-----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, SaU3huxPryaYS+zisIhtCuwmnVx4w0g1UO5Vfm6DsPMPd5Hkklw8mSU7g0hwgWAD 15bYcPVq9mJJ4UZWi7F2aA== 0000950172-99-001640.txt : 19991118 0000950172-99-001640.hdr.sgml : 19991118 ACCESSION NUMBER: 0000950172-99-001640 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991117 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-Q SEC ACT: SEC FILE NUMBER: 000-26786 FILM NUMBER: 99759831 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 TELESERVICES INC DATE OF NAME CHANGE: 19950915 FORMER COMPANY: FORMER CONFORMED NAME: APAC CORP DATE OF NAME CHANGE: 19950811 10-Q 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended October 3, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _________________ to _____________________ Commission file number 0-26786 APAC CUSTOMER SERVICES, INC. (Exact name of registrant as specified in its charter) Illinois 36-2777140 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Parkway North Center, Suite 510 Deerfield, Illinois 60015 (Address of principal executive office) (Zip Code) (847) 374-4980 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Shares, $0.01 par value--47,563,167 shares outstanding as of November 15, 1999. Index PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Condensed Balance Sheets as of October 3, 1999, and January 3, 1999 3 Consolidated Condensed Statements of Income for the Thirteen and Thirty-Nine Weeks Ended October 3, 1999, and September 27, 1998 4 Consolidated Condensed Statements of Cash Flows for the Thirty- Nine Weeks Ended October 3, 1999, and September 27, 1998 5 Notes to Consolidated Condensed Financial Statements as of October 3, 1999 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Item 1. Litigation 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 EXHIBIT INDEX 18 EXHIBITS PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
OCTOBER 3, JANUARY 3, 1999 1999 ASSETS (Unaudited) (Audited, Note 1) - ------------------------------------------------------------------ ---------------------- ---------------------- (000's omitted, except share data) CURRENT ASSETS: Cash and cash equivalents $250 $3,543 Accounts receivable, net 86,955 76,618 Recoverable income taxes 4,570 5,825 Deferred income tax assets 6,930 8,790 Prepaid expenses 3,909 3,058 Net assets of discontinued operations 10,096 7,096 ---------------------- ---------------------- Total current assets 112,710 104,930 PROPERTY AND EQUIPMENT 139,656 152,195 Less--accumulated depreciation 67,162 57,602 ---------------------- ---------------------- Property and equipment, net 72,494 94,593 GOODWILL AND OTHER INTANGIBLE ASSETS 62,850 68,850 Less--accumulated amortization 7,403 3,975 ---------------------- ---------------------- Goodwill and other intangible assets, net 55,447 64,875 OTHER ASSETS 4,019 3,104 ---------------------- ---------------------- Total assets $244,670 $ 267,502 ====================== ====================== LIABILITIES AND SHARE OWNERS' EQUITY - ------------------------------------------------------------------ CURRENT LIABILITIES: Current maturities of long-term debt $17,144 $16,122 Revolving credit facility 3,625 0 Accounts payable 10,271 5,705 Other current liabilities 39,443 65,355 ---------------------- ---------------------- Total current liabilities 70,483 87,182 LONG-TERM DEBT, LESS CURRENT MATURITIES 120,104 132,427 DEFERRED INCOME TAXES 0 1,670 OTHER LIABILITIES 8,894 4,399 COMMITMENTS AND CONTINGENCIES SHARE OWNERS' EQUITY: Preferred shares, $0.01 par value; 50,000,000 shares authorized; none issued and outstanding 0 0 Common shares, $0.01 par value; 200,000,000 shares authorized; 49,104,350 shares issued at October 3, 1999; 48,893,873 shares issued at January 3, 1999 491 489 Additional paid-in capital 94,289 93,799 Retained deficit (43,940) (46,813) Less--treasury shares at cost; 1,609,000 shares at October 3, 1999, and January 3, 1999 (5,651) (5,651) ---------------------- ---------------------- Total share owners' equity 45,189 41,824 ====================== ====================== Total liabilities and share owners' equity $244,670 $ 267,502 ====================== ====================== See notes to consolidated condensed financial statements.
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THIRTEEN (13) WEEKS ENDED THIRTY-NINE (39) WEEKS ENDED --------------------------------- ---------------------------------- OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27, 1999 1998* 1999 1998* -------------- --------------- -------------- ----------------- (000's omitted, except per share data) NET REVENUE: Service Solutions $66,392 $59,521 $193,154 $155,063 Sales Solutions 36,796 56,440 120,430 154,936 -------------- --------------- -------------- ----------------- Total net revenue 103,188 115,961 313,584 309,999 OPERATING EXPENSES: Cost of services 82,775 92,601 254,550 247,195 Selling, general and administrative expenses 11,940 13,727 35,989 37,661 Restructuring charges 1,627 0 7,600 9,000 -------------- --------------- -------------- ----------------- Total operating expenses 96,342 106,328 298,139 293,856 -------------- --------------- -------------- ----------------- Operating income 6,846 9,633 15,445 16,143 INTEREST EXPENSE, NET 3,417 2,983 10,372 5,155 -------------- --------------- -------------- ----------------- Income from continuing operations before income taxes 3,429 6,650 5,073 10,988 PROVISION FOR INCOME TAXES 1,500 3,037 2,200 4,980 -------------- --------------- -------------- ----------------- Income from continuing operations 1,929 3,613 2,873 6,008 LOSS FROM DISCONTINUED OPERATIONS, net of income tax benefit of $57 and $480, respectively, for the 13 and 39 weeks in 1998 0 (190) 0 (1,256) -------------- --------------- -------------- ----------------- NET INCOME $ 1,929 $3,423 $2,873 $4,752 ============== =============== ============== ================= INCOME (LOSS) PER SHARE: Basic: Continuing operations $0.04 $0.07 $0.06 $0.12 Discontinued operations 0.00 (0.00) 0.00 (0.02) -------------- --------------- -------------- ----------------- Net income $0.04 $0.07 $0.06 $0.10 ============== =============== ============== ================= Diluted: Continuing operations $0.04 $0.07 $0.06 $0.12 Discontinued operations 0.00 (0.00) 0.00 (0.02) -------------- --------------- -------------- ----------------- Net income $0.04 $0.07 $0.06 $0.10 ============== =============== ============== ================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 48,973 48,505 48,946 48,773 Diluted 49,572 49,956 49,198 49,590 ============== =============== ============== ================= *Reclassified to conform to current year's classifications. See notes to consolidated condensed financial statements.
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTY-NINE (39) WEEKS ENDED ---------------------------------------------- OCTOBER 3, SEPTEMBER 27, 1999 1998* -------------------- ------------------- (000's omitted) OPERATING ACTIVITIES: Net income from continuing operations $2,873 $6,008 Depreciation and amortization 25,789 25,295 Deferred income taxes 3,140 (1,987) Restructuring charges 7,600 9,000 Change in operating assets and liabilities (21,449) 6,005 -------------------- ------------------- Net cash provided by continuing operations 17,953 44,321 Cash used by discontinued operations (3,000) (1,885) -------------------- ------------------- Net cash provided by operations 14,953 42,436 INVESTING ACTIVITIES: ITI Holdings, Inc. acquisition costs, net of cash acquired 0 (149,229) Purchases of property and equipment, net (5,583) (6,007) -------------------- ------------------- Net cash used by investing activities (5,583) (155,236) FINANCING ACTIVITIES: Proceeds from term loan 0 150,000 Repayment of revolving credit facility with proceeds from refinancing 0 (7,500) Net borrowings (payments) under revolving credit facilities 3,625 (14,100) Payments on long-term debt (11,301) (3,689) Increase (decrease) in book overdraft 3,390 (4,679) Payment of debt issuance costs 0 (2,188) Increase (decrease) in customer deposits (8,869) 12,229 Purchase of treasury shares 0 (5,651) Stock and warrant transactions, including related income tax benefits 492 1,378 -------------------- ------------------- Net cash provided (used) by financing activities (12,663) 125,800 -------------------- ------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($3,293) $ 13,000 ==================== =================== *Reclassified to conform to current year's classifications. See notes to consolidated condensed financial statements.
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OCTOBER 3, 1999 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and thirty-nine week periods ended October 3, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2000. The balance sheet at January 3, 1999, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For additional information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended January 3, 1999. 2. GOODWILL AND INTANGIBLE ASSETS At October 3, 1999, goodwill and intangible assets consisted of the following:
ACCUMULATED NET COST AMORTIZATION BOOK VALUE ------------------ ------------------ ------------------ (000's omitted) Goodwill $30,757 $3,219 $27,538 Customer relationships 28,493 3,483 25,010 Assembled workforce 3,600 701 2,899 ------------------ ------------------ ------------------ Total $62,850 $7,403 $55,447 ================== ================== ==================
In connection with the acquisition of ITI Holdings, Inc. in May 1998, the Company recorded deferred income tax assets and provided for costs to close facilities and terminate unfavorable contracts. During the third quarter of fiscal 1999, the Company revalued certain deferred income tax assets and reduced its estimates of costs to close facilities and renegotiate contracts, resulting in a $6.0 million reduction in goodwill. 3. OTHER CURRENT LIABILITIES The components of other current liabilities included in the consolidated condensed balance sheets are as follows:
OCTOBER 3, JANUARY 3, 1999 1999 -------------- -------------- (000's omitted) Payroll and related items $20,239 $19,494 Customer deposits 2,254 11,123 Telecommunication costs 4,480 9,529 Acquisition-related costs 2,370 14,377 Restructuring charges 3,140 3,199 Other 6,960 7,633 ============== ============== Total $39,443 $65,355 ============== ==============
4. RESTRUCTURING CHARGES During the first nine months of fiscal 1999, the Company recorded three restructuring charges totaling $7.6 million associated with closing 21 Sales Solutions call centers and reducing the supporting salaried workforce. The $2.0 million restructuring charge recorded in the first quarter included $1.4 million for the write-down of property and equipment and $0.6 million for employee severance costs. The $4.0 million restructuring charge recorded in the second quarter included $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. Finally, the $1.6 million restructuring charge recorded in the third quarter included $1.3 million for the write-down of property and equipment and $0.3 million for lease termination costs. The amount remaining in the fiscal 1999 restructuring reserve at October 3, 1999, was $2.8 million. This amount is expected to be used by January 2, 2000. In the second quarter of fiscal 1998, the Company recorded a restructuring charge of $9.0 million. This charge related to a restructuring plan involving the closure of Sales Solutions call centers, reconfiguration of certain administrative support facilities and reduction in the salaried workforce. The restructuring charge included $4.5 million for the write-down of property and equipment, $3.3 million for employee severance costs and $1.2 million for lease termination costs. As of October 3, 1999, the amount remaining in the fiscal 1998 restructuring reserve was $0.3 million. This amount is expected to be utilized by January 2, 2000. 5. LEGAL PROCEEDINGS The Company is engaged in arbitration proceedings initiated by the former owner of an acquired business. The Company believes the claim is without merit. The Company has other claims against the same party which it believes do have merit and which it intends to pursue vigorously. Although the Company does not believe that the arbitration proceedings will result in a material adverse effect on its consolidated financial position, no assurance to that effect can be given. Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999 for a description of a certain legal action presently pending. On November 12, 1999, the court denied the Company's motion to dismiss the complaint in the action, captioned "In re APAC TeleServices, Inc. Securities Litigation, 97 Civ. 9145 (BSJ)." The litigation is continuing. 6. DISCONTINUED OPERATIONS In December 1998, the Company's management approved a plan to sell Paragren. The Company expects to sell Paragren during the fourth quarter of fiscal 1999. Accordingly, Paragren is reported as a discontinued operation, and the consolidated condensed financial statements have been reclassified to segregate the operating results and net assets of the business. The net loss from discontinued operations for the first nine months of fiscal 1999 of $4.2 million has been offset against provisions for anticipated loss recorded at January 3, 1999, and additional proceeds expected from the sale of the net assets of the business. In fiscal 1999 the Company revised its estimate of expected sales proceeds based upon current market estimates of the fair value of the business. Net assets of discontinued operations at October 3, 1999 amounted to $10.1 million and consisted of working capital of $2.8 million, property and equipment of $1.5 million, capitalized software of $1.7 million, and intangible assets of $4.1 million. 7. SEGMENT INFORMATION The Company has three reportable segments organized around operating divisions providing separate and distinct services to clients. The operating divisions are managed separately because the service offerings require different technology and marketing strategies and have different operating models and performance metrics. The Service Solutions division provides inbound customer service, direct mail response, "help" line support and customer order processing. The Sales Solutions division provides outbound sales support to customers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. Paragren Technologies, Inc. ("Paragren") specializes in software-based consumer marketing to optimize customer relationships. In December 1998, the Company adopted a plan to sell Paragren. Accordingly, the operating results of Paragren have been segregated from continuing operations and are reported separately as discontinued operations. Information about discontinued operations is reported in Note 6 to these consolidated condensed financial statements. All operating net revenue and expenses are included in the results of the business segments. Other income and expense, principally interest expense and gain and loss on the disposal of assets, are excluded from the determination of business segment results. Segment information for continuing operations for the thirteen and thirty-nine weeks ended October 3, 1999 and September 27, 1998 is as follows:
SERVICE SALES PERIOD ENDED SOLUTIONS SOLUTIONS COMBINED ----------------------------------- ------------ ------------ ------------ (000's omitted) THIRTEEN WEEKS: October 3, 1999: Net revenue $66,392 $36,796 $103,188 Operating income (loss) 7,349 (503) 6,846 Restructuring charge 0 1,627 1,627 ============ ============ ============ September 27, 1998: Net revenue $59,521 $56,440 $115,961 Operating income 6,461 3,172 9,633 ============ ============ ============= THIRTY-NINE WEEKS: October 3, 1999: Net revenue $193,154 $120,430 $313,584 Operating income (loss) 20,402 (4,957) 15,445 Restructuring charges 0 7,600 7,600 ============ ============ ============ September 27, 1998: Net revenue $155,063 $154,936 $309,999 Operating income 12,592 3,551 16,143 Restructuring charge 2,400 6,600 9,000 ============ ============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DESCRIPTION OF BUSINESS APAC Customer Services, Inc. and Subsidiaries (the "Company") provides high volume telephone-based sales, marketing and customer management solutions for corporate clients operating in the consumer products, parcel delivery, financial services, insurance, retail, and telecommunications industries throughout the United States. The Company's client base is comprised of large companies with the need for cost-effective means of contacting and servicing current and prospective customers. The Company has three service offerings. The Service Solutions division provides inbound customer service, direct mail response, "help" line support and customer order processing. The Sales Solutions division provides outbound sales support to consumers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. In August 1997, the Company acquired Paragren Technologies, Inc. ("Paragren") which specializes in software-based consumer marketing products that help its clients analyze market, customer and sales data on a real-time basis. In December 1998, the Company's management approved a plan to sell Paragren's software development business. The Company does not believe that additional investment in the software development business is consistent with its long-term strategic goals and objectives. Accordingly, Paragren is reported as a discontinued operation, and the consolidated condensed financial statements for the periods presented have been reclassified to segregate the operating results and net assets of the business. In May 1998, the Company acquired ITI Holdings, Inc., the sole shareholder of ITI Marketing Services, Inc. ("ITI"). ITI provides telephone-based sales, marketing and customer management services to corporate clients. As of October 3, 1999, the Company operated and managed approximately 11,000 workstations in 62 call centers. RESULTS OF OPERATIONS The following table sets forth consolidated condensed statements of income data as a percentage of net revenue from services provided by the Company for the thirteen and thirty-nine week periods ended October 3, 1999 and September 27, 1998.
THIRTEEN (13) WEEKS ENDED THIRTY-NINE (39) WEEKS ENDED ------------- -- ----------------- ------------- -- ----------------- OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27, 1999 1998* 1999 1998* ------------- ----------------- ------------- ----------------- NET REVENUE: Service Solutions 64.3% 51.3% 61.6% 50.0% Sales Solutions 35.7 48.7 38.4 50.0 ------------- ----------------- ------------- ----------------- Total net revenue 100.0 100.0 100.0 100.0 OPERATING EXPENSES: Cost of services 80.2 79.9 81.2 79.7 Selling, general and administrative expenses 11.6 11.8 11.5 12.2 Restructuring charges 1.6 0.0 2.4 2.9 ------------- ----------------- ------------- ----------------- Total operating expenses 93.4 91.7 95.1 94.8 ------------- ----------------- ------------- ----------------- Operating income 6.6 4.9 5.2 INTEREST EXPENSE, NET 3.3 2.6 3.3 1.7 ------------- ----------------- ------------- ----------------- Income from continuing operations before income taxes 3.3 5.7 1.6 3.5 PROVISION FOR INCOME TAXES 1.4 2.6 0.7 1.6 ------------- ----------------- ------------- ----------------- Income from continuing operations 1.9 3.1 0.9 1.9 LOSS FROM DISCONTINUED OPERATIONS, NET 0.0 (0.1) 0.0 (0.4) ------------- ----------------- ------------- ----------------- NET INCOME 1.9% 3.0% 0.9% 1.5% ============= ================= ============= ================= *Reclassified to conform to current year's classifications.
COMPARISON OF THIRD QUARTER RESULTS The Company's net revenue decreased 11.0% in the third quarter of fiscal 1999 to $103.2 million, a decrease of $12.8 million compared to the third quarter of fiscal 1998. Net revenue for the Company's inbound operations, the Service Solutions division, was $66.4 million for the third quarter of fiscal 1999, an increase of 11.5% compared to $59.5 million for the third quarter of fiscal 1998. The increase in Service Solutions net revenue was due to higher call volumes from existing clients and the start-up of programs for several new clients. Net revenue for the Company's outbound operations, the Sales Solutions division, was $36.8 million for the third quarter of fiscal 1999, a decrease of 34.8% compared to $56.5 million for the third quarter of fiscal 1998. In response to reduced call volume from certain large clients over the last twelve months, the Company has adopted a strategy of balancing Sales Solutions' call center capacity with current client demand. Cost of services as a percentage of net revenue increased to 80.2% in the third quarter of fiscal 1999 from 79.9% in the third quarter of fiscal 1998. This increase reflects higher recruiting and training costs incurred in advance of full-scale operations under new client programs in the Service Solutions division and decreased net revenue and the cost of underutilized capacity in the Sales Solutions division. Changes in cost of services as a percent of net revenue also include the effects of nonrecurring credits recorded in each quarter. During the third quarter of fiscal 1999, the Company reversed $1.2 million of accrued telephone charges recorded in the fourth quarter of fiscal 1998. This reversal resulted from the Company negotiating favorable dispositions of costs associated with certain guaranteed minimum usage telecommunications contracts during the third quarter of fiscal 1999. During the third quarter of fiscal 1998, the Company received $1.5 million in reimbursement of excess training costs absorbed during the first half of fiscal 1998. Selling, general and administrative expenses decreased 13.0% in the third quarter of fiscal 1999 to $11.9 million, a decrease of $1.8 million compared to the third quarter of fiscal 1998. This decrease was due to the consolidation of the administrative functions of ITI and a reduction in the amortization of goodwill and intangible assets. During the fourth quarter of fiscal 1998, the Company adjusted the carrying value of the Sales Solutions division's long-lived assets to their fair value. This adjustment resulted in a non-cash impairment charge of $69.7 million to write-off goodwill and intangible assets acquired with acquisition of ITI. During the third quarter of fiscal 1999, the Company recorded a restructuring charge of $1.6 million in connection with the continued consolidation of Sales Solutions call centers. The restructuring charge included $1.3 million for the write-down of property and equipment and $0.3 million for lease termination costs. The Company generated operating income of $6.8 million during the third quarter of fiscal 1999. Prior to the restructuring charge, operating income for the third quarter of fiscal 1999 was $8.4 million compared with operating income of $9.6 million for the third quarter of fiscal 1998. For the Service Solutions division, operating income for the third quarter of fiscal 1999 was $7.3 million, or 11.1% of net revenue, compared with operating income of $6.5 million, or 10.9% of net revenue, for the same period in fiscal 1998. For the Sales Solutions division, operating income (before restructuring charge) was $1.1 million, or 3.1% of net revenue, in the third quarter of fiscal 1999 compared with operating income of $3.2 million, or 5.6 % of net revenue, for the same period in fiscal 1998. The reduction in Sales Solutions operating performance in fiscal 1999 was due to decreased net revenue and the cost of underutilized call center capacity as execution of the Company's current strategy of balancing capacity utilization with client demand had not been in place throughout the entire period. Partially offsetting the reduction in operating performance during the third quarter of fiscal 1999 was the reversal of $1.2 million of accrued telephone charges recorded in the fourth quarter of fiscal 1998. Net interest expense for the third quarter of fiscal 1999 increased by $0.4 million compared to the same period in fiscal 1998. This increase reflects higher interest rates assessed on the $150.0 million term loan used to finance the purchase of ITI as a result of amendments to the Company's credit agreement in April 1999. Net loss on discontinued operations for the third quarter of fiscal 1998 of $0.2 million reflects the reclassification of net loss sustained by the Company during the quarter on the operation of its Paragren software development business. Net loss on discontinued operations for the third quarter of fiscal 1999 of $1.4 million has been offset against a provision for anticipated losses during the phase-out period. COMPARISON OF YEAR-TO-DATE RESULTS The Company's net revenue increased 1.2% in the first nine months of fiscal 1999 to $313.6 million, an increase of $3.6 million from the first nine months of fiscal 1998. Net revenue during the first nine months of 1999 included three full quarters of results of ITI. Net revenue for the Company's Service Solutions division, was $193.2 million for the first nine months of fiscal 1999, an increase of 24.6% compared to $155.1 million for the first nine months of fiscal 1998. The increase in Service Solutions net revenue was due to the inclusion of the results of ITI and growth in call volumes with existing clients. Net revenue for the Company's Sales Solutions division was $120.4 million for the first nine months of fiscal 1999, a decrease of 22.3% compared to $154.9 million for the first nine months in fiscal 1998. This decrease reflects the Company's current strategy to balance call center capacity with demand for outbound telemarketing services. During the first nine months of fiscal 1999, consolidation of certain large clients substantially reduced outbound telemarketing call volumes available to the Company. Cost of services as a percentage of net revenue increased to 81.2% in the first nine months of fiscal 1999 from 79.7% in the first nine months of fiscal 1998. This increase reflects the reduction in profit margin due to underutilized call center capacity resulting from decreases in call volumes in the Sales Solutions division and higher direct wages in both divisions. Changes in cost of services as a percent of net revenue also include the effects of nonrecurring credits recorded during the first nine months of fiscal 1999. In the first nine months of fiscal 1999, the Company reversed $4.9 million of accrued telephone charges recorded in the fourth quarter of fiscal 1998. This reversal resulted from the Company negotiating favorable dispositions of costs associated with certain guaranteed minimum usage telecommunications contracts during the second and third quarters of fiscal 1999. Selling, general and administrative expenses decreased 4.4% in the first nine months of fiscal 1999 to $36.0 million, a decrease of $1.7 million compared to the first nine months of fiscal 1998. This decrease was principally due to reductions in workforce and related expenses achieved through restructuring initiatives and the consolidation of the administrative functions of ITI. During the first nine months of fiscal years 1999 and 1998, the Company recorded restructuring charges of $7.6 million and $9.0 million, respectively, in connection with the consolidation of Sales Solutions call centers and reductions in the salaried workforce. The fiscal 1999 restructuring 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 fiscal 1998 restructuring charge included $4.5 million for the write-down of property and equipment, $3.3 million for employee severance costs and $1.2 million for lease termination costs. During the past fifteen months, the Company has provided for the closure of 32 call centers containing approximately 2,600 seats and for reduction in the salaried workforce by 100 employees. The Company generated operating income of $15.4 million for the first nine months of fiscal 1999. Prior to restructuring charges, operating income for the first nine months of fiscal 1999 was $23.0 million compared to $25.1 million for the first nine months of fiscal 1998. For the Service Solutions division, operating income for the first nine months of fiscal 1999 was $20.4 million, or 10.6% of net revenue, compared to operating income (before restructuring charge) of $15.0 million, or 9.7% of net revenue, for the same period in fiscal 1998. The increase in Service Solutions operating income was principally due to increased net revenue and a more profitable client mix. Prior to restructuring charges, operating income for the Sales Solutions division for the first nine months of fiscal 1999 was $2.6 million, or 2.2% of net revenue, compared to operating income of $10.2 million, or 6.6% of net revenue, for the same period in fiscal 1998. The reduction in operating performance in the first nine months of fiscal 1999 was due to decreased net revenue, the cost of underutilized call center capacity and higher direct wages, offset in part by the reversal of $4.9 million in accrued telephone charges recorded in the fourth quarter of fiscal 1998. Net interest expense for the first nine months of fiscal 1999 increased by $5.2 million compared to the same period in fiscal 1998. This increase principally reflects three full quarters of interest and related debt costs in fiscal 1999 on the $150.0 million term loan used to finance the purchase of ITI. The provision for income taxes recognized for the nine months ended October 3, 1999 and September 27, 1998 are based upon the Company's estimated annual effective income tax rates. The decrease in the Company's effective income tax rate to 43.4% in fiscal 1999 from 45.3% in fiscal 1998 was due to changes as a percentage of taxable income in the amortization of non-deductible goodwill related to the ITI purchase and Work Opportunity Tax Credit benefits. Net loss on discontinued operations for the first nine months of fiscal 1998 of $1.3 million reflects the reclassification of net loss sustained by the Company in the first nine months of fiscal 1998 on the operation of its Paragren software development business. Net loss on discontinued operations for the first nine months of fiscal 1999 of $4.2 million has been offset against a provision for anticipated losses during the phase-out period. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations during the first nine months of fiscal 1999 totaled $15.0 million, a decrease of $27.5 million compared to the same period in fiscal 1998. This decrease was principally due to higher accounts receivable balances of $10.3 million resulting from the temporary extension of billing cycles with several clients, payments against acquisition-related and restructuring reserves of $7.4 million and the non-cash reversal of $4.9 million in accrued telephone charges to income. The Company spent $5.6 million during the first nine months of fiscal 1999 to construct additional call center capacity for Service Solutions clients and to upgrade equipment in existing centers. These capital expenditures were funded with cash provided by operations. In connection with the acquisition of ITI on May 1998, the Company provided acquisition-related reserves of $18.8 million to close facilities, terminate unfavorable contacts, and reduce the salaried workforce. During the first nine months of fiscal years 1999 and 1998, the Company recorded restructuring charges of $7.6 million and $9.0 million, respectively, in connection with the consolidation of Sales Solutions call centers and reductions in the salaried workforce. During the first nine months of fiscal 1999, the Company made payments against acquisition-related and restructuring reserves amounting to $5.0 million and $2.4 million, respectively, for employee severance and lease termination costs and telecommunications contract penalties. At January 3, 1999, the Company had received $11.1 million in nonrecurring customer deposits for services to be provided in future periods. These amounts are to be offset against future billings. During the first nine months of fiscal 1999, $8.9 million of customer deposits were offset against invoices for services rendered. In the second quarter of fiscal 1999, the Company received a $5.0 million refund from the Internal Revenue Service for overpayment of estimated taxes during fiscal 1998. The Company has a $75.0 million revolving credit facility (the "Revolving Facility") available for general working capital purposes and capital expenditures. Availability of up to $35.0 million of the total $75.0 million Revolving Facility is restricted subject to the attainment of trailing four quarters EBITDA of at least $75.0 million. The Company is also limited to $15.0 million in annual capital expenditures. As of October 3, 1999, there were $3.6 million of borrowings outstanding under the Revolving Facility. The Company made $10.0 million of scheduled repayments on its term loan during the first nine months of fiscal 1999 resulting in a balance outstanding at October 3, 1999, of $134.0 million. The Company expects that cash from future operations and available borrowings under the Revolving Facility will be sufficient to meet normal operating needs as well as fund any additional business growth for the balance of fiscal 1999. YEAR 2000 COMPLIANCE The Year 2000 issue, common to most companies, concerns the inability of information and non-information systems to recognize and process date-sensitive information after 1999 due to the use of only the last two digits to refer to a year. Time sensitive computer equipment and software with embedded technology may recognize a date using "00" as the year 1900 rather than the year 2000. The problem could affect both computer equipment and software and other equipment that relies on microprocessors. On October 31, 1998, Senior Information Technology Management under the direction of the Audit Committee of the Board of Directors completed a company-wide evaluation of the impact of potential Year 2000 problem on its computer systems, applications and other date-sensitive equipment. Equipment and systems that were not Year 2000 compliant were identified. As of October 3, 1999, 100% of the identified equipment and systems have been remediated, tested and placed in production. Through October 3, 1999, the Company had spent approximately $2.5 million to address Year 2000 issues. While the estimated cost to address Year 2000 issues is subject to change as the effort continues, total costs required to assess and remediate Year 2000 issues are currently estimated to be approximately $3.0 million and principally consist of equipment upgrades and software code remediation. While the Company believes that its efforts will adequately address its internal Year 2000 concerns, it is possible that the Company will be adversely affected by problems encountered by key clients and suppliers. The Company initiated discussion with significant clients and suppliers in an effort to determine and assess those parties' Year 2000 compliance status. The Company is dependent on computer and telecommunications companies for computer equipment and software and telephone systems and services. On February 15, 1999, the Company completed its evaluation of clients and suppliers. Based upon the results of this assessment, completion of interoperability tests with all of its clients and suppliers on September 30, 1999, and the receipt of compliance certificates from key suppliers, the Company believes that most of its clients and suppliers are prepared for the Year 2000. The Company continues to retest critical systems. Although the Company does not currently anticipate any material adverse impact on its operations as a result of Year 2000 issues, no assurance can be given that the Company's or its clients' failure to detect and remedy Year 2000-related problems in its or their computer and information systems would not have a material adverse effect on the business, financial condition and results of operations of the Company. A reasonably likely worst case scenario might include failure of third parties to provide services, such as power and telecommunications services, or the loss of use of the Company's automated call distributors or dialers. If the Company were to lose access to outbound and/or inbound telephony capabilities, it would experience a loss of revenue. The materiality of such revenue loss to the Company would depend on the length of time required to restore access to necessary services. For clients and suppliers that failed to demonstrate Year 2000 compliance, the Company has developed suitable contingency plans. The Company's Year 2000 Coordination Team is currently being trained to administer the contingency plans. A complete rollout of the contingency plans is planned for December 15, 1999. This discussion of Year 2000 compliance is based on the Company's current best estimates, which were derived using numerous assumptions regarding future events, including the continued availability and future costs of technological and other resources, third-party remediation actions and other factors. Given the complexity of Year 2000 issues and possible unidentified risks associated with such issues, actual results may vary materially from those anticipated and discussed herein. Specific factors that might cause a material variation include, among others, the availability and the cost of personnel trained to identify and resolve Year 2000 issues, the Company's ability to locate and correct all affected computer code, and the timing and success of Year 2000 remediation efforts by clients and suppliers. 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-Q 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-Q. 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 businesses 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 the 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 relatively short notice; changes in the availability and cost of qualified employees; the potential impact of Year 2000 issues; variations in the performance of the Company's automated systems and other technological factors; changes in government regulations affecting the teleservices and telecommunications industries; and competition from other outside providers of customer relationship management solutions and in-house customer relationship operations. See the Company's filings with the Securities and Exchange Commission for further discussion of the risks and uncertainties associated with the Company's business. In particular, see the discussion under the caption "Information Regarding Forward-Looking Statements" in Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company due to adverse changes in financial and commodity market prices and rates. The Company is exposed to market risk in the areas of changes in U. S. interest rates. This exposure is directly related to its normal operating and funding activities. Because the Company's obligations under its bank credit agreement bear interest at floating rates, the Company is sensitive to changes in prevailing interest rates. The Company uses derivative instruments to manage its long-term debt interest rate exposure, rather than for trading purposes. A 10% increase or decrease in market interest rates that affect the Company's financial instruments would not have a material impact on earnings during the remainder of fiscal 1999, and would not materially affect the fair value of the Company's financial instruments. PART II. OTHER INFORMATION ITEM 1. LITIGATION The Company is engaged in arbitration proceedings initiated by the former owner of an acquired business. The Company believes the claim is without merit. The Company has other claims against the same party which it believes do have merit and which it intends to pursue vigorously. Although the Company does not believe that the arbitration proceedings will result in a material adverse effect on its consolidated financial position, no assurance to that effect can be given. Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999 for a description of a certain legal action presently pending. On November 12, 1999, the court denied the Company's motion to dismiss the complaint in the action, captioned "In re APAC TeleServices, Inc. Securities Litigation, 97 Civ. 9145 (BSJ)." The litigation is continuing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. The following documents are furnished as exhibits and numbered pursuant to Item 601 of Regulation S-K: Exhibit Number Description ------------------- ------------------------------------------------- 3.1 Articles of Incorporation of APAC Customer Services, Inc., as amended 3.2 Amended and Restated Bylaws of APAC Customer Services, Inc., as amended through September 29, 1999 4 Specimen Common Stock Certificate 10.1* Amendment, dated September 22, 1999, to Agreement for In-Bound Telemarketing with United Parcel Service General Services Co. 10.2 Peter M. Leger Employment Agreement 11 Statement Re: Computation of Earnings Per Share 27 Financial Data Schedule * Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. (b) REPORTS ON FORM 8-K. The Company filed a Current Report on Form 8-K, dated September 22, 1999, disclosing that the Company had signed an amendment to extend for three years its agreement for inbound telemarketing with United Parcel Service General Services Co. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. APAC CUSTOMER SERVICES, INC. Date: November 17, 1999 By: /s/ Theodore G. Schwartz ----------------------------- Chairman and Chief Executive Officer Date: November 17, 1999 By: /s/ Gary S. Holter ----------------------------- Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Description ------------------- ------------------------------------------------- 3.1 Articles of Incorporation of APAC Customer Services, Inc., as amended 3.2 Amended and Restated Bylaws of APAC Customer Services, Inc., as amended through September 29, 1999 4 Specimen Common Stock Certificate 10.1* Amendment, dated September 22, 1999, to Agreement for In-Bound Telemarketing with United Parcel Service General Services Co. 10.2 Peter M. Leger Employment Agreement 11 Statement Re: Computation of Earnings Per Share 27 Financial Data Schedule * Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. EX-3.(I) 2 EXHIBIT 3.1 - ARTICLES OF INCORPORATION EXHIBIT 3.1 ----------- ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF APAC TELESERVICES, INC. 1. CORPORATE NAME: APAC TeleServices, Inc. 2. MANNER OF ADOPTION OF AMENDMENT: The following amendment of the Articles of Incorporation was adopted on May 18, 1999 in the manner indicated below. By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment. 3. TEXT OF AMENDMENT: Article I: The name of the corporation is: APAC Customer Services, Inc. The undersigned corporation has caused this statement to be signed by its duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. Dated: June 3, 1999 APAC TeleServices, Inc. by /s/ Marc S. Simon ------------------------------------- Marc S. Simon, President attested by /s/ Linda R. Witte ----------------------------------- Linda R. Witte, Vice President, General Counsel and Secretary ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF APAC TELESERVICES, INC. 1. CORPORATE NAME: APAC TeleServices, Inc. 2. MANNER OF ADOPTION OF AMENDMENT: The following amendment of the Articles of Incorporation was adopted on May 21, 1996 in the manner indicated below. By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment. 3. TEXT OF AMENDMENT: "RESOLVED, that the first paragraph of ARTICLE FOURTH of the Company's Amended and Restated Articles of Incorporation be and hereby is amended to read in its entirety as follows: FOURTH: The total number of shares of all classes of stock which the Corporation will have authority to issue is 250,000,000, consisting of (i) 200,000,000 common shares, par value $0.01 per share (the "Common Shares"), and (ii) 50,000,000 preferred shares, par value $0.01 per share (the "Preferred Shares"). Cumulative voting in the election of Directors shall not be permitted to holders of either of the Common Shares or the Preferred Shares. No holder of any share of any class of stock of the Corporation shall have any preemptive right to subscribe for or acquire additional shares of stock of any class of the Corporation or warrants or options to purchase, or securities convertible into, shares of any class of stock of the Corporation." The undersigned corporation has caused this statement to be signed by its duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. Dated: May 21, 1996 APAC Teleservices, Inc. by /s/ Theodore G. Schwartz ----------------------------------- Theodore G. Schwartz, President attested by /s/ Marc S. Simon ----------------------------------- Marc S. Simon, Secretary ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF APAC CORPORATION 1. CORPORATE NAME: APAC Corporation 2. MANNER OF ADOPTION OF AMENDMENT: The following amendment of the Articles of Incorporation was adopted on September 8, 1995 in the manner indicated below. By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. 3. TEXT OF AMENDMENT: Article I: The name of the corporation is: APAC TeleServices, Inc. The undersigned corporation has caused this statement to be signed by its duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. Dated: September 8, 1995 APAC Corporation by /s/ Theodore G. Schwartz ------------------------------------- Theodore G. Schwartz, President attested by /s/ Marc S. Simon ----------------------------------- Marc S. Simon, Secretary AMENDED AND RESTATED ARTICLES OF INCORPORATION OF APAC TELESERVICES, INC. The original Articles of Incorporation of Apac Teleservices, Inc. were filed with the Secretary of State of Illinois on May 23, 1973. The name of the Corporation under which it was originally incorporated was Allstate Promotional Advertising Corporation. The original Articles of Incorporation were amended on September 9, 1985 to change the Corporation's name to "The APAC Corporation." The original Articles of Incorporation were amended and restated on June 8, 1988 and in connection therewith the Corporation's name was changed to "APAC Telemarketing Corporation." The Articles of Incorporation of the Corporation were further amended on April 4, 1992 to change the Corporation's name to "APAC Teleservices, Inc." This Amended and Restated Articles of Incorporation not only restates and integrates the original Articles of Incorporation and all amendments thereto, but also includes amendments adopted by the shareholders of APAC Teleservices, Inc. on the date hereof. This Amended and Restated Articles of Incorporation was duly adopted in accordance with the applicable provisions of Sections 10.20 and 7.10 of the Illinois Business Corporation Act of 1983 and shall become effective upon filing with the Secretary of State of the State of Illinois. EACH OF THE ARTICLES CONTAINED IN THIS AMENDED AND RESTATED ARTICLES OF INCORPORATION HAVE BEEN BOTH AMENDED AND RESTATED. FIRST: The name of the Corporation is APAC Corporation. SECOND: The Corporation's registered office in the State of Illinois is located at One Parkway North Center, Suite 510, City of Deerfield, County of Cook 60015 and Marc S. Simon is the Corporation's registered agent at such address. THIRD: The purpose for which the Corporation is organized is to carry on and to engage in any lawful act or activity for which corporations may be organized under the Illinois Business Corporation Act of 1983. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 150,000,000, consisting of (i) 100,000,000 common shares, par value $0.01 per share (the "Common Shares"), and (ii) 50,000,000 preferred shares, par value $0.01 per share (the "Preferred Shares"). Cumulative voting in the election of Directors shall not be permitted to holders of either the Common Shares or the Preferred Shares. No holder of any share of any class of stock of the Corporation shall have any preemptive right to subscribe for or acquire additional shares of stock of any class of the Corporation or warrants or options to purchase, or securities convertible into, shares of any class of stock of the Corporation. SECTION A COMMON SHARES 1. Voting Rights. Except as otherwise provided by law, each Common Shares shall entitle the holder thereof to one (1) vote in any matter submitted to a vote of shareholders of the Corporation. 2. Dividends and Distributions. Subject to the express terms of the Preferred Shares outstanding from time to time, the holders of Common Shares shall be entitled to receive such dividends and distributions as may from time to time be declared by the Board of Directors. SECTION B PREFERRED SHARES Subject to the terms contained in any designation of a series of Preferred Shares, the Board of Directors is expressly authorized, at any time and from time to time, to issue Preferred Shares in one or more series, and for such consideration as the Board of Directors may determine and to fix, by resolution or resolutions, the following provisions for shares of any class or classes of Preferred Shares of the Corporation or any series of any class of Preferred Shares: 1. the designation of such class or series, the number of shares to constitute such class or series which may be increased or decreased (but not below the number of shares of that class or series then outstanding) by resolution of the Board of Directors, and the stated value thereof if different from the par value thereof; 2. whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; 3. the dividends, if any, payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation such dividends shall bear to the dividends payable on any shares of stock of any class or any other series of the same class; 4. whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, prices and other conditions of such redemption; 5. the amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; 6. whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; 7. whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any class or any other series of the same class or any other securities and, if so, the price or prices or the rates or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; 8. the limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon purchase, redemption or other acquisition by the Corporation of the Common Shares or shares or stock of any class or any other series of the same class; 9. the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class; 10. the ranking (be it pari passu, junior or senior) of each class or series vis-a-vis any other class or series of any class of Preferred Shares as to the payment of dividends, the distribution of assets and all other matters; and 11. any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of this Amended and Restated Articles of Incorporation, to the full extent permitted in accordance with the laws of the State of Illinois. The powers , preferences and relative, participating, optional and other special rights of each class or series of Preferred Shares, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. FIFTH: Advance notice of shareholder nominations for the election of Directors and of new business to be brought by shareholders before any meeting of the shareholders of the Corporation shall be given in a manner provided by the By-laws of the Corporation. SIXTH: Special meetings of the shareholders, for any purpose or purposes (except to the extent otherwise provided by law or this Amended and Restated Articles of Incorporation), may only be called by the Chairman of the Board, the President or any three Directors. SEVENTH: Notwithstanding the provisions of this Amended and Restated Articles of Incorporation and any provisions of the By-Laws of the Corporation, no amendment to this Amended and Restated Articles of Incorporation shall amend, modify or repeal any or all of the provisions of this Article SEVENTH, Article SIXTH or Article FIFTH of this Amended and Restated Articles of Incorporation, unless so adopted by the affirmative vote or consent of the holders of not less than two-thirds (66 2/3%) of the total voting power of all then outstanding shares entitled to vote in the election of Directors of the Corporation, voting as a single class; provided, however, that in the event the Board of Directors of the Corporation shall, by resolution adopted by a majority of the Directors then in office, recommend to the shareholders the adoption of any such amendment, the shareholders of record holding a majority of the total voting power of all then outstanding shares entitled to vote in the election of Directors of the Corporation, voting as a single class, may amend, modify or repeal any or all of such provisions. EIGHTH: In furtherance and not in limitation of the powers conferred by the laws of Illinois, the Board of Directors is expressly authorized and empowered to make, alter, amend and repeal the By- laws of the Corporation in any respect not inconsistent with the laws of the State of Illinois or with this Amended and Restated Articles of Incorporation. NINTH: The books of the Corporation may be kept at such place within or without the State of Illinois as the By-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. TENTH: A Director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 8.65 of the Illinois Business Corporation Act, as the same exists or hereafter may be amended, or (iv) for any transaction from which the Director derived an improper personal benefit. If the Illinois Business Corporation Act hereafter is amended to authorize the further elimination or limitation of the liability of Directors, then the liability of the Corporation's Directors shall be eliminated or limited to the full extent authorized by the Illinois Business Corporation Act, as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a Director of the Corporation existing at the time of such repeal or modification. ELEVENTH: As of the date of adoption of this Amended and Restated Articles of Incorporation, 6,000,000 Common Shares of the Corporation are outstanding and the Corporation's paid-in-capital is $60,000. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Articles of Incorporation to be signed by its duly authorized officers this 8th day of August, 1995. Attest: APAC CORPORATION /s/ Marc S. Simon /s/ Theodore G. Schwartz --------------------- ------------------------ Marc S. Simon, Theodore G. Schwartz, Secretary Chief Executive Officer EX-3.(II) 3 EXHIBIT 3.2 - BY-LAWS Exhibit 3.2 ----------- AMENDED AND RESTATED BY-LAWS OF APAC CUSTOMER SERVICES, INC. (AN ILLINOIS CORPORATION) TABLE OF CONTENTS Page ARTICLE 1 - OFFICES........................................................ 1 Section 1.1 PRINCIPAL OFFICE........................................ 1 Section 1.2 REGISTERED OFFICE....................................... 1 ARTICLE 2 - MEETINGS OF SHAREHOLDERS....................................... 1 Section 2.1 PLACE OF MEETINGS....................................... 1 Section 2.2 ANNUAL MEETINGS......................................... 1 Section 2.3 SPECIAL MEETINGS........................................ 1 Section 2.4 NOTICE OF MEETINGS...................................... 1 Section 2.5 WAIVER OF NOTICE........................................ 1 Section 2.6 CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE............................................. 2 Section 2.7 VOTING LISTS............................................ 2 Section 2.8 QUORUM.................................................. 2 Section 2.9 MANNER OF ACTING........................................ 2 Section 2.10 PROXIES................................................. 2 Section 2.11 VOTING OF SHARES BY CERTAIN HOLDERS..................... 3 Section 2.12 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.......... 3 Section 2.13 INFORMAL ACTION BY SHAREHOLDERS......................... 5 ARTICLE 3 - DIRECTORS...................................................... 5 Section 3.1 GENERAL POWERS.......................................... 5 Section 3.2 NUMBER, TENURE AND QUALIFICATIONS....................... 5 Section 3.3 REGULAR MEETINGS........................................ 5 Section 3.4 SPECIAL MEETINGS........................................ 5 Section 3.5 NOTICE.................................................. 5 Section 3.6 QUORUM.................................................. 6 Section 3.7 MANNER OF ACTING........................................ 6 Section 3.8 VACANCIES............................................... 6 Section 3.9 RESIGNATION............................................. 6 Section 3.10 COMPENSATION............................................ 6 Section 3.11 PRESUMPTION OF ASSENT................................... 6 Section 3.12 COMMITTEES.............................................. 6 Section 3.13 REMOVAL OF DIRECTORS.................................... 7 Section 3.14 INFORMAL ACTION BY DIRECTORS............................ 7 Section 3.15 RELIANCE ON BOOKS....................................... 7 ARTICLE 4 - OFFICERS....................................................... 8 Section 4.1 NUMBER.................................................. 8 Section 4.2 ELECTION AND TERM OF OFFICE............................. 8 Section 4.3 REMOVAL................................................. 8 Section 4.4 VACANCIES............................................... 8 Section 4.5 CHAIRMAN OF THE BOARD OF DIRECTORS...................... 8 Section 4.6 THE CHIEF EXECUTIVE OFFICER............................. 8 Section 4.7 THE PRESIDENT........................................... 8 Section 4.8 CHIEF FINANCIAL OFFICER................................. 8 Section 4.9 VICE PRESIDENTS......................................... 8 Section 4.10 TREASURER............................................... 9 Section 4.11 SECRETARY............................................... 9 Section 4.12 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.......... 9 Section 4.13 SALARIES................................................ 9 ARTICLE 5 -SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES.......... 9 Section 5.1 REGULATION.............................................. 9 Section 5.2 CERTIFICATES FOR SHARES................................. 9 Section 5.3 CANCELLATION OF CERTIFICATES............................ 10 Section 5.4 LOST, STOLEN OR DESTROYED CERTIFICATES.................. 10 Section 5.5 TRANSFER OF SHARES...................................... 10 Section 5.6 FACSIMILE SIGNATURE..................................... 10 ARTICLE 6 - CONTRACTS...................................................... 10 ARTICLE 7 - FISCAL YEAR.................................................... 11 ARTICLE 8 - DIVIDENDS...................................................... 11 ARTICLE 9 - SEAL........................................................... 11 ARTICLE 10 - INDEMNIFICATION............................................... 11 Section 10.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION............................................. 11 Section 10.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION........... 11 Section 10.3 AUTHORIZATION OF INDEMNIFICATION........................ 11 Section 10.4 PAYMENT OF EXPENSES IN ADVANCE.......................... 12 Section 10.5 SUCCESSFUL DEFENSES..................................... 12 Section 10.6 PROVISIONS NOT EXCLUSIVE................................ 12 Section 10.7 INSURANCE............................................... 12 Section 10.8 NOTICE TO SHAREHOLDERS.................................. 12 Section 10.9 DEFINITIONS............................................. 12 Section 10.10 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION..................................... 13 Section 10.11 CONTINUATION OF RIGHTS ................................ 13 Section 10.12 PAYMENTS A BUSINESS EXPENSE ........................... 13 ARTICLE 11 - AMENDMENTS.................................................... 13 AMENDED AND RESTATED BY-LAWS OF APAC CUSTOMER SERVICES, INC. ARTICLE 1 OFFICES SECTION 1.1 PRINCIPAL OFFICE. The principal office of the corporation shall be in Deerfield, Illinois, and the corporation may have such other offices, either within or without the State of Illinois, as it may require from time to time. SECTION 1.2 REGISTERED OFFICE. The registered office of the corporation required by The Business Corporation Act (the "Act") to be maintained in the State of Illinois may be, but need not be, identical with the principal office in the State of Illinois, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE 2 MEETINGS OF SHAREHOLDERS SECTION 2.1 PLACE OF MEETINGS. All meetings of the shareholders may be held at such place as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver of notice thereof. If no designation is made, the place of meeting shall be the principal office of the corporation. SECTION 2.2 ANNUAL MEETINGS. An annual meeting of the shareholders, commencing in 1996, shall be held each year within 180 days after the close of the immediately preceding fiscal year of the corporation, at such time and place as shall be designated by the Board of Directors. SECTION 2.3 SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by the Act, the Articles of Incorporation or these By- laws, may only be called by the Chairman of the Board, the President or a majority of the total number of directors which the corporation would have if there were no vacancies (the "Whole Board"). Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.4 NOTICE OF MEETINGS. Written or printed notice stating the place, day and hour of the meeting of shareholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days (or in a case involving a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days) nor more than sixty days before the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, President, the Secretary or the officer or persons calling the meeting, to each shareholder of record entitled to vote at the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. SECTION 2.5 WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of these By-laws or under the provisions of the Articles of Incorporation or under the provisions of the Act or otherwise, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. SECTION 2.6 CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the share transfer books shall be closed for a stated period, but not to exceed, in any case, sixty days. If the share transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days (or in a case involving a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, at least twenty days) immediately preceding the meeting. In lieu of closing the share transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, in case of a meeting of shareholders, not less than ten days (or in a case involving a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days) immediately preceding such meeting. If the share transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment of the meeting. SECTION 2.7 VOTING LISTS. The officer or agent who has charge of the transfer books for shares of the corporation shall make, within twenty days after the record date for a meeting of shareholders, or ten days before each such meeting, whichever is earlier, a complete list of shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Illinois, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. SECTION 2.8 QUORUM. Unless otherwise provided in the Articles of Incorporation, a majority of the outstanding shares of the corporation, entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at a meeting of shareholders, but in no event shall a quorum consist of less than one-third of the outstanding shares entitled so to vote. If, however, such quorum shall not be present or represented by proxy at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, the Chairman of the Board or the President, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, except as hereinafter provided, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. SECTION 2.9 MANNER OF ACTING. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by The Business Corporation Act of the State of Illinois or the Articles of Incorporation or these By-laws, in which case such express provision shall govern and control the decision of such question. SECTION 2.10 PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. The corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated and any other holder of an office indicated by the corporate shareholder to the corporation as a person or as an officer authorized to vote such shares. Such persons and officers indicated shall be registered by the corporation on the transfer books for shares and included in any voting list prepared in accordance with Section 2.7. Shares registered in the name of a deceased person, a minor ward or person under legal disability may be voted by his or her administrator, executor, or court-appointed guardian, either in person or by proxy, without a transfer of such shares into the name of such administrator, executor, or court-appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name, if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. SECTION 2.12 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS. (A) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the corporation who was a shareholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (b) of paragraph (A)(1) of this By-Law, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (B) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election of such position(s) as specified in the corporation's notice of meeting, if the shareholder's notice required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-Law, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock to elect directors under specified circumstances. SECTION 2.13 INFORMAL ACTION BY SHAREHOLDERS. With the exception of dissolution of this corporation, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed (i) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (ii) by all of the shareholders entitled to vote with respect to the subject matter thereof. If such consent is signed by less than all of the shareholders entitled to vote, then such consent shall become effective only if at least 5 days prior to the execution of the consent a notice in writing is delivered to all the shareholders entitled to vote with respect to the subject matter thereof and, after the effective date of the consent, prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be delivered in writing to those shareholders who have not consented in writing. Dissolution of this corporation may be authorized by the unanimous consent in writing of the holders of all outstanding shares entitled to vote on dissolution. ARTICLE 3 DIRECTORS SECTION 3.1 GENERAL POWERS. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by the Articles of Incorporation, the Act or these Bylaws directed or required to be exercised or done by the Shareholders. SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors which shall constitute the whole Board of the corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the Board of Directors but in no event shall the number of Directors of the corporation be less than one nor more than six. Each director shall hold office until the next succeeding annual meeting of shareholders or until the next meeting of shareholders at which directors are elected. Directors need not be residents of the State of Illinois nor shareholders of the corporation. SECTION 3.3 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this By-law, immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Illinois, for the holding of additional regular meetings in which case no other notice need be given. SECTION 3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or any three directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the Board of Directors. SECTION 3.5 NOTICE. Written notice of any special meeting of directors shall be given as follows: By mail to each director at his business address at least three days prior to the meeting; or By personal delivery, telegram or facsimile to each director at his business address at least 24 hours prior to the meeting, or in the event such notice is given on a Saturday, Sunday or holiday, to each director at his residence address at least 24 hours prior to the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. If notice is given by facsimile, such notice shall be deemed given when sent with confirmation of receipt. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 3.6 QUORUM. A majority of the Whole Board shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If less than a majority of such directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice until a quorum shall be present. Unless specifically prohibited by the Articles of Incorporation, members of the Board of Directors or of any committee of the Board of Directors may participate in and act at any meeting of such Board of Directors or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute attendance at the meeting of the person or persons so participating. SECTION 3.7 MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless a greater number is required by the Articles of Incorporation. SECTION 3.8 VACANCIES. Any vacancy occurring in the Board of Directors that results from an increase in the number of directors or from the death, resignation or removal of a Director may be filled by the affirmative vote of at least a majority of remaining directors office; though less than a quorum of the Board of Directors. A director appointed by the Board of Directors to fill a vacancy shall serve until the next meeting of shareholders at which directors are to be elected. SECTION 3.9 RESIGNATION. A director may resign at any time by giving written notice to the Board of Directors, its chairman, or to the president or secretary of the corporation. A resignation is effective when the notice is given unless the notice specifies a future date. The pending vacancy may be filled before the effective date, but the successor shall not take office until the effective date. SECTION 3.10 COMPENSATION. The Board of Directors, irrespective of any personal interest of any of the members, shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at meetings or a stated salary as Directors. These payments shall not preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Member of special or standing committees may be allowed like compensation. SECTION 3.11 PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent is entered in the minutes of the meeting or unless he files his written dissent to such action with the person acting as the secretary of the meeting before the adjournment of the meeting or forwards such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent does not apply to a director who voted in favor of such action. SECTION 3.12 COMMITTEES. The Board of Directors, by resolution, adopted by a majority of directors, may create one or more committees and appoint members of the Board to serve on the committee or committees. Each committee shall have two or more members, who serve at the pleasure of the Board. Unless the appointment by the Board of Directors requires a greater number, a majority of any committee shall constitute a quorum and a majority of a quorum is necessary for committee action. A committee may act by unanimous consent in writing without a meeting and, subject to the provisions of these By-laws or action by the Board of Directors, the committee by majority vote of its members shall determine the time and place of meetings and the notice required therefor. To the extent specified by the Board of Directors or in the Articles of Incorporation or these By-laws, each committee may exercise the authority of the Board of Directors under the Act; provided, however, a committee may not: (1) authorize distributions, except for dividends to be paid with respect to shares of any preferred or special classes or any series thereof; (2) approve or recommend to shareholders any act the Act requires to be approved by shareholders; (3) fill vacancies on the Board or on any of its committees; (4) elect or remove officers or fix the compensation of any member of the committee; (5) adopt, amend or repeal these By-laws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a general formula or method prescribed by the Board; (8) authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the Board may direct a committee to fix the specific terms of the issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or (9) amend, alter, repeal, or take action inconsistent with any resolution or action of the Board of Directors when the resolution or action of the Board of Directors provides by its terms that it shall not be amended, altered or repealed by action of a committee. SECTION 3.13 REMOVAL OF DIRECTORS. Any Director may be removed from office as a Director, at any time, with or without cause, by the affirmative vote of at least a majority of the outstanding shares then entitled to vote in the election of Directors of the corporation, voting as a single class, except that no director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice. Only the named director or directors may be removed at such meeting. The provisions of the first paragraph of this Section 3.13 shall not preclude the circuit court of the county in which the corporation's registered office is located from removing a director of the corporation from office in a proceeding commenced either by the corporation or by shareholders of the corporation holding at least 10 percent of the outstanding shares of any class if the court finds (1) the director is engaged in fraudulent or dishonest conduct or has grossly abused his or her position to the detriment of the corporation, and (2) removal is in the best interest of the corporation. If the court removes a director, it may bar the director from reelection for a period prescribed by the court. If such a proceeding is commenced by the shareholders, they shall make the corporation a party defendant. SECTION 3.14 INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof or by all the members of such committee, as the case may be. SECTION 3.15 RELIANCE ON BOOKS. A member of the Board of Directors or a member of any committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any committee, or in relying in good faith upon other records of the corporation. ARTICLE 4 OFFICERS SECTION 4.1 NUMBER. The Board of Directors shall have full discretion to appoint officers for the corporation. These officers may include a Chairman of the Board of Directors, a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents, a Treasurer and a Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may appoint other officers if deemed necessary who shall have such authority and shall perform such duties as from time to time may be prescribed by the Board of Directors. Any two or more offices may be held by the same person. SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected by the Board of Directors. Vacancies may be filled or new offices filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 4.3 REMOVAL. Any officer or agent of the corporation may be removed by the Board of Directors, with or without cause, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4.4 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors. SECTION 4.5 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board shall have executive authority to see that all orders and resolutions of the Board of Directors are carried into effect and, subject to the control vested in the Board of Directors by statute, by the Articles of Incorporation or by these By-Laws, shall administer and be responsible for the overall management of the business and affairs of the corporation. He shall preside at all meetings of the shareholders and of the Board of Directors, and in general shall perform all duties incident to the office of the Chairman of the Board and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4.6 THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall perform such duties as may from time to time be assigned by the Board of Directors or the Chairman of the Board, and in the absence or disability of the Chairman of the Board, shall perform the duties of the Chairman of the Board. SECTION 4.7 THE PRESIDENT. The President shall perform such duties as may from time to time be assigned by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. SECTION 4.8 CHIEF FINANCIAL OFFICER. The Chief Financial Officer (if any) shall act in an executive financial capacity. He shall assist the Chairman of the Board, the Chief Executive Officer and the President in the general supervision of the corporation's financial policies and affairs. SECTION 4.9 VICE PRESIDENTS. Any one or more of the Vice Presidents may be designated by the Board of Directors as an Executive Vice President, Senior Vice President or such other designation as the Board of Directors may deem appropriate. In the absence of the President or in the event of his inability or refusal to act, the Executive Vice President shall perform the duties and exercise the functions of the President. If there is no Executive Vice President, or if there is more than one, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; if such determination is not made by the Board of Directors, the President may make such determination. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation; and shall perform those other duties which from time to time may be assigned to him by the Board of Directors or by the Chief Executive Officer. SECTION 4.10 TREASURER. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these By-laws; and (b) in general, perform all duties incident to the office of Treasurer and all other duties as from time to time may be assigned to him by the Board of Directors or the chief executive officer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in the sum and with a surety or sureties as the Board of Directors shall determine. SECTION 4.11 SECRETARY. The Secretary shall: (a) keep the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; (c) be custodian of the corporate records and, if the corporation has a corporate seal, of the seal of the corporation and see that the seal of the corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these By-laws; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholders; (e) sign, with the Chief Executive Officer, the President or a Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by resolution by resolution of the Board of Directors; (f) have general charge of the share transfer books of the corporation; and (g) in general, perform all duties incident to the office of Secretary and all other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer. SECTION 4.12 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant Secretaries as thereunto authorized by the Board of Directors may sign with the Chief Executive Officer, the President or a Vice President certificates for shares of the corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the Board of Directors or the chief executive officer. The Assistant Treasurers shall, respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in sums and with sureties as the Board of Directors shall determine. SECTION 4.13 SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors or a committee thereof, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation. ARTICLE 5 SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES SECTION 5.1 REGULATION. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of the corporation, including the appointment of transfer agents and registrars. SECTION 5.2 CERTIFICATES FOR SHARES. The shares of the corporation shall be represented by certificates which shall be signed by the Chairman of the Board, the President, the Chief Financial Officer or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, shall be numbered serially for each class of shares, or series thereof, as they are issued and may be sealed with the seal, or a facsimile of the seal, of the corporation. If a certificate is countersigned by a transfer agent or registrar, other than the corporation itself or its employee, any other signatures or countersignatures on the certificate may be facsimiles. If the corporation shall be authorized to issue shares of more than one class, every certificate representing shares issued by the corporation shall set forth upon the face or back of the certificate a full or summary statement of all of the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of each class authorized to be issued and, if the corporation shall be authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. This statement may be omitted from the certificate if it shall be set forth upon the face or back of the certificate that such statement, in full, will be furnished by the corporation to any shareholder upon request and without charge. Each certificate representing shares shall also state the name of the corporation, the date of issue, that the corporation is organized under the laws of the State of Illinois, the name of the person to whom it is issued, the number and class of shares and the designation of the series, if any, which the certificate represents. Each certificate shall be otherwise in such form as may be prescribed by the Board of Directors and as shall conform to the rules of any Stock Exchange on which the shares may be listed. SECTION 5.3 CANCELLATION OF CERTIFICATES. All certificates surrendered to the corporation for transfer shall be canceled and no new certificates shall be issued in lieu thereof until the former certificate for a like number of shares shall have been surrendered and canceled, except as herein provided with respect to lost, stolen or destroyed certificates. SECTION 5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. Any shareholder claiming that his certificate for shares is lost, stolen or destroyed may make an affidavit or affirmation of that fact and lodge the same with the Secretary of the corporation, accompanied by a signed application for a new certificate. Thereupon, and if requested by the Board of Directors, upon the giving of a satisfactory bond of indemnity to the corporation, a new certificate may be issued representing the same number, class and series of shares as were represented by the certificate alleged to be lost, stolen or destroyed. SECTION 5.5 TRANSFER OF SHARES. The corporation may from time to time enter into an agreement or agreements with one or more of its shareholders restricting the transferability of its shares in accordance with the general corporate purpose to have its shares owned by persons actively engaged in the corporate business. Subject to the terms of any such agreement, shares of the corporation shall be transferable on the books of the corporation by the holder thereof, in person or by his duly authorized attorney, upon the surrender and cancellation of a certificate or certificates for a like number of shares. Upon presentation and surrender of a certificate for shares properly endorsed and payment of all required taxes, if any, the transferee shall be entitled to a new certificate or certificates in lieu thereof. As against the corporation, a transfer of shares can be made only on the books of the corporation and in the manner hereinabove provided, and the corporation shall be entitled to treat the holder of record of any share as the owner thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the statutes of the State of Illinois. SECTION 5.6 FACSIMILE SIGNATURE. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. ARTICLE 6 CONTRACTS Except as otherwise required by law, the Articles of Incorporation or these By-laws, any contracts or other instruments may be executed and delivered in the name and on behalf of the corporation by such officer or officers of the corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. ARTICLE 7 FISCAL YEAR The fiscal year of the corporation shall end on the Sunday nearest the 31st day of December in each calendar year. ARTICLE 8 DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Articles of Incorporation. ARTICLE 9 SEAL The Board of Directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Illinois." ARTICLE 10 INDEMNIFICATION SECTION 10.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director or officer of the corporation, or who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. SECTION 10.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, provided that no indemnification shall be made with respect to any claim, issue, or matter as to which such person has been adjudged to have been liable to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. SECTION 10.3 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Sections 10.1 and 10.2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections 10.1. and 10.2. of this Article. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by advice of independent legal counsel, or (3) by the shareholders. In any determination denying indemnification, the burden of proof shall be on the corporation to prove by clear and convincing evidence that indemnification should not be allowed. SECTION 10.4 PAYMENT OF EXPENSES IN ADVANCE. Notwithstanding any other provisions of this Article 10, expenses incurred in defending a civil or criminal action, suit or proceeding shall, unless the Board of Directors determines otherwise, be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount, if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Article 10. SECTION 10.5 SUCCESSFUL DEFENSES. Notwithstanding any other provisions of this Article 10, to the extent that a director or officer of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2 of this Article or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. SECTION 10.6 PROVISIONS NOT EXCLUSIVE. The indemnification and advancement of expenses provided by or granted under the other Sections of this Article 10 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. SECTION 10.7 INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article 10. SECTION 10.8 NOTICE TO SHAREHOLDERS. If the corporation has paid indemnity or has advanced expenses to a director, officer, employee or agent, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders meeting. SECTION 10.9 DEFINITIONS. For purposes of this Article 10, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, and employees or agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article 10 with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. For purposes of this Article 10, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" as referred to in this Article 10. SECTION 10.10 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of expenses, to any employee or agent of the corporation to the fullest extent of the provisions of this Article 10 with respect to the indemnification and advancement of expenses of directors and officers of the corporation. SECTION 10.11 CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by or granted under this Article 10 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of that person. SECTION 10.12 PAYMENTS A BUSINESS EXPENSE. Any payments made to any indemnified party under these By-Laws or under any other right to indemnification shall be deemed to be an ordinary and necessary business expense of the corporation, and payment thereof shall not subject any person responsible for the payment, or the Board of Directors, to any action for corporate waste or to any similar action. ARTICLE 11 AMENDMENTS Unless the power to make, alter, amend or repeal these By-laws is reserved to the shareholders by the Articles of Incorporation, these By- laws may be made, altered, amended or repealed by the shareholders or the Board of Directors, but no by-laws adopted by the shareholders may be altered, amended or repealed by the Board of Directors. September 29, 1999 EX-4 4 EXHIBIT 4 - SPECIMEN COMMON STOCK CERTIFICATE Exhibit 4 --------- COMMON STOCK COMMON STOCK [LOGO] APAC TeleServices, Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS THIS CERTIFICATE IS TRANSFERABLE CUSIP 00185E 10 6 IN THE CITIES OF CHICAGO, IL SEE REVERSE FOR CERTAIN DEFINITIONS OR NEW YORK, NY THIS IS TO CERTIFY THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01, OF APAC TeleServices, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. NAME CHANGED TO APAC CUSTOMER SERVICES, INC. Dated: /s/ Marc S. Simon /s/ Theodore G. Schwartz --------------------- ------------------------ Secretary President [SEAL] COUNTERSIGNED AND REGISTERED: HARRIS Trust and Savings BANK (Chicago) TRANSFER AGENT AND REGISTRAR, BY AUTHORIZED SIGNATURE - ----------------------------------------------------------------------------- APAC TeleServices, Inc. Upon written request, the Corporation will furnish to the holder hereof, without charge, a full statement of all the designations, preferences, qualifications, limitations, restrictions, and special or relative rights of the shares of each class of authorized capital stock; and the variations in the relative rights and preferences determined for each series; and the authority of the Board of Directors to fix and determine the relative rights and preferences or subsequent series. - - - - - - - - - - - - - - - - - - - - - ASSIGNMENT The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT --_________ Custodian ________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act_____________________________ in common (State) UNIF TRF MIN ACT -- _______ Custodian (until age _____) (Cust) ____________ under Uniform Transfers (Minor) to Minors Act ____________________ (State) Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________ hereby sell, assign, and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - ----------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ----------------------------------------------------------------------------- ___________________________________________________________________________ ____________________ shares of the stock represented by the within certificate, and do hereby irrevocably constitute and appoint ______________________________________________________________________________ Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises. Dated: __________________________ AFFIX MEDALLION SIGNATURE GUARANTEE IMPRINT BELOW _____________________________________ _____________________________________ ABOVE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. THE SIGNATURES(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION. SUCH AS A SECURITIES BROKER/DEALER, COMMERCIAL BANK, TRUST COMPANY, SAVINGS ASSOCIATION OR A CREDIT UNION PARTICIPATING IN A MEDALLION PROGRAM APPROVED BY THE SECURITIES TRANSFER ASSOCIATION, INC. EX-10 5 EXHIBIT 10.1 - AMENDMENT Exhibit 10.1 ------------ AMENDMENT, DATED SEPTEMBER 22, 1999, TO AGREEMENT FOR IN-BOUND TELEMARKETING WITH UNITED PARCEL SERVICE GENERAL SERVICES CO. Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omissions have been indicated by an asterisk ("*"), and the omitted text has been filed separately with the Securities and Exchange Commission. APAC CUSTOMER SERVICES, INC. UPS/APAC AMENDMENT POINTS SEPTEMBER 22, 1999 1. DETAILS: o UPS recommended wage rates per position by site (see #5) will be implemented upon agreement of communication strategy. Implementation will be at the beginning of the next pay period and no later than September 30, 1999. o Management increases of * to be implemented within 45 days due to the evaluation with UPS involvement of APAC Regional and Site management staff associated with the UPS program. o APAC will assume responsibility for replacement training beginning on the effective date of the hourly wage increases. o UPS will pay for growth training for volume increases of 5% over previous month beginning October 1, 1999. o Billable rate for agreed upon volume ramp-up training will be at * of total billable rate for the workgroup/site. o UPS will pay COLA each year pursuant to the current contract terms. COLA will be based on site specific cost of living adjustments. APAC agrees that * of COLA *. o APAC will have the Regional HR Manager and two (2) ERM personnel per site in place within the next *. o * will directly interface with *. o Accuvision will be continued only in Newport News on the effective date of the hourly wage increase o UPS' future plans are to * throughout the term of the contract, and *. BILLABLE RATES SITE SEGMENT BILLABLE RATE _____________________________________________________________ High Point Customer Service * Newport News Customer Service * Newport News Package Information * Newport News Claims * Newport News New Processes * Fort Worth Customer Service * Fort Worth Package Information * Fort Worth Claims * o The new billable rates are effective on the day the new hourly wages are in effect in the sites. o New Processes billable rates will be determined once these positions have been defined. 2. SCHEDULE ADHERENCE CRITERIA: o Call projections will include a baseline forecast for a rolling 90-day period of time, including intra-day and segmented allocations. o APAC will receive final call projections a minimum of 4 weeks prior to the stated time period. o APAC will be responsible for meeting committed staffing requirements if final projections are within 10% of the 90-day call projections. If call volumes are in excess of 10% of previous month, APAC will require a mutually agreed upon ramp up period and there will be no schedule adherence penalty or incentive for that month. o Previously defined UPS required assumptions and look back periods will be used in developing staffing requirements. o SCHEDULE ADHERENCE SERVICE LEVEL DEFINITION. Schedule adherence attainment will be determined by calculating the percentage of 15- minute intervals for all segmented groups over the week within a site which are greater than or equal to 94% of the required staffing as shown in the staffing plan. The total 15-minute intervals that achieved 94% or greater staffing, for all segmented groups, will then be divided by the total 15-minute intervals available for all segmented groups to determine schedule adherence attainment. Intervals waived by UPS Support Manager for the purposes of providing relief due to absent call volume will be deemed as an interval attained by APAC. THE PENALTY/INCENTIVE AMOUNTS AND PERCENTS ARE AS FOLLOWS AND ARE CALCULATED BY SITE: % SCHEDULE ADHERENCE BONUS/PENALTY 98 - 100.00% * bonus 95 - 97.99% * bonus 93 - 94.99 % * bonus 88 - 92.99% * penalty less than 87.99% * penalty o Implementation to occur January 1, 2000. o APAC agrees that we will waive the bonus amount for the weekly measurement period for the specific site if we achieved a bonus for that period without meeting the service level requirement. 3. QUALITY SCORECARD CRITERIA: o APAC agrees to implement an incentive/penalty program designed around the current UPS quality scorecard process with defined and statistically valid measurement criteria. o Incentive and penalties will be calculated monthly. o The Customer Service Scorecard currently in use will be used for Customer Service. o Separate Package Information and Claims Scorecards will be established, implemented and rolled out in line with the CS Quality Scorecard. o Modifications and/or changes to the Quality Scorecard will require UPS to provide APAC a 3-month notice. UPS will ensure the Quality Scorecard is administered consistently with other internal sites and measurements. THE SCORE RANGES AND PENALTY/INCENTIVE AMOUNTS ARE AS FOLLOWS AND ARE CALCULATED FOR CUSTOMER SERVICE ONLY: QUALITY SCORE RANGES BONUS/PENALTY 9.00 - 10.00 * bonus 8.00 - 8.99 * bonus 7.00 - 7.99 * bonus 6.00 - 6.99 * penalty less than 6.00 * penalty o Implementation to occur January 1, 2000. 4. CONTRACT TERM: o Term of contract to be 3 years commencing the effective date of the wage increases and will include automatic 1-year renewals. Senior Management of APAC and UPS will meet yearly to review the previous year's performance. Termination for convenience clause to include termination of specific workgroup(s) or entire relationship upon written notification. Termination for Convenience can be for any reason, at any time and for any type of work performed. Termination ramp down to be no less than 9 months from the date of notice. UPS shall use it's best efforts to ramp down revenue no greater than one third per quarter during the 9 month ramp down period. During ramp down UPS has the right for UPS or its designee to co-exist with APAC in each site. 5. WAGES. THE FOLLOWING HOURLY WAGES ARE MUTUALLY AGREED TO: FORT WORTH Starting Wages Current New Difference * $ * $ * $ * * $ * $ * $ * * $ * $ * $ * Average Wages Current New Difference * $ * $ * $ * * $ * $ * $ * * $ * $ * $ * NEWPORT NEWS Starting Wages Current New Difference * $ * $ * $ * * $ * $ * $ * * $ * $ * $ * * NA $ * * NA $ * * NA $ * * NA $ * Average Wages Current New Difference * $ * $ * $ * * $ * $ * $ * * $ * $ * $ * * NA $ * * NA $ * * NA $ * * NA $ * HIGH POINT Starting Wages Current New Difference * $ * $ * $ * Average Wages Current New Difference * $ * $ * $ * 6. PACKAGE INFORMATION WAGE PROGRESSION: o Job descriptions, definitions, wage rates, and certification procedures will be provided to APAC by UPS. Wage Rates o * $ * o * $ * o * $ * o * $ * o * $ * o * $ * o * $ * o * $ * 7. CLAIMS WAGE PROGRESSION: o Job descriptions, definitions, wage rates, and certification procedures will be provided to APAC by UPS. Wage Rates o * $ * o * $ * o * $ * o * $ * o * $ * 8. THE REMAINING PROVISIONS OF THE AGREEMENT DATED AUGUST 8, 1995, INCLUDING POLICY STATEMENTS PRESENTLY IN FORCE REMAIN IN FORCE. IN THE EVENT OF A CONFLICT WITH THIS AMENDMENT AND THE AGREEMENT DATED AUGUST 8, 1995 OR ANY POLICY STATEMENT THIS AMENDMENT WILL CONTROL. 9. CHANGE OF CONTROL CLAUSE (SECTION 49 PARAGRAPH D) FROM BASE CONTRACT TO BE DELETED. 10. UPS TO CONSIDER ALLOCATING FUTURE ELIGIBLE EARNED TRAINING CREDITS OR JOBS CREATION TO APAC. 11. UPS AGREES TO ALLOW APAC TO EXTERNALLY ANNOUNCE THE CONTRACT EXTENSION, AS ATTACHED, AND THAT UPS ACKNOWLEDGES THAT APAC IS SUBJECT TO OBLIGATIONS UNDER LAW OR MAKE PROPER DISCLOSURE OF MATERIAL DEVELOPMENTS. 12. APAC'S SERVICING OF ENTITIES COMPETITIVE TO UPS WILL BE COVERED IN ACCORDANCE WITH SECTION 21 PARAGRAPH B OF THE CURRENT AGREEMENT WITH THE ADDITION OF LANGUAGE ALLOWING APAC TO SOLICIT COMPETITIVE BUSINESS IMMEDIATELY UPON NOTICE OF TERMINATION OF THE AMENDED AGREEMENT BY UPS. Accepted By: /s/ Wayne Herring /s/ Theodore G. Schwartz - ------------------------- ------------------------- Wayne Herring for UPS Ted Schwartz for APAC Dated: September 22, 1999 Dated: September 22, 1999 EX-10 6 EXHIBIT 10.2 - EMPLOYMENT AGREEMENT Exhibit 10.2 ------------ EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement") made effective as of 11:59 p.m. September 21, 1999, by and between APAC Customer Services, Inc., an Illinois corporation (the "Company"), and Peter M. Leger, a resident of the State of Illinois (the "Executive"). In consideration of the mutual covenants contained in this Agreement, the parties hereby agree as follows: SECTION I EMPLOYMENT The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company for the Period of Employment as provided in Section III below upon the terms and conditions provided in this Agreement. SECTION II POSITION, RESPONSIBILITIES AND DUTIES From the effective date hereof through September 30, 1999, the Executive shall perform such duties and shall receive such compensation as are mutually agreed upon by the Executive and the Company. From and after October 1, 1999, the Executive shall devote all of his business time, attention and skill to the business and affairs of the Company and its subsidiaries, and shall report to the Board of Directors of the Company (the "Board of Directors"). The Executive may serve on corporate, civic or charitable boards or committees so long as, in the judgment of the Board of Directors, such activities do not interfere with the Executive's responsibilities hereunder. The Compensation Committee of the Board of Directors (the "Compensation Committee") shall annually establish reasonable, mutually agreed upon, written performance management objectives with the Executive which shall be formally reviewed annually, with informal reviews to be performed quarterly. The reasonable, mutually agreed upon, performance management objectives for fiscal year 2000 shall be established as soon as practicable. From and after October 1, 1999, the Executive shall serve as Chief Operating Officer of the Company; from and after the date described in Section III, the Executive shall serve as Chief Executive Officer of the Company. In either case, the Executive shall be responsible for the typical management responsibilities expected of an officer holding such position and such other responsibilities consistent with his position as may be assigned to the Executive from time to time by the Board of Directors. In performing his duties as Chief Operating Officer or Chief Executive Officer hereunder, the Executive shall report directly to the Chairman and have the President of the Company reporting to him, and shall have the authority customarily held by others holding positions with similar reporting relationships, in similar businesses, subject to the general and customary supervision of the Board of Directors. On or before the date on which the Executive commences as Chief Executive Officer, the Company shall amend its by-laws to separate the offices of Chairman and Chief Executive Officer. No later than October 31, 1999, the Company shall nominate for and cause the Executive to be elected to the Board of Directors and, thereafter while he is employed hereunder, to be reelected to the Board of Directors at the end of each term; provided that, the Executive shall resign from the Board of Directors upon his termination of employment if so requested by the Company. The Board of Directors expects that, taking into account the current state of the Company's planning process (strategic, operational and financial plans) for fiscal year 2000, the Executive will contribute his best efforts toward (i) identifying a management team (including any open positions to be recruited) within sixty (60) days of the full-time commencement date specified in Section III, and (ii) establishing a strategic, operational and financial plan no later than December 31, 1999. This plan would include a threshold budget and an organizational reporting structure including the desired reports of the Executive and any open positions. This plan would be presented to the Board of Directors within the first two weeks of December to allow for its comments and should be finalized by year end. The Executive and Board of Directors also shall establish reasonable and mutually agreed upon threshold, target and maximum goals and Incentive Bonus Plan award levels in connection with such strategic, operational and financial plan. SECTION III TERM The Executive shall commence as a non-officer employee of the Company as of the effective date hereof. The Executive shall commence as Chief Operating Officer on October 1, 1999 (the "full-time commencement date"), with his service as Chief Executive Officer as provided in Section II commencing on a date determined by the Company that is not later than sixty (60) days after the full-time commencement date (or a later date that the Executive and the Company reasonably and mutually agree upon in writing, as being in the best interests of the Company, but in no event later than April 1, 2000), and he shall continue as Chief Executive Officer of the Company, subject to the terms hereof through December 31, 2004, subject to earlier termination as provided in this Agreement (the "Period of Employment"). Effective January 1, 2005 (and each succeeding January 1 that is two (2) years later), the Period of Employment will be extended for two (2) years, unless either the Executive or the Company shall have given the other written notice, no later than the January 1 preceding the December 31 that would otherwise be the last day of the Period of Employment, of his or its desire to not extend the Period of Employment (with the Executive's termination on the last day of the Period of Employment in such case not constituting a termination of the Executive's employment for purposes of Section VIII.A-D, but constituting a termination of employment for purposes of the Company's plans and programs, unless his employment with the Company otherwise continues). The Executive agrees that, prior to the full-time commencement date, he will cooperate in connection with transitional matters, including the issuance of press releases by the Company and meetings and communications with its bank lenders. Press releases related to the Executive's commencement of employment hereunder shall be subject to the reasonable review and approval of the Executive. Notwithstanding any provision of this Agreement to the contrary, in the event that the Executive fails to commence as Chief Operating Officer of the Company on October 1, 1999, for any reason whatsoever (other than because of the Company's refusal to permit the Executive to so commence when he is ready, willing and able to do so), the Company shall have the right, in its sole discretion, to void this Agreement by written notice to the Executive and, thereafter, shall have no monetary or other obligations to the Executive under this Agreement whatsoever, but shall pay on behalf of the Executive the legal fees described in Section IV.D, and shall pay to the Executive the amounts described in the first sentence of Section II. Notwithstanding the foregoing, (i) if the Executive may not commence employment as a result of short-term illness, the October 1, 1999 date specified above shall be extended until the Executive recovers, but not beyond November 1, 1999; and (ii) if the Executive has provided transition services to the Company in anticipation of commencing employment, but does not commence employment other than because of his wilful refusal to commence employment, he shall be compensated for such services by the Company, as an independent contractor (within 30 days after his presentation of an itemized bill), at the rate of $250 for each hour of such services. SECTION IV COMPENSATION AND BENEFITS A. Compensation During the Period of Employment, the Company agrees to pay the Executive a base salary at an annual rate of (i) through January 1, 2001, Five Hundred Thousand Dollars ($500,000.00); (ii) from and after January 2, 2001 and through December 30, 2001, Five Hundred Twenty-Five Thousand Dollars ($525,000.00); and (iii) from and after December 31, 2001 and through December 31, 2002, Five Hundred Fifty Thousand Dollars ($550,000.00). Thereafter, the Executive's Base Salary shall be reviewed at least annually by the Compensation Committee and may be increased (but not decreased) as it deems appropriate. The base salary amount in effect from time to time during the Period of Employment shall hereinafter be referred to as "Base Salary." Such Base Salary shall be payable according to the customary payroll practices of the Company as in effect from time to time, but in no event less frequently than once each month. B. Annual Incentive and Other Bonus (1) The Executive will be eligible for an annual incentive bonus ("Annual Incentive Bonus"). For the Period of Employment through January 1, 2001, the Executive shall be entitled to receive an Annual Incentive Bonus in the amount of Five Hundred Seventy-Five Thousand Dollars ($575,000.00) (the "Guaranteed Bonus"), with Three Hundred Thousand Dollars ($300,000.00) of such Guaranteed Bonus payable on the full-time commencement date; One Hundred Thousand Dollars ($100,000.00) of such Guaranteed Bonus payable on each of the ninetieth (90th) and one hundred eightieth (180th) day after the full-time commencement date; and Seventy- Five Thousand Dollars ($75,000.00) of such Guaranteed Bonus payable on the two hundred seventieth (270th) day after the full-time commencement date; provided in each case that the Executive is then in the employ of the Company or his employment has terminated due to death, Disability, by the Company Without Cause, or by the Executive for Good Reason After Change in Control, all as defined below. If the Executive terminates his employment with the Company before January 2, 2001, other than for Good Reason After Change in Control, he shall only be entitled to the Guaranteed Bonus to the extent it has been paid as of the date of his termination, and if the Executive's employment is terminated by the Company With Cause before January 2, 2001, he shall only be entitled to such portion of the Guaranteed Bonus equal to the sum of (i) Three Hundred Thousand Dollars ($300,000.00), plus (ii) a portion of the remainder of the bonus determined by multiplying Two Hundred Seventy-Five Thousand Dollars ($275,000.00) by a fraction, the numerator of which is the number of days he was employed hereunder and the denominator of which is the number of days from the full- time commencement date specified in Section III through January 2, 2001, and, he shall not be entitled to any remaining portion of the Guaranteed Bonus, and, to the extent necessary to accomplish the foregoing, he shall return the Guaranteed Bonus that he has already received (in four equal installments on the first day of each of the first four months after his termination). (2) From and after January 3, 2001, for each fiscal year of the Period of Employment, the Executive will be eligible for an Annual Incentive Bonus under the Company's Incentive Bonus Plan and this Agreement with a threshold award of thirty percent (30%), a target award of sixty percent (60%) and a maximum award of ninety percent (90%) of the Executive's Base Salary for such fiscal year, payable to the Executive in accordance with the Company's Incentive Bonus Plan based on the achievement of reasonable, mutually agreed upon operational and financial goals (with corresponding goals established for the payment of threshold, target and maximum awards, and awards between the goals determined by straight line interpolation) as established by the Executive and approved by the Board of Directors and the Compensation Committee in a manner that will cause such awards to constitute performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code (the "Code"). C. Equity Incentives (1) As of the effective date hereof, (i) 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) (an "NSO") under the APAC TeleServices, Inc. Amended and Restated 1995 Incentive Stock Plan (the "Stock Plan") covering One Hundred Thousand (100,000) shares of the Common Stock of the Company at an exercise price equal to the mean between the high and low prices at which the Company's Common Stock traded on the date of grant, as reported on the NASDAQ National Market System, and (ii) the Company shall grant to the Executive an NSO under the Stock Plan covering One Million (1,000,000) shares of the Common Stock of the Company at an exercise price equal to the mean between the high and low prices at which the Company's Common Stock traded on the date of grant, as reported on the NASDAQ National Market System; provided that, the grant under this clause (ii) shall not be exercisable unless shareholder approval of the amendment to the Stock Plan's limits necessary to permit the grant is secured and shall only be exercisable as otherwise provided in this Agreement. Subject to the Executive's continuing employment with the Company through the date(s) on which specified portion(s) of the foregoing options become exercisable (as hereinafter described), and except as otherwise provided with respect to options becoming exercisable pursuant to Section VIII.A-C, the foregoing options shall become exercisable with respect to 40% of the shares subject thereto on the second anniversary of the full- time commencement date, and cumulatively as to an additional 20% of the shares subject to the options on each succeeding anniversary, so that it shall be fully exercisable on the fifth such anniversary. Commencing in the March following the first anniversary of the full-time commencement date, and continuing thereafter on the schedule applicable to other senior executives, the Company will make additional option grants to the Executive based on the Compensation Committee's assessment of his performance, with each such option grant anticipated to cover between Seventy Five Thousand (75,000) (if the Executive's and the Company's performances have been at a target level under the Annual Incentive Plan) and One Hundred Thousand (100,000) shares of the Company's Common Stock (if the maximum goal used for such purpose has been met or exceeded), with grant sizes between target and maximum performance determined by straight line interpolation. If a Change in Control, as defined below, occurs, then to the extent any option previously granted to the Executive is then not exercisable, its exercisability shall accelerate as to fifty percent (50%) of the previously unexercisable portion, and such option shall thereafter become additionally exercisable (if at all) to the extent it would have been exercisable without such acceleration. (2) The Company shall submit the above-described amendment to the Stock Plan to a vote of its shareholders no later than the 2000 Annual Meeting of Shareholders. D. Additional Benefits The Executive will be entitled to participate in all compensation or employee benefit plans or programs and receive all benefits and perquisites for which the Chairman or any direct report to the Executive ("senior executive") is eligible under any existing or future plan or program established by the Company for senior executive employees. 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 may include group medical, life or other insurance, tax qualified pension, savings, thrift and profit sharing plans, termination pay programs, sick leave plans, travel or accident insurance, short and long term disability insurance, and contingent compensation plans including capital accumulation programs, restricted stock programs, stock purchase programs and stock option plans. Nothing in this Agreement will preclude the Company from amending or terminating any of the plans or programs applicable to senior executive employees of the Company. Notwithstanding the foregoing sentence, no such amendment or termination shall reduce or otherwise adversely affect the Executive's rights under Section IV.C. of this Agreement. In addition to the foregoing benefits, the Executive shall be entitled to receive a paid vacation of four (4) weeks during each year of the Period of Employment; provided that 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, the reasonable attorneys' fees incurred by him in connection with the negotiation and preparation of this Agreement. SECTION V BUSINESS EXPENSES The Company will 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. SECTION VI DISABILITY The Executive's employment hereunder may be terminated by the Company during the Period of Employment if (i) the Executive becomes physically or mentally incapacitated, (ii) the Executive is unable for a period of one hundred eighty (180) consecutive days to perform his material duties and responsibilities and (iii) a physician appointed by the Chief of Medicine of Evanston Northwestern Healthcare Hospital, Evanston, Illinois, or another health professional designated by the Executive and agreed upon by the Company determines that the Executive's incapacity is continuing beyond such one hundred eighty (180) day period (such continued incapacity is hereinafter referred to as "Disability"). Upon any such termination for Disability, the Executive shall be entitled to receive (i) his Base Salary through the date on which the Executive is first eligible to receive payment of long term disability benefits under the Company's long term disability benefit plan as then in effect covering the Executive; (ii) if such date is on or before January 2, 2001, the remaining payments of his Guaranteed Bonus as described in Section IV.B(1); (iii) if such date is after January 2, 2001, his Annual Incentive Bonus at target, prorated through such date; and (iv) 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 IV.D. SECTION VII DEATH In the event that the Executive's employment is terminated because of his death during the Period of Employment, (i) the Executive's estate shall be entitled to receive his Base Salary through the date of the Executive's death; (ii) the Executive's estate shall be entitled to receive (A) if such date is on or before January 2, 2001, the remaining payments of his Guaranteed Bonus as described in Section IV.B(1); or (B) if such date is after January 2, 2001, his Annual Incentive Bonus at target, prorated through such date, and (iii) the Executive's designated beneficiary or estate, as the case may be, shall be entitled to his accrued benefits, including, but not limited to, life insurance proceeds, under the terms of the plans, policies and procedures of the Company, including any plans or programs in which he participates pursuant to Section IV.D. SECTION VIII EFFECT OF TERMINATION OF EMPLOYMENT A. Termination Without Cause If the Company terminates the Executive's employment Without Cause on or before December 31, 2001, the Executive shall be entitled to receive continued payment of an amount equal to his Base Salary, through December 31, 2002; provided that, if the Executive's employment terminates Without Cause before January 1, 2001, the total amount of such payments that would have been continued through December 31, 2002 shall instead be allocated equally over a twenty-four (24) month period. If the Company terminates the Executive's employment Without Cause after December 31, 2001 and before the end of the Period of Employment, the Executive shall be entitled to receive continued payment of an amount equal to his Base Salary, for a period of one (1) year. In either case, such continued Base Salary shall be payable according to the customary payroll practices of the Company, but in no event less frequently than once each month. Notwithstanding the foregoing, if a Change in Control occurs after the Executive's termination Without Cause, the Company shall use its best efforts to pay the remaining payments due to him under this paragraph 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. In addition, if the Company terminates the Executive's employment Without Cause before the end of the Period of Employment, the Executive shall (i) if the termination occurs after January 2, 2001, receive an amount equal to the prorated Annual Incentive Bonus, if any, payable under the Company's Incentive Bonus Plan based on actual performance for the year in which the termination of employment occurred (based on the number of days in such year through the date of termination), payable at the same time that bonuses are paid for such year, (ii) receive 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 IV.D, (iii) have, for vesting schedule purposes only, the vesting of each Company stock option granted to the Executive determined as if the Executive's employment had terminated on the next anniversary of the date of grant (provided that, if a stock option by its terms shall not have vested in any respect as of such anniversary, it shall nonetheless be exercisable with respect to no fewer than twenty percent (20%) of the shares subject thereto), (iv) receive payment for all accrued but unused vacation, and (v) be entitled to payment, when due, by the Company of any premiums for continued Company health care coverage under Section 4980B of the Code, to the extent elected by the Executive and in effect. B. Termination for Nonperformance If the Company terminates the Executive for Nonperformance, the Executive shall be entitled to receive continued payment of an amount equal to his Base Salary for one-half (1/2) of the period that would then apply if the Company had terminated his employment Without Cause, or if greater, for one (1) year. In addition, the Executive shall (i) receive an amount equal to the one-half (1/2) of a prorated Annual Incentive Bonus, if any, payable under the Company's Incentive Bonus Plan based on actual performance for the year in which the termination of employment occurred (based on the number of days in such year through the date of termination), payable at the same time that bonuses are paid for such year, (ii) receive 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 IV.D, (iii) have, for vesting schedule purposes only, the vesting of one-half (1/2) of each Company stock option granted to the Executive pursuant to this Agreement determined as if the Executive's employment had terminated on the next anniversary of the date of grant (provided that, if a stock option by its terms shall not have vested in any respect as of such anniversary, it shall nonetheless be exercisable with respect to no fewer than ten percent (10%) of the shares subject thereto), (iv) receive payment for all accrued but unused vacation, and (v) be entitled to payment, when due, by the Company of any premiums for continued Company health care coverage under Section 4980B of the Code, to the extent elected by the Executive and in effect. C. Termination for Good Reason After Change in Control If the Executive terminates his employment with the Company for Good Reason After Change in Control, (i) the Executive shall be entitled to receive a lump sum payment, within thirty (30) days after termination, equal to the sum of (A) two (2) years' Base Salary, at the Base Salary rate in effect on the date of the Executive's termination, and (B) if the termination occurs (I) on or before January 2, 2001, in addition to the remaining payments of the Guaranteed Bonus described in Section IV.(B), one year's Annual Incentive Bonus at target (i.e., 60% of Base Salary), and (II) after January 2, 2001, two years' Annual Incentive Bonus at target, at the Base Salary rate in effect on the date of the Executive's termination, (ii) all then outstanding stock options granted to the Executive shall become exercisable (or comparable arrangements shall be made if such options cannot be made exercisable), (iii) the Executive shall be entitled 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 IV.D, (iv) the Executive shall receive payment for all accrued but unused vacation, and (v) the Company shall pay, when due, any premiums for continued Company health care coverage under Section 4980B of the Code, to the extent elected by the Executive and in effect. D. Termination With Cause If the employment of the Executive is terminated by the Company With Cause, (i) the Executive shall be entitled to receive his Base Salary prorated through the date of termination, and (ii) the Executive shall be entitled 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 IV.D. E. Effect of Terminations Upon termination of the Executive's employment, the Period of Employment and the Company's obligation to make payments under this Agreement will cease as of the date of termination, except as otherwise expressly provided in this Agreement, and any stock options held by him that are then exercisable shall only remain exercisable for a period of ninety (90) days. The Executive shall have the right to voluntarily terminate this Agreement, other than for Good Reason After Change in Control, upon sixty (60) days' prior written notice to the Company. If the Executive voluntarily terminates his employment with the Company, other than for Good Reason After Change in Control, (i) the Executive shall be entitled to receive his Base Salary prorated through the date of the Executive's voluntary termination, (ii) his Guaranteed Bonus shall be governed by Section IV.(B), and (iii) the Executive shall be entitled 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 IV.D. F. Offset No amount to which the Executive is entitled under this Section shall be subject to offset for any income which he derives from employment and/or consulting or from any other source. G. Definitions For this Agreement, the following terms have the following meanings: (1) 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 the Executive specifying the event relied upon for such termination, due to (A) gross misconduct or gross negligence in the performance of the Executive's employment duties, (B) willful disobedience by the Executive of the lawful directions received from or policies established by the Board of Directors, which continues for more than seven (7) days after the Company notifies the Executive of its intention to terminate his employment on account of such disobedience, or (C) commission by 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. (2) Termination "for Nonperformance" means termination, after January 2, 2001, of the Executive's employment by the Board of Directors acting in good faith by written notice by the Company to the Executive specifying the event relied upon for such termination, due to failure of the Executive and/or the Company to achieve overall financial and/or operational objectives that are reasonable and have been established mutually by the Executive and the Board of Directors and that are consistent with the threshold goals described in Section IV.B.1. (3) Termination "Without Cause" means termination by the Company of the Executive's employment other than due to death, Disability, or termination With Cause or termination for Nonperformance. (4) Termination for "Good Reason After Change in Control" means termination of the Executive's employment by the Executive (a) within three (3) months after the Executive has (i) except as provided in clause (b)(i), failed to be elected or reelected to the Board of Directors, or (ii) failed to be elected or maintained as Chief Executive Officer as and when (including agreed upon extensions) described in Section III (irrespective of whether a Change in Control has occurred or is anticipated to occur in the future), or (b) within twelve (12) months following a Change in Control as defined in Section VII.G.5, but only if, after notice by the Executive to the Company and a fifteen (15) day opportunity by the Company to cure, (i) the Executive is not elected, reelected or otherwise continued in the office of Chief Executive Officer and/or as a member of the Board of Directors or (if the Board of Directors consists of only one (1) member, the Executive Committee of the Company), (ii) the Executive's principal place of work (not including regular business travel) is relocated by more than fifty (50) miles, (iii) the Executive's duties, responsibilities or authority as an executive employee are materially reduced or diminished from those in effect on the full-time commencement date without the Executive's written consent; provided that any reduction or diminishment in any of the foregoing resulting merely from the acquisition of the Company and its existence as a subsidiary or division of another entity shall not be sufficient to constitute Good Reason After Change in Control if the Executive is still in the senior executive position of such subsidiary or division, (iv) the compensation received by the Executive is reduced in the aggregate, and such reduction is not remedied within thirty (30) days of the Executive's notice to the Company thereof, (v) a determination is made by the Executive in good faith that as a result of the Change in Control, and a change in circumstances thereafter and since the date of this Agreement significantly affecting his position, he is unable to carry out the authorities, powers, functions or duties attached to his position and contemplated by Section II of this Agreement and the situation is not remedied within thirty (30) days after receipt of the Company of written notice from the Executive of such determination, (vi) the Company violates the material terms of the Agreement, or (vii) there is a liquidation, dissolution, consolidation or merger of the Company or transfer of all or a significant portion of its assets unless a successor or successors (by merger, consolidation or otherwise) to which all or a significant portion of its assets have been transferred shall have assumed all duties and obligations of the Company under this Agreement. (5) 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 the 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)(1)(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. SECTION IX 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. 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 I and made a part hereof and incorporated herein in its entirety by reference. 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. SECTION X 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 XI 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 XII 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 between the Company, its predecessors and its affiliates, and the Executive. This Agreement and the matters contemplated hereby do not contravene any other agreement to which either the Executive or the Company is a party SECTION XIII 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 XIII is not intended to modify or limit the rights of the Executive hereunder, including without limitation, the rights of the Executive under Section VIII. As of the date of this Agreement, no such transaction is contemplated by the Company. SECTION XIV SECTION 280G Notwithstanding any provision of this Agreement to the contrary, in the event that: (i) the aggregate payments or benefits to be made or afforded to the Executive under this Agreement 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 under this Agreement 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 XV 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 charged with waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for the future or act on anything other than that which is specifically waived. SECTION XVI 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 XVII 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. One Parkway North Center Deerfield, IL 60015 Attn: Chairman With a copy to: David M. Weiner, Esq. Seyfarth, Shaw, Fairweather & Geraldson 55 East Monroe Street Suite 4200 Chicago, IL 60603 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, with a copy to: William W. Merten, Esq. McDermott, Will & Emery 227 West Monroe Street Chicago, IL 60606 or such other address as may have been furnished to the Company by the Executive in writing. SECTION XVIII 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 VIII.G(4) and XIII) be assigned by either party without the prior express written consent of the other party. SECTION XIX 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. E. Survivorship The provisions of Sections IV-XIX shall survive the termination or expiration of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. COMPANY APAC CUSTOMER SERVICES, INC. By: Theodore G. Schwartz Its: Chief Executive Officer EXECUTIVE /s/ Peter M. Leger ----------------------------- Peter M. Leger ATTACHMENT I RESTRICTIVE COVENANT AGREEMENT This Agreement made as of the 21st day of September, 1999, in Deerfield, Illinois by and between APAC Customer Services, Inc., an Illinois corporation on behalf of itself and its subsidiaries ("Employer") and Peter M. Leger ("Employee"). WHEREAS, the Employer is in the business of performing telephone based outsourcing services, including but not limited to inbound, outbound, interactive and customer optimization services, and the Employer may provide other related services on an internet or other basis; and WHEREAS, Employer's telephone based outsourcing services are utilized by a wide range of clients engaged in various business endeavors throughout the continental United States, and Employer has, in the course of its business, established a client base, a client list and an ongoing relationship with its customers; and WHEREAS, the employment relationship of the parties is being established pursuant to the terms of an Employment Agreement of even date herewith; and WHEREAS, in consideration of the employment of Employee under such Employment Agreement, and the payments provided to Employee thereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereof acknowledged, Employee and Employer agree to execute and be bound by this Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the promises and covenants contained herein the parties agree as follows: 1. Recitals. Each of the above recitals are incorporated in this Agreement and are binding upon the parties hereof. This Agreement supersedes any and all previous agreements, understandings and commitments between Employer and Employee with respect to the subject matter hereof. Each such agreement, understanding and commitment is hereby revoked and canceled. 2. Employee's Representation. Employee hereby represents and warrants to and with employer that Employee is not subject to any covenants, agreements or restrictions including without limitation any covenants, agreement or restrictions arising out of Employee's prior employment or independent contractor relationships, which would be breached or violated by Employee's execution of this Agreement or by Employee's performance of his duties hereunder. Employee acknowledges that it is Employer's express policy and procedure to abstain from the use or disclosure of the trade secrets and proprietary information of third parties, and Employee hereby expressly covenants that he will not, in the performance of his duties hereunder, use or disclose the trade secrets or proprietary information of third parties. 3. Confidentiality. Employee acknowledges that by virtue of his employment or continued employment with Employer, he has been and/or will be exposed to or has had or will have access to confidential information regarding Employer's business of the most sensitive nature, including but not limited to, trade secrets and proprietary information, all of which are proprietary to Employer. Employee further acknowledges that it would be possible for an employee, upon termination of his association with Employer to use the knowledge or information obtained while working for or with Employer to benefit other individuals or entities. Employee acknowledges that Employer has expended considerable time and resources in the development of certain confidential information used in connection with its businesses, including without limitation business strategies and goals, accounting methodology, pricing systems, advertising brochures and materials, graphic and other designs, telemarketing programs and techniques, copyrighted and non-copyrighted software source codes or object codes, technology applications and advances, client and client prospect lists or records, telephone calling lists, hiring, screening, training, quality assurance and supervisory techniques, methods and know-how, client information, client mark-ups, information regarding independent contractors, use and utilization of copyrights, confidential information and trade secrets of third parties, marketing techniques, supplier information, and, generally, the confidential information of Employer which gives, or may give, Employer an advantage in the marketplace against its competitors (all of the foregoing being herein referred to collectively as "Proprietary Information"), and which have been disclosed to or learned by Employee solely for the purpose of Employee's employment with Employer. Employee acknowledges that Employer's Proprietary Information constitutes a proprietary and exclusive interest of Employer, and, therefore, Employee agrees to hold and keep secret the Proprietary Information as described herein and the confidential information of the clients of the Employer which Employee has learned in his capacity as an employee of Employer (the "Client Information"), as to which Employee is now or any time during his employment shall become informed, and Employee shall not directly or indirectly disclose any Proprietary Information or Client Information to any person, firm, court, governmental agency or corporation or use the same except in connection with the business and affairs of Employer. 4. Non-Competition. Employee agrees that during his employment and for a period of twenty-four (24) months after the termination thereof for any reason whatsoever, Employee will not participate, either directly or indirectly, for himself or for any third party, in soliciting, selling, administering, managing, or performing telephone based or internet based, outsourcing, for or on behalf of: (a) any customer of Employer which was a customer during any part of Employee's employment; (b) any person, corporation, or other entity to whom the Employer made a written or oral bid or presentation during Employee's employment; or (c) any person, corporation, or other entity regarding which Employer had developed confidential information and Employee became aware of such confidential information as a result of his employment. 5. Non-Disturbance of Employees; Non-Disparagement. Employee covenants that during his employment and for a period of twenty-four (24) months after the termination thereof, for any reason whatsoever, Employee shall not, directly or indirectly, as an employee, agent, salesman or member of any person, corporation, firm or otherwise (a) solicit any employee or agent of Employer or make such other contact with the employees or agents of Employer, the product of which contact will or may yield a termination of the employment or agency relationship of such employees or agents from Employer or (b) make or cause others to make, whether in writing or orally, disparaging statements or inferences with respect to the Employer, its business, officers or shareholders. 6. Return of Materials. Employee will, at any time upon the request of Employer, and in any event upon the termination of his employment, for whatever reason, immediately return and surrender to Employer originals and all copies of all records, notes, memoranda, electronic files, personal computers, computer discs, computer equipment, telephones, price lists, client and client prospects lists, business plans, recordings and other documents and other property belonging to Employer, created or obtained by Employee as a result of or in the course of or in connection with Employee's employment with Employer hereunder. Employee acknowledges that all such materials are, and will always remain, the exclusive property of Employer. 7. Inventions. If at any time or times during his employment hereunder, the Executive shall (either alone or with others) make, conceive, discover or reduce to practice any invention, modification, discovery, design, development, improvement, process, software program, work of authorship, documentation, formula, data, technique, know-how, secret or intellectual property right whatsoever or any interest therein whether or not patentable or registrable under copyright or similar statutes or subject to analogous protection) (herein called "Developments") that (a) relates to the business of the Company or any customer of or supplier to the Company or any of the products or services being developed, manufactured or sold by the Company or which may be used in relation therewith, (b) results from tasks assigned to the Executive by the Company or (c) results from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company, such Developments and the benefits thereof shall immediately become the sole and absolute property of the Company and its assigns, and the Executive shall promptly disclose to the Company (or any persons designated by it) each such Development and the Executive hereby assigns any rights he may have or acquire in the Developments and benefits and/or rights resulting therefrom to the Company and its assigns without further compensation and shall communicate, without cost or delay, and without publishing the same, all available information relating thereto (with all necessary plans and models) to the Company. Upon disclosure of each Development to the Company, the Executive will during his employment and at any time thereafter, at the request and cost of the Company, sign, execute, make and do all such deeds, documents, acts and things as the Company and its duly authorized agents may reasonable require: (a) to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and (b) to defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters patent, copyright or other analogous protection. 8. Remedies. (a) Employee further acknowledges that in the event his employment with Employer terminates for any reason, he will be able to earn a livelihood without violating the foregoing restrictions and that his ability to earn a livelihood without violating such restrictions is a material condition to his employment with Employer. (b) Employee acknowledges that compliance with the restrictive covenants set forth in Paragraphs 2 through 7 herein is necessary to protect the business, goodwill and Proprietary Information of Employer and that a breach of these restrictions will irreparably and continually damage Employer for which month damages may not be adequate. Consequently, Employee agrees that, in the event that he breaches or threatens to breach any of these covenants, Employer shall be entitled to both (1) a temporary, preliminary or permanent injunction in order to prevent the continuation of such harm and (2) money damages insofar as they can be determined. Nothing in this Agreement, however, shall be construed to prohibit Employer from also pursuing any other remedy, the parties having agreed that all remedies are to be cumulative. The parties expressly agree that the Employer may, in its sole discretion, choose to enforce the restrictive covenants in Paragraphs 2 through 7 hereof, in part, or to enforce any of said restrictive covenants to a lesser extent than set forth herein. As money damages for the period of time during which Employee violates these covenants, Employer shall be entitled to recover the amount of fees, compensation or other remuneration earned by Employee as a result of any such breach. 9. Revision. In the event that any of the provisions, covenants, warranties or agreements in this Agreement are held to be in any respect an unreasonable restriction upon or are otherwise invalid, for whatsoever cause, then the court so holding shall reduce and is so authorized to reduce, the territory to which it pertains and/or the period of time in which it operates, or the scope of activity to which it pertains or effect any other change to the extent necessary to render any of the restrictions of this Agreement enforceable. 10. General Provisions. (a) Severability. Each of the terms and provisions of this Agreement is to be deemed severable in whole or in part and, if any term or provisions of the application thereof in any circumstances should be invalid, illegal or unenforceable, the remaining terms and provisions or the application thereof to circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and shall remain in full force and effect. (b) Binding Agreement. This Agreement shall be binding upon the parties, their heirs, successors, personal representatives and assigns. Employer may assign this Agreement to any successor in interest to the business, or part thereof, of Employer. Employee may not assign any of his obligations or duties hereunder. (c) Controlling Law and Jurisdiction. This Agreement shall be governed by and interpreted and construed according to the laws of the State of Illinois. Employee hereby consents to the jurisdiction of the state and federal courts in Illinois in the event that any disputes arise under this Agreement. (d) Failure to Enforce. The failure to enforce any of the provisions of this Agreement shall not be construed as a waiver of such provisions. Further, any express waiver by any party with respect to any breach of any provisions hereunder by any other party shall not constitute a waiver of such party's right to thereafter fully enforce each and every provision of the Agreement. (e) Survival. The obligations contained in this Agreement shall survive the termination, for any reason whatsoever, for cause or otherwise, of Employee's employment with Employer. (f) Gender. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires. (g) Attorney's Fees. In the event, Employer must retain an attorney to enforce the terms of this Agreement, Employee shall be liable to Employer for the amount of such reasonable attorney's fees and other costs incurred by Employer. WHEREFORE, the parties have executed this Agreement on the date and year first above written. EMPLOYER: EMPLOYEE: By: APAC Customer Services, Inc. By: Theodore G. Schwartz /s/ Peter M. Leger ---------------------------- ---------------------------- Its Chief Executive Officer Peter M. Leger EX-11 7 EXHIBIT 11 - COMPUTATION OF EARNINGS
Exhibit 11 ---------- APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) THIRTEEN (13) WEEKS ENDED THIRTY-NINE (39) WEEKS ENDED ------------------------------ ------------------------------ OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27, 1999 1998* 1999 1998* (000's omitted, except per share data) Basic shares: Average shares outstanding 48,973 48,505 48,946 48,773 Income (loss): Continuing operations $1,929 $3,613 $2,873 $6,008 Discontinued operations 0 (190) 0 (1,256) ------- ------- ------- ------- Net income $1,929 $3,423 $2,873 $4,752 ======= ======= ======= ======= Income (loss) per share: Continuing operations $0.04 $0.07 $0.06 $0.12 Discontinued operations 0.00 (0.00) 0.00 (0.02) ------- ------- ------- ------- Net income $0.04 $0.07 $0.06 $0.10 ======= ======= ======= ======= Diluted shares: Average shares outstanding 48,973 48,505 48,946 48,773 Net effect of dilutive stock options-based upon the treasury stock method using quarter-end market price 599 1,451 252 817 ------- ------- ------- ------- Total shares 49,572 49,956 49,198 49,590 ======= ======= ======= ======= Income (loss): Continuing operations $1,929 $3,613 $2,873 $6,008 Discontinued operations 0 (190) 0 (1,256) ------- ------- ------- ------- Net income $1,929 $3,423 $2,873 $4,752 ======= ======= ======= ======= Income (loss) per share: Continuing operations $0.04 $0.07 $0.06 $0.12 Discontinued operations 0.00 (0.00) 0.00 (0.02) ------- ------- ------- ------- Net income $0.04 $0.07 $0.06 $0.10 ======= ======= ======= ======= *Reclassified to conform to current year's classifications.
EX-27 8 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF OCTOBER 3, 1999 AND FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 3, 1999 CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS Jan-02-2000 Jan-03-1999 Oct-03-1999 Sep-27-1998 250 13,017 0 0 86,955 80,839 0 0 0 0 112,710 120,692 139,656 153,340 67,162 57,829 244,670 352,684 70,483 78,871 120,104 137,143 0 0 0 0 490 489 44,699 125,055 244,670 352,684 0 0 313,584 309,999 0 0 254,550 247,195 43,589 46,661 0 0 10,372 5,155 5,073 10,988 2,200 4,980 2,873 6,008 0 (1,256) 0 0 0 0 2,873 4,752 0.06 0.10 0.06 0.10 Period ended September 27, 1998, reclassified for discontinued operations to conform to current year's classifications.
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