four (4) weeks paid vacation during each calendar year, to be taken at such time or times that are mutually agreeable by the Executive and the Company and not disruptive of the Company’s business. Such vacation shall be prorated for partial calendar years and may be carried over or cashed out, if at all, only in accordance with general Company policies as in effect from time to time. In addition, the Company shall pay, on behalf of the Executive, reasonable attorney’s fees in an amount not to exceed $7,500 incurred by him in connection with the negotiation and preparation of this Agreement.

SECTION III
EFFECT OF TERMINATION OF EMPLOYMENT

A. Termination Other Than With Cause Other Than In Connection With Change in Control

If, other than under circumstances described in Section III.B., the Company terminates the Executive’s employment other than With Cause (defined below in Section III.E.), the Executive terminates his employment for Good Reason (as defined below in Section III.F.) prior to a Change in Control, or the Company does not extend the term of this Agreement for another

year at the end of the term hereof or any such extended term (i) the Executive shall be entitled to receive payment of an aggregate amount equal to his Base Salary, at the rate then in effect; payable in 26 bi-weekly installments over a 52 week period; and (ii) the Employer shall reimburse Executive for the payments Executive makes to exercise his rights under COBRA to continue the Executive, the Executive’s spouse and/or beneficiary medical and dental coverages as such may be in effect from time to time under the Company’s welfare plans for a period of 12 months. Such payments shall be conditioned on the Executive’s execution and delivery of the Company’s then standard form of Release. In addition, the Executive shall be entitled to payment for all accrued but unused vacation and to his accrued benefits under the terms of the plans, policies and procedures of the Company, including any plans or programs in which he participates pursuant to Section II.D. Upon making the payments and providing the benefits required under this Paragraph A, the Company shall have no further obligation to the Executive under this Agreement.

B. Termination Other Than With Cause or for Good Reason In Connection With Change in Control

If during the period of Employment and within twelve (12) months following a Change in Control, as defined in Attachment II to this Agreement, the Company terminates the Executive’s employment other than With Cause or the Executive terminates his employment for Good Reason (as defined in Attachment II), the Executive shall be entitled to those benefits set forth in the Employment Security Agreement attached hereto as Attachment II.

C. Termination With Cause, Voluntary Termination, Termination by Death or Disability

If the Executive’s employment is (i) terminated by the Company With Cause, (ii) voluntarily terminated by the Executive other than for Good Reason, or (iii) terminated by his death or Disability (as defined below), the Executive shall be entitled to: (A) his Base Salary, at the rate then in effect, through the date of termination, (B) his accrued benefits under the terms of the plans, policies and procedures of the Company, including any plans or programs in which he participates pursuant to Section II.D., and (C) payment for all accrued but unused vacation. Upon such payment, the Company shall have no further obligation to the Executive under this Agreement.

For purposes of the foregoing, “Disability” shall mean disability as determined under the Company’s long term disability benefit plan then in effect covering the Executive.

D. Duty to Mitigate; Offset

The Executive shall have no duty to mitigate by seeking other employment after his termination of employment. No amount to which the Executive is entitled under this Section III shall be subject to offset for any income that he derives from employment and/or consulting or from any other source.

E. Definition of With Cause

Termination “With Cause” means termination of the Executive’s employment by the Board of Directors acting in good faith by written notice by the Company to Executive specifying the event relied upon for such termination due to (i) gross misconduct or gross negligence in the performance of Executive’s employment duties, (ii) willful disobedience by the Executive of the lawful directions received from or policies established by the Chief Executive Officer, which continues for more than seven (7) days after the Company notifies Executive of its intention to terminate his employment on account of such disobedience or (iii) conviction of the Executive of a crime involving fraud or moral turpitude that can reasonably be expected to have an adverse effect on the business, reputation or financial situation of the Company.

F. Definition of Good Reason under Section III.A.

“Good Reason” for purposes of Section III.A. above shall exist if, after notice by the Executive to the Company and a fifteen (15) day opportunity by the Company to cure (provided that with respect to matters (a) and (b) below the opportunity to cure shall be thirty (30) days):

(a) The Executive’s duties, responsibilities or authority as an executive employee are materially reduced or diminished from those in effect on the Executive’s commencement of Employment without the Executive’s written consent or the Executive no longer reports to the CEO of the Company; provided, however, that the Company’s ceasing to be a publicly traded entity shall not constitute a diminution of duties herunder in the absence of a Change in Control;

(b) The Base Salary of the Executive and the incentive compensation opportunity available to the Executive is reduced in the aggregate and not in accordance with a compensation reduction specifically permitted under Section II.A. of this Agreement; or

SECTION IV
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT

A. Cooperation During and After Employment

The Executive will, with reasonable notice during or after the Period of Employment, furnish information as may be in his possession and cooperate with the Company as may reasonably be requested in connection with any claims or legal actions in which the Company is or may become a party. The Company shall be responsible for, and shall advance to the Executive, any expenses incurred or to be incurred by Executive in connection with his furnishing information or cooperation with the Company under this Section.

B. Restrictive Covenant Agreement

The Executive agrees that in order to protect the business interests of the Company, he shall, contemporaneously with his execution of this Agreement, execute the Restrictive Covenant Agreement, a copy of which is appended to this Agreement as Attachment III. The Executive further agrees that he will execute such modifications to the Restrictive Covenant Agreement as may be reasonably requested by the Company in order to conform such Restrictive Covenant Agreement to applicable law; provided that no such modification shall be more restrictive on the Executive or lengthen the duation of the restrictions thereunder.

SECTION V
INDEMNIFICATION

The Company will indemnify the Executive to the fullest extent permitted by the laws of the state of incorporation in effect at that time, or certificate of incorporation and by-laws of the Company, whichever affords the greater protection to the Executive. The Company will obtain and maintain customary directors and officers liability insurance covering executive employees of the Company.

SECTION VI
WITHHOLDING TAXES

The Company may directly or indirectly withhold from any payments under this Agreement all federal, state, city or other taxes that shall be required pursuant to any law or governmental regulation.

SECTION VII
EFFECT OF PRIOR AGREEMENTS

This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter and supersedes any prior term sheet, letter of understanding, employment, severance, or other similar agreements, or oral agreement or understanding between the Company, its predecessors and its affiliates, and the Executive, including without limitation, the non-disclosure agreement previously executed by the Executive in connection with his employment by the Company.

SECTION VIII
CONSOLIDATION, MERGER OR SALE OF ASSETS

Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or sale of assets, the term “the Company” as used will mean the other corporation and this Agreement shall continue in full force and effect. This Section VIII is not intended to modify or limit the rights of the Executive hereunder, including without limitation, the rights of the Executive under Section III.

SECTION IX

SECTION 280G

Notwithstanding any provision of this Agreement or any other agreement, including Attachments II and III to this Agreement, to the contrary, in the event that:

(i) the aggregate payments or benefits to be made or afforded to the Executive under any attachment hereto, or from the Company in any other manner (the “Termination Benefits”) would be deemed to include an “excess parachute payment” under Section 280G of the Code, or any successor thereto, and

(ii) if such Termination Benefits were reduced to an amount (the “Non-Triggering Amount”), the

value of which is one dollar ($1.00) less than an amount equal to three (3) times the Executive’s “base amount,” as determined in accordance with said Section 280G, and the Non-Triggering Amount would be greater than the aggregate value of the Termination Benefits (without such reduction) minus the amount of tax required to be paid by Executive thereon by Section 4999 of the Code, then the Termination Benefits shall be reduced so that the Termination Benefits are not more than the Non-Triggering Amount. The application of said Section 280G, and the allocation of the reduction required by this Section, shall be determined by the Company’s auditors.

SECTION X

MODIFICATION

This Agreement may not be modified or amended except in writing signed by the parties. No term or condition of this Agreement will be deemed to have been waived, except in writing by the party with waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for future or act on anything other than that which is specifically waived.

SECTION XI

GOVERNING LAW; ARBITRATION

This Agreement has been executed and delivered in the State of Illinois and its validity and interpretation shall be governed by the laws of that State, without giving effect to its conflicts of law provisions. Any dispute among the parties hereto shall be settled by arbitration in accordance with the then applicable rules of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof.

SECTION XII

NOTICES

All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class postage prepaid by registered mail, return receipt requested, or when delivered if by hand, overnight delivery services or confirmed facsimile transmission, to the following:

(i) If to the Company, at:

APAC Customer Services, Inc.

Six Parkway North Center

Fourth Floor

Deerfield, IL 60015

Attn: Chief Executive Officer

With a copy to:

APAC Customer Services, Inc.

Six Parkway North Center

Fourth Floor

Deerfield, IL 60015

Attn: General Counsel

or at such other address as may have been furnished to the Executive by the Company in writing; or

(ii) If to the Executive, at his home address as reflected on the Company’s records, or such other address as may have been furnished to the Company by the Executive in writing.

With a copy to:

John R. Obiala

Vedder Price

222 N. LaSalle Street

Chicago, IL 60601

SECTION XIII

BINDING AGREEMENT

This Agreement shall be binding on the parties’ successors, heirs and assigns, however this Agreement, and the rights and obligations hereunder, may not (except as contemplated by Sections III.E.2 and VIII) be assigned by either party without the prior express written consent of the other party.

SECTION XIV

MISCELLANEOUS

A. Multiple Counterparts; Facsimile Signatures

This Agreement may be executed in multiple counterparts with the same force and effect as if both parties had executed the same document. The signature of a party furnished by facsimile shall be as effective as the party’s original signature on the document.

B. Severability

If any phrase, clause or provision of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, such phrase, clause or provision shall be deemed severed from this Agreement, but will not affect any other provisions of this Agreement, which shall otherwise remain in full force and effect. In addition, there will be automatically substituted herein for such severed phrase, clause or provision a phrase, clause or provision as similar as possible which is valid and enforceable.

C. Headings

The headings and subheadings of this Agreement are inserted for convenience of reference only and are not to be considered in construction of the provisions hereof.

D. Construction

The Company and the Executive acknowledge that this Agreement was the result of arm’s-length negotiations between sophisticated parties each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.

* * *

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

	COMPANY

	APAC CUSTOMER SERVICES, INC.

	By:	[ILLEGIBLE]

	EXECUTIVE

	/s/ Marc T. Tanenberg
	Marc T. Tanenberg

EX-10.13 7 a2073275zex-10_13.htm EX-10.13

Exhibit 10.13

	APAC Customer Services, Inc.		Phone 847-374-4998
	One Parkway North Center, 5^th Floor		Fax 847-236-5453
	Deerfield, IL 60015		wnrothman@apacmail.com

Warren N. Rothman

Senior Vice President

Human Resources

January 6, 2000

Mr. Daniel S. Hicks

16631 Wright Circle

Omaha, NE 68130

Dear Dan:

This is to confirm that should your employment with the company terminate for “Good Reason” following a “Change of Control” (terms defined in my December 27, 1999 letter to you), this will not be construed as a voluntary termination per the terms of the Employee Reimbursement Agreement attached to the above-referenced December 27, 1999 letter.

Sincerely,

/s/ Warren N. Rothman

Warren N. Rothman

Senior Vice President,

Human Resources

I have received and understand the terms detailed above.

/s/ Daniel S. Hicks		1-7-00
Daniel S. Hicks		Date

APAC Customer Services, Inc.

Employee Reimbursement Agreement

Employee:	Dan Hicks

New Department:		Inbound SBU	New GL Number:

New Position:		Vice President

In order to receive relocation benefits under the Deerfield Relocation Program, this Employee Reimbursement Agreement must be completed, signed and returned to U.S. Relocation prior to commencement of any benefits. U.S. Relocation will return the fully executed Agreement to the appropriate manager to be place in your file.

This Agreement between APAC Customer Services, Inc. (the “Company”) and the Employee identified above, is effective on JAN 7, 2000. In consideration of the material promises herein, the parties agree as follows:

The Company agrees to pay the relocation benefits under the Deerfield Relocation Program (the “Benefits”) to assist Employee and Employee’s family and household members to relocate to the Deerfield, Illinois area.

Employee agrees to relocate to the Deerfield, Illinois area to assume the new position with the Company identified above. Employee further agrees to reimburse the Company the amounts specified below if, within 24 months of the relocation, (i) Employee voluntarily terminates his employment with the Company, or (ii) the Company terminates Employee for “cause”, which means termination of your employment due to (a) gross misconduct or gross negligence in the performance of your employment duties, (b) commission by you of a crime involving fraud or moral turpitude that can reasonably be expected to have an adverse effect on the business, reputation or financial situation of the Company, or (c) refusal to comply with lawful directives, rules or policies of the company.

In the event that Employee is obligated to reimburse the Company in accordance with the above paragraph, Employee will reimburse the percentage of the Benefits shown in the following schedule within 30 days of termination:

Length of Service From Relocation	Percentage of Benefit to be Reimbursed

12 months or less	100	%
At least 12 months,
But less than 24 months	50	%
As least 24 months	0	%

Employee agrees that such reimbursement may be withheld from any final wages, including vacation pay, due at the time of his termination. Employee further agrees that he will execute any required withholding agreement that the Company determines necessary.

Employee specifically agrees and acknowledges that his employment that his employment with the Company is one of “at will” and this document does not create a contract of employment for any specific period of time or in any way alters at will status, meaning that either you or the Company are free to terminate the employment relationship at any time for any reason. Employee also specifically agrees and acknowledges that receipt of relocation benefits does not extend or guarantee him employment in any way or any specified period of time.

EMPLOYEE		APAC CUSTOMER SERVICES, INC.

By:	/s/ Daniel S. Hicks	By:	/s/ Warren N. Rothman

Date:	1-7-00	Date:	1/7/00

	APAC Customer Services, Inc.		Phone 847-374-4998
	One Parkway North Center, 5^th Floor		Fax 847-236-5453
	Deerfield, IL 60015		wnrothman@apacmail.com

Warren N. Rothman

Senior Vice President

Human Resources

December 27, 1999

PERSONAL AND CONFIDENTIAL

Mr. Dan Hicks

16631 Wright Circle

Omaha, NE 68130

RE: Deerfield Relocation Program — Amended

Dear Dan:

Welcome to our corporate headquarters! On behalf of APAC Customer Services, I am pleased to present you with a comprehensive relocation package for your move to the Deerfield, Illinois area. This letter is merely intended to outline the key components of the Deerfield Relocation Program for your information. More specific information about the Program will be provided to you shortly from U.S. Relocation, our relocation partner.

Relocation Program

1. The Company-provided benefits under the Program are as follows:

a. Marketing assistance with the sale of your home in Omaha, Nebraska via a realtor referred to you by U.S. Relocation.

b. Payment of closing costs associated with the sale of your home in Omaha, including realtor commission and other costs normally paid by the seller.

c. Payment for the move and complete unpack of your household goods and personal possessions from your home in Omaha to your new home in the Deerfield, Illinois area.

d. Payment of a moving allowance in the amount of $10,000 (net of taxes) to assist you with miscellaneous expenses.

e. Home finding assistance in the Deerfield, Illinois area via a realtor associated with one of the Company’s preferred relocation partners.

Mr. Dan Hicks

December 27, 1999

Page 2

f. Payment of any points and loan origination fees associated with your new mortgage on your new home in the Deerfield, Illinois area, up to 2% of the principal amount of your new mortgage.

g. Payment of any fees associated with the purchase of your new home in the Deerfield, Illinois area normally paid for by the buyer, such as recording fees, title/abstract fees and home inspections, up to 1% of the principle amount of your new mortgage.

h. Payment (to be applied toward your new mortgage) of an amount (net of taxes) that, in addition to the proceeds from the sale of your current home, will maintain your current equity position (estimated to be 33.9%) in your new home in the Deerfield, Illinois area. (We estimate this amount to be approximately $133,825, but it could be more or less depending on your actual current equity position and the sale price of your current home.)

i. Payment of a monthly mortgage subsidy (net of taxes) for five years. This payment will equal 100% of the difference, if any, between the total monthly payments (including principle, interest, and property taxes) on your home in Omaha and your new home in the Deerfield, Illinois area for the first three years, 75% of the difference for Year 4, and 50% of the difference for Year 5.

j. Duplicate mortgage protection for up to 3 months on your Omaha home, once you have closed on your Chicago area residence.

k. A bridge loan, secured by the equity in your Omaha home, will be available to enable you to close on your Chicago area home.

l. Additional services, such as temporary housing and household goods storage, are available to you, as your individual situation requires.

Mr. Dan Hicks

December 27, 1999

Page 3

2. To be eligible for these relocation benefits, you must execute an Employee Reimbursement Agreement under which you agree to reimburse the Company in the event that, within 24 months of your move to Deerfield, Illinois, you voluntarily terminate your employment or the Company involuntarily terminates your employment for “Cause.” An Employee Reimbursement Agreement is attached for your review and signature.

3. Relocation benefits that are subject to tax will be grossed-up for tax purposes. The amount of the payments for these relocation benefits will be reflected on your W-2 at the end of the year.

Compensation

1. Your 20% increase in base compensation from $170,000 to $204,000 (annual amount is stated for convenience and not intended as a contract) will become effective when you complete the relocation of your household to the Deerfield, Illinois area. Your relocation must be complete by April 30, 2000, although we are aware of the tight housing market and your commitment to be working full-time in Deerfield by that date.

2. Your annual bonus opportunity will be consistent with that available to executives at your level in the organization as it exists from year to year. For 2000, this opportunity is 15%-30%-45% of base salary for threshold-target-maximum performance, respectively.

3. Upon signing this letter and the enclosed Employee Reimbursement Agreement, and subject to the approval of the Compensation Committee, you will be granted options to purchase 15,000 shares of APAC stock at an exercise price equal to the mean between the high and low prices at which APAC’s common stock trades on the day you sign these documents as

Mr. Dan Hicks

December 27, 1999

Page 4

reported by Bloomberg Financial Markets. Such options will vest at the rate of 20% per year during the first five years of the options’ ten-year term. In addition, you will be eligible to participate in APAC’s going forward performance-based stock option plan, and will be eligible for additional awards pursuant to this plan.

4. With respect to the stock options granted pursuant to this letter as well as all other options granted to you, in the event of a “Change Control” (as defined below), 50% of the unvested portion of all outstanding options shall be fully and immediately vested; the balance shall vest if within one (1) year of the “Change of Control”, your employment with APAC terminates for “Good Reason” (as hereinafter defined).

For purposes hereof, the term “Good Reason” shall mean any of (i) your dismissal from employment by APAC, other than for “Cause” (as defined below), (ii) your voluntary resignation within ninety (90) days following (A) a material alteration in your title, duties or responsibilities or (B) relocation of your office by more than twenty (20) miles from both your current personal residence and Deerfield, Illinois or (C) reduction in your base salary or Incentive Bonus participation; provided such voluntary resignation shall be upon no less than thirty (30) days prior written notice and the reasons specified therein are not cured during the (30) day period immediately following such notice.

5. Finally, if APAC terminates your employment other than for “Cause”, you will be entitled to receive severance payments equal to twelve (12) months base salary. Termination for “Cause” means termination of your employment due to (a) gross misconduct or gross negligence in the performance of your employment duties, (b) commission by you of a crime involving fraud or moral turpitude that can reasonably be expected to have an adverse effect on the business, reputation or financial situation of the Company, or (c) refusal to comply with lawful directives, rules or policies of the Company.

Mr. Dan Hicks

December 27, 1999

Page 5

More detailed information about these benefits will be provided in the Program materials from U.S. Relocation. The description in those materials will govern over this summary. Any questions you may have about the Relocation Program should be directed to Cindy Corkery, Director, Corporate Recruiting. Please direct all questions about compensation to me. Also, please note that by signing this letter, you agree that it supercedes the relevant terms outlined in your September 7, 1999 letter, as well as any other oral or written commitments made to you.

Once again, welcome to Deerfield. You are an important asset to the Company, and Peter, Clark and I look forward to having you on the team.

Sincerely,


/s/ Warren N. Rothman
Warren N. Rothman
Senior Vice President
Human Resources

WNRpl
Enclosures
Cc:	Cindy Corkery
	Clark Sisson
	Peter Leger

Accepted by:

/s/ Dan Hicks
Dan Hicks

Dated: 1-5-00

ATTACHMENT A

A “Change in Control” shall be deemed to have occurred if (I) a tender offer shall be made and consummated for the ownership of more than 50% of the outstanding voting securities of the company, (ii) the Company shall be merged or consolidated with another corporation and, as a result of such merger or consolidation, less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the company, as the same shall have existed immediately prior to such merger or consolidation, (iii) the company shall sell all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary or affiliate, (iv) as a result of, or in connection with, any contested election for the Board of Directors, or any tender or exchange offer, merger or business combination or sale of assets, or any combination of the foregoing (a “Transaction”), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company, or any successor thereto, or (v) a person, within the meaning of Section 3(a)(9) or of Section 13 (d)(3) (as in effect on the date hereof) of the Securities and Exchange Act of 1934 (“Exchange Act”), other than any employee benefit plan then maintained by the company, shall acquire more than 50% of the outstanding voting securities of the company (whether directly, indirectly, beneficially or of record). For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3 (d)(l)(i) (as in effect on the date hereof) pursuant to the Exchange Act. Notwithstanding the foregoing, (i) a Change in Control will not occur for purposes of this Agreement merely due to the death of Theodore G. Schwartz, or as a result of the acquisition, by Theodore G. Schwartz, alone or with one or more affiliates or associates, as defined in the Exchange Act, of securities of the company, as part of a going-private transaction or otherwise, unless Mr. Schwartz or his affiliates, associates, family members or trusts for the benefit of family members (collectively, the “Schwartz Entities”) do not control, directly or indirectly, at least twenty-seven percent (27%) of the resulting entity, and (ii) if the Schwartz Entities control, directly or indirectly, less than twenty-seven percent (27%) of the company’s voting securities while it is a public company, then “33-1/3” shall be substituted for “50%” in clauses (i), (ii), and (v) of the first sentence of this paragraph.

	APAC Customer Services, Inc.		Phone 847-374-4998
	One Parkway North Center, 5^th Floor		Fax 847-236-5453
	Deerfield, IL 60015		wnrothman@apacmail.com

Warren N. Rothman

Senior Vice President

Human Resources

PERSONAL AND CONFIDENTIAL

September 7, 1999

Mr. Dan Hicks

16631 Wright Circle

Omaha, NE 68103

Dear Dan:

I am pleased to confirm the recent discussions you have had with Clark. Specifically:

1. Your base salary has been increased to $170,000, effective August 16, 1999.

2. Your bonus for the July-December, 1999 period under the Management Bonus Plan (MBP) will be guaranteed at the 50% funding level, or $17,000 (less withholding). This payment is contingent on you being actively employed by the company on the date the MBP bonuses are paid, consistent with the updated terms of the Plan.

3. Regarding your stock options (total of 150,000 granted through August 3, 1999), in the event there is a “change of control” of the power to vote APAC’s common stock, and if thereafter you are dismissed from employment other than for gross negligence or “cause” (as said term is defined in APAC’s stock option grant materials), you will then be fully vested in all of the above-mentioned stock options.

We look forward to your continued contributions to the company going forward.

Best personal regards!

Sincerely,

/s/ Warren N. Rothman

Warren N. Rothman

Senior Vice President

Human Resources

WNR:ca

Cc: Clark Sisson

EX-10.22 8 a2073275zex-10_22.htm EX-10.22

Exhibit 10.22

APAC CUSTOMER SERVICES, INC.

SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

This Sixth Amendment to Amended and Restated Credit Agreement (herein, the “Amendment”) is entered into as of January 10, 2002, between APAC Customer Services, Inc., an Illinois corporation formerly known as APAC TeleServices, Inc., the Banks party hereto, and Harris Trust and Savings Bank, as Agent for the Banks.

PRELIMINARY STATEMENTS

A. The Borrower, the Banks, and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of September 8, 1998, as heretofore amended (as amended, the “Credit Agreement”). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.

B. The Borrower and the Required Banks have agreed to amend certain financial covenants and related definitions, modify the application otherwise required for the Borrower’s voluntarily prepayment of $5,000,000 of the Term Loans, and make certain other amendments to the Credit Agreement under the terms and conditions set forth in this Amendment.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. AMENDMENTS

Subject to satisfaction of the conditions precedent in Section 2 below, the Credit Agreement shall be and hereby is amended as follows:

1.1. The definition of “EBITDA” appearing in Section 5.1 of the Credit Agreement shall be amended and restated in its entirety to read as follows:

“EBITDA” means, with reference to any period, Net Income for such period plus the sum (without duplication) of all amounts deducted in arriving at such Net Income amount in respect of (v) Interest Expense for such period, (w) federal, state and local income taxes for such period, (x) depreciation of fixed assets and amortization of intangible assets (including, without limitation, goodwill, deferred expenses and organization costs) for such period, (y) up to $12,000,000 of non-recurring, non-cash charges incurred prior to December 31, 2001, attributable to the discontinuance of certain business operations and (z) up to

$2,000,000 of non-recurring, non-cash charges incurred on or after January 1, 2002, but prior to December 31, 2002, attributable to the discontinuance of certain business operations.

1.2. Section 8.22 of the Credit Agreement (Total Debt Ratio) shall be amended and restated in its entirety to read as follows:

Section 8.22. Total Debt Ratio. The Borrower shall not at any time during any fiscal quarter of the Borrower permit the Total Debt Ratio to be greater than or equal to the amount set forth for such quarter below:

FROM AND INCLUDING	TO AND INCLUDING	TOTAL DEBT RATIO SHALL NOT BE GREATER THAN OR EQUAL TO

Start of fourth fiscal quarter 2001	Close of fourth fiscal quarter 2001	2.50 to 1.0

Start of first fiscal quarter 2002	Close of first fiscal quarter 2002	2.25 to 1.0

Start of second fiscal quarter 2002	At all times thereafter	2.00 to 1.0

1.3. Section 8.24 of the Credit Agreement shall be amended and restated in its entirety to read as follows:

Section 8.24. Interest Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall not permit the ratio of EBITDA for the four fiscal quarters of the Borrower then ended to Interest Expense for the same four fiscal quarters then ended to be less than 3.00 to 1.00.

1.4. Section 8.25 of the Credit Agreement (Minimum EBITDA) shall be amended and restated in its entirety to read as follows:

Section 8.25. Minimum EBITDA. (a) Cumulative EBITDA. As of the last day of each fiscal quarter of the Borrower occurring during the periods set forth below, the Borrower shall maintain EBITDA for the period then ended at not less than the amount set forth below:

DURING PERIOD CONSISTING OF	EBITDA SHALL NOT BE LESS THAN

Fourth fiscal quarter 2001	$	9,000,000
Fourth fiscal quarter 2001 and first fiscal quarter 2002	$	18,000,000
Fourth fiscal quarter 2001 and first and second fiscal quarters 2002	$	27,000,000

(b) Rolling 4 Quarters EBITDA. As of the last day of each fiscal quarter of the Borrower ending during the periods set forth below, the Borrower shall maintain EBITDA for the four fiscal quarters then ended at not less than the amount set forth below:

DURING PERIOD OF 4 FISCAL QUARTERS ENDING ON THE LAST DAY OF	EBITDA SHALL NOT BE LESS THAN

Third fiscal quarter 2002	$	36,000,000
Fourth fiscal quarter 2002	$	38,000,000
First fiscal quarter 2003, and each fiscal quarter ending thereafter	$	41,000,000

1.5. Section 8.28 of the Credit Agreement shall be amended and restated in its entirety to read as follows:

Section 8.28. Capital Expenditures. The Borrower shall not permit Capital Expenditures for the Borrower and its Subsidiaries (taken together) to exceed (a) $12,000,000 during the fiscal year of the Borrower ending December 31, 2002 and (b) $6,000,000 during the 6 month period ending June 30, 2003.

SECTION 2. CONDITIONS PRECEDENT.

This Amendment shall not become effective unless and until all of the following conditions have been satisfied:

2.1. The Borrower, the Agent, and the Required Banks shall have executed and delivered this Amendment, and the Guarantors shall have executed their acknowledgment and consent to this Amendment in the space provided for that purpose below.

2.2. The Borrower shall have paid to the Agent for the benefit of the Lenders executing this Amendment on or prior to the close of business on January , 2002, an amendment fee of 0.25% multiplied by the sum of such Lenders outstanding Term Loans

(after giving effect to the voluntary prepayment called for by Section 3 below) and Revolving Credit Commitments.

2.3. The Borrower shall have paid to the Agent for its own use and benefit an agent’s fee as mutually agreed upon by them.

2.4. All legal matters incident to the execution and delivery hereby and of the other instruments and documents contemplated hereby shall be satisfactory to the Required Banks, the Agent and their respective counsel.

SECTION 3. CONDITIONS SUBSEQUENT.

In consideration of this Amendment, the Borrower hereby agrees to prepay the principal balance of the Term Loans by not less than $5,000,000 on or after the date hereof but on or before February 1, 2002, such payment to be (i) accompanied by any amount due the Banks under Section 1.13 of the Credit Agreement, (ii) applied to the final installment due on the Term Loans and (iii) allocated among the Term Loans of the Banks in accordance with their respective Term Loan Percentages. It shall constitute in Event of Default under the Credit Agreement if the Borrower fails to make such payment as provided for herein.

SECTION 4. REPRESENTATIONS.

In order to induce the Required Banks to execute and deliver this Amendment, the Borrower hereby represents to each Bank that as of the date hereof the representations and warranties set forth in Section 6 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 6.5 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Agent pursuant to Section 8.5 of the Credit Agreement) and, after giving effect to this Amendment, (i) the Borrower is in full compliance with all of the terms and conditions of the Credit Agreement and (ii) no Default or Event of Default has occurred and is continuing under the Credit Agreement.

SECTION 5. MISCELLANEOUS.

5.1. The Borrower and the Guarantors have heretofore executed and delivered to the Agent and the Banks certain Collateral Documents. The Borrower and, by signing the acknowledgment and consent set forth below, each Guarantor hereby acknowledge and agree that, notwithstanding the execution and delivery of this Amendment, the Collateral Documents remain in full force and effect, and the rights and remedies of the Agent and the Banks thereunder, the obligations of the Borrower and the Guarantors thereunder, and the liens and security interests created and provided for thereunder remain in full force and effect and shall not be affected, impaired or discharged hereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment.

5.2. Except as specifically amended herein or waived hereby, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby.

5.3. The Borrower agrees to pay on demand all reasonable costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Amendment, including fees and expenses of counsel to the Agent.

5.4. This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois.

[SIGNATURE PAGES TO FOLLOW]

This Sixth Amendment to Amended and Restated Credit Agreement is entered into as of the date and year first above written.

	APAC CUSTOMER SERVICES, INC.

	By:
	Name:
	Title:

Accepted and agreed to as of the date and year first above written.

	HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent

	By:
	Name:
	Title:

	BANK OF AMERICA, N.A.

	By:
	Name:
	Title:

	LASALLE BANK NATIONAL ASSOCIATION

	By:
	Name:
	Title:

	THE NORTHERN TRUST COMPANY

	By:
	Name:
	Title:

	FIRSTAR BANK MILWAUKEE, N.A.

	By:
	Name:
	Title:

	NATIONAL CITY BANK

	By:
	Name:
	Title:

	THE FUJI BANK, LIMITED

	By:
	Name:
	Title:

	THE BANK OF NOVA SCOTIA

	By:
	Name:
	Title:

	U.S. BANK NATIONAL ASSOCIATION

	By:
	Name:
	Title:

GUARANTORS’ CONSENT

The undersigned have heretofore executed and delivered to the Agent and the Banks a Guaranty Agreement dated May 20, 1998 (the “Guaranty”), and certain Collateral Documents relating thereto. The undersigned hereby consent to the Sixth Amendment to Amended and Restated Credit Agreement as set forth above and confirms that the Guaranty and Collateral Documents executed and delivered by them and all of the obligations of the undersigned thereunder remain in full force and effect. The undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained. The undersigned acknowledge that the Agent and the Banks are relying on the assurances set forth herein in entering into the Sixth Amendment to Amended and Restated Credit Agreement as set forth above.

.	APAC CUSTOMER SERVICES OF TEXAS, L.P.

		By:			APAC CUSTOMER SERVICES,
					INC., its Manager

		By
				Name
			Title

	APAC CUSTOMER SERVICES GENERAL PARTNER, INC.

By
		Name
		Title

	ITI HOLDINGS, INC.

By
		Name
		Title

.	APAC CUSTOMER SERVICES, L.L.C.

	By:		APAC CUSTOMER SERVICES, INC., its
		Manager

			By
			Name
			Title

EX-21.1 9 a2073275zex-21_1.htm EXHIBIT 21.1

Exhibit 21.1

SUBSIDIARIES OF THE COMPANY

AS OF DECEMBER 30, 2001

APAC Customer Services, L.L.C.

APAC Customer Services General Partner, Inc.

APAC Customer Services of Illinois, Inc.

APAC Customer Services of Texas, L.P.

APAC M.I. Holdings, Inc.

ITI Holdings, Inc.

EX-23.1 10 a2073275zex-23_1.htm EXHIBIT 23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company’s previously filed Registration Statement File No. 333-66665 on Form S-8, Registration Statement File No. 333-01718 on Form S-8, Registration Statement File 333-23575 on Form S-3, and Registration Statement File No. 333-40167 on Form S-3.

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 28, 2002

EX-24.1 11 a2073275zex-24_1.htm EXHIBIT 24.1

EXHIBIT 24.1
POWER OF ATTORNEY
 
                Know all
persons by these presents that the undersigned have made, constituted and
appointed, and BY THESE PRESENTS make, constitute and appoint Marc T.
Tanenberg, Kenneth Batko and Linda R. Witte, true and lawful ATTORNEYS for
himself and in his name, place and stead to sign that certain Annual Report on
Form 10-K, including all exhibits thereto, which Form 10-K is to be filed with
the Securities and Exchange Commission on or about March 29, 2002, to be
executed by the undersigned in his capacity as a Director of APAC Customer
Services, Inc., and to perform any and all other acts necessary in order to
consummate such transaction, giving and granting unto Marc T. Taneneberg,
Kenneth Batko and Linda R. Witte, said ATTORNEYS full power and authority to do
and perform all and every act and thing whatsoever, requisite and necessary to
be done in and about the premises, as fully, to all intents and purposes, as
the undersigned might or could do if personally present at the doing thereof,
with full power of substitution and revocation, hereby ratifying and confirming
all that Marc T. Tanenberg, Kenneth Batko and Linda R. Witte, said ATTORNEYS or
their substitutes shall lawfully do or cause to be done by virtue hereof.
 
  /s/ Theodore S. Schwartz

  /s/ Robert F. Bernard

  /s/ Thomas M. Collins

  /s/ John W. Gerdelman

  /s/ Clark E. McLeod

  /s/ Paul G. Yovovich

EX-99.1 12 a2073275zex-99_1.htm EX-99.1

	APAC Customer Services, Inc.	Phone 847-374-4980
	Six Parkway North Center	Fax 847-374-4991
APAC Customer Services	Deerfield, IL 60015	www.apaccustomerservices.com

Exhibit 99.1

March 21, 2002

Securities and Exchange Commission

450 5^th Street, NW

Washington, DC 20549

Ladies and Gentleman:

Pursuant to Securities and Exchange Commission Release No. 33-8070, this letter is to confirm that APAC Customer Services, Inc. has received assurance from its independent public accountants, Arthur Andersen LLP (“Arthur Andersen”), that Arthur Andersen’s audit of our consolidated financial statements as of December 30, 2001 and for the year then ended (the “Audit”) was subject to Arthur Andersen’s quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Arthur Andersen personnel working on the Audit, and availability of national office consultation.

APAC Customer Services, Inc.

/s/ Marc T. Tanenberg

Senior Vice President

And Chief Financial Officer

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-----END PRIVACY-ENHANCED MESSAGE-----

	/s/ Theodore S. Schwartz
	/s/ Robert F. Bernard
	/s/ Thomas M. Collins
	/s/ John W. Gerdelman
	/s/ Clark E. McLeod
	/s/ Paul G. Yovovich