TELESPECTRUM WORLDWIDE INC, 10-K, 1999-03-04

TELESPECTRUM WORLDWIDE INC
10-K, 1999-03-04
BUSINESS SERVICES, NEC

Previous: DEUTSCHE MORTGAGE & ASSET RECEIVING CORP, 424B5, 1999-03-04

Next: GREEHEY WILLIAM E, 4, 1999-03-04

<PAGE>

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File No. 0-21107

______________

TELESPECTRUM WORLDWIDE INC.
---------------------------
(Exact Name Of Registrant As Specified In Its Charter)

Delaware 23-2845501
-------- ----------
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification Number)

443 South Gulph Road, King of Prussia, PA 19406
-----------------------------------------------
(Address of principal Executive Offices) (Zip Code)

610-878-7400
------------
(Registrant's Telephone Number, Including Area Code)

______________

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of Each Class ON WHICH REGISTERED
------------------- -------------------
None None

Securities Registered Pursuant To Section 12(g) Of The Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of Class)

_________________

Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] NO

______________

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

As of February 24, 1999, the aggregate market value of the common Stock
held by non-affiliates of the registrant was $100,579,738. Such aggregate market
value was computed by reference to the closing sale price of the common Stock as
reported on The Nasdaq National Market on such date. For purposes of making this
calculation only, the registrant has defined affiliates as including all
directors, executive officers and beneficial owners of more than five percent of
the common Stock of the registrant.

As of February 24, 1999, there were 25,835,948 shares of the registrant's
common Stock outstanding.

================================================================================
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I

<S> <C> <C>
Item 1. Business................................................................................... 1
Item 2. Properties................................................................................. 4
Item 3. Legal Proceedings.......................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders........................................ 6

PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................. 6
Item 6. Selected Financial Data.................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 10
Item 8. Financial Statements and Supplementary Data................................................ 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 28

PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 29
Item 11. Executive Compensation..................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 34
Item 13. Certain Relationships and Related Transactions............................................. 35

PART IV
Item 14. Exhibits, Financial Statement Schedule and Report on Form 8-K.............................. 36
Index to Financial Statements and Schedule................................................. F-1
</TABLE>

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this Form 10-K including the
information concerning possible or assumed future results of our operations and
those preceded by, followed by or that include the words "anticipates,"
"believes," "expects," "intends" or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document, particularly under "Risk Factors", could affect our
future results and could cause those results to differ materially from those
expressed in our forward-looking statements:

. competitive factors;
. projected capital expenditures;
. liquidity;
. possible business relationships;
. dependence on key personnel;
. exposure to Year 2000 issues; and
. growth in future periods.

Our actual future results may differ materially from those expressed in our
forward-looking statements set forth in this Form 10-K for a number of reasons,
including the inability to:

. integrate our operations with those of IDRC in a prompt and effective
manner;
. meet greater debt service requirements following the assumption by us of
the IDRC senior debt;
. obtain financing or pursue other business objectives due to the mentioned
assumed debt;
. develop or implement a successful new business strategy for the combined
company;
. manage the combined company effectively and implement its business
strategies;
. avoid unknown material liabilities after our mergers are completed;
. avoid losing customers as a result of our mergers; and
. maintain sufficient call center utilization at favorable rates.
<PAGE>

TELESPECTRUM WORLDWIDE INC.

PART I

ITEM 1. BUSINESS

We provide services to our clients through our two business segments,
telemarketing and customer care. We began our material operations when we
completed our initial public offering and on the same day acquired our six
initial operating businesses. These businesses were engaged in telemarketing,
customer care, market research and direct mail and fulfillment services. We
acquired our customer care consulting business in October 1996. We sold our
market research business in January 1998 and our direct mail and fulfillment
business in March 1998.

SERVICES OVERVIEW

Telemarketing Segment

We provide business to consumer and business to business telemarketing services.
Telemarketing services involve the placing of telephone calls on behalf of our
clients, normally as part of our clients' efforts to sell their products or
services, or to obtain new customers. Our clients provide us with the list of
customers or prospective customers to be called. These lists consist of
individuals or businesses that have characteristics that would indicate that
they are potential purchasers of a client's products or services. Our
telemarketing sales representatives (TSRs) use prepared scripts when making the
calls. This script is either prepared by us or our client and contains written
questions and answers that are designed to assist the TSR in handling these
calls. We use our computerized call management systems to make these calls.
These systems have predictive dialers that automatically dial telephone numbers,
determine if live connections have been made and present connected calls to our
TSRs.

Customer Care Segment

Our customer care services are provided on behalf of our clients' customer
service activities. Our services include responding to customer calls via
customer service representatives (CSRs), interactive voice response services,
consulting services and call center management. Responding to customer calls
involves processing of customer inquiries by CSRs. The customer will typically
call a toll-free "800" or "888" number which is routed to one of our call
centers. The incoming call is identified by the number dialed and linked to the
CSR that is best trained and available to handle the call. At the same time,
relevant customer and/or product information is delivered to the CSRs computer
screen, complete with prompts and response text necessary to handle the inquiry.
When the call is completed, information gathered is stored and delivered back to
the client's central data files. Our interactive voice response services
involve responding to incoming customer calls via automated systems. Where
required, these calls are transferred to a CSR. Our consulting services
involve conducting research surveys that assess the effectiveness of a clients'
customer service efforts. We have also developed customer service software that
we license to our clients and is used to measure the effectiveness of customer
service and improve customer service performance. Our call center management
services involve running most aspects of a client's call center, including
recruiting and staffing the CSRs, managing the operations and providing reports
that analyze the performance of the client's call center.

INDUSTRY OVERVIEW

Telemarketing involves the direct communication of information to current or
prospective customers by telephone. Indirect marketing methods, such as radio,
television and print advertising, employ a "one-to-many" approach to convey
marketing information that can position products and services within a broad
market context. Direct marketing methods, such as telemarketing, employ a "one-
to-one" approach. This delivers a marketing message directly to a specific
current or prospective customer and elicits immediate customer response. Many
businesses have combined traditional indirect marketing methods such as
advertising with direct marketing methods such as telemarketing to obtain
greater returns from their investments in marketing activities.

We believe that currently there is overcapacity in the telemarketing industry.
This overcapacity has resulted in increased price competition for new
telemarketing contracts. While we believe that there will be continued growth
in the telemarketing industry, we do not expect that prior growth rates will
resume in the near future.

1
<PAGE>

Customer care services include telephone based direct communication of
information with customers relating to customer support and related value-added
services such as training, consulting, call center management and interactive
voice response. In the customer care industry, a significant portion of
customer care services are currently performed by prospective clients' in-house
operations. This provides a significant outsourcing opportunity for customer
care service providers.

Advances in computer and telecommunications technology have assisted
telemarketing and customer care companies to more accurately identify and
contact current and prospective customers, as well as provide more accurate,
timely and complete customer and product information to the TSR or CSR.
Providers of telemarketing and customer care services can offer clients
economies of scale in sharing the cost of new technology among a larger base of
users than might be possible with in-house operations, while at the same time
better matching available capacity to fluctuating client demand.

COMPETITION

The telemarketing industry is intensely competitive. We compete with numerous
independent telemarketing and customer care firms, as well as the in-house
operations of many of our existing or prospective clients. We compete for
telemarketing and customer care services based on:

quality;
technological expertise;
customer service;
price;
value;
range of service offerings; and
available capacity.

Most businesses that are significant consumers of telemarketing services utilize
more than one telemarketing firm and often reallocate work among various firms
from time to time. Clients often request telemarketing on an individual project
basis and we frequently are required to compete for each individual project as
they are initiated.

SALES AND MARKETING

As of December 31, 1998, we employed 15 sales personnel. Sales personnel are
compensated by salary and commissions based on sales performance.

We generally operate under short-term cancelable contractual relationships with
our telemarketing clients. Our customer care client contracts are generally for
one to three years. Our prices often include an initial fee, a base service
charge and separate charges for ancillary services. Service charges for
telemarketing and customer care services are based upon hourly rates, minute
rates or a performance payment based on successful results. Charges for other
services are normally assessed on a fee-for-service basis.

TARGETED INDUSTRIES

We target our marketing efforts toward clients in the following principal
industries:

Telecommunications

We provide telemarketing services for major telecommunications companies for
their long distance, cellular and cable products and services. We also provide
telemarketing services for regional telecommunications companies for their
advanced telephone features. We offer these clients telemarketing services for
their consumer and business customers. In addition, we answer incoming customer
service calls and provide customer care consulting services for the
telecommunications industry. The telecommunications industry provided 27% of
our total revenues in 1998.

2
<PAGE>

Financial Services

We provide banks and other financial services clients with a wide range of
services, including:

acquiring new customers;
encouraging product use;
encouraging balance transfers;
regaining customers; and
customer service.

The financial services industry provided 23% of our total revenues in 1998.

Insurance

We work with large consumer insurance companies and their agents, complementing
their sales efforts by telemarketing products such as life and accidental death
and dismemberment insurance. In addition, we answer incoming customer service
and sales calls. As of December 31, 1998, we employed 340 licensed insurance
agents collectively holding state insurance licenses from 48 states. These
agents provide telemarketing services for our clients. The insurance industry
provided 10% of our total revenues in 1998.

Pharmaceutical and Health Care

We provide our pharmaceutical clients with product support and customer service
for their business and consumer customers. We also perform customer care
consulting for clients in the health care industry.

Utilities

We provide large public and private utilities with the following services:

deregulation education for consumers;
customer service;
consumer affairs services;
collection efforts; and
customer service surveys.

Consumer Products

We provide consumer products clients with customer service, order entry and new
customer acquisition services.

Technology

We provide product support and customer service for clients in the computer
hardware and software industry. We also provide business-to-business
telemarketing such as product sales, lead generation and customer qualification
and provide call center management services for technology clients.

PERSONNEL AND TRAINING

As of December 31, 1998, we employed approximately 4,250 individuals on a full-
time basis and 250 individuals on a part-time basis. TSRs and CSRs account for
approximately 3,700 employees of our total workforce of 4,500. Our ability to
hire, train and manage qualified employees is critical to our ability to provide
high quality services to our clients. From the third quarter of 1997 through
the second quarter of 1998 we restructured our telemarketing segment. In
connection with the restructuring, we laid-off employees and closed call
centers.

GOVERNMENT REGULATION

Our sales practices are regulated at both the federal and state level. The
Federal Telephone Consumer Protection Act of 1991, enforced by the Federal
Communications Commission, imposes restrictions on unsolicited automated
telephone calls to residential telephone subscribers. Under the TCPA it is
unlawful to initiate telephone solicitations to residential telephone
subscribers before 8:00 a.m. or after 9:00 p.m., local time at the subscriber's
location, or to use automated telephone dialing systems or artificial or
prerecorded voices to call certain subscribers.

3
<PAGE>

The Federal Trade Commission regulates both general sales practices and
telemarketing specifically. Under the Federal Trade Commission Act, the FTC has
broad authority to prohibit a variety of advertising or marketing practices that
may constitute "unfair or deceptive acts and practices."

The FTC also administers the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994. Under the TCFAPA, the FTC has issued regulations
prohibiting a variety of deceptive, unfair or abusive practices in telemarketing
sales. Generally, these rules prohibit misrepresentations of the cost, quantity,
terms, restrictions, performance or characteristics of products or services
offered by telephone solicitation or of refund, cancellation or exchange
policies. The regulations also regulate the use of prize promotions in
telemarketing to prevent deception and require that a telemarketer identify
promptly and clearly the seller on whose behalf the telemarketer is calling, the
purpose of the call and the nature of the goods or services offered. The
regulations also require that telemarketers maintain records on various aspects
of their business.

Most states have enacted statutes similar to the FTC Act prohibiting unfair or
deceptive acts and practices. A number of states have enacted legislation and
other states are considering enacting legislation to regulate telemarketing. For
example, telephone sales in certain states are not final until a written
contract is delivered to and signed by the buyer, and such a contract often may
be canceled within three business days. At least one state also prohibits
telemarketers from requiring credit card payment, and several other states
require certain telemarketers to obtain licenses, post bonds or submit sales
scripts to the state's attorney general.

We are also affected by laws applicable to our client's businesses. For
example, "anti-slamming" legislation requires telecommunication carriers to
provide substantial verification from their customers that they have authorized
a change in the carrier of their telephone service. This legislation places
penalties on telecommunications carriers that do not obtain the required
verification. In addition, our employees who complete the sale of insurance
products are required to be licensed by various state insurance commissions and
to participate in regular continuing education programs, which we currently
provide.

Violation of the rules and regulations applicable to telemarketing practices may
result in injunctions against certain operations, in monetary penalties or
disgorgement of profits; moreover, such violations may give rise to private
actions for damages. We believe we are in compliance with applicable rules and
regulations.

4
<PAGE>

ITEM 2. PROPERTIES

Our corporate headquarters are located in 21,000 square feet of rented office
space in King of Prussia, Pennsylvania. We sublease this space from CRW
Financial, Inc., an affiliate that owns approximately 6.9 million shares of our
common stock. CRW Financial, Inc. subleases this facility from Cendant
Corporation, which in turn, leases this space from Health and Retirement
Properties Trust.

As of December 31, 1998 we operated the following material facilities:

<TABLE>
<CAPTION>
NUMBER OF
WORKSTATIONS
------------
TELEMARKETING CENTERS
---------------------
<S> <C>
Beckley, WV 176
Charleston, WV 240
Endicott, NY 240
Fayetteville, NC 119
Huntington, WV 240
Salisbury, NC 103
Scranton, PA 240
Steubenville, OH 173
Wheeling, WV 240
Winnipeg, Manitoba 240
-----
2,011
-----
CUSTOMER CARE CENTERS
---------------------
Annapolis, MD 123
Arlington, VA N/A
Linthicum, MD 136
London, U.K. N/A
Baltimore, MD 312
-----
571
-----
CUSTOMER CARE MANAGED CENTERS
-----------------------------
Armonk, NY 24
Littleton, MA 20
-----
44
-----

Total 2,626
=====
</TABLE>

The customer care managed centers are not owned or leased by us, but are
operated as managed call centers for our clients.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in the following legal proceedings:

In July 1998, we commenced litigation in Federal court against Parcel
Consultants Incorporation d/b/a NTC. We filed suit as part of our efforts to
collect approximately $4.7 million of accounts receivable from telemarketing
services performed on behalf of NTC. NTC filed a counter suit against us
alleging breach of contract and fraud. We believe that NTC's claims against us
are without merit. On February 26, 1999, NTC filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. We have reserved approximately $2.1
million of the accounts receivable due from NTC. We believe that our reserve is
adequate, however, we cannot assure that we will be successful in collecting
this receivable from NTC.

We are also from time to time involved in litigation incidental to our business.
We do not believe that the resolution of any existing litigation will result in
a material adverse effect on our business, results of operations, or financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to a vote of security holders during the fourth
quarter of 1998.

5
<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the NASDAQ national market under the symbol "TLSP."
The following table sets forth, for the periods indicated, the high and low
closing sales price per share of our common stock, as reported on the NASDAQ
national market, since 1997.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First Quarter $17.875 $11.875
Second Quarter 16.750 6.781
Third Quarter 9.000 4.250
Fourth Quarter 6.500 2.969
1998
First Quarter 7.250 2.750
Second Quarter 11.000 5.813
Third Quarter 9.125 3.625
Fourth Quarter 10.688 7.250
1999
First Quarter (through February 24, 1999) 11.813 8.375
</TABLE>

On February 24, 1999, the closing price for a share of common stock as reported
by The NASDAQ national stock market was $8.375. We have not paid any dividends
since our inception. The declaration and payment of dividends in the future will
be determined by the board of directors in light of conditions then existing,
including our earnings, financial condition and capital requirements.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data was derived in part from our consolidated
financial statements and notes thereto, as well as the predecessor financial
information of our initial operating businesses, included elsewhere in this Form
10-K.

In our opinion, the financial statements of our initial operating businesses
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations in accordance with Generally Accepted Accounting Principles. However,
classification of expenses between cost of services and selling, general and
administrative expenses of the initial operating businesses may be inconsistent
with our classification of such expenses. Selected Financial Data of our
initial operating businesses should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Form 10-K. All initial
operating businesses had fiscal years ending December 31 with the exception of
one business, which operated on a 52/53 week fiscal year ending on the last
Friday of the calendar year.

6
<PAGE>

TELESPECTRUM WORLDWIDE INC.

SELECTED FINANCIAL DATA
(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, APRIL 26, 1996
------------
(INCEPTION) TO
DECEMBER 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
REVENUES $167,428 $ 178,922 $ 53,154
-------- --------- --------
OPERATING EXPENSES:
Cost of services 154,316 177,565 37,942
Selling, general and administrative 17,875 19,074 9,126
Amortization of goodwill (includes goodwill impairment charge of
$139,072 in 1997) 1,178 146,321 2,147
-------- --------- --------
Total operating expenses 173,369 342,960 49,215
-------- --------- --------
Operating income (loss) (5,941) (164,038) 3,939
Interest income (expense), net (1,246) (1,876) 433
Investment gain -- 1,760 --
-------- --------- --------
Income (loss) from continuing operations before taxes (7,187) (164,154) 4,372
Income tax benefit (expense) 247 2,310 (1,693)
-------- --------- --------
Income (loss) from continuing operations $ (6,940) $(161,844) $ 2,679
======== ========= ========

Basic and diluted earnings (loss) per share from continuing operations $ (0.27) $ (6.42) $ 0.15
======== ========= ========
Weighted average number of common and common equivalent
shares outstanding 25,528 25,213 17,898
======== ========= ========

<CAPTION>
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 794 $ 774 $ 28,171
Working capital, including net assets of discontinued operations 16,702 20,655 49,373
Total assets 103,689 144,721 296,539
Long-term debt, including capital lease obligations, less current 2,876 3,800 4,199
portion
Stockholders' equity 76,568 80,377 240,511
</TABLE>

___________
TeleSpectrum Worldwide Inc. was incorporated on April 26, 1996; accordingly,
there were no historical results prior to that date.

7
<PAGE>

TELESPECTRUM WORLDWIDE INC.

SELECTED FINANCIAL DATA
(CONTINUED)

PREDECESSOR COMPANIES (INITIAL OPERATING BUSINESSES)
----------------------------------------------------

PERIOD FROM
JANUARY 1, 1996
TO AUGUST 12, FISCAL YEAR ENDED
-----------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
SOMAR
Revenues $26,421 $31,900 $20,785
Cost of services 21,406 25,048 15,623
Selling, general and administrative 3,817 5,162 4,115
Operating income 1,198 1,690 1,047
Net income 637 979 627
NBG
Revenues 11,311 12,829 5,778
Cost of services 7,686 8,572 4,259
Selling, general and administrative 1,645 2,115 1,443
Operating income 1,980 2,142 76
Net income 1,868 2,106 33
REICH
Revenues 14,558 12,253 5,424
Cost of services 8,550 7,836 4,225
Selling, general and administrative 1,466 2,534 976
Operating income 4,542 1,883 223
Net income 4,511 1,840 199
TELESPECTRUM MARYLAND
Revenues 10,529 11,854 9,386
Cost of services 6,974 8,338 6,754
Selling, general and administrative 2,929 3,072 2,636
Operating income (loss) 626 444 (4)
Net income (loss) 497 278 (154)
</TABLE>

8
<PAGE>

TELESPECTRUM WORLDWIDE INC.

SELECTED FINANCIAL DATA
(CONTINUED)

PREDECESSOR COMPANIES (INITIAL OPERATING BUSINESSES)
----------------------------------------------------

<TABLE>
<CAPTION>
AT FISCAL YEAR END
------------------
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
SOMAR
Cash and cash equivalents $ 25 $ 2
Working capital (deficit) (1,990) (242)
Total assets 10,792 5,526
Long-term debt, including capital lease obligations, less current
portion 1,639 1,145
Stockholders' equity 771 478
NBG
Cash and cash equivalents 700 --
Working capital (deficit) 1,270 (238)
Total assets 4,234 1,483
Long-term debt, including capital lease obligations, less current
portion 454 277
Stockholders' equity 2,254 396
REICH
Cash and cash equivalents 220 31
Working capital (deficit) 821 (59)
Total assets 4,318 1,111
Long-term debt, including capital lease obligations, less current
portion 371 273
Stockholders' equity (deficit) 1,668 (272)
TELESPECTRUM MARYLAND
Cash and cash equivalents 15 163
Working capital (deficit) 37 (241)
Total assets 3,549 3,182
Long-term debt, including capital lease obligations, less current
portion 57 217
Stockholders' equity 687 409
</TABLE>

9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

. competitive factors;
. projected capital expenditures;
. liquidity;
. possible business relationships;
. dependence on key personnel;
. exposure to Year 2000 issues; and
. growth in future periods.

Our actual future results may differ materially from those expressed in our
forward-looking statements set forth in this Form 10-K for a number of reasons,
including the inability to:

RECENT DEVELOPMENTS

OVERVIEW

IDRC Merger Agreement

On January 14, 1999, we entered into a merger agreement with International Data
Response Corporation and its majority stockholders. This agreement was amended
on February 26, 1999. Under this agreement, the holders of outstanding IDRC
common stock and options will be entitled to receive their pro rata portion of
an aggregate of 9.2 million shares and warrants exercisable for 3.0 million
shares of our common stock. These warrants would be exercisable during the
period between the first and seventh anniversaries of the completion of the
merger at an exercise price of $8.988 per share. In addition, the IDRC
preferred stock will be exchanged for $6.0 million in cash, plus all accrued and
unpaid dividends. The majority stockholder of IDRC, McCown De Leeuw & Co. will
be required to invest all of their proceeds from the exchange of their IDRC
preferred stock, estimated at approximately $4.9 million, to purchase a term
note from us. This note will be payable in one year and bear interest at 10.0%.
We will account for the IDRC merger as a purchase by us pursuant to Accounting
Principles Board Opinion No. 16 "Business Combinations." We received a
financing commitment for a new $135.0 million senior debt facility which will be
used to replace our current facility and to refinance IDRC's current maturities
of long-term debt, long-term debt and seller notes. If the IDRC merger is
completed, we will incur debt issuance costs associated with this facility of
approximately $4.2 million. We would amortize these costs over four years.
This debt facility will consist of three term notes in the aggregate of $86.0
million with maturities between 32 and 56 months and a revolving credit facility
of $49.0 million due in 32 months. The debt facility allows for alternative
interest rates. After three months, we can elect LIBOR plus a margin of 3.25%
to 4.25%. The debt facility contains various financial and non-financial
covenants, including minimum interest coverage, fixed charge coverage, minimum
EBITDA, maximum leverage ratio and limitations on capital expenditures. We
expect to complete the merger in the second quarter of 1999.

10
<PAGE>

CRW Merger Agreement

On September 3, 1998, we entered into a merger agreement with CRW. This
agreement was amended December 30, 1998. Under this agreement each outstanding
share of CRW common stock will be exchanged for .709 of a share of TeleSpectrum
common stock. In addition, each outstanding option to purchase shares of CRW
common stock will be exchanged for an option to purchase .709 of a share of
TeleSpectrum common stock. The warrants issued by CRW to purchase 0.7 million
shares of our common stock owned by CRW will be unaffected by this merger. CRW
does not have any continuing business operations and its only significant asset
is 6.9 million shares of our common stock. For financial reporting purposes,
we will treat the exchange of our shares of common stock for shares of CRW
common stock as a treasury stock transaction. The transaction will not have an
effect on our net income or loss, but will have an effect on our net income or
loss per share. We expect to complete the merger in the second quarter of 1999.

Litigation with NTC

In July 1998, we commenced litigation in Federal court against Parcel
Consultants Incorporation d/b/a NTC. We filed suit as part of our efforts to
collect approximately $4.7 million of accounts receivable from telemarketing
services performed on behalf of NTC. NTC filed a counter suit against us
alleging breach of contract and fraud. We believe that NTC's claims against us
are without merit. In February 1999, NTC filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. We have reserved approximately $2.1 million
of the accounts receivable due from NTC. We believe that our reserve is
adequate, however, we cannot assure that we will be successful in collecting
this receivable from NTC.

1998 Net Loss

We incurred a net loss of $6.5 million for 1998. We incurred net losses of
$12.7 million in the first six months of 1998. We primarily attribute these
losses to the costs associated with reducing our excess capacity in the first
six months of 1998. We achieved net income of $6.2 million for the last six
months of 1998, which we primarily attribute to reduced costs and higher
capacity utilization at our call centers.

Discontinued Operations

In the first quarter of 1998, we sold substantially all of the assets and
liabilities of our market research segment and our direct mail and fulfillment
segment for approximately $38.0 million in cash. These dispositions resulted in
a loss of approximately $0.9 million which we recorded as of December 31, 1997.
We used the proceeds from these sales to repay all outstanding borrowings on our
secured credit facility.

Goodwill Impairment

In the fourth quarter of 1997, as a result of our operating performance and the
overall significant changes in our industry outlook, we performed an in-depth
evaluation of the carrying value of our goodwill. As a result of this
evaluation, we recorded a goodwill impairment charge of $139.1 million, which
represented the goodwill associated with our telemarketing segment. As of
December 31, 1998, our remaining goodwill of $26.8 million relates exclusively
to our customer care segment, which we believe is realizable. See note 2 to our
consolidated financial statements.

RESULTS OF OPERATIONS

Background

We were formed in April 1996 and commenced operations within the teleservices
industry in August 1996 when we acquired our initial operating businesses.
Accordingly, no historical comparison for the twelve months ended December 31,
1997 to the twelve months ended December 31, 1996 is available.

To properly understand our operations and their relation to our initial
operating businesses, we are presenting the following results of operation:

. Comparison of results of operations for the year ended December 31, 1998
to the results of operations for the year ended December 31, 1997.

. Comparison of results of operations for the year ended December 31, 1997
to the Supplemental Pro Forma results of operations for the year ended
December 31, 1996.

11
<PAGE>

. Actual results of operations for the period from April 26, 1996 (Inception)
to December 31, 1996.

Certain prior period amounts have been reclassified to conform to the current
year presentation of cost of services and selling, general and administrative
expenses.

The following discussions should be read in conjunction with the Consolidated
Financial Statements contained within this report on Form 10-K.

Comparison of the results of operations for 1998 to 1997.

<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
-------------------------------

YEAR ENDED AS A YEAR ENDED AS A
DECEMBER 31, PERCENTAGE OF DECEMBER 31, PERCENTAGE OF
1998 REVENUES 1997 REVENUES
---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing $121.5 73% $ 141.5 79%
Customer care 45.9 27 37.4 21
------ --- ------- ---
Total revenues 167.4 100 178.9 100

Cost of services:
Telemarketing 114.2 68 140.5 78
Customer care 40.0 23 37.1 21
------ --- ------- ---
Total cost of services 154.2 91 177.6 99
Selling, general and administrative 17.9 11 19.1 11
Amortization of goodwill 1.2 1 146.3 82
------ --- ------- ---
Total operating expenses 173.3 103 343.0 192
------ --- ------- ---

Operating loss (5.9) (3) (164.1) (92)
Investment gain -- -- 1.8 1
Interest expense, net (1.3) (1) (1.9) (1)
------ --- ------- ---
Loss before taxes (7.2) (4) (164.2) (92)
Income tax benefit 0.2 -- 2.3 1
------ --- ------- ---

Loss from continuing operations $ (7.0) (4) $(161.9) (91)
====== === ======= ===
</TABLE>

___________
Our amortization of goodwill in 1997 includes a goodwill impairment charge of
$139.1 million. See note 2 to our consolidated financial statements.

REVENUES

Our total revenues for 1998 were $167.4 million, representing a decrease of 6%
from 1997. This decrease is largely a result of decreased calling hours.

Telemarketing Segment

Our telemarketing revenues were $121.5 million for 1998. These revenues
accounted for 73% of our total revenues for 1998 and represents a decrease of
$20.0 million or 14% from telemarketing revenues of $141.5 million for 1997.
The decrease in telemarketing revenues is principally attributable to the loss
of a large financial services client in 1997. Services initiated for new
clients totaled $28.8 million. The net decrease in revenues for 1998 was
primarily the result of a 20% reduction in calling hours in 1998 from 1997.
Approximately 14% of 1998 telemarketing revenue was generated by services
provided on behalf of a client in the telecommunications industry.

CUSTOMER CARE SEGMENT

Our customer care segment revenues were $45.9 million for 1998. These revenues
accounted for 27% of our total revenues for 1998 and increased by $8.5 million
or 23% from 1997. Of this increase, $3.2 million was the result of services
initiated for new clients. The remaining increase in revenues for 1998 was
primarily attributable to increased volume of customer service calls.

12
<PAGE>

COST OF SERVICES

Our cost of services were $154.2 million for 1998, a decrease of $23.4 million
or 13% from cost of services of $177.6 million for 1997. As a percentage of
total revenues, cost of services were 91% and 99% for 1998 and 1997,
respectively.

Telemarketing Segment

Our telemarketing segment cost of services for 1998 were 94% of telemarketing
revenues and decreased by $26.3 million or 19% from 1997. Cost of services for
1998 and 1997 include $1.3 million and $9.3 million, respectively, of charges
related to call center closings. Excluding these call center closing charges,
our cost of services were 93% of telemarketing revenues for 1998 and 1997. The
aggregate decrease in cost of services for 1998 was primarily attributable to
reduced volumes of calling hours.

Customer Care Segment

Our customer care segment cost of services accounted for 87% of our customer
care revenues for 1998 and increased by $2.9 million or 8% from 1997. Cost of
services for 1997 included $1.0 million related to the write-down of property
and equipment to fair value. Excluding charges relating to the write-down of
property and equipment to fair value, cost of services increased $3.9 million or
11% and as a percentage of customer care revenues decreased from 97% in 1997 to
87% in 1998. The increase in cost of services for 1998 was primarily
attributable to increased volume of customer service calls.

SELLING, GENERAL AND ADMINISTRATIVE

SG&A expenses were $17.9 million for 1998, a decrease of $1.2 million or 6% from
1997. As a percentage of total revenue, SG&A expenses were 11% in 1998 and
1997. SG&A expenses for 1998 and 1997 included $1.3 million of charges related
to corporate overhead reductions. Excluding these charges, SG&A expenses as a
percentage of total revenues would have been 10% in both 1998 and 1997.

AMORTIZATION OF GOODWILL

Our goodwill amortization was $1.2 million for 1998 compared to $146.3 million
in 1997. We recorded a goodwill impairment charge of $139.1 million in the
fourth quarter of 1997. This charge represented all of the goodwill associated
with our telemarketing segment. Our amortization in 1998 consisted of the
amortization of goodwill associated with our customer care segment. Our
remaining goodwill balance of $26.8 million relates entirely to our customer
care segment. See note 2 to our consolidated financial statements.

INVESTMENT GAIN

In June 1997, we purchased the business of a product sampling company called FX
Direct, Inc. We realized a pre-tax gain of approximately $1.8 million when we
sold this business in October 1997 for $6.3 million. See note 3 to our
consolidated financial statements.

INTEREST EXPENSE

We incurred interest expense of $1.3 million for 1998 which represented a
decrease of $0.6 million from 1997. This decrease is due to reduced borrowings
under our credit facility during 1998.

13
<PAGE>

INCOME TAX BENEFIT

The 1998 income tax benefit from continuing operations represents the offset of
the provision for income taxes for discontinued operations. The 1997 income tax
benefit is primarily a result of a tax refund for federal income taxes paid in
1996. As of December 31, 1998, we had a net operating loss carryforward of
approximately $22.5 million. Also, as of December 31, 1998, we had
approximately $117.9 million of future income tax deductible amounts related to
our 1997 goodwill impairment charge. The goodwill impairment becomes deductible
for income tax purposes over the next 13 years. Due to the uncertain
realization of these deferred tax assets, we have recorded a full valuation of
allowance as of December 31, 1998.

INCOME FROM DISCONTINUED OPERATIONS

We developed a plan in 1997 to sell our market research segment and our direct
mail and fulfillment segment. For 1998 and 1997, we have accounted for the
results of operations of the market research segment and direct mail and
fulfillment segment as discontinued operations. Income from discontinued
operations for 1998 and 1997 were $0.5 million and $1.4 million, net of tax,
respectively. Revenues for 1998 were $4.2 million, a decrease of $17.1 million
or 80% compared from 1997. Operating expenses for 1998 were $3.5 million a
decrease of $15.5 million or 82% from 1997.

Comparison of results of operations for 1997 to 1996.

<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
-------------------------------
SUPPLEMENTAL
PRO FORMA
YEAR ENDED AS A YEAR ENDED AS A
DECEMBER 31, PERCENTAGE OF DECEMBER 31, PERCENTAGE OF
1997 REVENUES 1996 REVENUES
---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing $ 141.5 79% $ 92.6 80%
Customer care 37.4 21 23.4 20
------- --- ------ ---
Total revenues 178.9 100 116.0 100

Cost of services:
Telemarketing 140.5 78 67.6 58
Customer care 37.1 21 15.6 13
------- --- ------ ---
Total cost of services 177.6 99 83.2 71
Selling, general and administrative 19.1 11 18.1 16
Amortization of goodwill 146.3 82 5.3 5
------- --- ------ ---
Total operating expenses 343.0 192 106.6 92
------- --- ------ ---

Operating income (loss) (164.1) (92) 9.4 8
Investment gain 1.8 1 -- --
Interest income (expense), net (1.9) (1) 0.4 0
------- --- ------ ---
Income (loss) before taxes (164.2) (92) 9.8 8
Income tax benefit (expense) 2.3 1 (4.1) (3)
------- --- ------ ---

Income (loss) from continuing operations $(161.9) (91) $ 5.7 5
======= === ====== ===
</TABLE>

__________
Our supplemental pro forma results of operations include the results for our
initial operating businesses for all of 1996. Our supplemental pro forma
results of operations also include the results of operations of two businesses
that we acquired in the fourth quarter of 1996, effective on the date each
business was acquired. Our amortization of goodwill in 1997 includes a goodwill
impairment charge of $139.1 million. See note 2 to our consolidated financial
statements.

REVENUES

Our total revenues for 1997 amounted to $178.9 million, representing an increase
of $62.9 million or 54% from revenues of $116.0 million for 1996. This increase
in aggregate revenue was driven by increased calling hours.

14
<PAGE>

Telemarketing Segment

Our telemarketing revenues of $141.5 million for 1997 accounted for 79% of total
revenues and represented an increase of $48.9 million or 53% from revenues of
$92.6 million for 1996. The increase in telemarketing revenues was principally
attributable to increased calling hours. Of this increase, 19% was attributable
to services initiated for new clients, 5% was attributable to acquired
businesses and 76% was attributable to services for existing clients.
Approximately 24% of telemarketing revenues in 1997 were generated by services
provided on behalf of a client in the financial services industry.

Customer Care Segment

Our customer care revenues of $37.4 million accounted for 21% of total revenues
for 1997 and represented an increase of $14.0 million or 60% from revenues of
$23.4 million in 1996. Of this increase, 16% was attributable to services
initiated for new clients. The Company acquired its customer care consulting
business in October 1996 and the results of operations include the revenues of
our customer care consulting business for the last quarter of 1996.

COST OF SERVICES

Our cost of services amounted to $177.6 million for 1997, representing an
increase of $94.4 million or 113% from $83.2 million for 1996. As a percentage
of total revenues, cost of services were 99% and 71% for 1997 and 1996,
respectively.

Telemarketing Segment

Our telemarketing cost of services were 99% of telemarketing revenues for 1997
and represented an increase of $72.9 million or 108% when compared to
telemarketing cost of services of $67.6 million for 1996. Cost of services for
1997 includes $9.3 million related to call center closing charges. Excluding
these costs relating to call center closings, our costs of services increased
from 73% for 1996 to 93% for 1997 as a percentage of total telemarketing
revenues. We attribute this increase in cost of services as a percentage of
revenues primarily to increased capacity, which resulted in the lower
utilization of our telemarketing personnel and facilities. In addition, as a
result of industry pricing pressures and in an effort to fill some excess
capacity, we accepted less profitable telemarketing contracts to utilize some of
our capacity.

Customer Care Segment

Our customer care cost of services were 99% of customer care revenues for 1997
and represented an increase of $21.5 million or 138% when compared to customer
care cost of services of $15.6 million for 1996. This increase was primarily the
result of increased volumes of customer calls and the full year impact of our
customer care consulting business. Cost of services for 1997 includes $1.0
million related to the write-down of certain property and equipment to fair
value. Excluding the write-down of certain property and equipment to fair value,
costs of services as a percentage of customer care revenues increased from 67%
for 1996 to 97% for 1997.

SELLING, GENERAL AND ADMINISTRATIVE

SG&A expenses were $19.1 million for 1997, representing an increase of $1.0
million or 6% from 1996. As a percentage of total revenues, SG&A expenses were
11% and 16% for 1997 and 1996, respectively. SG&A for 1997 include a $1.3
million charge related to corporate overhead reduction. Excluding the charge of
$1.3 million, SG&A was 10% of total revenues in 1997. The decrease in SG&A
expenses for 1997, as a percentage of revenue, as compared to 1996, resulted
primarily from cost reductions in our administrative infrastructure during our
consolidation and growth.

15
<PAGE>

AMORTIZATION OF GOODWILL

In the fourth quarter of 1997 we recorded a goodwill impairment charge of $139.1
million, which represented the goodwill associated with the telemarketing
segment. (See note 2 to the consolidated financial statements). As of December
31, 1997, the remaining net goodwill of $28.0 million relates exclusively to the
customer care segment.

INVESTMENT GAIN

In June 1997, we purchased substantially all of the assets and assumed certain
liabilities of a product sampling company, FX Direct, Inc. We realized a pre-tax
gain of approximately $1.8 million when we sold this business in October 1997
for $6.3 million.

INTEREST INCOME (EXPENSE)

We incurred interest expense of $1.9 million for 1997 which represented an
increase of $2.3 million from 1996. This increase is due to borrowings under the
credit facility during 1997.

INCOME TAX BENEFIT (EXPENSE)

The 1997 income tax benefit is a result of a tax refund for federal income taxes
paid in 1996. As of December 31, 1997, we have a net operating loss carryforward
of approximately $9.0 million. Also, as of December 31, 1997, we have
approximately $125.0 million of future income tax deductible amounts related to
the 1997 goodwill impairment charge. The goodwill impairment becomes deductible
for income tax purposes over the next 14 years. Due to the uncertain
realization of these deferred tax assets, we have recorded a full valuation
allowance as of December 31, 1997.

INCOME FROM DISCONTINUED OPERATIONS

In December 1997, we committed to a plan to sell our market research segment and
direct mail and fulfillment segment. For 1997 and 1996, we accounted for the
results of operations of the market research segment and direct mail and
fulfillment segment as discontinued operations. Income from discontinued
operations in 1997 and 1996 was $1.4 million (net of tax). Revenues for 1997
were $21.3 million an increase of $2.7 million or 15% when compared to revenues
of $18.6 million for 1996. Operating expenses for 1997 amounted to $19.0
million, an increase of $2.8 million or 17% when compared to operating expenses
of $16.2 million for 1996.

Results of operations for the period from April 26, 1996 (Inception) to December
31, 1996

We incorporated on April 26, 1996, but did not commence operations within the
teleservices industry until August 13, 1996. The results of operations from
April 26, 1996 through December 31, 1996 include the revenues, cost of services,
selling, general and administrative expenses, and interest income for the
initial operating businesses from August 13, 1996 and for the customer care
consulting business from October 1, 1996.

Actual results, as a percentage of revenues were as follows (dollars in
millions):

<TABLE>
<CAPTION>
PERIOD
FROM APRIL 26,
1996 (INCEPTION) AS A
TO DECEMBER 31, PERCENTAGE
1996 OF REVENUES
----------------- --------------
<S> <C> <C>
Revenues $53.2 100%
----- ---

Cost of services 37.9 72
Selling, general and administrative 9.1 17
Amortization of goodwill 2.2 4
----- ---
Total operating expenses 49.2 93
----- ---

Operating income 4.0 7
Interest income, net 0.4 1
----- ---
Income before taxes 4.4 8
Income tax expense (1.7) (3)
----- ---
Income from continuing operations $ 2.7 5
===== ===
</TABLE>

16
<PAGE>

REVENUES

Our revenues are related to the operations of the initial operating business
from August 13, 1996 through December 31, 1996 as well as the operations of two
businesses that were acquired in the fourth quarter of 1996. Our revenues
increased steadily from August 13, 1996 due to the addition of new call centers
and development of new business.

COST OF SERVICES

Our cost of services are related to the operations of the initial operating
business from August 13, 1996 through December 31, 1996 as well as the
operations of two businesses that were acquired in the fourth quarter of 1996.
Our cost of services decreased as a percentage of revenues due to certain
operating efficiencies, among other factors, however, the favorable effects of
these cost savings have been offset by additional start-up costs of the new
centers. Overall margins have been consistent throughout 1996.

SELLING, GENERAL AND ADMINISTRATIVE

SG&A expenses are related to the operations of the initial operating business
from August 13, 1996 through December 31, 1996 as well as the operations of two
businesses that were acquired in the fourth quarter of 1996. As a percentage of
revenues, SG&A expenses decreased since our inception due to increasing revenues
from the initial operating businesses and businesses acquired in the fourth
quarter of 1996. Included in our results for 1996 are certain overhead costs
incurred prior to the acquisitions of the initial operating businesses. These
costs were approximately $0.6 million.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
Dollars in Millions DECEMBER 31, DECEMBER 31,
----------------------------------- ----------------
Cash Flows Provided By (Used In): 1998 1997 1996
- --------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Operating Activities $ (1.5) $ 4.8 $ (4.7)
Investing Activities 28.1 (60.1) (117.6)
Financing Activities (26.6) 28.0 150.4
</TABLE>

Year Ended December 31, 1998

The $1.5 million of cash used in operating activities consisted of $0.1 million
used in continuing operations and $1.4 million used in discontinued operations.
Our net loss of $6.5 million was reduced by significant non-cash items including
depreciation and amortization.

The $28.1 million of cash provided by investing activities primarily consisted
of $37.8 million of proceeds from the sale of the market research segment and
direct mail and fulfillment segment, primarily offset by $9.1 million of
purchases of property and equipment. We do not expect to make any significant
investment in telemarketing call center expansion in 1999. Instead, we intend
to continue to invest in maintaining and enhancing our technology platforms.

The $26.6 million of net cash used in financing activities primarily consisted
of $29.0 million of net payments under our secured credit facility. In
addition, we received $2.0 million of proceeds from the exercise of stock
options and sale of common stock.

On April 14, 1998, we entered into a four-year Loan and Security Agreement with
Mellon Bank N.A. ("Mellon"), which provides for a $20.0 million credit facility
(the "Credit Facility"). Under the terms of the Credit Facility, we can borrow
up to the lesser of $20.0 million or an amount that is determined as 80% of the
net eligible accounts receivable. We can elect at the time of our borrowings to
pay interest at prime plus 0.50% or at LIBOR plus 2.50% and will pay a
commitment fee of 0.375% on the unused borrowing capacity. The Credit Facility
also makes available letters of credit at a fee of 1% per annum on the face
amount of each letter of credit and in an aggregate amount not to exceed the
lower of $1.5 million or the amount available under the Credit Facility.
Borrowings under

17
<PAGE>

the Credit Facility are collaterlized by substantially all of our assets. The
Credit Facility also contains various financial and non-financial covenants. At
December 31, 1998, we had no outstanding borrowings and $18.1 million of
available borrowings under the Credit Facility.

We believe that our existing cash balances, and borrowings available under our
Credit Facility will be sufficient to meet our operating and capital needs into
2000. The amount of future capital expenditures will be highly dependent on
future revenue growth.

On January 14, 1999, we entered into a merger agreement with IDRC. In
connection with the merger agreement, we received a financing commitment for a
new $135 million senior debt facility which will be used to replace our current
credit facility and to refinance IDRC's debt. Should the merger close, we
believe that our existing cash balances and borrowings available under the new
$135 million senior debt facility will be sufficient to meet our combined
operating and capital needs into 2000.

Year Ended December 31, 1997

The $4.8 million of cash provided by operating activities consisted of $0.1
million generated from continuing operations and $4.7 million generated from
discontinued operations. Our net loss of $160.5 million was offset by
significant non-cash items including amortization of goodwill, which was
primarily comprised of a $139.1 million goodwill impairment charge. See note 2
to the consolidated financial statements.

The $60.1 million of cash used in investing activities primarily consisted of
$26.3 million of purchases of property and equipment and $29.1 million used to
repay notes payable to sellers and other acquisition related liabilities.
Purchases of property and equipment included $10.6 million associated with the
development of six new call centers, $13.8 million related to capital
investments in technology upgrades and capital enhancements to existing call
centers, and $1.9 million related to capital investments associated with
development and enhancement of production and administrative infrastructure
projects. In addition, we used $1.2 million related to capital investments for
discontinued operations. As a result of the call center closings and
consolidation of facilities discussed above, as of December 31, 1997, we
recorded an impairment charge of $11.6 million of which $5.0 million related to
these 1997 additions. Other investing activities included $5.3 million for the
acquisition of an interactive voice response company. In addition, in June 1997
we used $4.5 million to invest in an ownership of a sampling business, which we
sold in October 1997 for $6.3 million resulting in a pre-tax gain of
approximately $1.8 million.

The net cash provided by financing activities primarily consisted of $29.0
million of net proceeds from borrowing under our Credit Facility dated January
24, 1997, as amended. In addition, we received $0.7 million of proceeds from
other long term debt and made payments on debt and capital lease obligations
totaling approximately $1.7 million.

Throughout 1997, we amended the Credit Facility several times as a result of
non-compliance due to our 1997 operating performance. On March 25, 1998, we were
notified by our primary lending institution, Mellon, that we were in default of
certain loan covenants of our Credit Facility. We repaid this facility on April
1, 1998, with the proceeds from the sale of our direct mail and fulfillment
segment.

Period From April 26, 1996 (Inception) to December 31, 1996

At December 31, 1996 we had cash of $28.2 million. This cash was primarily
generated through financing activities which generated $150.4 million. We raised
$162.0 million related to its August 1996 initial public offering and $2.1
million related to proceeds of the initial capitalization. We used $13.7
million to repay other debt and capital lease obligations.

We used $117.6 million for investing activities. We used $94.4 million to fund
the cash portion of our acquisition of the initial operating businesses and
$12.6 million to fund the cash portion of the two businesses we acquired in the
fourth quarter of 1996. We used $10.6 million for the purchase of property and
equipment associated with the commencement of our call center expansion and
centralization initiatives.

We used $4.7 million for operating activities, primarily to fund our working
capital requirements during this period of high growth.

18
<PAGE>

YEAR 2000

Year 2000 Issue. The Year 2000 issue results from the writing of computer
programs using two digits rather than four to define the applicable year.
Because of this programming convention, computer software, hardware or firmware
may recognize a date using "00" as the year 1900 rather than year 2000. This
could result in system failures, miscalculations or errors causing disruptions
of operations or other business problems, including, among others, a temporary
inability to process transactions or engage in other normal business activities.

State of Readiness. We have undertaken a comprehensive program, including the
hiring of an outside consulting firm, to address the Year 2000 issue with
respect to the following:

. our information technology and operating systems, which include call
processing, network, server, security and application systems;
. our non-information technology systems that may contain embedded microchip
technology, which include buildings, plant, equipment and other
infrastructure systems; and
. the systems of our major vendors and telecommunication service providers
insofar as they relate to our business.

Our core business systems are in the process of receiving Year 2000 compliant
upgrades furnished by our vendors, being replaced by our TeleSpectrum Enterprise
System Solution (TESS), or being rewritten to be Year 2000 compliant. We are
developing TESS to replace many of our current data processing systems. We
believe that the TESS product will be Year 2000 compliant and that our core
business systems will be ready to successfully recognize years beginning with
2000. Although we have received compliance information from many suppliers, we
are unable to predict the extent to which our suppliers will be affected by the
Year 2000 issue. We are also unable to predict the extent to which we may be
vulnerable to a supplier's inability to remedy any issues in a timely manner.
This matter is most prevalent with our telecommunications service suppliers.

Costs to Address the Year 2000 Issue. Our current cost estimate to become Year
2000 compliant is $1,500,000 in 1999, of which approximately 40% will be for
outside consultants and 60% will be for internal resource which have been or
will be reallocated from other projects. Many of our systems that require Year
2000 remediation or replacement are also simultaneously receiving performance
upgrades or feature enhancements. Our current cost estimate does not include
costs related to these upgrades or enhancements. To date, the financial impact
of remediation expenses has not been material, and we do not expect future
remediation costs to be material to our consolidated financial position or
results of operations.

Risks Presented by Year 2000 Problems. Our reasonably anticipated worst case
scenario involves Year 2000 problems experienced by our suppliers. If our
telecommunications vendors do not appropriately address their Year 2000 issues
and alternative telecommunications providers are not able to provide us with
adequate telecommunications services, we will not be able to provide our
services to our clients. If there is widespread and continued shortage in
telecommunications services available from telecommunications vendors, we will
be materially adversely affected. In addition, our computer systems are linked
to many of our clients' computer systems. Through these links, clients furnish
us with information that is necessary for us to provide our services and we
provide our clients with feedback regarding their services. While we have made
inquiries regarding their state of readiness for the Year 2000, we may not be
able to accurately predict whether our clients' systems will be Year 2000
compliant. We will likely experience service disruptions and may be materially
adversely affected if our clients' systems are not Year 2000 compliant.

Contingency Plans. Our Year 2000 plan calls for the development of contingency
plans for areas of our business that are susceptible to a substantive risk of a
disruption resulting from a Year 2000 related event. For our internal systems,
we are developing remediation plans for our existing systems, including as a
contingency to the timely implementation of TESS. For vendor supplied services,
we are evaluating alternative vendors for backup services. However, we may not
be able to obtain backup services if there is a widespread and continued
shortage in telecommunications services available from telecommunications
vendors. For client computer links, we will seek to exchange information on a
manual basis until such time as the necessary corrections have been made.
Consistent with our Year 2000 plan, we will develop specific Year 2000
contingency plans for any other areas of our business as the need is identified.

19
<PAGE>

OTHER INFORMATION--RISK FACTORS

Risk Factors

You should carefully consider the following factors and other information in
this Form 10-K.

Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this document. These are statements that relate to future events
and time periods or our expectations. Generally, the words "anticipates,"
"expects," "intends" and similar expressions identify forward-looking
statements. Forward-looking statements involve risks and uncertainties, and
future events and circumstances could differ significantly from those
anticipated in the forward-looking statements.

OPERATING LOSSES

While we have had net income of $6.2 million for the six months ended December
31, 1998, we had a net loss of $6.5 million for the year ended December 31, 1998
and a net loss of $12.7 million for the six months ended June 30, 1998. To be
profitable, we must maintain a sufficient level of capacity utilization at
acceptable rates. During the past two years we have periodically found
difficulties in achieving consistent levels of profitability, particularly in
our telemarketing segment. Revenues from our telemarketing segment represented
73% of our total revenues in 1998.

Telemarketing agreements generally do not assure specific levels of revenue and
are often terminable by clients on short notice. The amount of revenue we
generate from a particular client is dependent upon a number of factors,
including, our ability to achieve marketing and sales results required by the
client and the results we achieve as compared to both the clients' in-house
operations and other telemarketing providers. In addition to these factors,
numerous agreements with our clients are also based on actual sales achieved.
Accordingly, our ability to achieve our desired results of operations is also
contingent upon our TSRs being able to effectively and efficiently market the
clients' products and the quality of the lists of prospective customers provided
by our clients. Our telemarketing segment is also affected by seasonal trends
that mirror our client's marketing plans. These trends include reduced
activities during the months of August and December. If we are unable to
maintain a sufficient level of capacity utilization at acceptable rates, we will
be materially and adversely affected.

RELIANCE ON MAJOR CLIENTS

Approximately 10% of our revenues in 1998 were generated from one client, in the
telecommunications industry. In 1997, approximately 19% of our revenues were
generated from one client in the financial services industry. The significant
reduction in the amount of business provided by this client in the financial
services industry was a significant factor in our lower capacity utilization and
operating performance during the last two fiscal quarters in 1997. We may in
the future develop relationships with clients that represent a large
concentration of revenues. Since most client contracts can generally be
canceled by the client upon relatively short notice, we will be vulnerable to
any unexpected termination or non-renewal of such a relationship.

DIFFICULTIES OF MANAGING GROWTH

We have experienced growth over the past several years. We will not be able to
achieve future growth if we do not:

. initiate, develop and maintain new client relationships and expand its
existing client programs;
. recruit, motivate and retain qualified management, staff, TSRs and CSRs;
. rapidly identify, acquire or lease suitable call center facilities on
acceptable terms and complete build-outs of such facilities in a timely and
economic fashion; and
. maintain the high quality of the services and products that we provide to
our clients.

CAPACITY UTILIZATION

Our profitability is substantially dependent upon our ability to use our call
center capacity at favorable rates. We have in the past experienced periods of
low capacity utilization and we have sometimes accepted less profitable client
engagements to fill this capacity. We have also experienced, and in the future
may experience, at least short-term, excess peak period capacity when we open a
new call center or terminate or complete a large client program. If we do not
maintain sufficient levels of capacity utilization at acceptable rates, we will
be materially adversely affected.

20
<PAGE>

RELIANCE ON TECHNOLOGY

We have made significant investments in technology and we anticipate that we
will need to continue making significant additional technology investments to
remain competitive. We may not be successful in anticipating continuing
technological changes or in implementing new or enhanced technology. If we are
unable to do so, we will be materially adversely affected.

DEPENDENCE ON OUR LABOR FORCE

Our industry is very labor intensive and has experienced high personnel
turnover. Many of our employees receive modest hourly wages. A higher turnover
rate among our employees would increase our recruiting and training costs and
decrease our productivity. Our insurance product sales and technology-based
customer care services require specifically trained employees. We may not be
able to continue to hire, train and retain a sufficient labor force of qualified
employees. If we are unable to do so, we will be materially adversely affected.

ADDITIONAL FINANCING

Should the merger with IDRC close, we will have significant outstanding
borrowings under our new $135.0 million senior debt facility. There can be no
assurance, that existing cash and available borrowings, after the close of the
merger, will be sufficient to meet our financing needs and satisfy our debt
obligations. If these sources are not sufficient, we will be required to seek
additional debt or equity financing and there can be no assurance that any such
financing will be available on acceptable terms. If we are unable to meet our
debt obligations as they become due, we will be materially and adversely
affected.

DEPENDENCE ON TELECOMMUNICATIONS PROVIDERS

Our business is heavily dependent on service provided by various local and long
distance telephone companies. We would be materially adversely affected by a
significant increase in the cost of telephone services that is not recoverable
through an increase in the price of our services, or any significant
interruption in telephone services.

YEAR 2000 ISSUE

The Year 2000 issue results from the writing of computer programs using two
digits rather than four to define the applicable year. Because of this
programming convention, computer software, hardware or firmware may recognize a
date using as the year 1900 rather than the year 2000. This could result in
system failures, miscalculations or errors causing disruptions of operations or
other business problems, including, among others, a temporary inability to
process transactions or engage in other normal business activities.

As a result of the Year 2000 issue, possible consequences to our business
include the inability to engage in normal business activities resulting from one
or more of the following:

. failure of our telecommunications services
. failure of third parties to provide us with Year 2000 compliant products or
services;
. failure of our information systems; or
. the inability of our customers to process telemarketing and customer care
transactions.

Not all of our information systems are Year 2000 compliant and not all of the
third parties with whom we conduct our business have indicated that their
information systems are Year 2000 compliant. We are in the process of making
changes to, or replacing, our core business systems to make them Year 2000
compliant. We have been notified by our third parties with whom we conduct our
business that they are in the process of becoming Year 2000 compliant. However,
if we and these third parties do not complete this work effectively or on time,
we will be materially adversely affected. We discuss the impact that the Year
2000 issue may have on our business, our expected costs to address our Year 2000
issues and our contingency plans earlier in this Management Discussion and
Analysis of Financial Condition and Results of Operations section of this Form
10-K.

21
<PAGE>

POTENTIAL FLUCTUATION IN QUARTERLY OPERATING RESULTS

We expect that our quarterly operating results will fluctuate due to many
factors, a number of which are beyond our control. We believe that period-to-
period comparisons of our historical results may not be meaningful. You should
not rely on these historical results as an indication of future results. Our
results of operations in future periods may not meet the expectations of
analysts and investors, in which case the price of our common stock would likely
be materially adversely affected. Factors, which may also have an impact on our
operating results:

. our ability to retain existing clients and attract new clients;
. timing of our clients' marketing campaigns and customer service programs;
. the timing of additional selling, general and administrative expenses
incurred to acquire and support such new business;
. changes in our revenue mix among our various service offerings;
. the introduction of new or enhanced services and products;
. price competition;
. our ability to upgrade and develop our information technology systems;
. technical difficulties, system downtime or internet brownouts;
. government regulation;
. general economic conditions and economic conditions specific to our
industry; and
. seasonality in our business, particularly during the months of August and
December.

POSSIBLE VOLATILITY OF STOCK PRICES

The market prices of our common stock have been highly volatile. This
volatility may adversely affect the price of our common stock in the future.
Factors that could cause such volatility include:

. volume of trading in our stock;
. our quarterly operating results;
. deviations in results of operations from estimates of changes in general
conditions in the economy or our industry; and
. other developments affecting us or our competitors.

RISKS RELATING TO THE PENDING MERGERS

We have entered into merger agreements providing for the mergers with IDRC and
CRW. We have incurred considerable expense in negotiating these merger
agreements and in working to complete these mergers. In addition, if we
complete the IDRC merger, we will incur approximately $135.0 million of
additional senior debt. If we complete these mergers, we will need to address a
number of matters to be successful. These matters will include:

. integrating the operations of the companies;
. meeting increased debt service obligations;
. developing and implementing new business strategies;
. operating effectively with a new management team; and
. avoiding incurring any unknown liabilities.

We can not assure that we will be able to complete either merger. Because we
have committed substantial resources to these mergers, we will be adversely
affected if we are unable to complete these mergers.

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND THE RESULTS OF OPERATIONS FOR THE INITIAL OPERATING BUSINESSES
(THE "PREDECESSOR COMPANIES")

Following this introduction are the management's discussion and analysis of
financial condition and the results of operations for the initial operating
businesses. These commentaries should be read in conjunction with their
historical financial statements contained within this annual report on Form 10-
K.

SOMAR

Prior to its acquisition by TeleSpectrum Worldwide Inc. ("TeleSpectrum"), SOMAR,
Inc. ("SOMAR"), founded in 1982, was one of the nation's largest providers of
outsourced telephone-based sales, marketing and customer management services,
principally to clients in the insurance industry and also to clients in the
financial services, telecommunications and consumer products industries.

On August 12, 1996, SOMAR sold substantially all of its assets and liabilities
to TeleSpectrum and is a predecessor company to TeleSpectrum.

RESULTS OF OPERATIONS

The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED
TO AUGUST 12, DECEMBER 31,
1996 1995
----------------------- ------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $26,421 100.0% $31,900 100.0%
------- ----- ------- -----
Cost of services 21,406 81.0 25,048 78.5
Selling, general and administrative 3,817 14.5 5,162 16.2
------- ----- ------- -----
Total operating expenses 25,223 95.5 30,210 94.7
------- ----- ------- -----
Operating income 1,198 4.5 1,690 5.3
Interest expense, net 561 2.1 711 2.2
------- ----- ------- -----
Pre-tax income $ 637 2.4 $ 979 3.1
======= ===== ======= =====
</TABLE>

PERIOD FROM JANUARY 1, 1996 TO AUGUST 12, 1996 (THE "STUB PERIOD")

Revenues--If the Stub Period revenues were annualized and compared to 1995, the
revenue comparison would show a significant increase period over period;
revenues per day increased from $87,000 per day in 1995 to $118,000 per day in
the Stub Period.

The increase in revenues resulted primarily from increased call volume from
existing insurance clients and the addition of new telecommunications clients.

Cost of Services--Cost of services primarily consists of labor, telephone and
other call center-related operating and support expenses. As a percentage of
revenues, cost of services increased to 81.0% during the Stub Period, primarily
the result of a temporary shift to lower margin services to fill capacity
resulting from an unexpected reduction in demand from SOMAR's largest client,
costs associated with revenues lost due to inclement weather and start-up costs
associated with the opening of the Beckley, West Virginia call center in March
1996. Start-up costs included recruiting and education of new call center
management and staff.

Selling, General and Administrative--Selling general and administrative
expenses, as a percentage of revenue, decreased to 14.5% of revenues in the Stub
Period as compared to 1995, primarily as a result of the spreading of expenses
over increasing revenues.

23
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

SOMAR's principal source of liquidity was borrowings under credit facilities.
The following table sets forth selected information from SOMAR's statements of
cash flows for the periods indicated:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED
TO AUGUST 12, DECEMBER 31,
1996 1995
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 2,124 $ 441
Net cash used in investment activities (1,923) (2,870)
Net cash provided by (used in) financing activities (221) 2,452
</TABLE>

During the Stub Period, SOMAR generated $2.1 million in net cash from
operations, primarily as a result of increased pre-tax income, the growth in its
accounts payable in anticipation of the purchase by TeleSpectrum, partially
offset by the growth in accounts receivable.

During the Stub Period, SOMAR also used $1.9 million of cash to purchase
additional call center capital items, and to provide certain advances to certain
stockholders and affiliates.

Cash used in investment activities was attributable to equipment purchases to
support additional call centers, including expenditures for information
technology equipment, investments in database management, telephone systems and
other management information systems.

Financing activities have included distributions to shareholders and borrowing
activity. Dividends paid to shareholders were payments to cover shareholder
taxes related to SOMAR's S-Corporation status.

NBG

Founded in 1991, and prior to its acquisition by TeleSpectrum, NBG Services,
Inc. ("NBG") provided telemarketing services to clients in the financial
services, telecommunications and technology industries. NBG's revenues are
derived primarily from service fees charged to clients on a performance/results
basis, rather than on an hourly basis.

On August 12, 1996, NBG sold substantially all of its assets and liabilities to
TeleSpectrum, and is a predecessor company to TeleSpectrum.

RESULTS OF OPERATIONS

The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30, 1995 YEAR ENDED
TO AUGUST 12, DECEMBER 29,
1996 1995
--------------------------- ---------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $11,311 100.0% $12,829 100.0%
------- ----- ------- -----
Cost of services 7,686 68.0 8,572 66.8
Selling, general and administrative 1,645 14.5 2,115 16.5
------- ----- ------- -----
Total operating expenses 9,331 82.5 10,687 83.3
------- ----- ------- -----
Operating income 1,980 17.5 2,142 16.7
Interest expense, net 33 0.3 36 0.3
------- ----- ------- -----
Pre-tax income $ 1,947 17.2 $ 2,106 16.4
======= ===== ======= =====
</TABLE>

Period from December 30, 1995 to August 12, 1996 (The "Stub Period")

Revenues--If the Stub Period revenues were annualized and compared to 1995, the
revenue comparison would show a significant increase period over period;
revenues per day increased from $35,000 per day in 1995 to $50,000 per day in
the stub period. This increase was primarily a result of increases in revenues
from two of NBG's most significant clients.

24
<PAGE>

Cost of Services--Cost of services, which primarily consists of labor, telephone
and other call center-related operating and support expenses, increased as a
percentage of revenues, from 66.8% in 1995 to 68.0% in the stub period. This
increase primarily resulted from higher performance-based revenue per unit of
cost.

Selling, General, and Administrative--Selling, general, and administrative
expenses decreased as a percentage of revenues, from 16.5% in 1995 to 14.5% in
the Stub Period, primarily as a result of the spreading of expenses over
increased revenues.

LIQUIDITY AND CAPITAL RESOURCES

NBG's primary sources of liquidity were cash flows from operating activities and
available borrowing capacity under credit facilities. The following table sets
forth selected information from NBG's statements of cash flows for the periods
indicated.

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30, 1995 YEAR ENDED
TO AUGUST 12, DECEMBER 29,
1996 1995
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $1,334 $1,383
Net cash used in investment activities (81) (594)
Net cash used in financing activities (880) (89)
</TABLE>

Net cash used in investing activities were generally expended for equipment and
other capital to support expansion of NBG's call center operations, including
additions to NBG's data management, telephone and management information
systems.

Financing activities have included limited borrowings and distributions to
stockholders. NBG financed the majority of its equipment purchases with capital
leases.

REICH

Prior to the acquisition of substantially all of its assets and liabilities by
TeleSpectrum, the Reich Group Companies ("Reich"), founded in 1978, offered
telemarketing services to clients in the financial services, telecommunications
and insurance industries. Reich also offered additional value-added services to
its clients, such as marketing planning, database marketing, creative
development, situation analysis, in-house copy and art services and production
management. Reich earned revenue for telemarketing services on an hourly basis
and is compensated for planning and marketing services on a fee-for-service
basis.

On August 12, 1996, Reich sold substantially all of its assets and liabilities
to TeleSpectrum, and is a predecessor company to TeleSpectrum.

RESULTS OF OPERATIONS

The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED
TO AUGUST 12, DECEMBER 31,
1996 1995
------------------------- -------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $14,558 100.0% $12,253 100.0%
------- ----- ------- -----
Cost of services 8,550 58.7 7,836 63.9
Selling, general and administrative 1,466 10.1 2,534 20.7
------- ----- ------- -----
Total operating expenses 10,016 68.8 10,370 84.6
------- ----- ------- -----
Operating income 4,542 31.2 1,883 15.4
Interest expense, net 31 0.2 43 0.4
------- ----- ------- -----
Pre-tax income $ 4,511 31.0 $ 1,840 15.0
======= ===== ======= =====
</TABLE>

25
<PAGE>

Period from January 1, 1996 to August 12, 1996 (The "Stub Period")

Revenues--If the Stub Period revenues were annualized and compared to 1995, the
revenue per day would show a significant increase period over period. This
increase primarily resulted from increased telemarketing call volume from two
existing clients in the financial services industry and one existing client in
the telecommunications industry.

Cost of Services--Cost of services, as a percentage of revenues, decreased to
58.7% in the Stub Period from 63.9% in 1995. This decrease primarily resulted
from lower long-distance service rates and a lower average cost of labor.

Selling, General and Administrative--Selling, general and administrative
expenses, as a percentage of revenues, decreased to 10.1% for the Stub Period
compared to 20.7% in 1995, primarily as a result of the spreading of expenses
over increased revenues.

LIQUIDITY AND CAPITAL RESOURCES

Reich's principal sources of liquidity were cash flows from operating activities
and available borrowing capacity under credit facilities and capital leases. The
following table sets forth selected information from Reich's statements of cash
flows for the periods indicated.

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED
TO AUGUST 12, DECEMBER 31,
1996 1995
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 2,535 $ 745
Net cash used in investment activities (935) (1,212)
Net cash provided by (used in) financing activities (1,703) 656
</TABLE>

Reich's net cash provided by operating activities were primarily generated from
pre-tax income. During the period, operating cash flow was negatively impacted
by demands on working capital (excluding cash and current

maturities on long-term debt). The additional working capital was principally
related to the increase in accounts receivable that resulted from the growth in
the telemarketing business over the same period.

Net cash used in investing activities was attributable to equipment and other
capital to support the opening of new call centers and relocation and expansion
of Reich's Delaware and West Virginia call center facilities.

Financing activities primarily included borrowing activities under various long-
term debt arrangements, capital leases and shareholder loans. In December 1995,
Reich received commitments for a low interest loan of up to $0.7 million from
the City of Wheeling, West Virginia and the West Virginia Economic Development
Authority ("WVEDA"). These loans were used to fund the cost associated with the
relocation and expansion of Reich's West Virginia call center which was
originally funded by operating cash flows.

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

Prior to the acquisition of substantially all of its assets by TeleSpectrum,
TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. (collectively,
"TeleSpectrum Maryland"), founded in 1984, specialized in providing customer
care services to the high technology, pharmaceutical and health care and
consumer products industries. TeleSpectrum Maryland was typically paid on an
hourly basis for customer care services and on a negotiated, project-by-project
basis for other services.

On August 12, 1996, TeleSpectrum Maryland sold substantially all of its assets
and liabilities to TeleSpectrum, and is a predecessor company to TeleSpectrum.

26
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED
TO AUGUST 12, DECEMBER 31,
1996 1995
--------------------------- ---------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $10,529 100.0% $11,854 100.0%
------- ----- ------- -----
Cost of services 6,974 66.3 8,338 70.2
Selling, general and administrative 2,929 27.8 3,072 26.0
------- ----- ------- -----
Total operating expenses 9,903 94.1 11,410 96.2
------- ----- ------- -----
Operating income 626 5.9 444 3.8
Interest expense, net 129 1.2 184 1.6
------- ----- ------- -----
Pre-tax income $ 497 4.7 $ 260 2.2
======= ===== ======= =====
</TABLE>

Period from January 1, 1996 to August 12, 1996 (The "Stub Period")

Revenue--If the Stub Period revenues were annualized and compared to 1995, the
comparison would show a significant increase, period to period. This increase
primarily resulted from increased call volume from existing clients and the
addition of new clients, principally in the pharmaceutical and health care
industry.

Cost of Services--As a percentage of revenues, cost of services decreased to
66.3% in the Stub Period from 70.2% in 1995, primarily as a result of the
spreading of fixed costs over increased revenues.

Selling, General and Administrative--Selling, general and administrative
expenses increased as a percentage of sales from 1995 to the Stub Period as a
result of additional administrative, personnel and related corporate expenses
associated with anticipated TeleSpectrum Maryland growth.

LIQUIDITY AND CAPITAL RESOURCES

TeleSpectrum Maryland's primary sources of liquidity were cash flows from
operating activities and available borrowing capacity under credit facilities.
The following sets forth selected information from TeleSpectrum Maryland's
statement of cash flows for the periods indicated:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
AUGUST 12, DECEMBER 31,
1996 1995
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Net cash provided by (used in) operating activities................ $ 969 $ (4)
Net cash used in investment activities............................. (2,044) (99)
Net cash provided by (used in) financing activities................ 1,716 (45)
</TABLE>

Net cash used in operating activities in 1995 resulted principally from
increases in working capital to support increases in revenue, offset by net
income. The net cash flow from operations in 1996 resulted from higher operating
income.

Net cash used in investing activities was expended primarily for the purchase of
telecommunications and computer equipment. Net cash provided by financing
activities included borrowings under TeleSpectrum Maryland's line of credit
facility and payments of debt and capital lease obligations.

In May 1996, TeleSpectrum Maryland obtained a $4.0 million revolving line of
credit. This revolving credit facility was used for refinancing of existing
debt, working capital purposes and capital expenditures.

27
<PAGE>

Prior to consummation of the acquisition of TeleSpectrum Maryland by
TeleSpectrum, CRW Financial (a TeleSpectrum related party), advanced
TeleSpectrum Maryland $0.5 million, evidenced by a promissory note due one year
from the date the proceeds were received with interest at 9.0%. The note was
contributed by CRW Financial to TeleSpectrum Worldwide as part of the Initial
Capitalization. Upon the closing of the Acquisition, TeleSpectrum paid a portion
of the purchase price by cancellation of this promissory note.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates, relates primarily to
our long-term debt obligations. We do not believe that we have exposure to
market risks associated with changing interest rates as of December 31, 1998
because we do not have variable rate interest debt outstanding and all of our
outstanding debt consists of term notes with state and regional development
authorities and capital lease obligations. We do not use derivative financial
instruments in our operations.

Foreign Currency Risk

We do not use foreign currency exchange contracts or purchase currency options
to hedge local currency cash flows. We have subsidiaries in Canada and the
United Kingdom, which are subject to foreign currency fluctuations. As currency
rates change, translation of income statements of these subsidiaries from local
currencies to U.S. dollars affects year-over-year comparability of our operating
results. The foreign subsidiaries are limited in their operations and the level
of investment by the parent company so that the risk of foreign currency
fluctuations is not expected to be material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference to pages F-1
through F-63 and page S-2 of this document.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

28
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning each of the
executive officers and directors of the Company.

<TABLE>
<CAPTION>
Name AGE Position with the Company
---- --- -------------------------
<S> <C> <C>
Keith E. Alessi 44 Chairman of the Board, Chief Executive Officer and President
Richard C. Schwenk, Jr. 48 Senior Vice President and Chief Financial Officer
Joseph V. Del Raso 46 Director
Michael E. Julian 48 Director
David L. Kriegel 53 Director
J. Brian O'Neill 39 Director
Richard W. Virtue 54 Director
Kevin W. Walsh 44 Director
</TABLE>

_________

Keith E. Alessi has been Chairman of the Board, Chief Executive Officer and
President since March 1998. Mr. Alessi had been Chairman of the Board, Chief
Executive Officer and President of Jackson Hewitt, Inc., the nation's second
largest tax preparation service company, since 1996. From 1988 to 1996 Mr.
Alessi served in several executive positions with Farm Fresh, Inc. and was Vice
Chairman upon his departure.

Richard C. Schwenk, Jr. has served as Senior Vice President and Chief Financial
Officer of the Company since May 1996. Mr. Schwenk served as Executive Vice
President and Chief Financial Officer of Electronic Payment Services, Inc., a
provider of automated teller machine and point-of-sale transaction processing
services, from November 1992 to January 1996.

Joseph V. Del Raso has been a director of the Company since February 1997. Mr.
Del Raso has been a partner of the law firm of Pepper Hamilton LLP since January
1998. From 1992 to January 1998, Mr. Del Raso was a partner of the law firm of
Stradley, Ronon, Stevens & Young.

Michael E. Julian has been a director of the Company since September 1998. Mr.
Julian has served Jitney-Jungle Stores of America as Chief Executive Officer
since March 1997 and as Chairman of the Board since August 1998. From 1988
until March 1997 Mr. Julian served as Chairman of the Board and Chief Executive
Officer of Farm Fresh, Inc. In January of 1998 Farm Fresh, Inc. petitioned for
a prepackaged Chapter 11 bankruptcy and emerged in May 1998.

David L. Kriegel has been a director of the Company since September 1998. Mr.
Kriegel has been Chairman, Chief Executive Officer and President of Drug
Emporium, Inc. since January 1993.

J. Brian O'Neill was Chairman of the Board and Chief Executive Officer of the
Company from April 1996 to March 1998. Mr. O'Neill has been the Chairman of the
Board and Chief Executive Officer of CRW Financial, Inc. since May 1995. From
July 1992 to May 1995, Mr. O'Neill was Chairman and Chief Executive Officer of
Casino and Credit Services, Inc.

Richard W. Virtue has served as a director of the Company since August 1996. Mr.
Virtue served as Chief Executive Officer of SOMAR, Inc. from 1982 until August
1996.

Kevin W. Walsh has been a director of the Company since August 1996. Mr. Walsh
has been a partner of the law firm Adelman Lavine Gold and Levin, a professional
corporation, since 1988.

29
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to compensation
paid or earned during the fiscal years ended December 31, 1998, 1997 and 1996 to
the Company's chief executive officers and the other executive officer of the
Company who in 1998 earned more than $100,000 in total annual compensation
(collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation (1)
---------------------------------------------------------------------------
Long-Term
Compensation
Name and Position Year Salary($) Bonus($) Awards(#)(2)
- ----------------- ------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Keith E. Alessi.................................. 1998 195,000(3) -- 2,000,000
Chairman of the Board, Chief Executive Officer
and President

Richard C. Schwenk, Jr........................... 1998 200,000 -- 40,000
Senior Vice President and 1997 200,000 40,000(4) 200,000
Chief Financial Officer 1996 122,000(5) -- 100,000

J. Brian O'Neill (6)............................. 1998 171,000(7) -- 2,500
Former Chairman of the Board 1997 130,000 -- 500,000
and Chief Executive Officer 1996 51,000(8) -- 500,000
</TABLE>

_________

(1) Excludes prerequisites and other personal benefits, securities or property
which are, in the aggregate, less than 10% of the total annual salary and
bonus.
(2) Represent shares of common stock underlying stock options granted by the
Company in 1998, 1997 and 1996.
(3) Represents compensation for the period from date of employment until
December 31, 1998.
(4) Bonus was accrued in 1997 and paid in 1998.
(5) Represents compensation for the period from date of employment until
December 31, 1996.
(6) Mr. O'Neill resigned from his position with the Company in March 1998.
(7) Includes $117,000 of severance payments.
(8) Represents compensation for the period from date of employment until
December 31, 1996.

EMPLOYMENT AGREEMENTS

Each of Messrs. Alessi and Schwenk has an employment agreement with
TeleSpectrum. Mr. Alessi's agreement provides that he is to be employed by
TeleSpectrum through March 19, 2001 at an annual salary of $200,000, plus any
bonuses as determined annually by the compensation committee. Pursuant to his
agreement, Mr. Alessi was granted three stock options exercisable for an
aggregate of 2,000,000 shares of common stock at an exercise price of $3.29 per
share provided Mr. Alessi is employed by TeleSpectrum on such dates. One of
these stock options which is exercisable for an aggregate 500,000 shares was
granted under the 1996 Equity Compensation Plan and the remaining options were
not granted under the plan. This option vests on the earlier of the date that
the TeleSpectrum common stock reaches certain closing prices, or March 2003.
The vesting schedule is as follows: 166,667 shares become vested if the closing
price of the common stock reaches $12.00 per share prior to June 18, 2000 and
166,666 shares become vested if the closing price of the common stock reaches
$18.00 per share prior to March 18, 2001. The first 166,667 of these shares
vested in 1998 after the closing price of the common stock reached $8.00 per
share. Two of these options, exercisable for an aggregate of 1,500,000 shares
vest in three equal amounts on each of March 18, 1999, 2000 and 2001.

30
<PAGE>

Mr. Schwenk's employment agreement provides that he is to be employed by
TeleSpectrum through May 5, 2000 at an annual salary of $200,000, plus an annual
bonus of up to $187,500 based in part on his performance and in part upon the
operating performance of TeleSpectrum. Pursuant to his agreement, Mr. Schwenk
was granted a stock option exercisable for 100,000 shares of common stock. This
option became fully vested on March 18, 1998 upon the hiring of Mr. Alessi and
is exercisable at an exercise price of $6.25 per share. If Mr. Schwenk is
terminated without cause or if he terminates his employment for good reason, Mr.
Schwenk is entitled to receive $275,000 payable over a one-year period.

Mr. Virtue has a consulting agreement with the Company which provides for the
payment of an annual consulting fee of $150,000. Mr. Virtue's agreement expires
on August 13, 1999.

The following table sets forth certain information concerning options granted
to the Named Executive Officers in 1998.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------------------------- -----------------------------------
NUMBER OF
SECURITIES PERCENTAGE OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED AVAILABLE (1) PRICE EXPIRATION DATE 5% 10%
---------------- --------------- ----------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Keith E. Alessi............ 2,000,000 30.8% $3.29 3/18/08 $4,138,000 $10,486,000
Richard C. Schwenk, Jr..... 40,000 0.6 3.31 2/25/08 83,000 211,000
</TABLE>

__________

(1) Based on aggregate of 5,000,000 options currently available under the Plan
and 1,500,000 Alessi Options.
(2) Represents the hypothetical gains or "option spreads" that would exist for
the options at the end of their ten year term. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the option was granted to the end of the option term and are
calculated based on the exercise price per share on the date of grant.
Such 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future common
stock price.

The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
December 31, 1998.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING Value of Unexercised
UNEXERCISED OPTIONS(#) IN-THE-MONEY OPTIONS($)
------------------------------------------ -------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
--------------- ---------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Keith E. Alessi................ -- 1,833,000 -- 11,959,000
Richard C. Schwenk, Jr......... 300,000 40,000 1,429,000 260,000
J. Brian O'Neill............... 1,003,000 -- 4,365,000 --
</TABLE>

_________

(1) Based on the difference between $9.813, which was the closing price per
share of the Company's common stock as listed on the Nasdaq National Market
System on December 31, 1998, and the exercise price of each option.

31
<PAGE>

REPORT OF THE COMPENSATION COMMITTEE

The compensation committee of TeleSpectrum's Board is comprised of
directors who are not employees of TeleSpectrum. The committee is responsible
for the establishment and administration of TeleSpectrum's annual executive
compensation and its stock ownership programs. The committee evaluates the
performance and determines the compensation of the chief executive officer and
the other executive officers of the Company based upon the written employment
agreements these persons have with TeleSpectrum. The committee also considers
other factors including the achievement of company financial goals and
individual performance goals and comparisons with other public companies.

The committee's policy is to offer compensation opportunities that will
enable TeleSpectrum to attract, motivate and retain individuals of outstanding
ability capable of enhancing stockholder value. The committee relies on a
combination of salary, bonus and stock options. Each of TeleSpectrum's
executive officers in 1998 have employment agreements that were signed when they
were hired by TeleSpectrum. These agreements establish their annual salary and
fringe benefits. The employment agreements of TeleSpectrum's chief executive
officer and chief financial officer have bonus provisions, although no bonus was
paid in 1998 under these provisions.

It is the committee's philosophy that employees who have a significant
opportunity to share in TeleSpectrum's long-term economic success are more
likely to promote long-term shareholder value. The committee intends to
consider the awarding of additional stock options in order to emphasize the link
between executive incentives and the creation of stockholder value. In
considering these awards, the committee intends to consider individual
performance, overall contribution to TeleSpectrum, differences in the number of
shares underlying stock options among executive officers and the total number of
stock options to be awarded.

Section 162(m) of the Internal Revenue Code generally denies a federal
income tax deduction for certain compensation exceeding $1,000,000 paid to the
Chief Executive Officer or any of the four other highest paid executive
officers, excluding (among other things) certain performance-based compensation.
Through December 31, 1998, this provision has not affected the Company's tax
deductions, but the Committee will continue to monitor the potential impact of
Section 162(m) on the Company's ability to deduct executive compensation.

COMPENSATION COMMITTEE -- February 23, 1999

David L. Kriegel
Kevin W. Walsh

32
<PAGE>

PERFORMANCE GRAPH

The following line graph compares the percentage change in the cumulative
total stockholder return on our common stock for the twenty-eight months since
our common stock first started trading on the Nasdaq National Market on August
8, 1996, with the cumulative total return of the Nasdaq market index and a peer
group index described more fully below. Dividend reinvestment has been assumed.

<TABLE>
<CAPTION>
Index (1) 8/8/96 12/31/96 12/31/97 12/31/98
- ------ ------- --------- --------- ---------
<S> <C> <C> <C> <C>
TeleSpectrum Worldwide Inc. $ 100 $ 97 $ 22 $ 60
Nasdaq market index $ 100 $ 118 $ 144 $ 203
Peer group index $ 100 $ 100 $ 44 $ 21
</TABLE>

_______________

(1) Assumes $100 invested on August 8, 1996.

The peer group index is comprised of APAC TELESERVICES, ICT GROUP INC.,
SITEL CORP. AND TELETECH HOLDINGS INC., which like us, provides telemarketing
and customer care services. We were incorporated on April 26, 1996 and our
operations commenced on August 8, 1996, the date on which we completed the
acquisitions of our initial operating businesses. The chart above presents a
comparison among us, the NASDAQ market index and our peer group index from the
date of these acquisitions to December 31, 1998.

33
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the common stock as of February 24, 1999, except as otherwise
indicated in the relevant footnote, by (i) each person or group who is known by
the Company to own beneficially more than 5% of the common stock, (ii) each of
the Company's directors, (iii) each of the executive officers and (iv) all
current executive officers and directors as a group.

PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED (1)
- ---------------- ------------------------- -------------------------
<S> <C> <C>
J. Brian O'Neill (2)...................................... 8,351,704 31.1%
200 Four Falls Corporate Center, Suite 415
West Conshohocken, PA 19428

CRW Financial, Inc........................................ 6,946,583 26.9
200 Four Falls Corporate Center, Suite 415
West Conshohocken, PA 19428

Alliance Capital Management, L.P. (3)..................... 3,396,200 13.1
1290 Avenue of the Americas
New York, NY 10104

Highfields Group (4). .................................... 1,740,500 6.7
200 Clarendon Street, 51st Floor
Boston, MA 02117

Keith E. Alessi (5)....................................... 894,631 3.4
443 South Gulph Road
King of Prussia, PA 19406

Richard W. Virtue (6)..................................... 885,392 3.4
0132 Divide Drive
Snowmass Village, CO 81615

Richard C. Schwenk, Jr. (7)............................... 313,333 1.2
443 South Gulph Road
King of Prussia, PA 19406

Michael E. Julian (8)..................................... 87,500 *

David L. Kriegel (8)...................................... 12,500 *

Kevin W. Walsh (9)........................................ 7,500 *

Joseph Del Raso (9)....................................... 5,000 *

All directors and executive officers as a group (8
persons)................................................. 10,557,560 40.9
</TABLE>

___________
* Less than one percent.

34
<PAGE>

(1) Based on 25,835,948 shares of common stock outstanding as of February 24,
1999. In accordance with the rules of the Securities and Exchange
Commission, shares underlying options or warrants to purchase common stock
that are exercisable as of February 24, 1999 or within 60 days thereafter
are deemed outstanding and to be beneficially owned by the person holding
such option or warrant for purposes of computing such person's percentage
ownership, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Includes 6,946,583 shares of common stock held by CRW Financial, Inc. Mr.
O'Neill is Chairman of the Board and Chief Executive Officer, and a
principal stockholder of CRW Financial, and may be deemed to have shared
voting and investment power over the shares held by CRW Financial. Mr.
O'Neill disclaims beneficial ownership of all such shares. Includes
610,160 shares of common stock owned by CRW Financial which are obtainable
by Mr. O'Neill upon the exercise of a warrant and 1,002,500 shares of
common stock issuable upon the exercise of stock options.
(3) These shares are held by Alliance Capital Management L.P., an investment
advisor registered under the Investment Advisors Act of 1940. Alliance has
sole investment power with respect to 3,396,260 shares, sole voting power
as to 75,200 of the shares and shared voting power as to 3,321,000 shares.
Alliance is a subsidiary of The Equitable Companies Incorporated, a
Delaware corporation. The Mutuelles AXA as a group controls AXA, which
beneficially owns a majority interest in Equitable. The foregoing
information was derived from Amendment No. 1 to a Schedule 13G filed by
Equitable and various entities in the AXA group on February 16, 1999.
(4) Of the shares listed, 107,238 are beneficially owned by Highfields Capital
I, LP, a Delaware Limited Partnership, and 208,918 shares are beneficially
owned by Highfields Capital II, LP, a Delaware limited partnership.
Highfields Associates LLC, a Delaware limited liability company, is the
general partner of these partnerships. Messrs. Richard L. Grubman and
Jonathan S. Jacobson are the managing members of Highfield Associates LLP
and direct the operations in that capacity. The remaining 1,424,344 shares
are beneficially owned by Highfields Capital Management, LP, a Delaware
limited partnership, which serves as investment manager to Highfields
Capital Ltd, a Cayman Islands company, with respect to shares directly
owned by Highfields, Ltd. Messrs. Grubman and Jacobson are managing members
of Highfields GP LLC, a Delaware limited liability company, which is a
general partner of Highfields Capital Management, LP and directs its
operations in that capacity. Highfields Ltd, the client of Highfields
Capital Management, LP has the power to direct the receipt of dividends and
proceeds from the sale of these shares. The foregoing information is
derived from a Schedule 13G filed by Highfield Associates LLC, Highfield
Capital Management, LP and Messrs. Grubman and Jacobson on February 16,
1999.
(5) Excludes 1,333,333 shares of common stock issuable upon the exercise of
non-vested stock options.
(6) Includes 129,500 shares of common stock issuable upon the exercise of a
warrant and 5,000 shares of common stock issuable upon the exercise of
stock options.
(7) Includes 313,333 shares of common stock issuable upon the exercise of stock
options. Excludes 26,667 shares of common stock issuable upon the exercise
of non-vested options.
(8) Includes 2,500 shares of common stock issuable upon the exercise of stock
options. Excludes 7,500 shares of common stock issuable upon the exercise
of non-vested stock options.
(9) Represents shares of common stock issuable upon the exercise of stock
options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HEADQUARTERS LEASE

We sublease our headquarters, representing an aggregate of approximately
21,000 square feet, from CRW Financial, Inc. CRW has subleased the facility
from Cendant Corporation, which in turn, leases this space from Health and
Retirement Properties Trust. We are required to pay annual rental payments of
approximately $420,000 under this sublease.

PURCHASE OF COMMON STOCK BY KEITH E. ALESSI

Keith E. Alessi became our Chairman, Chief Executive Officer and President
in March 1998. Mr. Alessi purchased 227,964 shares of our common stock for an
aggregate price of $500,000, or $2.19 per share, at the time of his hiring.

TRANSACTIONS WITH MR. O'NEILL

In March 1998, J. Brian O'Neill resigned as our Chairman, Chief Executive
Officer and President. Pursuant to the terms of an employment agreement we have
with Mr. O'Neill, (1) Mr. O'Neill is entitled to the continuation of his salary
at an annual rate equal to $150,000 until May 20, 2000 and (ii) all of Mr.
O'Neill's stock options became fully vested and exercisable.

35
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORT ON FORM 8-K

(a) 1. Financial Statements.

The financial statements listed in the accompanying Table of Contents to
Financial Statements and Financial Statement Schedules at page F-1 are filed as
part of this Form 10-K.

2. Financial Statement Schedule.

The financial statement schedule listed in the accompanying Table of Contents to
Financial Statements and Financial Statement Schedule at page F-1 is filed as
part of this Form 10-K.

All other schedules have been omitted because they are not applicable, or not
required, or the information is disclosed in the Financial Statements or notes
thereto.

3. Exhibits. (See (c) below)

(b) Report on Form 8-K

We filed current reports on Form 8-K with the Commission on March 24, 1998, June
15, 1998, September 10, 1998 and January 26, 1999.

The following is a list of exhibits filed as part of this annual report on Form
10-K. Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous filing is indicated in parentheses.

EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.01 Restated Certificate of Incorporation of TeleSpectrum Worldwide
Inc. is incorporated by reference to exhibit 3.01 of the Company's
Registration Statement on Form S-1 (File No. 333-04349).

3.02 Bylaws of TeleSpectrum Worldwide Inc. are incorporated by
reference to exhibit 3.02 of the Company's Registration Statement
on Form S-1 (File No. 333-04349).

10.01 Consulting Agreement between TeleSpectrum Worldwide Inc. and
Richard W. Virtue incorporated by reference to exhibit 10.14 of
the Company's Registration Statement on Form S-1 (File No. 333-
04349).

10.02 Employment Agreement, dated as of March 18, 1998, between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.08 to our 1997 Annual Report on Form 10-K.

10.03 Subscription Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.09 for our 1997 Annual Report on Form 10-
K.

10.04 Stock Option Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.10 (a) to our 1997 Annual Report on Form
10-K.

10.05 Stock Option Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.10 (b) to our 1997 Annual Report on Form
10-K.

10.06 Amended and Restated Employment Agreement, dated as of February
25, 1998 between TeleSpectrum Worldwide Inc. and Brian J. O'Neill
is incorporated by reference to exhibit 10.11 to our 1997 Annual
Report on Form 10-K.

10.07 Employment Agreement, dated as of May 6, 1996, between
TeleSpectrum Worldwide Inc. and Richard C. Schwenk, Jr. is
incorporated by reference to exhibit 10.17 of the Company's
Registration Statement on Form S-1 (File No. 333-04349).

10.08 TeleSpectrum Worldwide Inc. 1996 Equity Compensation Plan is
incorporated by reference to exhibit 10.18 of the Company's
Registration Statement on Form S-1 (File No. 333-04349).

36
<PAGE>

10.09 Amendment No. 1 to 1996 Equity Compensation Plan is incorporated
by reference to exhibit 10.15 of our 1997 Annual Report on Form
10-K.

10.10 Asset Purchase Agreement dated as of March 6, 1998 by and among
TeleSpectrum Worldwide Inc., First Service Corporation, DDS Dyment
Distribution Service, Ltd., DDS Harris Limited and DDS Harris
Fulfillment, Limited is incorporated by reference to exhibit 10.17
of our 1997 Annual Report on Form 10-K.

10.11 Asset Acquisition Agreement dated as of January 16, 1998 by and
among TeleSpectrum Worldwide, Inc., NCO Group, Inc. and NCO
Teleservices, Inc. is incorporated by reference to exhibit 10.18
of our 1997 Annual Report on Form 10-K.

10.12 Agreement and Plan of Merger dated as of January 14, 1999 by and
among TeleSpectrum Worldwide Inc., International Data Response
Corporation, McCown De Leeuw & Co. III, L.P., McCown De Leeuw &
Co. Offshore (Europe) III, L.P., McCown De Leeuw & Co. III, (Asia)
L.P. and The Gamma Fund LLC is incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed
on January 26, 1999.

10.13 Amendment No. 1 to Agreement and Plan of Merger dated as of
February 26, 1999 by and among TeleSpectrum Worldwide Inc.,
International Data Response Corporation, McCown De Leeuw & Co.
III, L.P., McCown De Leeuw & Co. Offshore (Europe) III, L.P.,
McCown De Leeuw & Co. III, (Asia) L.P. and The Gamma Fund LLC. *

10.14 Agreement and Plan of Merger and Reorganization, dated as of
September 3, 1998 by and among CRW Financial, Inc., TeleSpectrum
Worldwide Inc., and CRW Acquisition Corp. *

10.15 Amendment No. 1 to Agreement and Plan of Merger and
Reorganization, dated as of December 30, 1998 by and among CRW
Financial, Inc., TeleSpectrum Worldwide Inc., and CRW Acquisition
Corp. *

23.01 Consent of Arthur Andersen LLP.*

24.01 Power of Attorney (included as part of the Signature Page)

27.01 Financial Data Schedule.*

_____________
* Filed herewith

37
<PAGE>

TELESPECTRUM WORLDWIDE INC.

TABLE OF CONTENTS

PART II--FINANCIAL INFORMATION

ITEM 8. FINANCIAL STATEMENTS

<TABLE>
<S> <C>
REGISTRANT
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
Report of Independent Public Accountants ................................................................. F-3
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 ................................ F-4
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997 and for the
Period from April 26, 1996 (Inception) to December 31, 1996 ............................................ F-5
Consolidated Statements of Stockholders' Equity for the Period from April 26, 1996 (Inception) to
December 31, 1998 ...................................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 and for the
Period from April 26, 1996 (Inception) to December 31, 1996 ............................................ F-7

Notes to Consolidated Financial Statements ............................................................... F-8

PREDECESSOR COMPANIES
SOMAR, INC. (SOMAR)
Report of Independent Public Accountants ................................................................. F-25
Balance Sheet as of December 31, 1995 .................................................................... F-26
Statements of Income for the Period from January 1, 1996 to August 12, 1996 and for the
Years Ended December 31, 1995 and 1994 ................................................................. F-27
Statements of Stockholders' Equity (Deficit) for the Period from January 1, 1996 to
August 12, 1996 and for the Years Ended December 31, 1995 and 1994 ..................................... F-28
Statements of Cash Flows for the Period from January 1, 1996 to August 12, 1996 and for the
Years Ended December 31, 1995 and 1994 ................................................................. F-29
Notes to Financial Statements ............................................................................ F-30

NBG SERVICES, INC. (NBG)
Report of Independent Public Accountants ................................................................. F-36
Balance Sheet as of December 29, 1995 .................................................................... F-37
Statements of Income the Period from December 30, 1995 to August 12, 1996 and for the
Years Ended December 29, 1995 and December 30, 1994 .................................................... F-38
Statements of Shareholders' Equity for the Period from December 30, 1995 to August 12, 1996 and
Years Ended December 29, 1995 and December 30, 1994 .................................................... F-39
Statements of Cash Flows for Period from December 30, 1995 to August 12, 1996 and the
Years Ended December 29, 1995 and December 30, 1994 .................................................... F-40
Notes to Financial Statements ............................................................................ F-41

THE REICH GROUP COMPANIES (REICH)
Report of Independent Public Accountants ................................................................. F-45
Combined Balance Sheet as of December 31, 1995 ........................................................... F-46
Combined Statements of Income for the Period from January 1, 1996 to August 12, 1996 and for the
Years Ended December 31, 1995 and 1994 ................................................................. F-47
Combined Statements of Shareholder's Equity (Deficit) for the Period from January 1, 1996 to
August 12, 1996 and for the Years Ended December 31, 1995 and 1994 ..................................... F-48
Combined Statements of Cash Flows for the Period from January 1, 1996 to August 12, 1996 and
for the Years Ended December 31, 1995 and 1994 ......................................................... F-49
Notes to Combined Financial Statements ................................................................... F-50
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
(TELESPECTRUM MARYLAND)
Report of Independent Public Accountants ................................................................. F-55
Combined Balance Sheet as of December 31, 1995 ........................................................... F-56
Combined Statements of Income for the Period from January 1, 1996 to August 12, 1996 and
for the Year Ended December 31, 1995 ................................................................... F-57
Combined Statements of Stockholders' Equity for the Period from January 1, 1996 to August 12, 1996
and for the Year Ended December 31, 1995 ............................................................... F-58
Combined Statements of Cash Flows for the Period from January 1, 1996 to August 12, 1996 and
for the Year Ended December 31, 1995 ................................................................... F-59
Notes to Combined Financial Statements ................................................................... F-60

FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants ................................................................. S-1
Schedule II--Valuation and Qualifying Accounts for the Period from April 26, 1996 (Inception) to
December 31, 1998 ...................................................................................... S-2
</TABLE>

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TeleSpectrum Worldwide Inc.:

We have audited the accompanying consolidated balance sheets of TeleSpectrum
Worldwide Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the two years ended December 31, 1998 and for the
period from April 26, 1996 (Inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleSpectrum Worldwide Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the two years ended December 31, 1998 and
for the period from April 26, 1996 (Inception) to December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
February 5, 1999
(except with respect to the
NTC matter discussed in Note 9,
as to which the date is
February 26, 1999)

F-3

<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 794 $ 774
Accounts receivable, net of allowance for doubtful accounts of $2,851 and $969...... 36,859 37,360
Income tax refund receivable........................................................ -- 2,912
Prepaid expenses and other.......................................................... 2,307 1,539
Net assets of discontinued operations (see Note 3).................................. -- 36,399
--------- ---------
Total current assets............................................................. 39,960 78,984

PROPERTY AND EQUIPMENT, net........................................................... 35,430 36,731
GOODWILL, net of accumulated amortization of $2,703 and $1,525 (see Note 2)........... 26,786 27,964
OTHER ASSETS.......................................................................... 1,513 1,042
--------- ---------
Total assets..................................................................... $ 103,689 $ 144,721
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Secured credit facility............................................................. $ -- $ 29,000
Current maturities of long-term debt................................................ 820 1,160
Cash overdraft...................................................................... 1,658 --
Accounts payable.................................................................... 7,058 4,718
Accrued expenses.................................................................... 3,784 9,125
Accrued compensation................................................................ 5,081 9,074
Deferred revenue.................................................................... 2,512 1,347
Other current liabilities........................................................... 2,345 3,905
--------- ---------
Total current liabilities........................................................ 23,258 58,329
--------- ---------

LONG-TERM DEBT........................................................................ 2,876 3,800
--------- ---------
OTHER NONCURRENT LIABILITIES.......................................................... 987 2,215
--------- ---------
COMMITMENTS AND CONTINGENCIES (see Note 9)

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued
or outstanding.................................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 25,771,449 and
25,213,074 shares issued and outstanding.......................................... 258 252
Additional paid-in capital.......................................................... 240,176 237,186
Deferred compensation............................................................... (363) --
Accumulated deficit................................................................. (163,286) (156,825)
Cumulative currency translation adjustment.......................................... (217) (236)
--------- ---------
Total stockholders' equity....................................................... 76,568 80,377
--------- ---------
Total liabilities and stockholders' equity....................................... $ 103,689 $ 144,721
========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS--EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------- ------------
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
REVENUES.............................................................. $ 167,428 $ 178,922 $ 53,154
--------- --------- --------
OPERATING EXPENSES:
Cost of services.................................................... 154,316 177,565 37,942
Selling, general and administrative................................. 17,875 19,074 9,126
Amortization of goodwill (includes goodwill impairment charge of
$139,072 in 1997 - see Note 2).................................... 1,178 146,321 2,147
--------- --------- --------
Total operating expenses......................................... 173,369 342,960 49,215
--------- --------- --------
Operating income (loss).......................................... (5,941) (164,038) 3,939
INTEREST INCOME....................................................... 71 414 877
INTEREST EXPENSE...................................................... (1,317) (2,290) (444)
INVESTMENT GAIN (see Note 3).......................................... -- 1,760 --
--------- --------- --------
Income (loss) from continuing operations before income taxes........ (7,187) (164,154) 4,372
INCOME TAX BENEFIT (EXPENSE).......................................... 247 2,310 (1,693)
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS.............................. (6,940) (161,844) 2,679
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes of $247, $910 and $613 - see Note 3)............ 479 1,369 971
--------- --------- --------
NET INCOME (LOSS)..................................................... $ (6,461) $(160,475) $ 3,650
========= ========= ========

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS................................................. $ (0.27) $ (6.42) $ 0.15
DISCONTINUED OPERATIONS............................................... 0.02 0.06 0.05
--------- --------- --------
NET INCOME (LOSS)..................................................... $ (0.25) $ (6.36) $ 0.20
========= ========= ========

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (see Note 10).......................... 25,528 25,213 17,898
========= ========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS -- EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFICIT
PAID-IN DEFERRED RETAINED
COMMON STOCK CAPITAL COMPENSATION EARNINGS
------------ ----------- ------------ ------------
SHARES AMOUNT
------ ------
<S> <C> <C> <C> <C> <C>
Incorporation on April 26, 1996................... 8,510,137 $ 85 $ (75) $ -- $ --
Capital contribution.............................. -- -- 2,100 -- --
Issuance of equity owned by CRW................... -- -- 18,749 -- --
Issuance of common stock upon public offering,
net of offering costs......................... 11,879,000 119 161,847 -- --
Issuance of common stock to the sellers of the
Initial Operating Businesses.................. 4,403,863 44 44,647 -- --
Issuance of options and warrants to purchase
common stock to the sellers of the Initial
Operating Businesses........................... -- -- 4,827 -- --
Issuance of common stock to the sellers of Fourth
Quarter Acquisitions........................... 420,074 4 4,583 -- --
Comprehensive income (loss): --
Net income................................... -- -- -- 3,650
Cumulative currency translation adjustment... -- -- -- -- --
Total comprehensive income...................
---------- --- ------- ----- ---------
Balance, December 31, 1996........................ 25,213,074 252 236,678 -- 3,650
Issuance of options to purchase common stock...... -- -- 508 -- --
Comprehensive income (loss):
Net loss..................................... -- -- -- -- (160,475)
Cumulative currency translation adjustment... -- -- -- -- --
Total comprehensive income (loss)............
---------- --- ------- ----- ---------
Balance, December 31, 1997........................ 25,213,074 252 237,186 -- (156,825)
Exercise of common stock options.................. 330,411 4 1,496 -- --
Issuance of common stock below fair market
value.......................................... 227,964 2 824 -- --
Issuance of options to purchase common stock
below fair market value........................ -- 670 (670) --
Amortization of deferred compensation............. -- -- -- 307 --
Comprehensive income (loss): -- -- -- (6,461)
Net loss...................................... --
Cumulative currency translation adjustment.... -- -- -- -- --
Total comprehensive income (loss).............
---------- ---- -------- ----- ---------
Balance, December 31, 1998........................ 25,771,449 $258 $240,176 $(363) $(163,286)
========== ==== ======== ===== =========
<CAPTION>
CUMULATIVE
CURRENCY TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUITY
----------- -------------
<S> <C> <C>
Incorporation on April 26, 1996................... $ -- $ 10
Capital contribution.............................. -- 2,100
Issuance of equity owned by CRW................... -- 18,749
Issuance of common stock upon public offering,
net of offering costs......................... -- 161,966
Issuance of common stock to the sellers of the
Initial Operating Businesses.................. -- 44,691
Issuance of options and warrants to purchase
common stock to the sellers of the Initial
Operating Businesses........................... -- 4,827
Issuance of common stock to the sellers of Fourth
Quarter Acquisitions........................... -- 4,587
Comprehensive income (loss):
Net income................................... --
Cumulative currency translation adjustment... (69)
Total comprehensive income................... 3,581
------ ---------
Balance, December 31, 1996........................ (69) 240,511
Issuance of options to purchase common stock...... -- 508
Comprehensive income (loss):
Net loss..................................... --
Cumulative currency translation adjustment... (167)
Total comprehensive income (loss)............ (160,642)
------ ---------
Balance, December 31, 1997........................ (236) 80,377
Exercise of common stock options.................. -- 1,500
Issuance of common stock below fair market
value.......................................... -- 826
Issuance of options to purchase common stock
below fair market value........................ -- --
Amortization of deferred compensation............. -- 307
Comprehensive income (loss):
Net loss...................................... --
Cumulative currency translation adjustment.... 19
Total comprehensive income (loss)............. (6,442)
------ ---------
Balance, December 31, 1998........................ $ (217) $ 76,568
====== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------- ---------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................................. $ (6,461) $(160,475) $ 3,650
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization.............................................. 8,532 8,183 1,667
Amortization of goodwill (includes impairment charge of $139,072........... 1,178
in 1997 -- see Note 2).................................................... 146,321 2,147
Provision for call center closings......................................... -- 10,275 --
Investment gain............................................................ -- (1,760) --
Provision for bad debts.................................................... 2,325 881 542
Provision for deferred taxes (benefit)..................................... -- (2,268) 220
Issuance of options to purchase common stock for services.................. -- 508 --
Non-cash compensation...................................................... 633 -- --
Loss on sale of assets..................................................... 468 529 --
Changes in operating assets and liabilities--
Accounts receivable..................................................... (1,824) (9,976) (9,262)
Income tax receivable................................................... 2,912 532 --
Prepaid expenses and other.............................................. (739) 1,371 1,081
Accounts payable........................................................ 1,832 (1,829) (789)
Accrued expenses........................................................ (5,341) 3,778 (1,726)
Accrued compensation.................................................... (3,833) 4,264 3,579
Deferred revenue........................................................ 1,165 (638) 1,680
Other liabilities....................................................... (999) 371 (5,878)
Net operating activities of discontinued operations..................... (1,351) 4,702 (1,591)
-------- --------- ---------
Net cash provided by (used in) operating activities.................. (1,503) 4,769 (4,680)
-------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment........................................... (9,099) (26,297) (10,558)
Business acquisitions......................................................... -- (5,327) (106,993)
Payments of notes payable to sellers and acquisition liabilities.............. (1,930) (29,100) --
Proceeds from sale of investment.............................................. -- 6,262 --
Proceeds from sale of assets.................................................. 1,908 -- --
Proceeds from sale of discontinued operations................................. 37,750 -- --
Purchase of investment........................................................ (500) (4,502) --
Net investing activities of discontinued operations........................... -- (1,165) (9)
-------- --------- ---------
Net cash provided by (used in) investing activities.............. 28,129 (60,129) (117,560)
-------- --------- ---------
FINANCING ACTIVITIES:
Capital contribution received................................................. -- -- 2,110
Proceeds of public offering, net of offering costs............................ -- -- 162,016
Proceeds from exercise of stock options....................................... 1,500 -- --
Proceeds from sale of common stock............................................ 500 -- --
Net borrowings (payments) on secured credit facility.......................... (29,000) 29,000 --
Cash overdraft................................................................ 1,658 -- --
Borrowings from debt.......................................................... -- 720 --
Payments of debt.............................................................. (349) (445) (9,403)
Payments of capital lease obligations......................................... (915) (1,312) (2,637)
Net financing activities of discontinued operations........................... -- -- (1,675)
-------- --------- ---------
Net cash provided by (used in) financing activities.................. (26,606) 27,963 150,411
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 20 (27,397) 28,171
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................. 774 28,171 --
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................ $ 794 $ 774 $ 28,171
======== ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998

1. NATURE OF BUSINESS

TeleSpectrum Worldwide Inc. and subsidiaries (the "Company") was incorporated
in Delaware on April 26, 1996 (see Note 12) and provides services to its
customers through its Telemarketing and Customer Care Segments. On August 12,
1996, the Company completed its initial public offering and, concurrent with the
offering, the Company began material operations with the acquisition of the net
assets of a number of businesses (see Note 3). In December 1997, the Company
committed to a plan to dispose of its Market Research Segment and Direct Mail
and Fulfillment Segment. The results of operations of the Market Research
Segment and Direct Mail and Fulfillment Segment have been accounted for as
discontinued operations (see Note 3).

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying financial statements include the accounts of TeleSpectrum
Worldwide Inc. and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenues on telemarketing programs as services are
performed, generally based on hours incurred. For certain of these programs,
revenues are reduced for estimated customer cancellations. Customer care
revenue is recognized on a per hour basis or at the time calls are answered on a
per minute basis. The Company recognizes all other revenues as the services are
performed.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31, 1998
and 1997, cash and cash equivalents consisted primarily of investments in money
market accounts.

Property and Equipment

Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives or the lease term, whichever is shorter.

Expenditures for maintenance, repairs and betterments that do not prolong the
useful life of an asset have been charged to operations as incurred. Additions
and betterments that substantially extend the useful life of the asset are
capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the respective
accounts, and the resulting gain or loss, if any, is included in income.

F-8
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

Capitalized Software Development Costs

The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company capitalizes software development costs subsequent to the establishment
of technological feasibility and until the product is available for general
release. Costs incurred prior to the establishment of technological feasibility
are charged to product development expense. Development costs associated with
product enhancements that extend the original product's life or significantly
improve the original product's marketability are also capitalized once
technological feasibility has been established. Software development costs are
amortized over the greater of the ratio of current revenues to total anticipated
revenues or on a straight-line basis over the estimated useful lives of the
products (three years), beginning with the initial release to customers. The
Company continually evaluates whether events or circumstances have occurred that
indicate that the remaining useful life of the capitalized software development
costs should be revised or that the remaining balance of such assets may not be
recoverable. The Company evaluates the recoverability of capitalized software
based on the estimated future revenues of each product. As of December 31,
1998, the Company believes that no revisions to the remaining useful life or
write-downs are required for capitalized software development costs. At
December 31, 1998, the Company has $649,000 of capitalized software development
costs. General release is expected during 1999.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities measured using enacted
income tax rates and laws that are expected to be in effect when the differences
reverse. The Company recognizes valuation allowances for a deferred tax asset
if the realizability of some portion or all of the deferred tax asset is
uncertain.

Currency Translation

The accounts of the international subsidiaries are translated in accordance
with SFAS No. 52, "Foreign Currency Translation," which requires that assets and
liabilities of international operations be translated using the exchange rate in
effect at the balance sheet date. The results of operations are translated at
average exchange rates during the year. The effects of exchange rate
fluctuations in translating assets and liabilities of international operations
into U.S. dollars are accumulated and reflected as a cumulative currency
translation adjustment in the consolidated statements of stockholders' equity.
Transaction gains or losses are included in net income. There were no material
transaction gains or losses for the periods presented.

Goodwill Impairment

The Company elected to change its method of measuring goodwill impairment
under Accounting Principles Board ("APB") Opinion No. 17 "Intangible Assets,"
from an undiscounted cash flow approach to a fair value method based on a
discounted cash flow approach effective December 31, 1997. The Company believes
the change to the fair value method based on a discounted cash flow approach is
preferable in that such method most closely approximates the fair value of
goodwill and the related measurement of goodwill impairment.

F-9
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

As a result of this change, whenever events or circumstances have occurred
that indicate an impairment may have occurred, the Company will estimate the
future discounted cash flow of the business segment to which goodwill relates.
When such estimate of the future discounted cash flows, net of the estimated
fair value of the net tangible assets, is less than the carrying amount of
goodwill, the difference is charged to operations. For purposes of determining
future discounted cash flows of the business segments to which goodwill relates,
the Company, based upon historical results, current projections and internal
earnings targets, determines the projected operating cash flows, net of income
taxes, of the individual business segment. These projected future cash flows
are then discounted at a rate corresponding to the Company's estimated cost of
capital. In the fourth quarter of 1997, the Company concluded that due to the
significant decline in the growth in the telemarketing industry and the reduced
growth prospects of the Company, a permanent impairment of the goodwill
associated with the Telemarketing Segment had occurred and a goodwill impairment
charge of $139,072,000 was recorded. As of December 31, 1998, the remaining
goodwill of $26,786,000 relates entirely to the Customer Care Segment and is
being amortized on a straight-line basis over 25 years.

Impairment of Long Lived Assets

The Company accounts for possible impairments of long-lived assets in
accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-
lived assets to be held and used by the Company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If changes in circumstances
indicate that the carrying amount of an asset that an entity expects to hold and
use may not be recoverable, future cash flows expected to result from the use of
the asset and its disposition must be estimated. If the undiscounted value of
the future cash flows is less than the carrying amount of the asset, an
impairment will be recognized. Based on these evaluations, there were no
adjustments to the carrying value of the long-lived assets in 1998 (see Note 5).

Earnings Per Share ("EPS")

The Company has adopted SFAS No. 128, "Earnings per Share." SFAS No. 128
requires a dual presentation of "basic" and "diluted" EPS on the face of the
statements of operations. Basic EPS is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding for the
period. Diluted EPS includes the effect, if any, from the potential exercise or
conversion of securities, such as stock options, which would result in the
issuance of shares of common stock. For the years ended December 31, 1998 and
1997, diluted loss per share has not been presented, since the impact is anti-
dilutive. For the period from April 26, 1996 (Inception) to December 31, 1996,
the weighted average number of common shares outstanding for purposes of
computing diluted EPS was 17,898,000. Diluted EPS was not materially different
than basic EPS for the period from April 26, 1996 (Inception) to December 31,
1996.

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the accompanying financial statements at the fair value due to the
short-term nature of those instruments. The carrying amount of the secured
credit facility, long-term debt and capitalized lease obligations approximates
fair value at the balance sheet dates.

Reclassifications

Certain prior period amounts have been reclassified to conform with the
current year presentation.

F-10
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

3. INITIAL PUBLIC OFFERING, ACQUISITIONS AND DIVESTITURES

Initial Public Offering

In August 1996, the Company sold 11,879,000 shares of its common stock in a
public offering (the "Offering") at $15.00 per share which raised net proceeds
of $161,966,000, net of offering costs of $3,746,000.

Acquisitions

In May 1996, CRW assigned to the Company its rights to acquire substantially
all of the net assets of SOMAR, Inc., NBG Services, Inc., Harris Direct
Marketing, Inc. and Harris Fulfillment, Inc., The Reich Group Companies, The
Response Center, Inc. and The Tab House, Inc., and TeleSpectrum, Inc. and
TeleSpectrum Training Services, Inc.; (together, the "Initial Operating
Businesses"). These acquisitions occurred contemporaneously with the closing of
the Offering on August 12, 1996 and were accounted for using the purchase
method. The total purchase price of the Initial Operating Business was
$199,955,000. The $181,811,000 excess of the total purchase price over the
estimated fair value of the net assets acquired was recorded as goodwill (see
Note 2 regarding the goodwill impairment charge of $139,072,000 recorded in
1997). In addition, the Company entered into employment agreements with the
selling shareholders.

On October 1, 1996, the Company acquired substantially all of the assets (and
assumed substantially all of the liabilities) of Technical Assistance Research
Programs, Inc. and Tarp Information Systems, Inc. and acquired all of the
outstanding stock of Tarp (Europe) Limited (together, "TARP"). In addition, on
November 1, 1996 the Company acquired all of the outstanding stock of 1095404
Ontario, Inc., PR Response, Inc. and PR Response West, Inc. (together, "PR
Response"). The combined purchase price for TARP and PR Response was
$21,802,000. The $20,944,000 excess of the total purchase price of TARP and PR
Response over the estimated fair value of net assets acquired was recorded as
goodwill (see Note 2). In addition, the Company entered into employment
agreements with the selling shareholders.

In March 1997, the Company completed its acquisition of the interactive voice
response division of Voice FX Corporation for $5,327,000 in cash, including
transaction costs. The division, renamed TeleSpectrum FX ("FX (IVR)"), provides
interactive voice response solutions within the interactive promotion and direct
response marketplace. The effective date of the FX (IVR) acquisition was March
1, 1997.

The following table summarizes the unaudited pro forma consolidated results of
continuing operations for the year ended December 31, 1996, assuming that the
Initial Operating Businesses and the acquisition of TARP had occurred on January
1, 1996 (for purposes of this disclosure the acquisition of PR Response and FX
(IVR) are not deemed material--in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------
<S> <C>
Revenue..................................................... $124,257
Operating income............................................ 11,430
Net income.................................................. 5,976

Basic and diluted earnings per share........................ $ 0.26
</TABLE>

F-11
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

Divestitures

On June 30, 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of FX Direct, Inc. ("FX Direct"). On October 3,
1997, the Company sold its investment in FX Direct for $6,262,000 in cash. The
Company applied the proceeds from the sale to repay borrowings on the secured
credit facility and recorded a pre-tax gain of $1,760,000.

In December 1997, the Company committed to a plan to dispose of its Market
Research Segment and Direct Mail and Fulfillment Segment. As required by APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," the Company has accounted for the results of
operations and net assets of the Market Research Segment and Direct Mail and
Fulfillment Segment as discontinued operations.

In January 1998, the Company sold substantially all of the assets and
liabilities of the Market Research Segment for approximately $15,000,000, which
resulted in a loss of approximately $907,000, which was recorded as of December
31, 1997. The proceeds from this sale were used to repay borrowings on the
secured credit facility (see Note 7).

In March 1998, the Company sold substantially all of the assets and
liabilities of the Direct Mail and Fulfillment Segment for approximately
$23,000,000 in cash and up to $4,000,000 in contingent payments based on future
performance of the segment, beginning in 1999. The sale of this segment did not
result in a significant gain or loss. The proceeds from this sale were used to
repay borrowings on the secured credit facility. (see Note 7).

The following table summarizes the operating results of the discontinued
operations (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
------------ -------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues........................................................ $4,189 $21,304 $8,320
Operating expenses.............................................. 3,463 19,025 6,736
------ ------- ------
Income before income taxes...................................... 726 2,279 1,584
Income tax provision............................................ 247 910 613
------ ------- ------
Income from discontinued operations............................. $ 479 $ 1,369 $ 971
====== ======= ======
</TABLE>

4. SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended December 31, 1998 and 1997 and the period from April 26,
1996 (Inception) to December 31, 1996, the Company paid interest and income
taxes and financed equipment purchases with capital leases as follows (in
thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
------------ -------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest paid................................................... $1,018 $1,933 $ 188
Taxes paid...................................................... -- $1,180 $2,447
Capital leases.................................................. -- -- $1,917
</TABLE>

F-12
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

In March 1997, the Company settled the earn-out agreement with the seller of
one of the Initial Operating Businesses under which the Company paid $25,000,000
in March 1997 and agreed to pay $600,000 over a two year period in equal
installments, of which, the Company has paid $300,000 and $200,000 in 1998 and
1997, respectively.

The following table displays the net noncash assets that were acquired for the
year ended December 31, 1997 and for the period from April 26, 1996 (Inception)
to December 31, 1996, as a result of the business acquisitions described in Note
3 (in thousands):

<TABLE>
<CAPTION>
1997 1996
ACQUISITION ACQUISITIONS
------------- -------------
<S> <C> <C>
Non-cash assets (liabilities):
Accounts receivable................................................................. $ 321 $ 23,916
Prepaid expenses and other.......................................................... -- 5,139
Property and equipment.............................................................. 176 19,587
Other assets........................................................................ 6 634
Goodwill............................................................................ 5,256 202,755
Accounts payable.................................................................... (364) (7,169)
Other accrued expenses.............................................................. (68) (6,323)
Deferred revenue.................................................................... -- (305)
Other current liabilities........................................................... -- (6,631)
Debt................................................................................ -- (17,765)
Other noncurrent liabilities........................................................ -- (480)
------ --------
Net noncash assets acquired......................................................... 5,327 213,358
Less: Common stock issued.......................................................... -- (49,278)
Options and warrants issued to sellers....................................... -- (4,827)
CRW Warrants................................................................. -- (18,749)
Notes payable to sellers of businesses....................................... -- (27,005)
Acquisition related liabilities.............................................. -- (6,506)
------ --------
Cash paid for business acquisitions, net............................................ $5,327 $106,993
====== ========
</TABLE>

5. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
USEFUL LIVES 1998 1997
------------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Telemarketing and computer equipment........................................ 3 - 5 years $ 30,373 $30,400
Furniture and fixtures...................................................... 5 - 7 years 10,433 9,209
Software.................................................................... 3 years 5,645 1,588
Building.................................................................... 40 years 2,402 2,402
Leasehold improvement....................................................... 3 - 7 years 4,038 2,574
Land........................................................................ 406 406
-------- -------
53,297 46,579
Less--Accumulated depreciation and amortization............................. (17,867) (9,848)
-------- -------
$ 35,430 $36,731
======== =======
</TABLE>

The carrying value of property and equipment under capital lease obligations
included above amounted to $3,558,000 and $4,160,000 at December 31, 1998 and
1997, respectively. Assets under capitalized leases are generally collateralized
by the equipment under lease.

F-13
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

In the third and fourth quarters of 1997, the Company closed or committed to a
plan to close fifteen call centers and recorded a non-cash write-down of
$8,336,000 related to certain call center property and equipment as required by
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The property and equipment charges are included in
the results of operations for the year ended December 31, 1997, with $7,673,000
as a component of cost of services and $663,000 as a component of selling,
general and administrative expenses and are included as a reduction of the
carrying value of property and equipment in the accompanying consolidated
balance sheets. The impaired assets include telemarketing and computer
equipment, furniture and fixtures and leasehold improvements.

6. INCOME TAXES

The components of income (loss) from continuing operations before income taxes
are as follows (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
-------------------------------- ---------------
1998 1997 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
Domestic.................................................... $(5,435) $(157,385) $3,840
Foreign..................................................... (1,752) (6,769) 532
------- --------- ------
$(7,187) $(164,154) $4,372
======= ========= ======
</TABLE>

The components of the income tax benefit (provision) are as follows (in
thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
-------------------------------- ----------------
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Current:
Federal...................................................... $ -- $1,600 $(1,736)
State........................................................ -- -- (130)
Foreign...................................................... -- (200) (220)
---------- ------ -------
-- 1,400 (2,086)
---------- ------ -------
Deferred:
Federal...................................................... -- -- (209)
State........................................................ -- -- (11)
Foreign...................................................... -- -- --
---------- ------ -------
-- -- (220)
---------- ------ -------
Total benefit (provision)...................................... $ -- $1,400 $(2,306)
========== ====== =======
</TABLE>

The 1997 income tax benefit is a result of a tax refund, for federal income
taxes paid in 1996, resulting from 1997 operating losses (see deferred tax asset
valuation allowance, below).

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
--------------------------------- ----------------
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Continuing Operations.......................................... $ 247 $2,310 $(1,693)
Discontinued Operations........................................ (247) (910) (613)
----- ------ -------
$ -- $1,400 $(2,306)
===== ====== =======
</TABLE>

F-14
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate for continuing operations is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
-------------------------------- ----------------
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Statutory federal income tax rate (benefit)................. (34.0)% (34.0)% 34.0%
State income taxes, net of federal tax benefit.............. -- -- 1.7
Impact of foreign subsidiaries subject to higher tax
rates................................................... -- 0.1 0.6
Operating loss and other items not currently
deductible, not tax benefited........................... 28.5 28.0 --
Nondeductible expenses...................................... 2.1 4.5 2.4
------ ------ ----
(3.4)% (1.4)% 38.7%
====== ====== ====
</TABLE>

Deferred taxes are determined based upon the estimated future tax effects of
differences between the financial statement and income tax bases of assets and
liabilities given the provisions of the enacted tax laws. The tax effect of
temporary differences that give rise to deferred taxes at December 31, 1998 and
1997 are as follows (in thousands):

<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $ 7,636 $ 3,086
Goodwill impairment.................................................... 40,090 37,532
Accruals and reserves not currently deductible......................... 4,467 5,184
Book/tax difference of property and equipment.......................... -- 288
Other....................................................... 164 --
-------- --------
52,357 46,090
-------- --------
Deferred tax liabilities:
Book/tax difference of property and equipment....................... (3,735) --
Other............................................................... (36) (246)
-------- --------
(3,771) (246)
-------- --------
48,586 45,844
Less-Valuation allowance.................................................. (48,586) (45,844)
-------- --------
Net deferred tax asset.................................................... $ -- $ --
======== ========
</TABLE>

Due to the uncertain realization of the deferred tax asset, the Company has
provided a full valuation allowance at December 31, 1998 and 1997. The Company
has a net operating loss carryforward of approximately $22,500,000, which begins
to expire in 2012.

F-15
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

7. SECURED CREDIT FACILITY

On April 14, 1998, the Company entered into a four-year Loan and Security
Agreement, which provides for a $20,000,000 credit facility (the "Credit
Facility"). Under the terms of the Credit Facility, the Company can borrow up to
the lesser of $20,000,000 or an amount that is determined as 80% of the net
eligible accounts receivable. The Company can elect at the time it makes
borrowings to pay interest at prime plus 0.50% or at LIBOR plus 2.50% and pays a
commitment fee of 0.375% on the unused borrowing capacity. The Credit Facility
also makes available to the Company letters of credit at a fee of 1% per annum
on the face amount of each letter of credit and in an aggregate amount not to
exceed the lower of $1.5 million or the amount available under the credit
facility. Borrowings under the Credit Facility are collateralized by
substantially all of the assets of the Company. The Credit Facility also
contains various financial and non-financial covenants, including limitations on
purchases of property and equipment, minimum working capital, net worth and
current ratio requirements. At December 31, 1998, the Company had no outstanding
borrowings and $18,104,000 of available borrowings under the Credit Facility.
The weighted average interest rate on borrowings under the Credit Facility
during 1998 was 8.8% and the Company recorded interest expense during 1998 under
this facility of $159,000. The Credit Facility will be refinanced with the debt
financing obtained in connection with the Company's merger with International
Data Response Corporation ("IDRC") (see Note 15).

At December 31, 1997, the Company had outstanding borrowings of $29,000,000 on
its secured credit facility. Throughout 1997, the Company amended the secured
credit facility several times as a result of non-compliance due to its 1997
operating performance. The Company used the proceeds from the sale of its Market
Research Segment to partially repay this facility. On April 1, 1998, the Company
used the proceeds from the sale of its Direct Mail and Fulfillment Segment to
repay all outstanding borrowings on this facility.

8. LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
The West Virginia Economic Development Authority; the notes are secured by certain
assets of the Company and are payable in monthly installments of $21,262
including interest, through July 1999, at an interest rate of 4.00%.................. $ 149 $ 391
Note payable to lessor in monthly installments of $8,533 including interest,
through March 2008, at an interest rate of 8.50%..................................... 650 695
Other notes payable...................................................................... 57 119
Capital lease obligations (see Note 9)................................................... 2,840 3,755
------ -------
3,696 4,960
Less--current maturities................................................................. (820) (1,160)
------ -------
$2,876 $ 3,800
====== =======
</TABLE>

Minimum principal repayments of long-term debt as of December 31, 1998,
excluding capitalized lease obligations (see Note 9), are as follows (in
thousands):

<TABLE>
<S> <C>
1999............................................................................... $226
2000............................................................................... 77
2001............................................................................... 58
2002............................................................................... 63
2003............................................................................... 68
Thereafter......................................................................... 364
----
$856
====
</TABLE>

F-16
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

9. COMMITMENTS AND CONTINGENCIES

The Company leases facilities and equipment under capital and non-cancellable
operating leases through November 2007. Interest rates on the capital leases
range from 4% to 13%. Rent expense under operating leases for the years ended
December 31, 1998 and 1997 and for the period from April 26, 1996 (Inception) to
December 31, 1996 was $4,078,000, $4,835,000 and $1,161,000, respectively.

Future minimum lease payments as of December 31, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- ---------
<S> <C> <C>
1999................................................................................... $ 3,992 $ 724
2000................................................................................... 3,606 629
2001................................................................................... 3,500 372
2002................................................................................... 3,261 352
2003................................................................................... 2,895 352
Thereafter............................................................................. 6,331 867
------- ------

Total minimum lease payments........................................................... $23,585 3,296
=======

Less--amount representing interest..................................................... (456)
------

Present value of future minimum lease payments......................................... 2,840
Less--current portion of principal payments............................................ (594)
------
$2,246
======
</TABLE>

The Company has entered into an employment contract with one of its senior
executives which expires in May 2000. The contract provides for annual minimum
compensation of $200,000 plus bonuses. Additionally, the Company has agreed to
grant options in future years to this senior executive (see Note 10).

On March 18, 1998, the Company entered into an employment contract with its
new Chairman of the Board, CEO and President which expires in March 2001. The
contract provides for annual compensation of $200,000 per year, plus a potential
for a bonus. The Company entered into a subscription agreement whereby this
executive acquired 227,964 shares of the Company's common stock for $500,000 and
was granted options to purchase 2,000,000 shares of common stock at $3.29 per
share. The options will vest over three to five years with accelerated vesting
for 500,000 options based on the achievement of certain performance objectives,
as defined. The Company recorded compensation expense of $327,000, which
represents the difference between the stock purchase price and the fair market
value of the stock on the effective date of the stock subscription agreement. In
addition, the Company will record compensation expense of $670,000 over the
vesting period of the options to purchase 2,000,000 shares of common stock which
represents the difference between the fair market value of the stock on the
grant date and the option exercise price of $3.29.

In July 1998, the Company commenced litigation in Federal court against Parcel
Consultants Incorporated d/b/a/ NTC ("NTC"). The Company filed suit as part of
its efforts to collect approximately $4,742,000 of accounts receivable for
telemarketing services performed on behalf of NTC. NTC filed a counter suit
against the Company alleging breach of contract and fraud. The Company believes
that NTC's claims against the Company are without merit. On February 26, 1999,
NTC filed for reorganization under Chapter 11 of the Federal Bankruptcy Code.
The Company has reserved approximately $2,100,000 of the accounts receivable
amount due from NTC. Based on current facts and circumstances, the Company
believes that this reserve is adequate, however, the Company cannot be certain
that it will be successful in collecting the accounts receivable due from NTC.

F-17
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

The Company is party to various claims and other matters arising in the
ordinary course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.

10. OPTIONS AND WARRANTS

On May 17, 1996, the Company adopted The 1996 Equity Compensation Plan (the
"Plan"). The Plan was subsequently amended on May 28, 1997 to increase the
number of shares available for grant. A committee of the Board of Directors
administers and awards grants under the Plan at its sole discretion. The Plan
reserves up to 5,000,000 shares of common stock for issuance in connection with
the exercise and/or grant of incentive stock options, and nonqualified stock
options, restricted stock, stock appreciation rights and performance units to
key employees, officers, directors, independent contractors and consultants. In
addition, the Plan provides for grants of formula stock options to non-employee
directors.

In March 1998, the Company granted options to purchase 500,000 shares of
common stock under the Plan and options to purchase 1,500,000 shares of common
stock outside of the plan to its new Chairman of the Board, CEO and President
(see Note 9).

The following table summarizes the option activity:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance outstanding at Inception................................ -- $ -- $ --
Granted at fair market value.............................. 1,447,600 15.00 15.00
Cancelled................................................. (38,110) 15.00 15.00
---------- ----------- ------
Balance outstanding, December 31, 1996.......................... 1,409,490 15.00 15.00
Granted at fair market value.............................. 2,050,510 4.25-14.38 8.70
Granted above fair market value........................... 2,310,490 6.25 6.25
Cancelled................................................. (2,582,657) 4.25-15.00 13.84
---------- ----------- ------
Balance outstanding, December 31, 1997.......................... 3,187,833 4.25-6.25 5.55
Granted at fair market value.............................. 723,500 3.31-9.81 4.53
Granted above fair market value........................... 75,000 6.25 6.25
Granted below fair market value........................... 2,000,000 3.29 3.29
Exercised................................................. (330,411) 3.29-6.25 4.54
Cancelled................................................. (432,816) 3.31-8.94 4.89
---------- ----------- ------
Balance outstanding, December 31, 1998.......................... 5,223,106 $ 3.29-9.81 $ 4.67
========== =========== ======
</TABLE>

Summary information about the Company's stock options outstanding at December
31, 1998 is as follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF EXERCISE BALANCE OUTSTANDING AT AVERAGE CONTRACTUAL EXERCISABLE AT EXERCISE
PRICE DECEMBER 31, 1998 EXERCISE PRICE LIFE IN YEARS DECEMBER 31, 1998 PRICE
----------------- ---------------------- ------------------- ----------------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
$3 - $5 3,191,904 $3.56 9.1 917,004 $4.11
5 - 7 1,911,702 6.25 7.9 1,603,858 6.25
7 - 9 94,500 8.94 9.4 12,500 8.94
9 - 11 25,000 9.91 9.8 -- --
--------- ----- --- --------- -----
5,223,106 $4.67 8.6 2,533,362 $5.49
========= ===== === ========= =====
</TABLE>

F-18
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

In the first quarter of 1998, the vesting of 1,168,699 options was
accelerated based on the occurrence of certain events. The remaining unvested
options will vest over one to four years.

In September 1997, the Company exchanged new options for options which were
granted in August 1996 and February 1997. The exercise price for the new options
was $6.25 per share. The exercise price for the new options was less than the
exercise price of the previously granted options, but exceeded the market price
of the stock on the date of grant of the new options.

In September 1997, the Company granted options to purchase 150,000 shares
of the Company's common stock at $6.25 per share under the Plan to an
independent contractor. The options become fully exercisable over a two year
period and expire in August 2006. The Company recorded the $508,000 fair value
of these options as a charge to operations in 1997.

In addition, 50,000 shares are issuable upon the exercise of options that
the Company has committed to grant over the next two years pursuant to an
employment agreement with one of its senior executives.

The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for its employee
stock options because the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB No. 25, if the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of the grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share required
by SFAS No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
determination of the fair value of the options noted above was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the years ended December 31, 1998 and 1997 and
for the period from April 26, 1996 (Inception) to December 31, 1996: risk free
interest rate of 5.7%, 6.3% and 6.7%, respectively, dividend yield of 0%,
volatility factor of the expected market price of the Company's common stock of
75%, 75% and 65%, respectively, and an expected life of the options of six
years.

The weighted average fair value of employee stock options granted during the
periods presented is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE FAIR VALUE
-----------------------------------------------------------------
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
------------------------------------------ -----------
------------------------------------------
1998 1997 1996
------------------ ------------------- ------------------
<S> <C> <C> <C>
Granted at fair market value $ 3.14 $ 3.00 $ 9.84
Granted above fair market value $ 1.95 $ 2.77 $ --
Granted below fair market value $ 2.60 $ -- $ --
</TABLE>

F-19
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows (in thousands - except for earnings per
share):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
(INCEPTION) TO
YEAR ENDED DECEMBER 31,
-----------
DECEMBER 31,
-----------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (loss)..................................... $(11,455) $(162,021) $2,237
Pro forma basic and diluted earnings (loss) per share........... $ (0.45) $ (6.43) $ 0.12
</TABLE>

In April 1997, the Company granted warrants to purchase 1,500,000 shares of
the Company's common stock at a price of $12.25 per share in lieu of a certain
earnout agreement with one of the Initial Operating Businesses. Effective
December 31, 1997, 1,000,000 of these warrants were cancelled as certain vesting
criteria, as defined, were not met.

The Company issued warrants to purchase 593,400 shares of common stock to
the former principals of the Initial Operating Businesses at $15.00 per share.
These warrants were valued at their estimated fair value of $2,077,000 and were
included in the purchase price of the Initial Operating Business. The warrants
are exercisable for ten years. No warrants were exercised as of December 31,
1998.

11. EMPLOYEE RETIREMENT SAVINGS PLAN

On January 1, 1997, the Company adopted a defined contribution 401(k) Savings
Plan (the "Plan"). Employees who have met certain eligibility requirements, as
defined, may contribute up to 15% of their pre-tax gross wages, subject to
certain restrictions. The Plan provides for Company matching contributions of
25% of the first 6% of employee contributions to the Plan, which vest 25% per
year over a four-year period. The expense for the year ended December 31, 1998
and 1997 under the Plan was $171,000 and $290,000, respectively.

12. RELATED-PARTY TRANSACTIONS

CRW Financial, Inc.

On May 22, 1996, CRW Financial, Inc. ("CRW"), made an initial capital
contribution of $2,100,000 representing the proceeds of borrowings by CRW under
subordinated notes issued to certain officers and directors of CRW and the
Company, CRW consultants and CRW outside investors. As additional consideration,
the lenders to CRW received warrants from CRW to purchase 1,433,000 shares of
the Company's common stock owned by CRW at $1.50 per share ("CRW Lender
Warrants"). In addition, CRW issued to its bank, warrants to purchase 75,000
shares of the Company's common stock owned by CRW at $1.50 per share. These
warrants were issued as consideration for CRW's bank issuing a waiver under its
loan facility with CRW, permitting the May 22, 1996 capital contribution to the
Company.

CRW also issued warrants to purchase 839,000 shares of the Company's common
stock owned by CRW at $1.50 per share to certain officers of CRW and the Company
("CRW Management Warrants"). The warrants were granted by CRW to these
individuals for services provided to CRW. In June 1997 certain officers of CRW
and the Company exercised the CRW Management Warrants to purchase 229,000 shares
of the Company's common stock.

F-20
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

The deemed value for accounting purposes of the CRW Lender Warrants and the
CRW Management Warrants is based upon the difference between $9.75 (35% discount
to the initial public offering price) and the $1.50 warrant exercise price. The
deemed value for accounting purposes of $18,749,000 is treated as additional
purchase price consideration of the acquisitions of the Initial Operating
Businesses (see Note 3).

The Company subleases a 21,000 square foot office building in King of
Prussia, Pennsylvania, from CRW. The sublease commenced on May 9, 1996, and
requires monthly base rent payments through September 30, 2004, of approximately
$35,000. Total rent expense for the year ended December 31, 1998 and 1997 and
for the period April 26, 1996 (Inception) to December 31, 1996 was $430,000,
$444,000 and $106,000, respectively.

AffiniCorp USA, Inc.

On September 25, 1998, the Company purchased 19.4% of the outstanding
common stock of AffiniCorp USA, Inc. for $500,000. AffiniCorp develops and
manages enhancement products for credit card issuers. The Company has entered
into a relationship with AffiniCorp whereby the Company provides telemarketing
services at its normal rates with six month extended payment terms. Outstanding
balances for telemarketing services under the six month extended terms are
capped at $1,500,000. The Company has a security interest in the accounts
receivable and certain other assets of AffiniCorp. As of December 31, 1998, the
Company has $1,098,000 of accounts receivable from AffiniCorp recorded in
current assets and a $500,000 investment recorded in other assets.

13. CONCENTRATIONS OF CREDIT

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the number of customers comprising the Company's customer base and their
dispersion across different industries and geographies. The Company does not
require collateral or other securities to support customer receivables. The
Company performs periodic reviews of its clients' financial condition to reduce
collection risk.

The Company does not believe significant credit risk exists at December 31,
1998. The Company had one client in the telecommunications industry which
accounted for approximately 10% of total revenues for the year ended December
31, 1998 and one client in the financial services industry, which accounted for
approximately 19% of total revenues for the year ended December 31, 1997. The
Company had two clients in the telecommunications industry which accounted for
approximately 23% and 13% of accounts receivable as of December 31, 1998 and no
clients accounted for more than 10% of accounts receivable as of December 31,
1997. For the year ended December 31, 1998, 23% and 27% of the Company's
revenues were from customers in the financial services and telecommunications
industries, respectively. For the year ended December 31, 1997, 40% and 29% of
the Company's revenues were from customers in the financial services and
telecommunications industries, respectively. For the period from April 26, 1996
(Inception) to December 31, 1996 no individual customers accounted for more than
10% of the Company's revenues, while 38% and 11% of the Company's revenues
during this period were from customers in the financial services and insurance
industries, respectively.

14. SEGMENTS

The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Company classifies its continuing
operations into two segments: Telemarketing and Customer Care. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers different services. The accounting policies
of the operating segments are the same as described in the summary of
significant accounting policies (see Note 2). The business segments are
described in further detail below. Segment assets include amounts specifically
identified to Telemarketing and Customer Care Segments. Corporate assets consist
primarily of property and equipment.

F-21
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

The Telemarketing Segment provides both business-to-consumer and business-
to-business telemarketing services--primarily direct sales initiated by the
Company on behalf of its clients.

The Customer Care Segment provides customer service expertise to its
clients. The Company's customer service expertise includes customer care
support, typically through toll-free telephone numbers, for activities such as
responses to clients' customer service inquiries, catalogue sales and electronic
order processing and consulting services to a wide range of clients.

Corporate operations include the selling, general and administrative
functions of the Company.

The results of operations of the Market Research Segment and Direct Mail
and Fulfillment Segment have been accounted for as discontinued operations (see
Note 3).

Business segment information is as follows (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 26, 1996
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
----------- -----------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Telemarketing............................................. $ 121,553 $ 141,454 $ 40,321
Customer Care............................................. 45,875 37,468 12,833
----------- ----------- ----------
Total................................................... $ 167,428 $ 178,922 $ 53,154
=========== =========== ==========
OPERATING INCOME (LOSS)
Telemarketing (includes goodwill impairment charge of
$139,072 in 1997)....................................... $ 7,251 $ (144,021) $ 9,224
Customer Care............................................. 4,683 (943) 3,841
Corporate................................................. (17,875) (19,074) (9,126)
----------- ----------- ----------
Total................................................... $ (5,941) $ (164,038) $ 3,939
=========== =========== ==========
TOTAL ASSETS
Telemarketing............................................. $ 45,995 $ 53,779 $ 179,508
Customer Care............................................. 47,499 47,718 40,104
Corporate................................................. 10,195 6,825 40,565
----------- ----------- ----------
Total continuing operations............................. 103,689 108,322 260,177
Discontinued Operations................................... -- 36,399 36,362
----------- ----------- ----------
Total................................................... $ 103,689 $ 144,721 $ 296,539
=========== =========== ==========
DEPRECIATION AND AMORTIZATION
Telemarketing (includes goodwill impairment charge of
$139,072 in 1997)....................................... $ 4,995 $ 150,679 $ 2,990
Customer Care............................................. 3,634 3,244 807
Corporate................................................. 1,081 581 17
----------- ----------- ----------
Total................................................... $ 9,710 $ 154,504 $ 3,814
=========== =========== ==========
CAPITAL EXPENDITURES
Telemarketing............................................. $ 2,401 $ 18,206 $ 7,446
Customer Care............................................. 3,093 6,057 2,246
Corporate................................................. 3,605 2,034 866
----------- ----------- ----------
Total................................................... $ 9,099 $ 26,297 $ 10,558
=========== =========== ==========
</TABLE>

F-22
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998

15. SUBSEQUENT EVENTS

On September 3, 1998, TeleSpectrum and CRW entered into a merger agreement
whereby each outstanding share of CRW common stock (6,918,000 shares as of
December 31, 1998) will be exchanged for .709 of a share of TeleSpectrum common
stock. In addition, each outstanding option (1,536,000 as of December 31, 1998)
to purchase shares of CRW common stock will be exchanged for an option to
purchase .709 of a share of TeleSpectrum common stock and the 678,000 warrants
to purchase shares of TeleSpectrum common stock, owned by CRW, will be exchanged
for 678,000 warrants to purchase TeleSpectrum common stock. The merger is
expected to close in the second quarter of 1999. Immediately prior to the
merger, CRW will not have any continuing business operations and its only asset
will be 6,947,000 shares of TeleSpectrum common stock. For financial reporting
purposes, TeleSpectrum will treat the exchange of shares of TeleSpectrum common
stock for shares of CRW common stock as a treasury stock transaction. The
transaction will not have an effect on TeleSpectrum's net income (loss) but will
have an effect on its net income (loss) per share.

On January 14, 1999, TeleSpectrum and IDRC entered into a merger agreement and
on February 26, 1999 they amended the agreement. Under this agreement each of
the holders of outstanding shares of IDRC common stock, options and warrants
will be entitled to receive their pro rata portion of an aggregate of 9,200,000
shares of TeleSpectrum common stock and options and warrants exercisable for
3,000,000 shares of TeleSpectrum common stock. In addition, the IDRC preferred
stock will be exchanged for $6,000,000 of cash, plus all accrued and unpaid
dividends. The majority stockholders of IDRC will be required to invest their
proceeds from the exchange of their IDRC preferred stock of $4,900,000 in a term
note with the Company. This note will be payable in one year and bear interest
at 10.0%. The excess of the total estimated purchase price over the fair market
value of the net liabilities acquired will be amortized on a straight line basis
over a period not to exceed 25 years. The merger will be accounted for as a
purchase by TeleSpectrum pursuant to APB Opinion No. 16 "Business Combinations."

In connection with the IDRC merger, the Company received a financing
commitment for $135,000,000 senior debt facility, which will be used to
refinance IDRC's current maturities of long-term debt, long-term debt and seller
notes. The Company will incur debt issuance costs, in connection with this
senior facility, of approximately $4,200,000, which will be amortized on a
straight-line basis over four years. This new facility will consist of three
term notes in the aggregate of $86,000,000 with maturities between 32 and 56
months and a revolving credit facility of $49,000,000 due in 32 months. The
facility allows for alternative interest rates. After three months, the Company
can elect LIBOR plus a margin of 3.25% to 4.25%. The senior debt facility
contains various financial and non-financial covenants, including minimum
interest coverage, fixed charge coverage, minimum EBITDA, maximum leverage ratio
and limitations on capital expenditures. The merger is expected to close in the
second quarter of 1999.

F-23
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES

INITIAL OPERATING BUSINESSES

PREDECESSOR COMPANIES' HISTORICAL FINANCIAL STATEMENTS

INTRODUCTION

In connection with the initial public offering, the Initial Operating
Businesses were deemed to be predecessor companies to TeleSpectrum Worldwide
Inc. Accordingly, the following historical financial statements are presented to
comply with the historical financial statement requirements in a Form 10-K.

F-24
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SOMAR, Inc.:

We have audited the accompanying balance sheet of SOMAR, Inc. (a North
Carolina corporation) as of December 31, 1995, and the related statements of
income, stockholders' equity (deficit) and cash flows for each of the two years
in the period ended December 31, 1995, and for the period from January 1, 1996
to August 12, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SOMAR, Inc. as of December 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995, and for the period from January 1,
1996 to August 12, 1996, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Charlotte, N.C.,
September 30, 1996

F-25
<PAGE>

SOMAR, INC.

BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 25
Accounts receivable net of reserve of $40................................................................. 4,825
Amounts due from Stockholders............................................................................. 881
Affiliates.............................................................................................. 210
Prepaid expenses and other................................................................................ 451
-------
Total current assets................................................................................... 6,392
PROPERTY AND EQUIPMENT, net................................................................................. 4,400
-------
Total assets........................................................................................... $10,792
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................................................................ $ 1,182
Note payable--Bank........................................................................................ 1,000
Current portion of long-term debt......................................................................... 2,182
Current portion of capital lease obligations.............................................................. 852
Accounts payable.......................................................................................... 1,959
Accrued compensation...................................................................................... 523
Other accrued expenses.................................................................................... 122
Amounts due to an affiliate............................................................................... 562
-------
Total current liabilities.............................................................................. 8,382
-------
LONG-TERM DEBT.............................................................................................. 767
-------
CAPITAL LEASE OBLIGATIONS................................................................................... 872
-------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares authorized; 11,765 shares issued and outstanding............... 12
Additional paid-in capital................................................................................ 789
Accumulated deficit....................................................................................... (30)
-------
Total stockholders' equity............................................................................. 771
-------
Total liabilities and stockholders' equity............................................................. $10,792
=======
</TABLE>

The accompanying notes are an integral part of this statement.

F-26
<PAGE>

SOMAR, INC.

STATEMENTS OF INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
1996 TO FOR THE YEAR ENDED
AUGUST 12, DECEMBER 31
--------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES.................................................................. $26,421 $31,900 $20,785
------- ------- -------
OPERATING EXPENSES:
Cost of services........................................................ 21,406 25,048 15,623
Selling, general and administrative expenses............................ 3,817 5,162 4,115
------- ------- -------
Operating income........................................................ 1,198 1,690 1,047
Total operating expenses................................................ 25,223 30,210 19,738
------- ------- -------

INTEREST INCOME........................................................... 11 45 12
INTEREST EXPENSE.......................................................... (572) (756) (432)
------- ------- -------
NET INCOME................................................................ $ 637 $ 979 $ 627
======= ======= =======
PRO FORMA DATA (UNAUDITED):
Historical net income................................................... $ 637 $ 979 $ 627
Pro forma provision for income taxes.................................... 237 414 261
------- ------- -------
Pro forma net income.................................................... $ 400 $ 565 $ 366
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-27
<PAGE>

SOMAR, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands)

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN STOCKHOLDER EARNINGS EQUITY
STOCK CAPITAL LOAN (DEFICIT) (DEFICIT)
------ ---------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994............................................ $12 $474 $(612) $(265) $(391)
Net income...................................... -- -- -- 627 627
Distributions................................... -- -- -- (668) (668)
Repayments of stockholder
loan.......................................... -- -- 612 -- 612
Stock options................................... -- 298 -- -- 298
--- ---- ----- ----- -----
BALANCE, DECEMBER 31,
1994............................................ 12 772 -- (306) 478
Net income...................................... -- -- -- 979 979
Distributions................................... -- -- -- (703) (703)
Stock options................................... -- 17 -- -- 17
--- ---- ----- ----- -----
BALANCE, DECEMBER 31,
1995............................................ 12 789 -- (30) 771
Net income...................................... -- -- -- 637 637
Distributions................................... -- -- -- (535) (535)
--- ---- ----- ----- -----
BALANCE, AUGUST 12,
1996............................................ $12 $789 $ -- $ 72 $ 873
=== ==== ===== ===== =====
</TABLE>

The accompanying notes are an integral part of these statements.

F-28
<PAGE>

SOMAR, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
1996 TO FOR THE YEAR ENDED
AUGUST 12, DECEMBER 31
--------------------
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................................... $ 637 $ 979 $ 627
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization................................................... 749 775 288
Stock option compensation expense............................................... -- 17 298
Changes in operating assets and liabilities--
Accounts receivable............................................................. (1,705) (2,003) (1,987)
Prepaid expenses and other...................................................... (85) (144) (123)
Accounts payable................................................................ 1,706 614 559
Accrued expenses................................................................ 822 203 395
------- ------- -------
Net cash provided by operating activities.................................... 2,124 441 57
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (828) (2,309) (174)
Advances to stockholder......................................................... (847) (352) (103)
Advances to affiliates.......................................................... (248) (209) (2)
Repayments of advances to affiliates............................................ -- -- 13
Repayment of stockholder loan................................................... -- -- 612
------- ------- -------
Net cash (used in) provided by investing activities.......................... (1,923) (2,870) 346
------- ------- -------
FINANCING ACTIVITIES:
Borrowings on long-term debt.................................................... 1,286 2,824 25
Repayments on long-term debt.................................................... (1,498) (257) (31)
Borrowings (repayments) on note payable--Bank................................... (1,000) 1,000 --
Borrowings (repayments) from affiliates......................................... (102) 458 (491)
Distributions paid to shareholders.............................................. (535) (703) (669)
Payments on capital lease obligations........................................... (641) (623) (297)
Net (repayments) borrowings on line of credit agreement......................... 2,269 (247) 1,046
------- ------- -------
Net cash provided by (used in) financing activities.......................... (221) 2,452 (417)
------- ------- -------
NET INCREASE (DECREASE) IN CASH................................................... (20) 23 (14)
CASH, BEGINNING OF PERIOD......................................................... 25 2 16
------- ------- -------
CASH, END OF PERIOD............................................................... $ 5 $ 25 $ 2
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-29
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Industry Information

SOMAR, Inc. (the "Company") is a provider of outsourced telephone-based sales,
marketing and customer management services, to clients principally in the
insurance industry and also to clients in the financial services,
telecommunications and consumer products industries.

On August 12, 1996, the Company sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. SOMAR is a predecessor company to
TeleSpectrum Worldwide Inc.

Use of Estimates

Revenue Recognition and Concentration of Credit Risk

The Company recognizes revenues on programs as services are performed for its
clients, generally based upon hours incurred.

The nature of the industry is such that the Company is dependent on several
large clients for a significant portion of its annual revenues. For the years
ended December 31, 1994 and 1995, and for the period from January 1, 1996 to
August 12, 1996, the Company had four, three and two clients, respectively, that
each accounted for more than 10% of the Company's revenues. For the period ended
December 31, 1994, the four clients accounted for 20%, 17%, 16% and 13% of the
Company's revenues, respectively. For the period ended December 31, 1995, the
three clients accounted for 33%, 16% and 15% of the Company's revenues,
respectively. For the period from January 1, 1996 to August 12, 1996, the two
clients accounted for 19% and 12% of the Company's revenues, respectively. The
loss of one or more of these major clients could have a materially adverse
effect on the Company's business.

Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial conditions of certain major clients described above.
Two of these clients are engaged in transactions with each other and represent a
single credit risk to the Company. The Company does not require collateral to
secure clients' receivables. The Company performs periodic reviews of its
clients' financial condition to reduce collection risk on trade accounts
receivable.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes over the estimated useful lives of the
respective assets. Assets recorded under capital leases are amortized using the
straight-line method over the estimated useful lives of the leased assets. Upon
sale or retirement, the related cost and accumulated depreciation are removed
from the accounts, and any gain or loss is recognized in the statement of
income.

Major improvements are capitalized and charged to expense through
depreciation. Repairs and maintenance are charged to expense as incurred.
Certain general and administrative expenses associated with the opening of new
call centers are expensed prior to the opening of the call center.

F-30
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS---(Continued)

Statement of Cash Flows

For the years ended December 31, 1994 and 1995, and for the period from
January 1, 1996 to August 12, 1996, the Company paid interest of $366,000,
$750,000 and $552,000, respectively.

Income Taxes

The Company had elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code and North Carolina General Statutes. As a result,
the Company was not subject to federal income taxes, and the taxable income of
the Company was included in the individual tax returns of the Company's
stockholders. Accordingly, no provision for federal or state income taxes has
been recorded in the accompanying financial statements.

The Company reported certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying statements. The
principal differences relate to the timing of the recognition of accrued
expenses that are not deductible for federal income tax purposes until paid and
the use of accelerated methods of depreciation for income tax purposes. At
December 31, 1995, the financial reporting basis of the Company's net assets
exceeds the tax basis of the net assets by approximately $580,000.

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term nature
of those instruments. The carrying amounts of the line of credit, note payable
and long-term debt approximate fair value on the balance sheet dates.

Prepaid Agent License Fees

The Company capitalizes the cost of licensing its agents and amortizes license
fees over a 12-month period. Prepaid agent license fees amounted to $172,000 at
December 31, 1995.

Accounting of Stock-Based Compensation

The Company currently utilizes Accounting Principles Board Opinion No. 25 in
its accounting for stock options. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation." The accounting method as
provided in the pronouncement is not required to be adopted; however, it is
encouraged. The Company does not anticipate adopting the accounting provisions
of the statement but will include in the footnotes to the financial statements
the disclosures required by SFAS No. 123 in fiscal 1996.

Training Costs

The Company maintains ongoing training programs for its employees. The cost of
this training is charged to expense when incurred. As of December 31, 1995, the
Company recorded a $407,000 receivable from a State Economic Development Agency
for certain educational and training costs that are to be reimbursed.

F-31
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Pro Forma Data (Unaudited)

Given the sale of the business, for informational purposes, the accompanying
statements of income include an unaudited pro forma adjustment for income taxes
that would have been recorded if the Company had not been an S Corporation,
based on the tax laws in effect during the respective periods. The differences
between the federal statutory income tax rate and the pro forma income tax rate
primarily relate to state and local income taxes and expenses not deductible for
tax purposes.

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
Useful December 31,
Lives 1995
------------ ------------
(In Thousands)
<S> <C> <C>
Furniture and fixtures............................................................ 5-7 years $ 2,265
Telemarketing equipment........................................................... 5 years 3,263
Leasehold improvements............................................................ 5-6 years 359
-------
5,887
Less--Accumulated depreciation and amortization................................... (1,487)
-------
$ 4,400
=======
</TABLE>

The gross cost of equipment under capital lease obligations included above
amounted to $2,547,000 at December 31, 1995.

Depreciation and amortization expense for the years ended December 31, 1994
and 1995, and for the period from January 1, 1996 to August 12, 1996, was
$288,000, $775,000 and $749,000, respectively.

3. LINE OF CREDIT AND NOTE PAYABLE--BANK:

At December 31, 1995, the Company had a line of credit with Fremont Financial
Corporation ("Fremont"). The Company has entered into an agreement with
NationsBank of Georgia ("NationsBank") for a revolving line of credit with a
maximum borrowing limit of $6,500,000 and bears interest at the bank's prime
rate (8.5% at December 31, 1995) plus 1%.

The Company's borrowing base under the NationsBank revolver is limited to 85%
of eligible receivables as defined by the agreement. The line is secured by
trade accounts receivable, equipment and other assets of the Company. At July
12, 1996, the Company's availability under the NationsBank revolver was
approximately $780,000.

The agreement terminates on January 1, 1997, and contains certain restrictive
covenants that, among other things, require the maintenance of certain financial
ratios, limitations and capital expenditures and bonuses, and restrictions on
future indebtedness. As of March 31, 1996, the Company was in violation of
certain loan covenants for which it has obtained a waiver letter from the bank.
This waiver letter modified the loan covenants related to certain required
financial ratios. As of June 30, 1996, the Company is in compliance with these
revised loan covenants.

At December 31, 1995, the Company was transitioning its line of credit
arrangement from Fremont to NationsBank. In connection with the transition, the
Company borrowed $1,000,000 from NationsBank on a short-term basis at an
interest rate equal to the bank's prime rate (8.5%) plus 1%. This note was
repaid on January 3, 1996, with the proceeds from the new revolving line of
credit arrangement.

F-32
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. LONG-TERM DEBT:

<TABLE>
<CAPTION>
December 31,
1995
---------------
(In Thousands)
<S> <C>
Note payable to MCI Telecommunications Corporation, unsecured, payable in monthly
installments of $128,300 through July 1996, and remaining payment of $118,700 due
in August 1996, interest at 9.75% (on June 15, 1996, this note was refinanced; the
refinanced note is payable in monthly installments of $128,300 through March 1997
and $43,400 in April 1997, at an interest rate of 9.75%)............................................. $ 981
Notes payable to a bank, secured by related equipment, payable on July 1, 1996, interest
payable monthly at the bank's prime rate plus 150 basis points (10% at December 31,
1995), guaranteed by the Company's two principal stockholders and two affiliated
companies (on July 5, 1996 these notes were refinanced by the West Virginia
Economic Development Authority; the refinanced notes are secured by assets of the
Company and are payable in monthly installments of $21,250 including interest,
through July 1999, at an interest rate of 4%)........................................................ 720
Installment note payable to a bank, secured by related equipment, payable in monthly
installments of $11,900 including interest, through August 1998, at the bank's prime
interest rate plus 150 basis points (10% at December 31, 1995), guaranteed by the
Company's two principal stockholders and two affiliated companies.................................... 331
Note payable to Network Sampling Services, balance due July 1, 1997, including interest
at 10%, guaranteed by one of the Company's principal stockholders.................................... 300
Installment note payable to a bank, secured by related equipment, payable in monthly
installments of $11,957 including interest, through April 1998, at the bank's prime
interest rate plus 150 basis points (10% at December 31, 1995), guaranteed by the
Company's two principal stockholders and two affiliated companies.................................... 288
Installment note payable to a bank, secured by related equipment, payable in monthly
installments of $21,774 including interest, through October 1996, at the bank's prime
rate plus 150 basis points (10% at December 31, 1995), guaranteed by the Company's
two principal stockholders and two affiliated companies.............................................. 226
Installment note payable to a finance company, unsecured, payable in monthly
installments of $3,800 including interest, through August 1998 at an interest rate of
9%................................................................................................... 103
-------
2,949
Less--Current portion.................................................................................... (2,182)
-------
$ 767
=======
</TABLE>

Minimum principal repayments of long-term debt as of December 31, 1995, are
as follows (in thousands):

The notes payable to a bank contain certain restrictive covenants. As of June
30, 1996, the Company was in violation of one of the loan covenants for which it
has obtained a waiver from the bank.

5. COMMITMENTS AND CONTINGENCIES:

The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.

F-33
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Leases

The Company leases administrative offices, telephone call centers and
equipment under noncancelable operating leases. In addition, the Company has
capital leases covering certain operating equipment. Future minimum lease
payments at December 31, 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
-------------------------
LEASES LEASES
----------- ------------
<S> <C> <C>
1996............................................................................................. $ 673 $ 989
1997............................................................................................. 549 647
1998............................................................................................. 449 280
1999............................................................................................. 221 16
2000............................................................................................. 179 --
Thereafter....................................................................................... 503 --
------ ------
Total............................................................................................ $2,574 1,932
======
Less--Amount representing interest............................................................... (208)
------
Present value of future minimum lease payments................................................... 1,724
Less--Current portion............................................................................ (852)
------
$ 872
======
</TABLE>

Rent expense under operating leases was approximately $599,000, $673,000 and
$479,000 for the years ended December 31, 1994 and 1995, and for the period from
January 1, 1996 to August 12, 1996 (including amounts paid to related parties),
respectively (see Note 7).

The Company financed purchases of approximately $1,488,000, $1,000,000 and
$1,948,000 through capital leases in 1994 and 1995 and for the period from
January 1, 1996 to August 12, 1996, respectively.

Employee Benefit Plan

The Company sponsors a defined contribution 401(k) profit sharing plan for
eligible employees. Company contributions to the plan, which are based on a
company match percentage, amounted to $21,000, $30,000 and $28,000 for the years
ended December 31, 1994 and 1995, and for the period from January 1, 1996 to
August 12, 1996, respectively.

6. STOCK OPTIONS:

In December 1991, the Company's two principal stockholders granted stock
options to three key employees for the purchase of up to 2,588 shares of their
common stock at an exercise price of $10 per share. The options vested
immediately and were exercisable through December 31, 1994. The deemed value of
the options for accounting purposes at the date of grant was less than the $10
exercise price. Accordingly, no compensation expense was recorded at the date of
these grants. In December 1994, the principal stockholders extended all option
exercise dates from December 31, 1994 to March 31, 1996. All remaining option
terms, including the $10 per-share exercise price, remained unchanged.

F-34
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The deemed value of the options for accounting purposes at the extension date
was $125 per share. Accordingly, $298,000 of compensation expense was recorded
at the date of extension.

In May 1995, the Company's two principal stockholders granted stock options
to another key employee for the purchase of up to 117 shares of their common
stock at an exercise price of $10 per share through March 31, 1996. The deemed
value of the options for accounting purposes at the date of grant was $156 per
share. Accordingly, $17,000 of compensation expense was recorded at the date of
grant.

At December 31, 1994 and 1995, no options had been exercised and 2,588 and
2,705 options were outstanding, respectively.

In March 1996, all options were exercised and 2,705 shares were issued by the
Company's principal shareholders to the option holders.

7. RELATED-PARTY TRANSACTIONS:

Southern Investments (a partnership), The Development Group, Inc. ("DGI"),
Southern Alloy of America, Inc., SOMAR Telecommunications, Inc. ("STI") and
Engineered Machine Technologies, Inc. ("EMTI") are affiliated with the Company
through common ownership.

The Company leases residential real estate, automobiles, computer equipment,
and furniture and equipment from Southern Investments on a month-to-month basis.
Rent expense related to these operating leases totaled approximately $363,000,
$278,000 and $183,000 for the years ended December 31, 1994 and 1995, and for
the period from January 1, 1996 to August 12, 1996, respectively.

Following is a schedule of amounts due from stockholders and affiliates (in
thousands):

<TABLE>
<CAPTION>
December 31,
1995
--------------
<S> <C>
Stockholders........................................................................... $ 881
Southern Investments................................................................... 102
DGI.................................................................................... 42
EMTI................................................................................... 5
STI.................................................................................... 61
------
$1,091
======
</TABLE>

At December 31, 1995, the Company had an amount due to an affiliate, Southern
Alloy of America, Inc., of $562,000.

Included in interest expense and interest income in the accompanying
financial statements is interest income (expense) from (to) related parties
(including allocated interest expense) as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
1996 TO FOR THE YEAR ENDED
AUGUST 12, DECEMBER 31,
--------------------------------
1996 1995 1994
------------- -------------- ----------------
<S> <C> <C> <C>
Southern Alloy of America, Inc......................... $ (57) $ (94) $ (99)
Southern Investments................................... -- -- 12
----- ----- -----
$ (57) $ (94) $ (87)
===== ===== =====
</TABLE>

F-35
<PAGE>

SOMAR, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In 1994 and 1995 and for the period from January 1, 1996 to August 12, 1996,
the Company was allocated interest expense from Southern Alloy of America, Inc.,
amounting to approximately $99,000, $94,000 and $57,000, respectively.

The Company's senior management are employees of DGI. DGI charges the Company
for services provided by these individuals. These expenses amounted to
approximately $1,132,000, $1,136,000 and $744,000 in 1994 and 1995 and for the
period from January 1, 1996 to August 12, 1996, respectively.

The Company has guaranteed a line of credit agreement for Southern Alloy of
America, Inc. The outstanding balance under this agreement amounted to
$1,424,000 at December 31, 1995. The guarantee related to this line of credit
agreement is not being assumed in connection with the sale of the business
discussed in Note 1.

F-36
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To NBG Services, Inc.:

We have audited the accompanying balance sheet of NBG Services, Inc. (a
Massachusetts corporation--see Note 1) as of December 29, 1995, and the related
statements of income, shareholders' equity and cash flows for each of the two
fiscal years in the period ended December 29, 1995 and for the period from
December 30, 1995 to August 12, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NBG Services, Inc. as of
December 29, 1995, and the results of its operations and its cash flows for each
of the two fiscal years in the period ended December 29, 1995, and for the
period from December 30, 1995 to August 12, 1996, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP

Philadelphia, Pa.,
September 30, 1996

F-37
<PAGE>

NBG SERVICES, INC.

BALANCE SHEET

AS OF DECEMBER 29, 1995
(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 700
Short-term investments.............................................................................. 210
Accounts receivable, net of reserve of $90.......................................................... 1,757
Prepaid expenses and other.......................................................................... 129
------
Total current assets............................................................................. 2,796
PROPERTY AND EQUIPMENT, net........................................................................... 1,336
OTHER ASSETS.......................................................................................... 102
------
Total assets..................................................................................... $4,234
======
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:

Current portion of capital lease obligations........................................................ $ 277
Demand note......................................................................................... 500
Accounts payable.................................................................................... 212
Accrued expenses.................................................................................... 537
------
Total current liabilities........................................................................ 1,526
======
CAPITAL LEASE OBLIGATIONS............................................................................. 454
------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares authorized; 100 shares issued and outstanding............. --
Retained earnings................................................................................... 2,254
======
Total shareholders' equity....................................................................... 2,254
======
Total liabilities and shareholders' equity....................................................... $4,234
======
</TABLE>

The accompanying notes are an integral part of this statement.

F-38
<PAGE>

NBG SERVICES, INC.

STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 30,
1995 TO FOR THE FISCAL YEAR ENDED
-------------------------
AUGUST 12, DECEMBER 29, DECEMBER 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES..................................................................... $11,311 $12,829 $5,778
------- ------- ------
OPERATING EXPENSES:
Cost of services........................................................... 7,686 8,572 4,259
Selling, general and administrative expenses............................... 1,645 2,115 1,443
------- ------- ------
Total operating expenses................................................ 9,331 10,687 5,702
------- ------- ------
Operating income........................................................ 1,980 2,142 76
INTEREST INCOME.............................................................. 37 19 17
INTEREST EXPENSE............................................................. (70) (55) (60)
------- ------- ------
Income before income taxes.............................................. 1,947 2,106 33
INCOME TAXES................................................................. (79) -- --
------- ------- ------
NET INCOME................................................................... $ 1,868 $ 2,106 $ 33
======= ======= ======
PRO FORMA DATA (unaudited):
Historical net income...................................................... $ 1,868 $ 2,106 $ 33
Pro forma provision for income taxes....................................... 765 864 25
------- ------- ------
Pro forma net income....................................................... $ 1,103 $ 1,242 $ 8
======= ======= ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-39
<PAGE>

NBG SERVICES, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- ------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.............................................. 100 $ -- $ 363 $ 363
Net income.......................................................... -- -- 33 33
--- ------ -------- ------

BALANCE, DECEMBER 30, 1994............................................ 100 -- 396 396
Net income.......................................................... -- -- 2,106 2,106
Distributions....................................................... -- -- (248) (248)
--- ------ -------- ------

BALANCE, DECEMBER 29, 1995............................................ 100 -- 2,254 2,254
Net income.......................................................... -- -- 1,868 1,868
Distributions....................................................... -- -- (895) (895)
Net unrealized gain on short-term investments....................... -- -- 20 20
--- ------ -------- ------
BALANCE, AUGUST 12, 1996.............................................. 100 $ -- $ 3,247 $3,247
=== ====== ======== ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-40
<PAGE>

NBG SERVICES, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 30,
1995 TO FOR THE FISCAL YEAR ENDED
-------------------------
AUGUST 12, DECEMBER 29, DECEMBER 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $1,868 $ 2,106 $ 33
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................................... 273 319 205
Provision for loss on accounts receivable................................... -- 113 37
Changes in operating assets and liabilities--
Accounts receivable........................................................ (952) (1,343) (182)
Due from TeleSpectrum Worldwide Inc........................................ (62) -- --
Prepaid expenses and other................................................. (91) (106) (46)
Accounts payable........................................................... 184 16 93
Accrued expenses........................................................... 114 278 75
------ ------- -----
Net cash provided by operating activities............................... 1,334 1,383 215
------ ------- -----
INVESTING ACTIVITIES:
Purchase of short-term investments............................................ -- (205) (35)
Proceeds from short-term investments.......................................... 45 9 62
Purchases of property and equipment........................................... (126) (398) (69)
------ ------- -----
Net cash used in investing activities................................... (81) (594) (42)
------ ------- -----
FINANCING ACTIVITIES:
Bank overdraft................................................................ -- (82) 82
Repayment of capital lease obligations........................................ (260) (259) (264)
Proceeds from demand note..................................................... -- 500 --
Repayment of demand note...................................................... (500) -- --
Distributions to shareholders................................................. (120) (248) --
------ ------- -----
Net cash used in financing activities................................... (880) (89) (182)
------ ------- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................................................... 373 700 (9)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................. 700 -- 9
------ ------- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................ $1,073 $ 700 $ --
====== ======= =====
</TABLE>

The accompanying notes are an integral part of these statements.

F-41
<PAGE>

NBG SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Industry Information

RG Associates, Inc., d/b/a NBG Services, Inc., was incorporated in June
1991. In April 1996, RG Associates, Inc., d/b/a NBG Services, Inc., amended its
Articles of Incorporation to change the name of the corporation to NBG Services,
Inc. (the "Company"). The Company provides outbound telemarketing data
processing and fulfillment services in the financial services,
telecommunications and high technology industries.

On August 12, 1996, the Company sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. NBG is a predecessor company to
TeleSpectrum Worldwide Inc.

The Company operates on a fifty-two, fifty-three week fiscal year ending on
the last Friday of the calendar year.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition and Concentration of Credit Risk

The Company recognizes revenues as services are performed for its clients.
Cash received in advance of services performed is deferred and recorded as
deferred revenue in the accompanying balance sheet. For the fiscal years ended
December 30, 1994 and December 29, 1995, and for the period from December 30,
1995 to August 12, 1996, the Company had two clients for each period, that
accounted for more than 10% of the Company's revenues. For the fiscal year ended
December 30, 1994, the two clients accounted for 13% and 77% of the Company's
revenues, respectively. For the fiscal year ended December 29, 1995, the two
clients accounted for 40% and 53% of the Company's revenues, respectively. For
the period from December 30, 1995 to August 12, 1996, the two clients accounted
for 30% and 64% of the Company's revenue, respectively. The loss of either of
these significant clients would have a material adverse effect on the Company's
business.

The concentration of credit risk is limited to trade accounts receivables
and is subject to the financial conditions of the Company's clients. The Company
does not require collateral or other securities to support customer receivables.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
29, 1995, cash equivalents consist of money market accounts.

Short-Term Investments

Investments are held at market value, and at December 29, 1995, were
classified as short-term. Short-term investments, at December 29, 1995 consisted
of $196,000 in common stocks and $14,000 of mutual funds.

F-42
<PAGE>

NBG SERVICES, INC
NOTES TO FINANCIAL STATEMENTS----(CONTINUED)

Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
determines the appropriate classification of debt and equity securities at the
time of purchase and reevaluates such decision at each balance sheet date. At
December 29, 1995, all short-term investments were classified as available-for-
sale. Available-for-sale securities are carried at fair value, based on quoted
market prices with unrealized gains or losses, net of tax, reported as a
separate component of shareholders' equity. At December 29, 1995, there were no
significant unrealized holding gains or losses. Realized gains and losses,
computed using specific identification, and declines in value determined to be
permanent are recognized in the statement of income.

Property and Equipment

Expenditures for maintenance, repairs and betterments that do not prolong
the useful life of an asset have been charged to operations as incurred.
Additions and betterments that substantially extend the useful life of the asset
are capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the respective
accounts, and the resulting gain or loss, if any, is included in income.

Statement of Cash Flows

For the fiscal years ended December 30, 1994 and December 29, 1995, and for
the period from December 30, 1995 to August 12, 1996, the Company paid interest
of $60,000, $55,000 and $70,000, respectively.

For the fiscal years ended December 30, 1994 and December 29, 1995, and for
the period from December 30, 1995 to August 12, 1996, the Company financed
equipment purchases with capital leases of $302,000, $440,000 and $854,000,
respectively.

Income Taxes

The Company had elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company was not subject to federal income taxes,
and the taxable income of the Company was included in the shareholders' tax
returns. Therefore, no provision for federal taxes had been made for the fiscal
years ended December 30, 1994 and December 29, 1995, and for the period from
December 30, 1995 to August 12, 1996. A provision of $79,000 for the period from
December 30, 1995 to August 12, 1996 for state income taxes had been made in
accordance with a Massachusetts state tax for 4.5% of cash basis net income
which is levied on S Corporations with greater than $9 million of revenue.

The Company was on the cash basis of accounting for income tax reporting
purposes and on the accrual basis for financial reporting purposes. Therefore,
the Company reports certain income and expense items for income tax purposes on
a basis different from that reflected in the accompanying financial statements.
At December 29, 1995, the Company's financial reporting basis of the net assets
exceeded the tax basis of the net assets by approximately $1.5 million.

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term nature
of those instruments. The carrying amount of the demand note and capital lease
obligations approximates fair value at December 29, 1995.

F-43
<PAGE>

NBG SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Pro Forma Data (Unaudited)

Given the sale of the business, for informational purposes, the
accompanying statements of income include an unaudited pro forma adjustment for
income taxes that would have been recorded if the Company had not been an S
Corporation, based on the tax laws in effect during the respective periods. The
differences between the federal statutory income tax rate and the pro forma
income tax rate primarily relates to state and local income taxes and expenses
not deductible for tax purposes.

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
USEFUL DECEMBER 29,
LIVES 1995
----- ----
(IN THOUSANDS)
<S> <C> <C>
Telemarketing equipment................................................................. 5 $1,845
Furniture and office equipment.......................................................... 7 195
Leasehold improvements.................................................................. 7 50
------
2,090
Less--Accumulated depreciation and amortization......................................... (754)
------
$1,336
======
</TABLE>

Depreciation and amortization expense for the fiscal years ended December
30, 1994 and December 29, 1995, and for the period from December 30, 1995 to
August 12, 1996, was $205,000, $319,000 and $273,000, respectively.

3. ACCRUED EXPENSES:

<TABLE>
<CAPTION>
DECEMBER 29,
1995
----
(IN THOUSANDS)
<S> <C>
Accrued Compensation................................................................................. $ 174
Accrued profit sharing............................................................................... 139
Accrued telephone.................................................................................... 77
Accrued other........................................................................................ 147
-----
$ 537
=====
</TABLE>

4. DEBT:

<TABLE>
<CAPTION>
DECEMBER 29,
1995
----
(IN THOUSANDS)
<S> <C>
Demand note.......................................................................................... $ 500
Capitalized lease obligations (Note 5)............................................................... 731
------
1,231
Less--Current portion................................................................................ (777)
------
$ 454
======
</TABLE>

F-44
<PAGE>

NBG SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

On December 29, 1995, the Company borrowed $500,000 from a bank under a
demand note that bears interest at prime rate (8.5% at December 29, 1995). The
note was repaid on March 29, 1996. Interest expense on this note was $15,000 for
the period from December 30, 1995 to August 12, 1996.

The Company has a line of credit with a bank that provides for maximum
borrowings of $500,000. The line is collateralized by all of the assets of the
Company and is personally guaranteed by the shareholders. The line of credit
expires on May 31, 1997. At December 29, 1995, there was no outstanding balance
on this line of credit.

5. COMMITMENTS AND CONTINGENCIES:

The Company leases facilities and equipment under capital and noncancelable
operating leases through December 2002. Interest rates on the capital leases
range from 4% to 18%. Rent expense under operating leases for the fiscal years
ended December 30, 1994 and December 29, 1995, and the period from December 30,
1995 to August 12, 1996, was $213,000, $331,000 and $343,000, respectively.

Future minimum lease payments under the Company's leases as of December 29,
1995, are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------ ------
(IN THOUSANDS)
<S> <C> <C>
1996................................................................................ $ 747 $ 328
1997................................................................................ 512 277
1998................................................................................ 514 154
1999................................................................................ 524 57
2000................................................................................ 470 --
Thereafter.......................................................................... 462 --
------ -----
Total minimum lease payments........................................................ $3,229 816
======
Less--Amount representing interest.................................................. (85)
-----
Present value of future minimum lease payments...................................... 731
Less--Current portion of principal payments......................................... (277)
-----
$ 454
=====
</TABLE>

The Company subleases two of its facilities under noncancelable operating
leases through December 31, 1996. Total minimum lease payments have not been
reduced by the minimum sublease rentals of $90,000 due to the Company under
these two noncancelable subleases.

6. EMPLOYEE BENEFIT PLANS:

The Company sponsors a noncontributory profit sharing plan for employees.
The Company's contributions to the plan are at the discretion of the Board of
Directors. For the fiscal years ended December 30, 1994 and December 29, 1995,
the Company's discretionary contributions to the plan were $110,000 and
$139,000, respectively. There were no contributions to the plan for the period
from December 30, 1995 to August 12, 1996.

On January 1, 1996, the Company adopted a defined contribution 401(k)
savings plan. The plan provides for a matching contribution by the Company based
on employee contributions. Additional Company contributions may be made at the
discretion of management. For the period from December 30, 1995 to August 12,
1996, the Company contributed $10,000 to the plan.

F-45
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Reich Group Companies:

We have audited the accompanying combined balance sheet of The Reich Group
Companies identified in Note 1 as of December 31, 1995, and the related combined
statements of income, shareholder's equity (deficit) and cash flows for each of
the two years in the period ended December 31, 1995, and for the period from
January 1, 1996 to August 12, 1996. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of The Reich Group
Companies as of December 31, 1995, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1995, and
for the period from January 1, 1996 to August 12, 1996, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Philadelphia, Pa.,
September 30, 1996

F-46
<PAGE>

THE REICH GROUP COMPANIES

COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash......................................................................................... $ 220
Accounts receivable, net of reserve of $73................................................... 2,544
Due from shareholder......................................................................... 132
Prepaid expenses and other................................................................... 79
------
Total current assets...................................................................... 2,975
PROPERTY AND EQUIPMENT, net.................................................................... 1,328
OTHER ASSETS................................................................................... 15
------
Total assets.............................................................................. $4,318
======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................................ $ 155
Current portion of deferred rent............................................................. 68
Accounts payable............................................................................. 930
Accrued salaries and wages................................................................... 363
Notes payable to shareholder................................................................. 570
Other current liabilities.................................................................... 68
------
Total current liabilities................................................................. 2,154
------
LONG-TERM DEBT................................................................................. 371
------
DEFERRED RENT.................................................................................. 125
------
COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDER'S EQUITY:
Common stock (see Note 8).................................................................... 2
Additional paid-in capital................................................................... 450
Retained earnings............................................................................ 1,455
Treasury stock, at cost (TRG/Communications, Inc., 150 shares)............................... (239)
------
Total shareholder's equity................................................................ 1,668
------
Total liabilities and shareholder's equity................................................ $4,318
======
</TABLE>

The accompanying notes are an integral part of this statement.

F-47
<PAGE>

THE REICH GROUP COMPANIES

COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, FOR THE
1996 TO YEAR ENDED
AUGUST 12, DECEMBER 31
--------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES........................................................... $14,558 $12,253 $5,424
------- ------- ------
OPERATING EXPENSES:
Cost of services................................................. 8,550 7,836 4,225
Selling, general and administrative expenses..................... 1,466 2,534 976
------- ------- ------
Total operating expenses...................................... 10,016 10,370 5,201
------- ------- ------
Operating income.............................................. 4,542 1,883 223
INTEREST INCOME.................................................... 19 14 13
INTEREST EXPENSE................................................... (50) (57) (37)
------- ------- ------
NET INCOME......................................................... $ 4,511 $ 1,840 $ 199
======= ======= ======
PRO FORMA DATA (UNAUDITED):
Historical net income............................................ $ 4,511 $ 1,840 $ 199
Pro forma provision for income taxes............................. 1,840 746 97
------- ------- ------
Pro forma net income............................................. $ 2,671 $ 1,094 $ 102
======= ======= ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-48
<PAGE>

THE REICH GROUP COMPANIES

COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THE REICH DIALDIRECT TELE- TRG/COMMUNI-
GROUP, INC. DIALDIRECT, INC. MARKETING, LTD. CATIONS, INC.
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
-------------- ---------------- ---------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......................... 100 $ -- 100 $ -- 100 $ -- 150 $2
Net income....................................... -- -- -- -- -- -- -- --
--- ------ --- ------- --- ------- --- --
BALANCE, DECEMBER 31, 1994........................ 100 -- 100 -- 100 -- 150 2
Capital contribution to DialDirect
Telemarketing, Ltd. by shareholder.............. -- -- -- -- -- -- -- --
Net income....................................... -- -- -- -- -- -- -- --
--- ------ --- ------- --- ------- --- --
BALANCE, DECEMBER 31, 1995........................ 100 -- 100 -- 100 -- 150 2
Net income....................................... -- -- -- -- -- -- -- --
Distribution to shareholder...................... -- -- -- -- -- -- -- --
--- ------ --- ------- --- ------- --- --
BALANCE, AUGUST 12, 1996.......................... 100 $ -- 100 $ -- 100 $ -- 150 $2
=== ====== === ======= === ======= === ==

<CAPTION>
INSUREDIRECT TOTAL
AGENCY INC. ADDITIONAL RETAINED SHAREHOLDER'S
COMMON STOCK PAID-IN EARNINGS TREASURY EQUITY
--------------
SHARES AMOUNT CAPITAL (DEFICIT) STOCK (DEFICIT)
------ ------ ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......................... 100 $ -- $350 $ (584) $(239) $ (471)
Net income....................................... -- -- -- 199 -- 199
--- ------ ---- ------- ----- -------
BALANCE, DECEMBER 31, 1994........................ 100 -- 350 (385) (239) (272)
Capital contribution to DialDirect
Telemarketing, Ltd. by shareholder.............. -- -- 100 -- -- 100
Net income....................................... -- -- -- 1,840 -- 1,840
--- ------ ---- ------- ----- -------
BALANCE, DECEMBER 31, 1995........................ 100 -- 450 1,455 (239) 1,668
Net income....................................... -- -- -- 4,511 -- 4,511
Distribution to shareholder...................... -- -- -- (1,770) -- (1,770)
--- ------ ---- ------- ----- -------
BALANCE, AUGUST 12, 1996.......................... 100 $ -- $450 $ 4,196 $(239) $ 4,409
=== ====== ==== ======= ===== =======
</TABLE>

F-49
<PAGE>

THE REICH GROUP COMPANIES

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, FOR THE
1996 TO YEAR ENDED
AUGUST 12, DECEMBER 31,
--------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................... $ 4,511 $ 1,840 $ 199
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................................. 279 220 143
Amortization of deferred rent............................................. (40) (68) (68)
Loss on disposal of property.............................................. -- 7 1
Changes in operating assets and liabilities--
Accounts receivable.................................................... (2,025) (1,853) (193)
Due from shareholder................................................... (5) (83) (40)
Prepaid expenses and other assets...................................... (81) (2) (33)
Accounts payable....................................................... (264) 560 88
Accrued salaries and wages............................................. 196 235 37
Other current liabilities.............................................. (36) (111) 85
------- ------- -----
Net cash provided by operating activities........................... 2,535 745 219
------- ------- -----
INVESTING ACTIVITIES:
Purchase of property and equipment, net of capital lease
obligations of $95 in 1995 and $250 in 1996................................ (935) (1,212) (138)
------- ------- -----
Net cash used in investing activities............................... (935) (1,212) (138)
------- ------- -----
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit................................ 700 (70) 10
Repayment of long-term debt.................................................. (133) (109) (88)
Proceeds from long-term debt................................................. -- 165 --
Capital contribution to DialDirect TeleMarketing, Ltd. from
shareholder................................................................ -- 100 --
Proceeds from (repayment of) notes payable to shareholder.................... (500) 570 --
Distribution to shareholder.................................................. (1,770) -- --
------- ------- -----
Net cash provided by (used in) financing
activities......................................................... (1,703) 656 (78)
------- ------- -----
NET INCREASE (DECREASE) IN CASH.............................................. (103) 189 3
CASH, BEGINNING OF PERIOD.................................................... 220 31 28
------- ------- -----
CASH, END OF PERIOD.......................................................... $ 117 $ 220 $ 31
======= ======= =====
</TABLE>

The accompanying notes are an integral part of these statements.

F-50
<PAGE>

THE REICH GROUP COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Industry Information

The Reich Group Companies (the "Company") offers telemarketing services to
clients in the financial services, insurance, telecommunications and publishing
industries. In 1995, the Company derived 93% of its revenue from telemarketing
activities.

On August 12, 1996, the Company sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. The Reich Group Companies are
predecessor companies to TeleSpectrum Worldwide Inc.

The 1994 and 1995 financial statements reflect the combined financial
position, results of operations and cash flows of The Reich Group, Inc.,
DialDirect, Inc., DialDirect Telemarketing, LTD., TRG/Communications, Inc. and
InsureDirect Agency, Inc. The accompanying financial statements are presented on
a combined basis, as all companies are owned by the same shareholder. The
financial statements reflect the elimination of all significant intercompany
accounts and transactions.

Use of Estimates

Revenue Recognition and Concentration of Credit Risk

The Company recognizes revenues on programs as services are performed for
customers, generally based upon hours incurred. For the years ended December 31,
1994 and 1995, and for the period from January 1, 1996 to August 12, 1996, the
Company had two, four and three clients, respectively, that each accounted for
more than 10% of the Company's revenues. For the year ended December 31, 1994,
the two clients accounted for 47% and 24% of the Company's revenues,
respectively. For the year ended December 31, 1995, the four clients accounted
for 46%, 12%, 15% and 15% of the Company's revenues, respectively. For the
period from January 1, 1996 to August 12, 1996, the three clients accounted for
45%, 11% and 34% of the Company's revenues, respectively. The loss of one or
more of these major clients could have a materially adverse effect on the
Company's business.

The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial conditions of the Company's customers. The Company
does not require collateral or other securities to support customer receivables.

Cash

The Company maintains cash accounts that, at times, may exceed federally
insured limits. The Company has not experienced losses from maintaining cash
accounts in excess of federally insured limits. The Company believes that it is
not exposed to significant credit risk in relation to these cash accounts.

F-51
<PAGE>

THE REICH GROUP COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

Expenditures for maintenance, repairs and improvements that do not prolong the
useful life of an asset have been charged to expense as incurred. Additions and
betterments that extend the useful life of the properties are capitalized. Upon
sale or other disposition of assets, the cost and related accumulated
depreciation and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in income.

Profit Sharing Plan

The Company has a noncontributory profit sharing plan covering all eligible
employees. Contributions to the plan are at the sole discretion of the
management. Contributions of $62,000 were made for the year ended December 31,
1994. No contribution was made for the year ended December 31, 1995, or for the
period from January 1, 1996 to August 12, 1996.

Statement of Cash Flows

For the years ended December 31, 1994 and 1995, and for the period from
January 1, 1996 to August 12, 1996, the Company paid interest of $37,000,
$57,000 and $50,000, respectively.

Income Taxes

The Company had elected to be taxed under Subchapter S of the Internal Revenue
Code. As a result, the Company was not subject to federal or state income taxes,
and the taxable income of the Company was included in the shareholder's tax
returns. Therefore, no provision for federal and state income taxes has been
made for the years ended December 31, 1994 and 1995, and for the period from
January 1, 1996 to August 12, 1996.

The Company was on the cash basis of accounting for income tax reporting
purposes and on the accrual basis for financial reporting purposes. Therefore,
the Company reported certain income and expense items for income tax purposes on
a basis different from that reflected in the accompanying financial statements.
At December 31, 1995, the Company's financial reporting basis of the net assets
exceeds the tax basis of the net assets by approximately $934,000.

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term nature
of those instruments. The carrying amount of long-term debt obligations
approximates fair value at the balance sheet dates.

Pro Forma Data (Unaudited)

Given the sale of the business, for informational purposes, the accompanying
statements of income include an unaudited pro forma adjustment for income taxes
that would have been recorded if the Company had not been an S Corporation,
based on the tax laws in effect during the respective periods. The difference
between the federal statutory income tax rate and the pro forma income tax rate
primarily relates to state and local income taxes and expenses not deductible
for tax purposes.

F-52
<PAGE>

THE REICH GROUP COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
USEFUL DECEMBER 31,
LIVES 1995
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Telemarketing equipment................................................................ 5 $ 1,766
Furniture and office equipment......................................................... 5-7 768
Leasehold improvements................................................................. 7 76
-------
2,610
Less--Accumulated depreciation and amortization........................................ (1,282)
-------
$ 1,328
=======
</TABLE>

Depreciation expense for the years ended December 31, 1994 and 1995, and for
the period from January 1, 1996 to August 12, 1996, was $143,000, $220,000 and
$279,000, respectively.

3. OTHER CURRENT LIABILITIES:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
(IN THOUSANDS)
<S> <C>
Advance billings.................................................................................. $ 60
Other accrued liabilities......................................................................... 8
-----
$ 68
=====
</TABLE>

4. LINE OF CREDIT:

The Company has a revolving line of credit with a bank that provides for
maximum borrowings of $700,000. Borrowings under the line are limited to 60% of
eligible accounts receivable, as defined. The line is collateralized by the
Company's accounts receivable and general intangibles, a second mortgage on the
personal residences of the Company's shareholder and his wife and other personal
assets of the Company's shareholder and his wife. The line is also personally
guaranteed by the Company's shareholder and his wife. At December 31, 1995,
there was no outstanding balance on this line of credit. Interest on the
outstanding balance is payable monthly and accrues on borrowings under the
revolving line of credit at the bank's base rate (10.5% at December 31, 1995).

The agreement shall continue until all indebtedness to the bank has been
repaid in full and the parties terminate the agreement.

F-53
<PAGE>

THE REICH GROUP COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995
---------------
(IN THOUSANDS)
<S> <C>
Note payable to bank, interest payable monthly at the bank's rate plus 1/2% (11% on
December 31, 1995); principal due in monthly installments of $4,000 through August
1998; collateralized by accounts receivable, equipment and other assets of the Com-
pany and a second mortgage on the personal residences of the Company's shareholder
and his wife; payment also guaranteed by the Company's shareholder and his wife................ $ 105
Note payable to regional industrial development authority, interest accrues at 5%; princi-
pal and interest due in monthly installments of $3,000 through August 2000; collateral-
ized by specified furniture and equipment of the Company....................................... 155
Payable to landlord, no stated interest (discounted at 8.9%), unsecured, due in varying
monthly installments from $3,000 to $4,000 through October 31, 1998............................ 96
Capitalized lease obligations (Note 6)............................................................. 170
-----
526
Less--Current portion.............................................................................. (155)
-----
$ 371
=====
Minimum principal repayments of long-term debt as of December 31, 1995, excluding capitalized lease
obligations (see Note 6), are as follows (in thousands):

1996......................................................................................... $ 95
1997......................................................................................... 111
1998......................................................................................... 91
1999......................................................................................... 35
2000......................................................................................... 24
----
$356
====
</TABLE>

In December 1995, the City of Wheeling, West Virginia, issued a commitment to
provide $235,000 of financing at 5% interest for a term of five years.
Additionally, the West Virginia Economic Development Authority issued a
commitment to provide $500,000 of financing at prime less 4% (minimum rate of
5%) interest for a term of five years. Each loan is to be collateralized by the
furniture and equipment in the Company's West Virginia facility.

In 1995, the Company received a grant of $187,000 from the West Virginia
Economic Development Authority as a reimbursement for certain costs in
connection with the establishment of a calling center in West Virginia. The
grant has been recorded as an offset to cost of services in the combined
statement of income.

6. COMMITMENTS AND CONTINGENCIES:

The Company leases facilities and equipment under capital and noncancelable
operating leases with terms through 2000. Interest rates on the capital leases
range from 11.0% to 15.5%. At December 31, 1995, the capital leases are
collateralized by telemarketing equipment with a book value of $137,000 (net of
accumulated amortization of $313,000). Rent expense under operating leases for
the years ended December 31, 1994 and 1995, and for the period from January 1,
1996 to August 12, 1996, was $140,000, $195,000, and $183,000, respectively.

F-54
<PAGE>

THE REICH GROUP COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Future minimum lease payments under the Company's leases as of December 31,
1995, are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- -----------
<S> <C> <C>
1996........................................................................... $238 $ 78
1997........................................................................... 220 78
1998........................................................................... 188 44
1999........................................................................... 11 1
2000........................................................................... 1 --
---- ----
Total minimum lease payments................................................... $658 201
====
Less--Amount representing interest............................................. (31)
----
Present value of future minimum lease payments................................. 170
Less--Current portion of principal payments.................................... (60)
----
$110
====
</TABLE>

In February 1996, the Company entered into an additional capital lease for the
acquisition of furniture and equipment for the Company's Delaware facility. The
total amount of the future lease commitment was $250,000 with monthly payments
of $8,000 for 36 months.

In November and December 1995, the Company entered into two leases for new
office space in connection with the expansion of its telemarketing facilities in
Delaware and West Virginia. The lease for the Delaware facility commenced on
January 1, 1996, with a minimum monthly rental payment of $6,000 for a term of
three years. The lease for the West Virginia facility commenced on April 1,
1996, with a minimum monthly rental payment of $10,000 beginning June 15, 1996,
for a term of five years.

The Company is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.

7. NOTES PAYABLE TO SHAREHOLDER:

In December 1995, the Company received the proceeds from two demand notes
payable to its shareholder for $500,000 (repaid subsequent to December 31, 1995)
and $70,000, respectively. The remaining note of $70,000 accrues interest at 8%.

8. COMMON STOCK:

The description of the Company's common stock is as follows:

<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE
------------
<S> <C>
The Reich Group, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and outstanding................................... $ 100
DialDirect, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and outstanding................................... 100
DialDirect Telemarketing, Ltd.
$1 par value, 1,000 shares authorized, 100 shares issued and outstanding................................... 100
TRG/Communications, Inc.
$2,000 stated value, 150 shares outstanding................................................................ 2,000
InsureDirect Agency, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and outstanding................................... 100
------
$2,400
======
</TABLE>

F-55
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc.:

We have audited the accompanying combined balance sheet of TeleSpectrum, Inc.
and TeleSpectrum Training Services, Inc. (Maryland corporations) as of December
31, 1995, and the related combined statements of income, stockholders' equity
and cash flows for the year ended December 31, 1995, and for the period from
January 1, 1996 to August 12, 1996. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of TeleSpectrum, Inc. and
TeleSpectrum Training Services, Inc. as of December 31, 1995, and the results of
their operations and their cash flows for the year ended December 31, 1995, and
for the period from January 1, 1996 to August 12, 1996, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Philadelphia, Pa.,
October 3, 1996

F-56
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash.............................................................................................................. $ 15
Accounts receivable, net of reserve of $22........................................................................ 2,690
Due from shareholder/officer...................................................................................... 4
Prepaid expenses and other........................................................................................ 95
------
Total current assets.......................................................................................... 2,804
PROPERTY AND EQUIPMENT, net........................................................................................ 657
OTHER ASSETS....................................................................................................... 88
------
Total assets.................................................................................................. $3,549
======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................................................................................... $1,350
Current portion of long-term debt................................................................................. 198
Accounts payable.................................................................................................. 498
Accrued compensation.............................................................................................. 161
Deferred revenue.................................................................................................. 197
Other accrued expenses............................................................................................ 363
------
Total current liabilities..................................................................................... 2,767
======
LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES.................................................................... 81
------
DEFERRED TAXES..................................................................................................... 14
------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, TeleSpectrum, Inc. $.01 par value, 5,000 shares authorized, 3,000 shares issued and
outstanding..................................................................................................... --
Common stock, TeleSpectrum Training Services, Inc. no par value, 5,000 shares authorized, 200
shares issued and outstanding................................................................................... 6
Additional paid-in capital........................................................................................ 217
Retained earnings................................................................................................. 464
------
Total stockholders' equity.................................................................................... 687
------
Total liabilities and stockholders' equity.................................................................... $3,549
======
</TABLE>

The accompanying notes are an integral part of this statement

F-57

<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, FOR THE
1996 TO YEAR ENDED
AUGUST 12, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
REVENUES................................................................................ $10,529 $11,854
OPERATING EXPENSES:
Cost of services...................................................................... 6,974 8,338
Selling, general and administrative expenses.......................................... 2,929 3,072
------- -------
Total operating expenses........................................................... 9,903 11,410
------- -------
Operating income................................................................... 626 444
INTEREST EXPENSE........................................................................ (129) (184)
------- -------
Income before income taxes......................................................... 497 260
INCOME TAX BENEFIT...................................................................... -- 18
------- -------
NET INCOME.............................................................................. $ 497 $ 278
------- -------
PRO FORMA DATA (UNAUDITED):
Historical net income................................................................. $ 497 $ 278
Pro forma provision for income taxes.................................................. 196 112
------- -------
Pro forma net income.................................................................. $ 301 $ 166
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-58
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS--EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
TELESPECTRUM
TRAINING
TELESPECTRUM, SERVICES, ADDITIONAL TOTAL
INC. INC. PAID-IN RETAINED STOCKHOLDERS'
SHARES SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------- ------------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1995..................................... 3,000 200 $6 $217 $186 $ 409
Net income.......................................... -- -- -- -- 278 278
----- --- -- ---- ---- ------
BALANCE,
DECEMBER 31, 1995................................... 3,000 200 6 217 464 687
Capital contribution................................ -- -- -- 500 -- 500
Net income.......................................... -- -- -- -- 497 497
----- --- -- ---- ---- ------
BALANCE,
AUGUST 12, 1996..................................... 3,000 200 $6 $717 $961 $1,684
===== === == ==== ==== ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-59
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR
THE PERIOD
FROM
JANUARY 1, FOR THE
1996 TO YEAR ENDED
AUGUST 12, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................................... $ 497 $ 278
Adjustments to reconcile net income to net cash provided by (used in)
operating activities--
Depreciation and amortization.......................................................... 127 343
Changes in operating assets and liabilities--
Accounts receivable................................................................... (1,193) (679)
Due from stockholder/officer.......................................................... -- 1
Prepaid expenses and other............................................................ (257) (2)
Other, net............................................................................ -- (114)
Deferred revenue...................................................................... -- (205)
Accounts payable and accrued liabilities.............................................. 1,795 374
------- -----
Net cash provided by (used in) operating activities................................. 969 (4)
------- -----
INVESTING ACTIVITIES:
Purchases of property and equipment...................................................... (2,044) (99)
------- -----
Net cash used in investing activities............................................... (2,044) (99)
------- -----
FINANCING ACTIVITIES:
Net borrowings on line of credit......................................................... 3,060 807
Proceeds from notes payable.............................................................. 500 --
Principal payments on long-term debt and capital leases.................................. (1,844) (852)
------- -----
Net cash provided by (used in) financing activities................................. $ 1,716 (45)
------- -----
NET (DECREASE) INCREASE IN CASH............................................................ 641 (148)
CASH, BEGINNING OF PERIOD.................................................................. 15 163
------- -----
CASH, END OF PERIOD........................................................................ $ 656 $ 15
------- -----
CASH PAID FOR:
Interest................................................................................. $ 120 $ 182
------- -----
Taxes.................................................................................... $ -- $ 36
======= =====
</TABLE>

The accompanying notes are an integral part of these statements.

F-60
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Industry Information

TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. (together, the
"Company") specialize in providing both outbound and inbound telemarketing
services and fulfillment to the high technology, pharmaceutical and health care
and consumer products industries.

On August 12, 1996, the Company sold substantially all of its assets and
liabilities to TeleSpectrum Worldwide Inc. TeleSpectrum, Inc. and TeleSpectrum
Training Services, Inc. are predecessor companies to TeleSpectrum Worldwide Inc.

Upon signing the asset purchase agreement, TeleSpectrum Worldwide Inc.
advanced the Company $500,000 in the form of a promissory note due in one year
with interest at 9%. Upon the closing of the transaction on August 12, 1996, a
portion of the purchase price was paid by cancellation of the promissory note.

The financial statements reflect the combined financial position and
results of operations of TeleSpectrum, Inc. and TeleSpectrum Training Services,
Inc. The accompanying financial statements are presented on a combined basis, as
TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. are owned by the
same stockholders who have identical ownership in each entity. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition and Concentration of Credit Risk

The Company recognizes revenues on programs as services are performed for
the clients, generally based upon hours incurred. In 1995, the Company had one
client that accounted for 12% of revenues and 15% of accounts receivable. For
the period from January 1, 1996 to August 12, 1996, the Company had one client,
which accounted for 25% of revenues.

The concentration of credit risk is limited to trade accounts receivables
and is subject to the financial conditions of the Company's customers. The
Company does not require collateral or other securities to support customer
receivables.

Property and Equipment

Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payment due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of three to ten years.

Expenditures for maintenance, repairs and betterments that do not prolong
the normal useful life of an asset have been charged to operations as incurred.
Additions and betterments that substantially extend the useful life of the
properties are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation and amortization are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income.

F-61
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

INCOME TAXES

TeleSpectrum, Inc. had elected to be taxed as an S Corporation under the
provision of the federal and state statutes. In lieu of federal and state
corporate income taxes, the stockholders were taxed on their proportionate share
of the Company's taxable income. Accordingly, no provision for federal or state
income taxes was recorded for the year ended December 31, 1995, or for the
period from January 1, 1996 to August 12, 1996.

The Company reported certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying financial
statements. The principal differences relate to the timing of the recognition of
accrued expenses that are not deductible for federal income tax purposes until
paid and the use of accelerated methods of depreciation for income tax purposes.
At December 31, 1995, the financial reporting basis of the Company's net assets
exceeds the tax basis of the net assets by approximately $140,000.

TeleSpectrum Training Services, Inc. was a C Corporation and followed the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This standard requires an asset and liability approach to the
recognition of deferred tax assets and liabilities related to the expected
future consequences of events that have been recognized in the financial
statements or tax returns.

TeleSpectrum Training Services, Inc. had recorded $14,000 of long-term
deferred tax liabilities as of December 31, 1995. This amount related
principally to differences between the accelerated depreciation methods used for
income tax purposes and those used for financial reporting purposes.

At December 31, 1995, the benefit for income taxes for TeleSpectrum Training
Services, Inc. is comprised of the following (in thousands):

<TABLE>
<S> <C>
Current.......................................................... $ 2
Deferred......................................................... (20)
----
Total benefit............................................ $(18)
====
</TABLE>

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term nature
of those instruments. The carrying amounts of line of credit, long-term debt and
capital lease obligations approximate fair value at the balance sheet dates.

Pro Forma Data (Unaudited)

Given the sale of the business, for informational purposes, the
accompanying statements of income include an unaudited pro forma adjustment for
income taxes that would have been recorded if the Company had not been an S
Corporation, based on the tax laws in effect during the respective periods. The
differences between the federal statutory income tax rate and the pro forma
income tax rate primarily related to state and local income taxes and expenses
not deductible for tax purposes.

F-62
<PAGE>

TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
USEFUL DECEMBER 31,
LIVES 1995
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Telemarketing equipment............................................................................. 5-7 $ 825
Furniture and office equipment...................................................................... 3-5 1,221
Leasehold improvements.............................................................................. 3-10 91
-------
2,137
Less--Accumulated depreciation and amortization.................................................... (1,480)
-------
$ 657
=======
</TABLE>

Depreciation expense for the year ended December 31, 1995, and for the period
from January 1, 1996 to August 12, 1996, was $343,000 and $127,000,
respectively.

3. LINE OF CREDIT:

The Company entered into a new line of credit agreement in May 1996 (the. "new
line") and used proceeds from the new line to pay down the amount owed under the
existing line of credit (the "old line"). The amount available for borrowing
under the new line is $4 million, with interest at the bank's prime rate. plus
1.5% (under the old line, interest, calculated as the bank's prime rate plus
2.5%, was 11% at December 31, 1995). At December 31, 1995, the balance of the
old line was $1.35 million. Interest expense on borrowings under the old line
amounted to $127,000 during 1995, and interest expense under the old and new
lines amounted to $98,000 during the period from January 1, 1996 to August 12,
1996.

4. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
----------------
(IN THOUSANDS)
<S> <C>
Note payable to bank (see Note 3), interest at the bank's prime rate plus 2%, monthly principal
payments of $13,000 plus interest, maturing July 1996, collateralized by all assets of the
Company; 80% guaranteed by the United States Small Business Administration; personally
guaranteed by the Company's officers......................................................................... $ 91

Note payable to bank (see Note 3), interest at the bank's prime rate plus 2%, monthly principal
payments of $13,000 plus interest, maturing July 1996, collateralized by all assets of the
Company; 80% guaranteed by the United States Small Business Administration; personally
guaranteed by the Company's officers......................................................................... 38

Note payable, interest at 15%, monthly principal and interest payments of $2,000, maturing
October 1997, guaranteed by an officer of the Company........................................................ 126
-----
Capitalized lease obligations (Note 5)........................................................................ 255

Less--Current portion........................................................................................ (198)
-----
$ 57
=====
</TABLE>

F-63
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TeleSpectrum Worldwide Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of TeleSpectrum Worldwide Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon
dated February 5, 1999. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The accompanying
financial statement schedule is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
February 5, 1999

S-1
<PAGE>

TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD FROM APRIL 26,
1996 (INCEPTION) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
Balance at April Charged to Charged to Balance at
26, 1996 Cost and Other December 31,
Description (Inception) Expenses Accounts Deductions 1996
----------- ----------- --------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ -- $ 542 $ -- $ (23)/1/ $ 519
</TABLE>

<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
December 31, Cost and Other December 31,
Description 1996 Expenses Accounts Deductions 1997
----------- ---- -------- -------- ---------- ----
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 519 $ 881 $ -- $ (431)/1/ $ 969
Closed call center minimum lease
commitment reserve $ -- $1,939 $ 0 $1,939
Closed call center severance reserve $ -- $1,293 $ -- $(1,030)/2/ $ 263
</TABLE>

<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
December 31, Cost and Other December 31,
Description 1997 Expenses Accounts Deductions 1998
----------- ---- -------- --------- ---------- ----

<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 969 $2,325 $ -- $ (443)/1/ $2,851
Closed call center minimum lease $ --
commitment reserve $1,939 $ 360 $(1,490)/2/ $ 809
Closed call center severance reserve $ 263 $ 994 $ -- $(1,257)/2/ $ --
</TABLE>

/1/ Write-off of amounts previously reserved.
/2/ Cash payments related to minimum lease commitments and employee severance
for closed call centers

S-2

<PAGE>

AMENDMENT TO AGREEMENT AND PLAN OF MERGER
------------------------------------------

THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is made
---------
as of the 26th day of February 1999, by and among TeleSpectrum Worldwide Inc.,
a Delaware corporation ("TeleSpectrum"), International Data Response
------------
Corporation, a Delaware corporation ("IDRC"), and the following stockholders of
----
IDRC: McCown DeLeeuw & Co. III, L.P., McCown De Leeuw & Co. Offshore (Europe)
III, L.P., McCown De Leeuw & Co. III, (Asia) L.P. and The Gamma Fund LLC
(collectively, the "MDC Entities").
------------

BACKGROUND
----------

The parties hereto are parties to the Agreement and Plan of Merger dated as
of January 14, 1999 (the "Merger Agreement") and have agreed to enter into this
----------------
Amendment for the purpose of amending the Merger Agreement. This is a writing
as contemplated by Section 6.3 of the Merger Agreement. All terms used herein
that are not defined herein shall have the meanings ascribed to such terms in
the Merger Agreement.

TERMS
-----

In consideration of the mutual promises herein contained and intending to
be legally bound hereby, the parties hereto agree as follows:

1. Series A Preferred Stock. Clause (ii) of the first Whereas clause is
------------------------
hereby amended and restated in its entirety as follows:

(ii) each outstanding share of Series A Preferred Stock, par value $.001
per share, of IDRC (the "Series A Preferred Stock"), each outstanding share
------------------------
of Series A-1 Preferred Stock, par value $.001 per share, of IDRC (the
"Series A-1 Preferred Stock"), and accrued and unpaid dividends with
--------------------------
respect to Series A Preferred Stock will be redeemed or paid, as
applicable, in cash; unless otherwise explicitly set forth herein or unless
the context otherwise dictates, all references to the "Series A Preferred
Stock" contained herein shall also be deemed to refer to the Series A-1
Preferred Stock;

2. Conversion and Cancellation of Securities. Section 1.3(b) is hereby
-----------------------------------------
amended and restated in its entirety as follows:

(b) At the Effective Time, (i) each outstanding share of Series A
Preferred Stock and each outstanding share of Series A-1 Preferred Stock
shall be redeemed for $20 in cash, and (ii) all accrued and unpaid
dividends then payable in Series A-1 Preferred Stock, with respect to the
outstanding shares of Series A Preferred Stock, shall be entitled to
receive cash in an amount equal to that calculated

<PAGE>

pursuant to Article IV, Section E.1 of IDRC's Amended and Restated
Certificate of Incorporation as in effect as of the Effective Time (the
aggregate amount of cash to be paid to the holders of Series A Preferred
Stock and Series A-1 Preferred Stock is referred to herein as the "Cash
----
Consideration"). Notwithstanding the foregoing, the payment of the Cash
-------------
Consideration to the holders of Series A Preferred Stock and Series A-1
Preferred Stock (collectively, the "Preferred Stockholders") shall be made
----------------------
as follows:

(1) At the Effective Time, all of the Preferred Stockholders shall be
paid their pro rata portion of the total Cash Consideration to be paid
to such stockholders under subsection (b) above; and

(2) At the Effective Time, all of the total Cash Consideration to be
paid to the MDC Entities, other than the Cash Consideration paid for
redemption of Series A-1 Preferred Stock or on account of all accrued
and unpaid dividends, shall be retained by TeleSpectrum as the MDC
Entities' investment in those certain promissory notes of TeleSpectrum
substantially in the form attached as Exhibit A hereto (collectively,
the "Promissory Notes") as denominated in such amounts as set forth on
----------------
Exhibit B hereto.

3. Optionholders Lock-Up.
---------------------

(a) Section 1.5(b) of the Merger Agreement is hereby amended by adding the
following at the end of the first sentence of such section but before the
period:

"and (iii) agrees not to (A) sell, transfer, pledge, assign or otherwise
dispose of (collectively, "TRANSFER"), or (B) enter into any contract, option or
--------
other arrangement (including any profit-sharing arrangement) with respect to the
Transfer of the Assumed Options or any shares of TeleSpectrum Common Stock or
TLSP Warrants obtained upon exercise thereof to any person other than by way of
gift or for estate planning purposes where such transferee has executed an
appropriate agreement whereby such transferee agrees to be bound by all of the
terms and conditions hereof"

(b) Section 1.5(b) of the Merger Agreement is hereby amended by adding a
new second sentence as follows:

"Notwithstanding the foregoing, a holder of Options shall no longer be
bound by the restrictions contained in clause (iii) of the prior sentence if
their employment with TeleSpectrum is terminated without "cause," or such holder
terminates their employment for "good reason," to the extent and as such terms
are defined in any existing employment agreement between such holder and IDRC,
and in the absence of any such agreement, as "cause" is defined in the
TeleSpectrum Stock Plan. In addition, in the absence of any existing employment
agreement, the foregoing restrictions are removed if the holder is

<PAGE>

terminated by TeleSpectrum without cause or if the holder of Options terminates
his or her employment for good reason as determined by TeleSpectrum, after the
date of this Amendment."

4. Conduct of IDRC's Business. Clause (ii) of Section 4.1(b) is hereby amended
--------------------------
and restated in its entirety as follows:

(ii) incur any indebtedness for borrowed money or issue any debt securities
except in the ordinary course of business and consistent with past
practice, except that IDRC shall be permitted to incur up to $7,500,00 of
additional indebtedness for borrowed money from Banque Nationale de Paris
or the MDC Entities;

5. Bank Negotiations. The last sentence of Section 4.16 is hereby amended and
-----------------
restated in its entirety as follows:

Neither TeleSpectrum nor IDRC shall communicate or negotiate with any such
lender in the absence of the other party, unless such other party consents
in writing to such communication or negotiation; provided however, that
IDRC shall be permitted to communicate or negotiate with Banque Nationale
de Paris regarding any indebtedness contemplated by Section 4.1(b)(ii)
without the presence of TeleSpectrum but shall not make any commitments or
agreements without the prior written approval of TeleSpectrum.

6. Promissory Notes. The following is added as a new Section 5.2(f) to the
----------------
Merger Agreement:

5.2(f). MDC Promissory Notes. Each of the MDC Entities shall have received
--------------------
a Promissory Note as contemplated by Section 1.3(b)(3), duly executed by
TeleSpectrum in the amount determined pursuant to Section 1.3.

7. Change in Form of Warrant. The "Exercise Price" in the Form of Warrant
-------------------------
shall be changed from $9.665 to $8.988. The Exercise Price is equal to the
average closing price of the TeleSpectrum common stock for the ten trading days
immediately prior to the date of this Amendment.

8. Conditions to Closings. The following is added as new Section 5.3(i) to the
----------------------
Merger Agreement:

5.3(i). Call Center Closings. IDRC shall have closed its call centers
--------------------
located at Phoenix, Arizona (North Central call center), Bloomfield, Iowa
and Wichita, Kansas.

<PAGE>

9. Miscellaneous. Except as expressly modified hereby, the Merger Agreement
-------------
shall remain in full force and effect. This Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto, and shall be binding upon and inure to the benefit of the
parties hereto. This Amendment may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement. This Amendment may be executed by facsimile, which for all
purposes, shall be deemed an original signature.

4
<PAGE>

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

TELESPECTRUM WORLDWIDE INC.

By: /s/ Keith E. Alessi
--------------------------------------
Name: Keith E. Alessi
Title: Chairman, CEO & President

INTERNATIONAL DATA RESPONSE CORPORATION

By: /s/ Jeffrey E. Stiefler
--------------------------------------
Name: Jeffrey E. Stiefler
Title: Chairman and Chief Executive Officer

MCCOWN DE LEEUW & CO. III, L.P.*

By: /s/ Robert B. Hellman, Jr.
--------------------------------------
Name: Robert B. Hellman, Jr.
Its: General Partner

MCCOWN DE LEEUW & CO. OFFSHORE (EUROPE)
III, L.P.*

By: /s/ Robert B. Hellman, Jr.
--------------------------------------
Name: Robert B. Hellman, Jr.
Its: General Partner

MCCOWN DE LEEUW & CO. III, (ASIA) L.P.*

By: /s/ Robert B. Hellman, Jr.
--------------------------------------
Name: Robert B. Hellman, Jr.
Its: General Partner

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

5
<PAGE>

THE GAMMA FUND LLC*

By: /s/ Robert B. Hellman, Jr.
------------------------------------
Name: Robert B. Hellman, Jr.
Its: Managing Member

* Indicates an entity that is a party hereto solely with respect to Sections
4.20 and 7.8 of the Merger Agreement.

<PAGE>

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of September 3, 1998, is made by and among CRW FINANCIAL,
---------
INC., a Delaware corporation (the "Company"), TELESPECTRUM WORLDWIDE INC., a
-------
Delaware corporation ("Parent"), and CRW ACQUISITION CORP., a Delaware
------
corporation and wholly-owned subsidiary of Parent ("Merger Sub").
----------

W I T N E S S E T H
-------------------

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company and the sole stockholder of Merger Sub have each approved the business
combination described herein in which the Company will become a subsidiary of
Parent as a result of a merger of Merger Sub with and into the Company upon the
terms and subject to the conditions hereinafter set forth (the "Merger"),
------
pursuant to which each outstanding share of common stock, par value $.01 per
share ("Company Common Stock"), of the Company will be converted into the right
--------------------
to receive shares of common stock, par value $.01 per share ("Parent Common
-------------
Stock"), of Parent in the manner set forth herein;
- -----

WHEREAS, the Boards of Directors of Parent and the Company have each
determined that the Merger is in the best interest of their respective
stockholders and have each approved this Agreement and the Merger upon the terms
and conditions set forth herein;

WHEREAS, the Board of Directors of Merger Sub has approved and adopted this
Agreement, and Parent, as the sole stockholder of Merger Sub, will adopt this
Agreement promptly after the execution hereof; and

WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code");
----

NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:

ARTICLE I
THE MERGER

SECTION 1.1. THE MERGER. Subject to the terms and conditions hereof and
in accordance with the General Corporation Law of the State of Delaware, as
amended (the "DGCL"), at the Effective Time (hereinafter defined): (a) Merger
----
Sub shall be merged with and into the Company and the separate existence of
Merger Sub shall cease; (b) the Company, as the surviving corporation in the
Merger (the "Surviving Corporation"), (i) shall be a wholly-owned subsidiary of
---------------------
Parent, (ii shall continue its corporate existence under the laws of the State
of Delaware, (ii shall retain its present name and (iv shall succeed to all
rights, assets, liabilities and obligations of Merger Sub and the Company in
accordance with the DGCL; (c) the Certificate of Incorporation of the Company,
as in effect immediately prior to the Effective Time, shall continue as the
Certificate of Incorporation of the Surviving Corporation; (d) the By-laws of
the Merger Sub, as in effect immediately prior to the Effective Time,

-1-
<PAGE>

shall continue as the By-laws of the Surviving Corporation; (e) the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation; and (f) the officers of the Merger Sub immediately prior
to the Effective Time shall continue as the officers of the Surviving
Corporation. From and after the Effective Time, the Merger will have all the
effects provided by the DGCL.

SECTION 1.2. STOCKHOLDER MEETING, CLOSING, EFFECTIVE TIME OF THE MERGER.
The Company shall submit this Agreement to the holders of Company Common Stock
for approval and adoption at the Stockholders Meeting (hereinafter defined) to
be held as soon as practicable following the date of this Agreement in
accordance with Section 4.4 hereof. Subject to this Agreement receiving such
stockholder approval, and subject to the other provisions of this Agreement, the
parties shall hold a closing (the "Closing") on the next business day (or such
-------
later date as the parties hereto may agree) following the day on which the last
of the conditions set forth in Article V hereof is fulfilled or waived (such
later date, the "Closing Date"), at 9:00 A.M. at the offices of Morgan, Lewis &
------------
Bockius LLP, One Logan Square, Philadelphia, Pennsylvania, or at such other time
or place as the parties agree upon. On the next business day after the Closing
Date, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
---------------------
of the State of Delaware in such form as required by, and executed in accordance
with the relevant provisions of, the DGCL (the date and time of such filing, or
such later date or time agreed upon by Parent and the Company and set forth
therein, the "Effective Time.")
--------------

SECTION 1.3. CONVERSION AND CANCELLATION OF SECURITIES.

(a) At the Effective Time, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than any
Appraisal Shares (as defined in Section 1.3(d) hereof) and shares of Company
Common Stock described in Section 1.3(b) hereof) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into the
right to receive .709 (the "Exchange Ratio") of a share of Parent Common Stock
--------------
(the "Merger Consideration"); provided that no fractional shares of Parent
--------------------
Common Stock shall be issued and, in lieu thereof, a cash payment shall be made
pursuant to Section 1.4(i) hereof. For purposes hereof, Fully-Diluted Common
Stock means the number of outstanding shares of Company Common Stock as of the
Effective Time (other than those shares of Company Common Stock beneficially
owned by the Parent or any of its Subsidiaries (as defined in Section 2.2
hereof)), plus the number of shares of Common Stock obtainable upon the exercise
of all outstanding options and warrants exercisable for Company Common Stock.

(b) At the Effective Time, each share of Company Common Stock (i)
beneficially owned by the Parent (or one of its Subsidiaries) immediately prior
to the Effective Time, or (ii) held in the treasury of the Company immediately
prior to the Effective Time, shall by virtue of the Merger and without any
action on the part of the holder thereof, be automatically canceled and retired
and cease to exist, and no cash, securities or other property shall be payable
in respect thereof.

(c) At the Effective Time, each share of Merger Sub common stock,
without par value ("Merger Sub Common Stock"), issued and outstanding
-----------------------
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action by the holder thereof, be converted into one validly issued,
fully paid and nonassessable common share, par value $.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock").
----------------------------------

-2-
<PAGE>

(d) Notwithstanding anything in this Agreement to the contrary,
shares of Company Common Stock held by a holder who, pursuant to Section 262 of
the DGCL or any successor provision, has the right to demand and properly
demands an appraisal of such shares of Company Common Stock ("Appraisal
---------
Shares"), shall not be converted into the right to receive the Merger
- ------
Consideration, unless such holder fails to perfect or otherwise loses such
holder's right to such appraisal, if any. If, after the Effective Time, such
holder fails to perfect or loses any such right to appraisal, each such share of
Company Common Stock held by such holder shall be treated as a share of Company
Common Stock that had been converted as of the Effective Time into the right to
receive the Merger Consideration. At the Effective Time, any holder of Appraisal
Shares shall cease to have any rights with respect thereto, except the rights
provided in Section 262 of the DGCL or any successor provision and as provided
in the immediately preceding sentence. The Company shall give prompt notice to
the Parent of any demands received by the Company for appraisal of shares of
Company Common Stock.

(e) If between the date of this Agreement and the Effective Time, the
number of shares of Fully-Diluted Common Stock or the outstanding shares of
Parent Common Stock shall be changed into a different number of shares by reason
of any reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock shall be declared thereon with a record
date within such period, the Exchange Ratio shall be adjusted accordingly to
provide to the holders of Fully-Diluted Common Stock and accord the Parent and
the Merger Sub with the same economic effect as contemplated by this Agreement.

SECTION 1.4. EXCHANGE OF CERTIFICATES.

(a) Prior to the Closing Date, the Parent shall select a bank or
trust company reasonably acceptable to the Company to act as exchange and paying
agent (the "Exchange Agent") in connection with the surrender of certificates
--------------
evidencing shares of Company Common Stock converted into Merger Consideration
pursuant to the Merger. At the Effective Time, Parent shall deposit with the
Exchange Agent one or more certificates representing the shares of Parent Common
Stock to be issued in the Merger (the "Merger Stock"), which shares of Merger
------------
Stock shall be deemed to be issued at the Effective Time. Promptly after the
Effective Time, Parent shall deliver to the Exchange Agent such cash as may be
required from time to time to make payment of cash in lieu of fractional shares
in accordance with Section 1.4(i) and 1.5 hereof.

(b) As soon as practicable after the Effective Time, but in no event
later than five days after the Effective Time, Parent shall direct the Exchange
Agent to mail to each person who was, at the Effective Time, a holder of record
of a certificate or certificates that immediately prior to the Effective Time
evidenced outstanding shares of Company Common Stock (the "Certificates") (i) a
------------
letter of transmittal (with instructions for its use) specifying that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, which shall be in
a form and contain any other provisions as Parent and the Surviving Corporation
may reasonably agree and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon the proper
surrender of Certificates to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal and such other documents as
may be required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor, and the Surviving Corporation shall
cause to be issued and paid, certificates representing the shares of Merger
Stock that such holder has the right to receive pursuant to the terms hereof
(together with any dividend or distribution with respect thereto made after the
Effective Time and any cash paid in

-3-
<PAGE>

lieu of fractional shares pursuant to Section 1.4(i)), and the Certificate so
surrendered shall be canceled. If any portion of the Merger Consideration is to
be paid to a person other than the person who is the record holder of the
Company Common Stock at the Effective Time, it shall be a condition to such
payment that the certificate evidencing the Company Common Stock so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
it be accompanied by all documents required to evidence and effect such transfer
and by evidence reasonably satisfactory to the Surviving Corporation and Parent
that any applicable stock transfer tax has been paid.

(c) After the Effective Time, each outstanding Certificate which
theretofore represented shares of Company Common Stock shall, until surrendered
for exchange in accordance with this Section 1.4, be deemed for all purposes to
evidence ownership of full shares of Parent Common Stock into which the shares
of Company Common Stock (which, prior to the Effective Time, were represented
thereby) shall have been so converted.

(d) Except as otherwise expressly provided herein, the Parent shall
pay all charges and expenses, including those of the Exchange Agent, in
connection with the exchange of Certificates for shares of Merger Stock. Any
Merger Stock or other cash delivered to the Exchange Agent pursuant to Section
1.4(a) hereof, and not exchanged pursuant to Section 1.4(b) hereof for Company
Common Stock or fractional interests pursuant to Section 1.4(i) hereof within
180 days after the Effective Time shall be returned by the Exchange Agent to the
Surviving Corporation which shall thereafter act as exchange agent subject to
the rights of holders of Company Common Stock hereunder.

(e) At the Effective Time, the stock transfer books of the Company
shall be closed and no transfer of shares of Company Common Stock shall
thereafter be made.

(f) None of Parent, Merger Sub, the Company, the Surviving
Corporation or the Exchange Agent will be liable to any holder of shares of
Company Common Stock for any shares of Merger Stock, dividends or distributions
with respect thereto or cash payable in lieu of fractional shares pursuant to
Section 1.4(i) hereof delivered to a state abandoned property administrator or
other public official pursuant to any applicable abandoned property, escheat or
similar law.

(g) If any Certificates shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificates to be lost, stolen or destroyed, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificates the Merger
Consideration for the shares represented thereby, deliverable in respect
thereof, as determined in accordance with the terms hereof. When authorizing
such payment in exchange for any lost, stolen or destroyed Certificates, the
person to whom the Merger Consideration is to be issued, as a condition
precedent to such delivery, shall give Parent a bond or indemnity reasonably
satisfactory to Parent, its transfer agent and their respective insurance
carriers against any claim that may be made against Parent with respect to the
Certificates alleged to have been lost, stolen or destroyed.

(h) No dividend or other distribution declared or made after the
Effective Time with respect to the Merger Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Merger Stock issuable upon surrender thereof until the
holder of such Certificate shall surrender such Certificate in accordance with
Section 1.4(b). Subject to the effect of applicable law, following surrender of
any such Certificate there shall be paid, without interest, to the record holder
of certificates representing whole shares of Merger Stock issued in

-4-
<PAGE>

exchange therefor: (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Merger Stock; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender of such Certificate and a
payment date subsequent to such surrender payable with respect to such whole
shares of Merger Stock. No holder of Company Common Stock shall be entitled to
any interest on any cash amounts payable for fractional interests pursuant to
this Section 1.4(h).

(i) No certificates or scrip evidencing fractional shares of Merger
Stock shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests shall not entitle the owner thereof to any rights of
a stockholder of Parent. In lieu of any such fractional shares, each holder of
a Certificate previously evidencing Company Common Stock, upon surrender of such
Certificate for exchange pursuant to this Article I, shall be paid an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
(a) the closing price for a share of Parent Common Stock on the Nasdaq National
Market on the first business day immediately following the Effective Time, by
(b) the fractional interest to which such holder would otherwise be entitled
(after taking into account all shares of Company Common Stock held of record by
such holder at the Effective Time).

SECTION 1.5. OPTIONS AND WARRANTS.

(a) At the Effective Time, each option and warrant granted or issued
by the Company and exercisable for shares of Company Common Stock, which is
outstanding and unexercised or unconverted immediately prior thereto, shall be
assumed by Parent pursuant to a writing to be executed at the Closing in form
and substance reasonably acceptable to the Company, and, subject to the
following provisions, shall be converted into an option or warrant to purchase
shares of Parent Common Stock. Each such option or warrant shall be converted
into an option or warrant to purchase such number of shares of Parent Common
Stock at such exercise price as is determined as provided below (and otherwise
having the same duration and other terms as the original option or warrant):

(i) the number of shares of Parent Common Stock to be subject
to the new option or warrant shall be equal to the product of (A) the number of
shares of Company Common Stock subject to the option or warrant immediately
prior to the Effective Time and (B) the Exchange Ratio, the product being
rounded, if necessary, up or down, to the nearest whole share; and

(ii) the exercise or convertible price per share of Parent
Common Stock under the new option or warrant shall be equal to (A) the exercise
price per share of the Company Common Stock under the option or warrant
immediately prior to the Effective Time divided by (B) the Exchange Ratio,
rounded, if necessary, up or down, to the nearest cent.

Notwithstanding the foregoing, those warrants that were issued by the Company
and Parent that are by their terms exercisable for shares of Parent Common Stock
(the "TLSP/CRW Warrants") shall be unaffected as a result of the Merger.
-----------------

(b) At the Effective Time, the Purchaser shall deliver to holders of
original options and warrants (except for the TLSP/CRW Warrants) appropriate
agreements representing the new options

-5-
<PAGE>

and warrants on the terms and conditions set forth in this Section 1.5(b). The
Parent shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon exercise of
the new options and warrants in accordance with this Section 1.5(b). The Parent
shall file (i) a registration statement on Form S-8 (or any successor form) or
another appropriate form, effective promptly after the Effective Time, with
respect to shares of Parent Common Stock subject to the new options (but not any
such new warrants) and (ii) a registration statement on Form S-3 (or any
successor form) or another appropriate form (such registration statement, the
"Parent Form S-3"), effective promptly after the Effective Time, with respect to
---------------
shares of Parent Common Stock subject to the new warrants (but only with respect
to such shares of Parent Common Stock associated with shares of Company Common
Stock that had been registered by the Company on a registration statement on
Form S-3 (the "Company Form S-3"))). The Company, from time to time, shall also
----------------
prepare such resale prospectuses for inclusion in the Parent Form S-3 on the
same basis as contemplated by the Company Form S-3. The Company shall use all
reasonable efforts to maintain the effectiveness of (i) such Form S-8
registration statement for so along as such options remain outstanding and (ii)
the Parent Form S-3 for such period covered by the existing Company Form S-3. In
addition, with respect to those individuals who subsequent to the Merger will be
subject to the reporting requirements under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), the Parent shall administer any option plans assumed pursuant
------------
to this Section 1.5(b) in a manner that complies with Rule 16b-3 promulgated
under the Exchange Act to the extent such option plan complied with such rule
prior to the Merger.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to, and agrees with, Parent and Merger
Sub as follows, except as set forth on a Disclosure Schedule delivered by the
Company concurrently with the execution and delivery of this Agreement (the
"Company Schedule"), each of which exceptions shall specifically identify the
----------------
relevant subsection hereof to which it relates and shall be deemed to be
representations and warranties as if made hereunder:

SECTION 2.1. ORGANIZATION, POWERS AND QUALIFICATIONS. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate the properties and assets used in connection
therewith. The Company is duly qualified as a foreign corporation authorized to
do business and is in good standing in every jurisdiction in which such
qualification is required, all of which jurisdictions are disclosed in the
COMPANY SCHEDULE, except where the failure to be so qualified would not have a
Company Material Adverse Effect. As used in this Agreement, "Company Material
----------------
Adverse Effect" shall mean any fact, condition, event, development or occurrence
- --------------
which, individually or when taken together with all other such facts,
conditions, events, developments or occurrences, could reasonably be expected to
have a material adverse effect on the financial condition, or operating results
of the Company and its Subsidiaries (hereinafter defined), taken as a whole.

SECTION 2.2. SUBSIDIARIES. (a) "Subsidiary" means, with respect to any
----------
party, any corporation, limited liability company, partnership, joint venture,
or other business association or entity, at least a majority of the voting
securities or economic interests of which is, directly or indirectly, owned

-6-
<PAGE>

or controlled by such party or by any one or more of its Subsidiaries. As used
in this Agreement, "Joint Venture" means, with respect to any party, any
-------------
corporation, limited liability company, partnership, joint venture or other
business association or entity in which (i) such party or any one or more of its
Subsidiaries, directly or indirectly, owns or controls more than five percent
and less than a majority of any class of the outstanding voting securities or
economic interests, or (ii) such party or a Subsidiary of such party is a
general partner.

(b) The COMPANY SCHEDULE lists each Subsidiary and Joint Venture of
the Company, the jurisdiction of its organization and the amount of its
securities outstanding and the owners thereof. Each Subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each Subsidiary has all requisite power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate the assets and properties used in connection
therewith. Each Subsidiary is duly qualified as a foreign corporation
authorized to do business and is in good standing in every jurisdiction in which
such qualification is required, all of which jurisdictions are disclosed on the
COMPANY SCHEDULE, except where the failure to be so qualified would not have a
Company Material Adverse Effect. All issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized, are validly issued and
outstanding, are fully paid and nonassessable and were issued in compliance with
all applicable Federal and state securities laws and, except as set forth on the
COMPANY SCHEDULE, are lawfully owned of record and beneficially by the Company
or another Subsidiary of the Company, free and clear of all pledges, liens,
claims, security interests and other charges or defects in title of any nature
whatsoever ("Liens"). There are no existing subscriptions, options, warrants,
-----
convertible securities, calls, commitments, agreements, conversion rights or
other rights of any character (contingent or otherwise) calling for or requiring
the issuance, transfer, sale or other disposition of any shares of the capital
stock of any Subsidiary of the Company, or calling for or requiring the issuance
of any securities or rights convertible into or exchangeable for shares of
capital stock of any Subsidiary of the Company, nor is the Company or any
Subsidiary of the Company subject to any obligation (contingent or otherwise) to
repurchase, redeem or otherwise acquire shares of capital stock of any
Subsidiary of the Company, in any case except as set forth on the COMPANY
SCHEDULE. Except for its Subsidiaries and its Joint Ventures or as set forth in
the COMPANY SCHEDULE, neither the Company nor any Subsidiary of the Company
directly or indirectly (i) owns or controls any shares of any corporation nor
has any voting securities of, or economic interest in, either of record or
beneficially in any association, partnership, limited liability company, joint
venture or other legal entity, or (ii) is a general partner of any partnership.

SECTION 2.3. CAPITAL STOCK. The Company has authorized capital stock
consisting of 20,000,000 shares of Company Common Stock and 500,000 shares of
Preferred Stock, par value $.01 per share ("Company Preferred Stock"). As of
-----------------------
the date hereof: (i) 6,533,209 shares of Company Common Stock are issued and
outstanding, (ii) no shares of Company Preferred Stock were issued and
outstanding, (iii) no shares of Company Common Stock are held as treasury
shares, (iv) 1,205,000 shares of the Company Common Stock are underlying
outstanding stock options granted under the Company stock option or equity
compensation plans (the "Company Stock Plans"), (v) 362,500 shares of the
-------------------
Company Common Stock are underlying outstanding warrants and (vi) 352,821 shares
of the Company Common Stock are obtainable pursuant to the terms of the
convertible notes. As of the date hereof, the Company owned 6,946,583 shares of
Parent Common Stock and other than the TLSP/CRW Warrants, which as of the date
hereof were exercisable for an aggregate of 678,410 shares of Parent Common
Stock, there are no existing subscriptions, options, warrants, convertible
securities, calls, commitments, agreements, conversion rights or other rights of
any character (contingent or otherwise) calling for or

-7-
<PAGE>

requiring the issuance, transfer, sale or other disposition of any shares of
Company Common Stock or Parent Common Stock by the Company. All of the issued
and outstanding shares of Company Common Stock have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable, and were issued in
compliance with all applicable Federal and state securities laws; and all of
such treasury shares were acquired by the Company in compliance with all
applicable laws, including without limitation all applicable Federal and state
securities laws. No shares of capital stock issued by the Company are or were,
at the time of their issuance, issued in violation of preemptive rights. There
are no voting trusts or other agreements or understandings to which the Company
is a party, nor, to the knowledge of the Company, to which any stockholder of
the Company is a party, with respect to the voting of capital stock of the
Company.

SECTION 2.4. CERTIFICATE OF INCORPORATION, BY-LAWS AND MINUTE BOOKS. The
copies of the Certificate of Incorporation and all amendments thereto and of the
By-laws, as amended, of the Company and the Subsidiaries which have been
delivered to Parent are true, correct and complete copies thereof as in effect
on the date hereof. The minute books of the Company and the Subsidiaries which
have been made available for inspection contain minutes, which are accurate and
complete in all material respects, of all meetings and consents in lieu of
meetings of the Board of Directors (and any committee thereof) and of the
stockholders of the Company and the Subsidiaries since the respective dates of
incorporation.

SECTION 2.5. AUTHORITY; BINDING EFFECT. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All necessary action,
corporate or otherwise, required to have been taken by or on behalf of it by
applicable law, its charter document or otherwise to authorize (i) the approval,
execution and delivery on its behalf of this Agreement and (ii) its performance
of its obligations under this Agreement and the consummation of the transactions
contemplated hereby has been taken, except that this Agreement must be approved
by the holders of a majority of the outstanding Company Common Stock of record
on the record date for the Stockholders Meeting ("Required Company Stockholder
----------------------------
Approval"). This Agreement constitutes the Company's valid and binding
- --------
agreement, enforceable against it in accordance with its terms.

SECTION 2.6. CONFLICT WITH OTHER AGREEMENTS; APPROVALS. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, (i) violate or conflict with the Company's charter
or bylaws or the comparable organizational documents of any of its Subsidiaries,
or (ii) constitute a breach or default (or an event that with notice or lapse of
time or both would become a breach or default) or give rise to any Lien, third
party right of termination, cancellation, material modification or acceleration,
or loss of any benefit, under any Contract (hereinafter defined) to which the
Company or any Subsidiary of the Company is a party or by which it is bound, or
(iii) subject to the consents, approvals, orders, authorizations, filings,
declarations and registrations specified in Section 2.7 or in the COMPANY
SCHEDULE in response thereto, conflict with or result in a violation of any
permit, concession, franchise or license or any law, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their properties
or assets, except, in the case of clauses (ii) and (iii), for any such breaches,
defaults, liens, third party rights, cancellations, modifications, accelerations
or losses of benefits, conflicts or violations which would not have a Company
Material Adverse Effect and do not materially impair the ability of the Company
to perform its obligations under this Agreement or prevent or materially delay
the consummation of any of the transactions contemplated hereby.

-8-
<PAGE>

SECTION 2.7. GOVERNMENTAL CONSENTS AND APPROVALS. Except as set forth on
the COMPANY SCHEDULE, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will require any
consent, approval, order, authorization, or permit of, or filing with or
notification to, any local, state, federal or foreign court, administrative
agency, commission or other governmental or regulatory authority, agency or
instrumentality ("Governmental Entity"), except (a) the filing of the
-------------------
Registration Statement (hereinafter defined) with the Securities and Exchange
Commission (the "SEC") in accordance with the Securities Act of 1933, as
---
amended, and the rules and regulations thereunder (the "Securities Act") and the
--------------
entry of an order by the SEC permitting such Registration Statement to become
effective, and compliance with applicable state securities laws, (b) the filing
of the Proxy Statement (hereinafter defined) and related proxy materials with
the SEC in accordance with 0the Exchange Act, (c) notification pursuant to, and
expiration or termination of the waiting period under, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act") and (d) the filing and recording of the Certificate
-------
of Merger in accordance with the DGCL.

SECTION 2.8. SEC REPORTS. The Company has filed all required forms,
reports and documents with the SEC since January 1, 1997 (collectively, the
"Company's SEC Reports"), including without limitation the Company's Annual
---------------------
Report on Form 10-K for the year ended December 31, 1997 (the "Company 1997 Form
-----------------
10-K") and the Company's Quarterly Report on Form 10-Q for the fiscal quarters
- ----
ended March 31, 1998 and June 30, 1998 (the "Company Forms 10-Q"). The
------------------
Company's SEC Reports have complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act. As of their respective
dates, none of the Company's SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. There have been filed as exhibits to, or
incorporated by reference in, the Company 1997 Form 10-K and Company Forms 10-Q
all contracts which, as of the date hereof, are material as described in Item
601(b)(10) of Regulation S-K. The Company has heretofore delivered or made
available to Parent, in the form filed with the SEC, all of the Company's SEC
Reports.

SECTION 2.9. FINANCIAL STATEMENTS. The (a) consolidated balance sheets
of the Company and its Subsidiaries at December 31, 1997 and 1996 and the
related consolidated statements of earnings, changes in stockholders' equity and
statements of cash flow for the years then ended, together with the notes
thereto, audited by Arthur Anderson LLP (the "'Company's Auditors"); and (b)
------------------
unaudited consolidated balance sheets of the Company and Subsidiaries at June
30, 1998 and related consolidated statements of income, changes in stockholders'
equity and statements of cash flow for the six-month period ended June 30, 1998,
(the "Balance Sheet Date") have been prepared in accordance with generally
------------------
accepted accounting principles consistently applied throughout the periods
involved ("GAAP"). Such balance sheets, including the related notes, fairly
----
present, in all material respects, the consolidated financial position, assets
and liabilities (whether accrued, absolute, contingent or otherwise) of the
Company and its Subsidiaries at the dates indicated and such consolidated
statements of income, changes in stockholders' equity and statements of cash
flow fairly present the consolidated results of operations, changes in
stockholders' equity and cash flow of the Company and its Subsidiaries for the
periods indicated. The unaudited consolidated financial statements as at and
for the six-month period ending June 30, 1998 contain all adjustments, which are
solely of a normal recurring nature, necessary to present fairly, in all
material respects, the financial position at June 30, 1998, and the results of
operations and

-9-
<PAGE>

changes in stockholders' equity and financial position for the six-month period
then ended. (The unaudited consolidated balance sheet of the Company and its
Subsidiaries at June 30, 1998 described above is referred to herein as the
"Company Balance Sheet").
---------------------

SECTION 2.10. ABSENCE OF CERTAIN CHANGES. Except as described in the
COMPANY SCHEDULE, since December 31, 1997 (the "Company Audit Date"), the
------------------
Company and the Subsidiaries have conducted their business solely in the
ordinary course consistent with past practice. Except as otherwise disclosed
on the COMPANY SCHEDULE or as referred to in the Company's SEC Reports, since
the Company Audit Date, the Company and the Subsidiaries have not:

(a) suffered any Company Material Adverse Effect;

(b) been subject to any other events or conditions of any character
that would impair the ability of the Company to perform its obligations under
this Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby;

(d) incurred any material liabilities, other than liabilities
incurred in the ordinary course of business consistent with past practice, or
discharged or satisfied any Lien material, or paid any material liabilities,
other than in the ordinary course of business consistent with past practices, or
failed to pay or discharge when due any liabilities of which the failure to pay
or discharge has caused or will cause any material damage or risk of material
loss to it or any of its material assets or properties; or

(e) taken or been subject to any other action or event that would
have required the consent of Parent pursuant to Section 4.1 hereof.

SECTION 2.1. INDEBTEDNESS; ABSENCE OF UNDISCLOSED LIABILITIES. The
COMPANY SCHEDULE discloses as of the date hereof all indebtedness for money
borrowed of the Company or any Subsidiary of the Company, accurately disclosing
for each such indebtedness the payee, the original principal amount of the loan,
the current unpaid balance of the loan, the interest rate and the maturity date.
Neither the Company nor any of its Subsidiaries has any material indebtedness,
liability or obligation of any kind (whether known or unknown, accrued,
absolute, asserted or unasserted, contingent or otherwise) except (i) as and to
the extent reflected, reserved against or otherwise disclosed in the Balance
Sheet, or (ii) for liabilities and obligations incurred subsequent to the
Balance Sheet Date in the ordinary course of business and which do not have a
Company Material Adverse Effect or materially impair the ability of Parent to
perform its obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated hereby.

SECTION 2.1. ASSETS. Except as described in the COMPANY SCHEDULE, the
Company and the Subsidiaries have good and marketable title to all their real
and personal properties and assets, including without limitation those assets
and properties reflected in the Balance Sheet in the amounts and categories
reflected therein, free and clear of all Liens, except (a) the lien of current
taxes not yet due and payable, (b) properties, interests, and assets disposed of
by the Company or any Subsidiary since the Balance Sheet Date solely in the
ordinary course of business consistent with past practice, (c) such secured
indebtedness as is disclosed in the Balance Sheet covering the properties
referred to therein, and

-10-
<PAGE>

(d) such imperfections of title, easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present or proposed use, of the properties
subject thereto ("Permitted Liens").
---------------

SECTION 2.13. CONTRACTS.

(a) The COMPANY SCHEDULE lists each written or oral contract,
agreement, arrangement, lease, instrument, mortgage or commitment to which the
Company or a Subsidiary is a party or may be bound or to which their respective
properties or assets may be subject ("Contract").
--------

(b) All Contracts are valid and binding on the Company or its
Subsidiaries, as applicable, and, to the knowledge of the Company, the other
parties thereto, and are in full force and effect as to the Company on the date
of this Agreement except to the extent they have previously expired in
accordance with their terms or except to the extent that their invalidity would
not have a Company Material Adverse Effect. None of the Company, any of its
Subsidiaries nor, to the Company's knowledge, any other parties, have violated
any provision of, or committed or failed to perform any act which with notice,
lapse of time or both would constitute a default under the provisions of, any
Contract, the termination or violation of which, or the default under which,
might have a Company Material Adverse Effect.

SECTION 2.14. INSURANCE. The COMPANY SCHEDULE accurately sets forth as of
the day preceding the date hereof all policies of insurance, other than title
insurance policies, held by or on behalf of the Company and all outstanding
claims. All such policies of insurance are in full force and effect, and no
notice of cancellation has been received. In the reasonable judgment of the
Company, such policies are in amounts which are adequate in relation to the
business and properties of the Company, and all premiums to date have been paid
in full.

SECTION 2.15. AUTHORIZATIONS; COMPLIANCE WITH LAW. (a) The Company and
the Subsidiaries hold all licenses, franchises, certificates, consents, permits,
approvals, certificates of public convenience and necessity, and authorizations
("Authorizations") from all Governmental Entities and other persons which are
--------------
necessary for the lawful conduct of their respective businesses and their use
and occupancy of their assets and properties in the manner currently conducted,
used and occupied, except where the failure to hold any of the foregoing would
not have a Company Material Adverse Effect or materially impair the ability of
the Company to perform its obligations under this Agreement or materially
prevent or materially delay the consummation of any of the transactions
contemplated hereby.

(b) The Company and each of the Subsidiaries is in compliance with
all applicable laws, statutes, ordinances, codes, rules and regulations of any
Governmental Entities, except where such violations would not have a Company
Material Adverse Effect.

SECTION 2.16. TAXES.

(a) All federal, state, local and foreign tax returns, reports,
statements and other similar filings required to be filed by the Company or the
Subsidiaries (the "Tax Returns") on or prior to the date hereof or with respect
-----------
to taxable periods ending on or prior to the date hereof with respect to any
federal, state, local or foreign taxes, assessments, deficiencies, fees and
other governmental charges or impositions (including, without limitation, all
income tax, unemployment compensation, social security,

-11-
<PAGE>

payroll, sales and use, excise, privilege, property, ad valorem, transfer,
franchise, license, school and any other tax or similar governmental charge or
imposition (including interest, penalties or additions with respect thereto)
under laws of the United States or any state or municipal or political
subdivision thereof or any foreign country or political subdivision thereof
("Taxes") have been timely filed and all such Tax Returns are true, correct and
-----
complete in all material respects.

(b) All Taxes called for by the Tax Returns have been fully paid. The
accruals for Taxes contained in the Balance Sheet are adequate to cover the
liabilities for Taxes of the Company and the Subsidiaries as of the Balance
Sheet Date and include adequate provision for all deferred taxes, and nothing
has occurred subsequent to that date to make any of such accruals inadequate.

(c) Neither the Company nor the Subsidiaries have received any notice
of assessment or proposed assessment in connection with any Taxes or Tax Returns
and there are not pending tax examinations of or tax claims asserted against the
Company or the Subsidiaries or any of their respective assets or properties.
Neither the Company nor any Subsidiary has extended, or waived the application
of, any statute of limitations of any jurisdiction regarding the assessment or
collection of any Taxes.

(d) There are no tax liens (other than any lien for current taxes not
yet due and payable) on any of the assets or properties of the Company or the
Subsidiaries. The Company has no knowledge of any basis for any additional
assessment of any Taxes. The Company and the Subsidiaries have made all
deposits required by law to be made with respect to employees' withholding and
other employment taxes, including without limitation the portion of such
deposits relating to taxes imposed upon the Company or the Subsidiaries.

SECTION 2.17. ABSENCE OF LITIGATION; CLAIMS. There are no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, or with respect
to which any director, officer, employee or agent is or may be entitled to claim
indemnification from the Company or any Subsidiary of the Company, before any
Governmental Entity or arbitrator, nor is there any judgement, decree,
injunction, rule or order of any Governmental Entity or arbitrator expressly
applicable by its terms to the Company or any of its Subsidiaries.

SECTION 2.18. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.

(a) The COMPANY SCHEDULE lists all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
-----
deferred compensation, supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements, and any current or
former employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company, any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code, or
---------------
any subsidiary of the Company, as well as each plan with respect to which the
Company or an ERISA Affiliate could incur liability under Section 4069 (if such
plan has been or were terminated) or Section 4212(c) of ERISA (together, the
"Employee Plans"), excluding former agreements under which the Company has no
--------------
remaining obligations and any of the foregoing that are required to be
maintained by

-12-
<PAGE>

the Company under the laws of any foreign jurisdiction. With respect to each
Employee Plan, as applicable, a copy of (i) each such written Employee Plan
(other than those referred to in Section 4(b)(4) of ERISA, together with all
amendments, trust agreements, insurance policies and service agreements; (ii)
the three most recently filed Forms 5500 or 5500 C/R and any financial
statements attached thereto; (iii) the most recent Internal Revenue Service
("IRS") determination letter; (iv) the most recent summary plan description; (v)
---
all reports submitted within the preceding three years by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors, has been made available to Parent; and (vi) all notices
that were issued within the preceding three years by the IRS, Department of
Labor, the Pension Benefit Guarantee Corporation, or any other Governmental
Entity.

(b) Except as set forth in the COMPANY SCHEDULE, (i) except as
required by Section 4980B of the Code, none of the Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person and
none of the Employee Plans is a "multi employer plan" as such term is defined in
Section 3(37) of ERISA; (ii) there has not been any breach of any fiduciary
duty, as described in Section 404 of ERISA, or no "prohibited transaction", as
such term is defined in Section 406 of ERISA or Section 4975 of the Code, with
respect to any Employee Plan, which could result in any material liability of
the Company or any of its subsidiaries; (iii) all Employee Plans are in
compliance in all material respects with the requirements prescribed by any and
all statutes (including ERISA and the Code), orders, or governmental rules and
regulations currently in effect with respect thereto (including applicable
requirements for notification to participants or the Department of Labor, IRS or
Secretary of the Treasury), all employee plans have in all material respects
been operated at all times in accordance with their terms and with ERISA and the
Code, and the Company and each of its subsidiaries have performed all material
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any default
or violation by any other party to, any of the Employee Plans; (iv) each
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code is the subject of a
favorable determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (v) all contributions
required to be made to any Employee Plan pursuant to Section 412 of the Code, or
the terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates; (vi) with respect to each Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the 30 day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063, 4604 or 4041 of ERISA has occurred; and (viii) neither the Company nor any
ERISA Affiliate has incurred, nor reasonably expects to incur, any liability
under Title IV of ERISA (other than liability for premium payments to the
Pension Benefit Guaranty Corporation arising in the ordinary course); (ix)
neither the Company nor any ERISA Affiliate has incurred any liability for any
excise, income or other taxes or penalties with respect to any Employee Plan
which has not been paid in full, and no event has occurred and no circumstance
exists that could give rise to any such liability; (x) there are no pending or
threatened claims against any Employee Plan (other than routine claims for
benefits) or against any fiduciary or an Employee Plan with respect to such
plan, nor is there any basis for such a claim; and (xi) no Employee Plan is
presently under audit or examination (nor has notice been received of a
potential audit or examination) by any governmental entity, and no matters are
pending with respect to any Employee Plan under any governmental corrective or
remedial program.

(c) The COMPANY SCHEDULE sets forth a true and complete list of each
current or former employee, officer or director of the Company or any of its
Subsidiaries who holds any option to purchase Company Common Stock as of the
date hereof, together with the number of shares of Company

-13-
<PAGE>

Common Stock which are subject to such option, the date of grant of such option,
the extent to which such option is vested (or will become vested within six
months from the date hereof, or as a result of, the Merger), the option price of
such option (to the extent determined as of the date hereof), whether such
option is intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code (an "ISO"), and the expiration date of such option.
---
The COMPANY SCHEDULE also sets forth the total number of such ISOs and such
nonqualified options.

(d) Except as set forth in the Company Schedule, any amount that
could be received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in Proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Employee Plan currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G of the Code).

SECTION 2.19. LABOR MATTERS. There are no controversies pending or, to
the knowledge of the Company, threatened, between the Company or any of its
Subsidiaries or any of their respective employees, which controversies would
have a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is party to any collective bargaining agreement or other labor
agreement with any union or labor organization and no union or labor
organization has been recognized by the Company nor or any of its Subsidiaries
as a bargaining representative for employees of the Company or any of its
Subsidiaries.

SECTION 2.20. INTELLECTUAL PROPERTY. Except for that which Casino Money
Centers, Inc. ("CMC") is the registered owner (and as to which no representation
---
or warranty is made by the Company), neither the Company nor any Subsidiary of
the Company has any registered copyrights, patents, trademarks or applications
for any registered copyrights, patents or trademarks. In conducting their
respective business as presently conducted, neither the Company nor any
Subsidiary of the Company (other than CMC, as to which no representation or
warranty is made hereby) is infringing upon or unlawfully or wrongfully using
any patent, trademark, trade name, service mark, copyright or any other form of
intellectual property or trade secret, owned or claimed by another. Neither the
Company nor any Subsidiary is in default under, nor has it received any notice
of any claim of infringement or any other claim or proceeding relating to, any
such patent, trademark, trade name, service mark, copyright, trade secret or any
other form of intellectual property or any agreement relating thereto.

SECTION 2.21. ADEQUACY OF DISCLOSURE. No representation or warranty by
the Company in this Agreement, in any certificate or in the Company Schedule
furnished or to be furnished to Parent pursuant hereto, or in connection with
the negotiation, execution or performance of this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or necessary to make any
statement herein or therein not misleading.

SECTION 2.22. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company for inclusion or incorporation by reference
in the registration statement of Parent on Form S-4 pursuant to which shares of
Parent Common Stock to be issued in the Merger will be registered with the SEC
(the "Registration Statement") shall not contain, at the time the Registration
----------------------
Statement is declared effective by the SEC, any untrue statement of a material
fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the

-14-
<PAGE>

statements in the Registration Statement not misleading. The information
supplied by the Company for inclusion or incorporation by reference in the proxy
statement/prospectus (the "Proxy Statement") to be sent to the stockholders of
---------------
the Company in connection with the special meeting of the Company's stockholders
to consider this Agreement (the "Stockholders Meeting") shall not, at the time
--------------------
the Proxy Statement is first mailed to stockholders, at the time of the
Stockholders Meeting, or at the Effective Time, contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading or omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to the Company or any of its affiliates
should be discovered by the Company which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, the Company
shall promptly inform Parent.

SECTION 2.23. TAX MATTERS. Neither the Company nor, to the knowledge of
the Company, any of its affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code or make untrue any representation or
warranty contained in the Company Tax Certificate.

SECTION 2.24. AFFILIATES. Except for the persons listed on the COMPANY
SCHEDULE there are no persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 1-02 of Regulation S-X of the
SEC and Rule 145 under the Securities Act.

SECTION 2.25. BOARD ACTION; VOTE REQUIRED; APPLICABILITY OF SECTION 203.
(a) The Special Committee of the Board of Directors, and the entire Board of
Directors of the Company, each has unanimously determined that the transactions
contemplated by this Agreement are in the best interests of the Company and its
stockholders and has resolved to recommend to such stockholders that they vote
in favor thereof.

(b) The provisions of Section 203 of the Delaware Law will not apply
to this Agreement or any of the transactions contemplated hereby.

(c) The Company represents and warrants that it has been advised by
each of its directors and executive officers that each such person intends to
vote his shares of Company Common Stock in favor of the approval and adoption of
this Agreement.

SECTION 2.26. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Janney Montgomery Scott Inc. (the "Company Financial Advisor"), dated
-------------------------
September 3, 1998, to the effect that, as of such date, the Merger Consideration
is fair from a financial point of view to the holders of Company Common Stock
and a copy of such opinion has been made available to Parent.

SECTION 2.27. BROKERS AND FINDERS. Neither the Company, any Subsidiary of
the Company nor any of their respective officers, directors or employees has
engaged any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated
herein, except that the Special Committee of the Board of Directors of the
Company has engaged the Company Financial Advisor as its financial advisor
pursuant to the terms of an engagement letter, a true and complete copy of which
has previously been furnished to Parent.

-15-
<PAGE>

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub each represents and warrants to the Company as
follows, except as set forth on a Disclosure Schedule delivered by Parent
concurrently with the execution and delivery of this Agreement (the "Parent
------
Schedule"), each of which exceptions shall specifically identify the relevant
- --------
subsection hereof to which it relates and shall be deemed to be representations
and warranties as if made hereunder:

SECTION 3.1. ORGANIZATION AND POWERS. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and the
Merger Sub has all requisite corporate power and authority to carry on its
business as it has been and is now being conducted and to own, lease and operate
the properties and assets used in connection therewith.

SECTION 3.2. AUTHORITY; BINDING EFFECT. Parent has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All necessary action,
corporate or otherwise, required to have been taken by or on behalf of it by
applicable law, its charter document or otherwise to authorize (i) the approval,
execution and delivery on its behalf of this Agreement and (ii) its performance
of its obligations under this Agreement and the consummation of the transactions
contemplated hereby has been taken. This Agreement constitutes Parent's valid
and binding agreement, enforceable against it in accordance with its terms.

SECTION 3.3. CONFLICT WITH OTHER AGREEMENTS; APPROVALS. The execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, (i) violate or conflict with the Parent's or any
of its Subsidiaries charter or bylaws, or (ii) constitute a breach or default
(or an event that with notice or lapse of time or both would become a breach or
default) or give rise to any Lien, third party right of termination,
cancellation, material modification or acceleration, or loss of any benefit,
under any contract to which the Parent or any Subsidiary of the Parent is a
party or by which it is bound, or (iii) subject to the consents, approvals,
orders, authorizations, filings, declarations and registrations specified in
Section 3.4 or in the PARENT SCHEDULE in response thereto, conflict with or
result in a violation of any permit, concession, franchise or license or any
law, rule or regulation applicable to the Parent or any of its Subsidiaries or
any of their properties or assets, except, in the case of clauses (ii) and
(iii), for any such breaches, defaults, liens, third party rights,
cancellations, modifications, accelerations or losses of benefits, conflicts or
violations which would not have a Parent Material Adverse Effect and do not
materially impair the ability of the Parent to perform its obligations under
this Agreement or prevent or materially delay the consummation of any of the
transactions contemplated hereby. As used in this Agreement, "Parent Material
---------------
Adverse Effect" shall mean any fact, condition, event, development or occurrence
- --------------
which, individually or when taken together with all other such facts,
conditions, events, developments or occurrences, could reasonably be expected to
have a material adverse effect on the financial condition, operating results of
Parent and its Subsidiaries, taken as a whole.

SECTION 3.4. GOVERNMENTAL CONSENTS AND APPROVALS. Except as set forth on
the PARENT SCHEDULE, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will require any
consent, approval, order, authorization, or permit of, or filing with

-16-
<PAGE>

or notification to, any Governmental Entity, except (a) the filing of the
Registration Statement with the SEC in accordance with the Securities Act and
the entry of an order by the SEC permitting such Registration Statement to
become effective, and compliance with applicable state securities laws, (b)
notification pursuant to, and expiration or termination of the waiting period
under the HSR Act, and (c) the filing and recording of the Certificate of Merger
in accordance with the DGCL.

SECTION 3.5. CAPITAL STOCK. Parent has authorized capital stock
consisting of 200,000,000 shares of Parent Common Stock and 5,000,000 shares of
Preferred Stock, par value $.01 per share ("Parent Preferred Stock"). As of
----------------------
August 1, 1998: (i) 25,671,205 shares of Parent Common Stock were issued and
outstanding, (ii) no shares of Parent Preferred Stock were issued and
outstanding, (iii) no shares of Parent Common Stock were held as treasury
shares, (iii) no shares of Company Common Stock were held as treasury shares,
(iv) 4,032,705 shares of the Parent Common Stock underlying outstanding stock
options were granted under the Parent's 1996 Equity Compensation Plan (the
"Parent Stock Plan"), (v) 2,467,295 shares of the Parent Common Stock were
-----------------
reserved for issuance under the Parent Stock Plan, and (vi) 2,426,733 shares of
Company Common Stock were reserved for issuance upon the exercise of outstanding
warrants and options issued outside of the Parent Stock Plan. Since June 1,
1998 until the date hereof, (i) no additional shares of capital stock have been
reserved for issuance by Parent and (ii) the only issuances of shares of capital
stock of the Parent have been issuances of Parent Common Stock upon the exercise
of outstanding stock options. All of the issued and outstanding shares have
been duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and were issued in compliance with all applicable Federal and
state securities laws. No shares of capital stock issued by Parent are or were,
at the time of their issuance, issued in violation of preemptive rights. There
are no existing subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from Parent at any time, or upon the
happening of any stated event, any shares of the capital stock of Parent whether
or not presently issued or outstanding, except as set forth on the PARENT
SCHEDULE.

SECTION 3.6. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by the Parent for inclusion or incorporation by reference
in the Registration Statement shall not contain, at the time the Registration
Statement is declared effective by the SEC, any untrue statement of a material
fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the
Registration Statement not misleading. The information supplied by the Parent
for inclusion or incorporation by reference in the Proxy Statement shall not, at
the time the Proxy Statement is first mailed to stockholders, at the time of the
Stockholders Meeting, or at the Effective Time, contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event relating to
the Parent or any of its affiliates should be discovered by the Parent which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Parent shall promptly inform the Company.

SECTION 3.7. SEC REPORTS. Parent has filed all required forms, reports
and documents with the SEC since January 1, 1997 (collectively, the "Parent's
--------
SEC Reports"), including without limitation Parent's Annual Report on Form 10-K
- -----------
for the year ended December 31, 1997 and Parent's Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1998 and June 30, 1998. The Parent's
SEC Reports have complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act. As of their respective
dates, none of Parent's SEC Reports, including, without

-17-
<PAGE>

limitation, any financial statements or schedules included or incorporated by
reference therein, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Parent has heretofore
delivered or made available to the Company, in the form filed with the SEC, all
of Parent's SEC Reports.

SECTION 3.8. FINANCIAL STATEMENTS. The (a) consolidated balance sheets
of the Parent and its subsidiaries at December 31, 1997 and 1996 and the related
consolidated statements of earnings, changes in stockholders' equity and
statements of cash flow for the years then ended, together with the notes
thereto, audited by Arthur Anderson LLP (the "'Parent's Auditors"); and (b)
-----------------
unaudited consolidated balance sheets of the Parent and its subsidiaries at June
30, 1998 and related consolidated statements of income, changes in stockholders'
equity and statements of cash flow for the six-month period ended June 30, 1998,
have been prepared in accordance with GAAP. Such balance sheets, including the
related notes, fairly present, in all material respects, the consolidated
financial position, assets and liabilities (whether accrued, absolute,
contingent or otherwise) of the Parent and its Subsidiaries at the dates
indicated and such consolidated statements of income, changes in stockholders'
equity and statements of cash flow fairly present the consolidated results of
operations, changes in stockholders' equity and cash flow of the Parent and its
Subsidiaries for the periods indicated. The unaudited consolidated financial
statements as at and for the six-month period ending June 30, 1998 contain all
adjustments, which are solely of a normal recurring nature, necessary to
present, in all material respects, fairly the financial position at June 30,
1998, and the results of operations and changes in stockholders' equity and
financial position for the periods then ended.

SECTION 3.9. ABSENCE OF CERTAIN CHANGES. Except as described in the
PARENT SCHEDULE, since December 31, 1997, the Parent and its Subsidiaries have
conducted their business solely in the ordinary course consistent with past
practice. Except as otherwise disclosed on the PARENT SCHEDULE, or in Parents'
SEC Reports, since December 31, 1997, the Parent and its Subsidiaries have not

(a) suffered any Parent Material Adverse Effect; or

(b) been subject to any other events or conditions of any character
that would have a Parent Material Adverse Effect or impair the ability of Parent
to perform its obligations under this Agreement or prevent or delay the
consummation of any of the transactions contemplated hereby.

SECTION 3.10. ABSENCE OF LITIGATION; CLAIMS. Except as set forth on the
PARENT SCHEDULE, there are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of Parent, threatened against Parent
or any of its Subsidiaries, or any properties or rights of Parent or any of its
Subsidiaries, before any Governmental Entity or arbitrator, which, if decided
adversely to Parent or such Subsidiary, would have a Parent Material Adverse
Effect or impair the ability of Parent to perform its obligations under this
Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby, nor is there any judgement, decree, injunction, rule or
order of any Governmental Entity or arbitrator expressly applicable by its terms
to the Parent or any of its Subsidiaries having or which, insofar as reasonably
can be foreseen, in the future would have a Parent Material Adverse Effect.

SECTION 3.11. TAX MATTERS. The representations and warranties contained
in the Parent Tax Certificate (as defined in Section 4.13 hereof) are true and
correct. Parent has not taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the

-18-
<PAGE>

provisions of Section 368(a) of the Code or make untrue any representation or
warranty contained in the Parent.

SECTION 3.12. AFFILIATES. Except for the persons listed on the PARENT
SCHEDULE, there are no persons who, to the knowledge of Parent, may be deemed to
be affiliates of Parent under Rule 1-02 of Regulation S-X of the SEC.
Concurrently with the execution and delivery of this Agreement, Parent has
delivered to the Company an executed letter agreement, substantially in the form
of Exhibit B hereto, from each of such persons.

SECTION 3.13. ADEQUACY OF DISCLOSURE. No representation or warranty by
Parent in this Agreement, in any certificate or in the Parent Schedule furnished
or to be furnished to the Company pursuant hereto, or in connection with the
negotiation, execution or performance of this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or necessary to make any
statement herein or therein not misleading.

SECTION 3.14. BROKERS AND FINDERS. Neither the Parent nor any of its
respective officers, directors or employees has engaged any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein, except that the Special
Committee of the Board of Directors of Parent has engaged Legg Mason Wood
Walker, Inc. as its financial advisor.

ARTICLE IV
OTHER AGREEMENTS

SECTION 4.1. CONDUCT OF THE COMPANY'S BUSINESS. The Company covenants
and agrees that, between the date of this Agreement and the Effective Time,
unless Parent shall otherwise consent in writing, and except as otherwise
expressly contemplated hereby, the business of the Company and its Subsidiaries
shall be conducted only in, and such entities shall not take any action except
in, the ordinary course of business. By way of amplification and not
limitation, except as otherwise expressly contemplated by this Agreement or as
otherwise set forth in the Company Schedule, the Company agrees on behalf of
itself and its Subsidiaries (other than CMC, which shall not be subject to this
Section 4.1) that, without the prior written consent of Parent, they will,
between the date of this Agreement and the Effective Time:

(a) not directly or indirectly do any of the following: (i) amend or
propose to amend its Certificate of Incorporation or By-Laws; (ii) split,
combine or reclassify any outstanding shares of its capital stock, or declare,
set aside or pay any dividend payable in cash, stock, property or otherwise with
respect to such shares; (iii) redeem, purchase, acquire or offer to acquire any
shares of its capital stock; (iv) issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, any additional shares of, or securities
convertible or exchangeable for, or any options, warrants or rights of any kind
to acquire any shares of, its capital stock, its shares of Parent Common Stock
or of any class or other property or assets whether pursuant to any rights
agreement, stock option plans described in the COMPANY SCHEDULE or otherwise,
provided that the Company may issue shares of Company Common Stock pursuant to
currently outstanding options, warrants and convertible securities and may issue
one or more stock options (the "Replacement Options") to replace the conversion
rights contained in such convertible

-19-
<PAGE>

securities; (v) accelerate, amend or change the period of exerciseability of
options or restricted stock granted under any of the Company Stock Plans or
authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement, (vi) hire, engage or otherwise retain
any new employee, consultant or independent contractor or (vii) enter into any
contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this paragraph (a);

(b) not, directly or indirectly (i) acquire (by merger, consolidation
or acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division thereof or make any
equity investments therein; provided, however, that Find Dad, Inc. and Kaplan &
Kaplan Inc. may merge with and into CMC (the "CMC Merger"); (ii) issue, sell,
----------
pledge, dispose of or encumber any assets (including without limitation
licenses, Authorizations or rights) of the Company or any of its Subsidiaries or
enter into any securitization transactions,; (iii) incur any indebtedness for
borrowed money or issue any debt securities, (iv) make any commitments or
agreements for capital expenditures or capital additions; (v) except for the CMC
Merger, enter into or modify any material contract, lease or agreement except in
the ordinary course of business and consistent with past practice; (vi)
terminate, modify, assign, waive, release or relinquish any material contract
rights or amend any material rights or claims not in the ordinary course of
business or except as expressly provided herein; or (vii) enter into any
contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this paragraph (b);

(c) not, directly or indirectly (i) initiate any litigation or
arbitration proceeding, (ii) revalue any of its assets, including writing down
the value of inventory or writing off notes or accounts receivable, other than
in the ordinary course of business pursuant to arm's length transactions on
commercially reasonable terms, (iii) make any material change to their
respective accounting methods, principles or practices, or (iv) settle or
compromise any Tax liability, or prepare or file any Tax Return inconsistent
with past practice or, on any such Tax Return, take any position, make any
election, or adopt any method that is inconsistent with positions taken,
elections made or methods used in preparing or filing similar Tax Returns in
prior periods;

(d) not, directly or indirectly, (i) hire, engage or otherwise retain
any new employee, consultant or independent contractor; (ii) grant any increase
in the salary or other compensation of its employees or grant any bonus to any
employee or enter into any employment agreement or make any loan to or enter
into any material transaction of any other nature with any officer or employee
of the Company; (iii) take any action to institute any new severance or
termination pay practices with respect to any directors, officers or employees
of the Company or to increase the benefits payable under its severance or
termination pay practices; or (iv) adopt or amend, in any respect, except as may
be required by applicable law or regulation, any bonus, profit sharing,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund,
plan or arrangement for the benefit or welfare of any directors, officers or
employees; provided, however, that the Company may cause its 401(k) plan to be
transfered to CMC;

(e) not, directly or indirectly, take (and will use reasonable
efforts to prevent any affiliate of the Company from taking) or agree in writing
or otherwise to take, (i) any of the actions described in this Section 4.1, (ii)
any action which would make any of the Company's representations or warranties
in this Agreement, if made on and as of the date of such action or agreement,
untrue or incorrect in any material respect, or (iii) any action which could
prevent it from performing, or cause it

-20-
<PAGE>

not to perform, its obligations under this Agreement, or (iv) any action that
would cause the Merger not to be treated as a reorganization within the meaning
of Section 368(a) of the Code;

(f) promptly disclose to Parent any information contained in its
representations and warranties or the COMPANY SCHEDULE which, because of an
event occurring after the date hereof, is incomplete or is no longer correct as
of all times after the date hereof until the Closing Date; provided, however,
that none of such disclosures shall be deemed to modify, amend or supplement the
representations and warranties of the Company or the COMPANY SCHEDULE hereto for
the purposes of Article V hereof, unless Parent shall have consented thereto in
writing; and

(g) use reasonable efforts to obtain and deliver to the Parent at the
Closing an executed letter in substantially the form of Exhibit A from each of
the Company Affiliates;

provided, however, notwithstanding the provisions of this Section 4.1, that the
Company may make the Permitted Distribution as set forth in Section 5.1(f) and
issue any Replacement Options.

SECTION 4.2. PARENT'S UNDERTAKINGS. Parent will not, directly or
indirectly, take (and will use reasonable efforts to prevent any affiliate of
the Company from taking) any action that would cause the Merger not to be
treated as a reorganization within the meaning of Section 368(a) of the Code.
Parent shall as promptly as practicable following the date hereof apply for
approval for listing of Parent Common Stock to be issued pursuant to the Merger
on the Nasdaq National Market ("NMS") upon official notice of issuance.

SECTION 4.3. ACCESS TO INFORMATION. Between the date of this Agreement
and the Closing Date, the Company will (a) give Parent and its authorized
representatives reasonable access, during regular business hours upon reasonable
notice, to all offices, warehouses and other facilities and to all of its books
and records, (b) permit Parent to make such reasonable inspections as it may
require, and (c) cause its officers and those of its subsidiaries to furnish
Parent with such financial and operating data and other information with respect
to the business and properties of the Company, as Parent may from time to time
reasonably request and as the Company may have on hand or be able to produce
without hardship. All such access and information obtained by Parent and its
authorized representatives shall be subject to the terms and conditions of the
letter agreement between the Company and Parent (the "Confidentiality
---------------
Agreement") attached as Exhibit 4.3 hereto.
- --------- -----------

SECTION 4.4. STOCKHOLDER VOTE; PROXY STATEMENT.

(a) As promptly as practicable after the date hereof, the Company
shall take all action necessary in accordance with Rules 14a-1 et. seq. of the
Exchange Act, the DGCL, the rules of the Nasdaq Small-cap Market and its
Certificate of Incorporation and By-laws to call, give notice of, convene and
hold the Stockholders Meeting as promptly as practicable (unless such date shall
be delayed due to circumstances reasonably beyond the control of the parties) to
consider and vote upon the approval and adoption of this Agreement and the
transactions contemplated hereby and for such other purposes as may be necessary
or desirable. Subject to the fiduciary duties of the Board of Directors under
applicable law, as determined by such directors in good faith after consultation
with and based upon the written advice of independent legal counsel, the Board
of Directors of the Company shall use its efforts to solicit and secure from its
stockholders such approval and adoption of this Agreement and the transactions
contemplated hereby.

-21-
<PAGE>

(b) As promptly as practicable after the date hereof, the Company and
Parent shall jointly prepare and file with the SEC preliminary proxy materials
of the Company under the Exchange Act with respect to the Merger, and a
preliminary prospectus of Parent with respect to Parent Common Stock to be
issued in the Merger and will thereafter use their respective best efforts to
respond to any comments of the SEC with respect thereto and to cause the
Registration Statement to become effective, and the Proxy Statement and related
proxy material to be mailed to the Company's stockholders, as promptly as
practicable. The Proxy Statement shall include the unqualified recommendation
of the Company's Board of Directors that the Company's stockholders vote in
favor of the approval and adoption of this Agreement, unless otherwise necessary
due to the applicable fiduciary duties of the directors of the Company, as
determined by such directors in good faith after consultation with and based
upon the written advice of independent legal counsel.

(c) As soon as practicable after the date hereof, the Company and
Parent shall prepare and file any other filings required to be filed by each
under the Exchange Act or any other federal or state securities laws relating to
the Merger and the transactions contemplated hereby (collectively, "Other
-----
Filings") and will use their respective reasonable best efforts to respond to
- -------
any comments of the SEC or any other appropriate government official with
respect thereto.

(d) The Company and Parent shall cooperate with each other and
provide to each other all information necessary in order to prepare, amend or
supplement, to the extent required by the Securities Act the Registration
Statement, the Proxy Statement and the Other Filings (collectively, the "SEC
---
Transaction Filings").
- -------------------

(e) The Company and Parent will notify the other party promptly of
the receipt of any comments from the SEC or its staff or any other appropriate
government official and of any requests by the SEC or its staff or any other
appropriate government official for amendments or supplements to any of the SEC
Transaction Filings or for additional information and will supply the other
party with copies of all correspondence between the Company or any of its
representatives or Parent and any of its representatives, as the case may be, on
the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. If at any time prior to the
Effective Time, any event shall occur that should be set forth in an amendment
of, or a supplement to, any of the SEC Transaction Filings, the Company and
Parent agree promptly to prepare and file such amendment or supplement and to
distribute such amendment or supplement as required by applicable law,
including, in the case of an amendment or supplement to the Proxy Statement,
mailing such supplement or amendment to the Company's stockholders. Parent will
provide the Company with a reasonable opportunity to review and comment on any
amendment or supplement to the Registration Statement or the Proxy Statement
proposed to be made by it prior to filing such amendment or supplement with the
SEC. No amendment or supplement to the information supplied by the Company for
inclusion in the Proxy Statement shall be made without the approval of the
Company, which approval shall not be unreasonably withheld or delayed. The
Company will provide the Parent with a reasonable opportunity to review and
comment on any amendment or supplement to the Proxy Statement proposed to be
made by it prior to filing such amendment or supplement with the SEC. No
amendment or supplement to the information supplied by Parent for inclusion in
the Proxy Statement shall be made without the approval of the Parent, which
approval shall not be unreasonably withheld or delayed. Parent shall not be
required to maintain the effectiveness of the Registration Statement for the
purpose of resale by stockholders of the Company who may be affiliates of the
Company or Parent pursuant to Rule 145 under the Securities Act.

-22-
<PAGE>

(f) The information provided and to be provided by the Company and
Parent for inclusion or incorporation by reference in SEC Transaction Filings
shall at the time such information was supplied be true and correct in all
material respects and shall not omit to state any material fact required to be
stated therein or necessary in order to make such information not false or
misleading, and the Company and Parent each agree to promptly correct any such
information provided by it for use in the SEC Transaction Filings that shall
have become false or misleading. The SEC Transaction Filings, when filed with
the SEC or any appropriate government official, shall comply as to form in all
material respects with all applicable requirements of law. For purposes of the
foregoing, information concerning or related to the Parent contained in the
Proxy Statement shall be deemed to have been supplied by the Parent and
information concerning or related to the Company and the Stockholders Meeting
shall be deemed to have been supplied by the Company.

SECTION 4.5. REASONABLE BEST EFFORTS. Subject to the fiduciary duties of
the Company's Board of Directors, as determined by such directors in good faith
after consultation with and based upon the written advice of independent legal
counsel, and except as otherwise provided herein, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws, statutes, ordinances, codes, rules and
regulations to consummate and make effective the transactions contemplated by
this Agreement in the most expeditious manner practicable, including but not
limited to the satisfaction of all conditions to the Merger, and to consummate
the Merger as promptly as practicable, but in no event later than December 31,
1998.

SECTION 4.6. PUBLIC ANNOUNCEMENTS. No party hereto shall make any public
announcements or otherwise communicate with any news media with respect to this
Agreement or any of the transactions contemplated hereby without prior
consultation with the other parties as to the timing and contents of any such
announcement as may be reasonable under the circumstances; provided, that
nothing contained herein shall prevent any party from promptly making all
filings with Governmental Entities and all disclosure as may, in its good faith
judgment, be required or advisable under applicable law, regulation or stock
exchange rule in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby (in which case the
disclosing party shall advise the other parties and provide them with a copy of
the proposed disclosure or filing prior to making the disclosure or filing).

SECTION 4.7. NOTIFICATION. Each party hereto shall, or promptly after
obtaining knowledge of the occurrence of any fact or circumstance that would
cause or constitute a breach of any of its representations and warranties set
forth herein, give notice thereof to the other parties and shall use its best
efforts to prevent or promptly to remedy such breach; provided, however, that
none of such notices shall be deemed to modify, amend or supplement the
representations and warranties of the such party or the disclosure schedules of
such party for the purposes of Article V hereof, unless the other party shall
have consented thereto in writing.

SECTION 4.8. SUBSEQUENT FINANCIAL STATEMENTS. Prior to the Effective
Time, the Company and the Parent will timely file with the SEC, each Annual
Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form 8-
K required to be filed by such Party under the Exchange Act and the rules and
regulations promulgated thereunder and will promptly deliver to the other copies
of each such report filed with the SEC.

-23-
<PAGE>

SECTION 4.9. CONTROL OF OPERATIONS. Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control or direct the
Company's operations prior to the Effective Time. Prior to the Effective Time,
each of the Company and Parent shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.

SECTION 4.10. REGULATORY AND OTHER AUTHORIZATIONS. Each party hereto
agrees to use commercially reasonable efforts to comply with all legal
requirements which may be imposed on such party with respect to the Merger and
to obtain all Authorizations, consents, orders and approvals of Governmental
Entities and non-governmental third parties that may be or become necessary for
its respective execution and delivery of, and the performance of its respective
obligations pursuant to, this Agreement, and each party will cooperate fully
with the other parties in promptly seeking to obtain all such authorizations,
consents, orders and approvals. Without limitation, the Company and Parent
shall each make an appropriate filing of a Notification and Report Form pursuant
to the HSR Act no later than 20 days after the date hereof and shall promptly
respond to any request for additional information with respect thereto. Each
such filing shall request early termination of the waiting period imposed by the
HSR Act.

SECTION 4.11. TAKEOVER STATUTE. If any "fair price," "moratorium,"
"control share acquisition" or other form of antitakeover statute or regulation
shall become applicable to the transactions contemplated hereby, each of the
Company and Parent and the members of their respective Boards of Directors shall
use their reasonable best efforts to grant such approvals and take such actions
as are necessary so that the transactions contemplated hereby may be consummated
as promptly as practicable on the terms contemplated hereby and otherwise use
their reasonable best efforts to act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby.

SECTION 4.12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. For a period
of six (6) years after the Effective Time, Parent shall cause the Company as the
Surviving Corporation, and any successor in interest thereto (a) to maintain in
effect the current provisions regarding indemnification of officers and
directors contained in the charter and bylaws of the Company, and (b) to
indemnify the directors and officers of the Company to the full extent to which
the Company is permitted to indemnify such officers and directors under its
charter and bylaws and applicable law; provided, that the Parent shall so
indemnify such officers and directors upon any failure of the Company to so
indemnify. Any claim for indemnification made prior to the expiration of the
six-year (6) period set forth above shall survive until the final determination
of such claim. Parent shall provide each individual who served as a director or
officer of the Company at any time prior to the Effective Time with liability
insurance for a period of thirty-six (36) months after the Effective Time no
less favorable in coverage and amount than any applicable insurance in effect
immediately prior to the Effective Time, provided, however, that Parent shall
-------- -------
not be obligated to provide such coverage to the extent that the cost of such
coverage exceeds 150% of the cost of such coverage immediately prior to the
Effective Time but will use its reasonable best efforts to obtain as much
liability insurance as can be obtained for the remainder of such period for a
premium not in excess (on an annualized basis) of 150% of the last annual
premium paid prior to the date hereof.

SECTION 4.13. TAX-FREE REORGANIZATION. Each of Parent and the Company
will use its best efforts to cause the Merger to qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, and to enable Arthur Andersen
LLP to render its opinion contemplated by Section 5.2(f) hereof. Each party
shall make and shall use its best efforts to cause those of its respective
officers and

-24-
<PAGE>

stockholders that counsel to the parties shall reasonably request to make, such
representations and certifications as counsel to the parties shall reasonably
request to enable them to render such opinion, including, without limitation,
the representations of Parent contained in a certificate of Parent (the "Parent
------
Tax Certificate") substantially in the form of the Parent Tax Certificate
- ---------------
attached as Item 4.13 of the Parent Letter and representations of the Company
contained in a certificate of the Company (the "Company Tax Certificate")
-----------------------
substantially in the form of the Company Tax Certificate attached as Item 4.13
to the COMPANY SCHEDULE.

SECTION 4.14. NO SOLICITATION. (a) Until the termination of this
Agreement, without the prior written consent of Parent, from and after the date
hereof, the Company will not, and will not authorize or permit any of its
Subsidiaries or their officers, directors, employees, financial advisors and
agents ("Representatives") to, directly or indirectly, (i) solicit, initiate or
---------------
encourage (including by way of furnishing information) or take any other action
to facilitate knowingly any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal (as
defined herein) from any person, (ii) engage in any discussion or negotiations
relating thereto or (iii) enter into any agreement with respect to, agree to,
approve or recommend any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, the Company may, (A) at any time
prior to the time the Company's stockholders shall have voted to approve this
Agreement engage in discussions or negotiations with a third party (and may
furnish such third party information concerning the Company and its business,
properties and assets to such party) who (without any solicitation, initiation,
encouragement or negotiation, directly or indirectly, by or with the Company or
the Representatives after the date hereof) makes an unsolicited bona fide
written Acquisition Proposal if, and only to the extent that, (1) after having
received the advice of an independent financial advisor, that such Acquisition
Proposal, if consummated, could result in a transaction that is more favorable
from financial point of view to the Company's stockholders than the Merger (such
an Acquisition Proposal, a "Superior Proposal"), and the Special Committee of
-----------------
the Company's Board of Directors shall conclude in good faith, after considering
applicable provisions of state law, on the basis of oral or written advice of
outside counsel that such action is necessary for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties under applicable
law, and (2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, the Company receives
from such person or entity an executed confidentiality agreement in customary
form, and (3) the Company shall have fully complied with this Section 4.13; (B)
comply with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer, and/or (C) accept a Superior Proposal from a third
party, provided the Company terminates this Agreement pursuant to Section 6.1(h)
hereof. As used herein, "Acquisition Proposal" shall mean a proposal or offer
--------------------
for a tender or exchange offer, merger, consolidation or other business
combination involving the Company or any proposal to acquire in any manner a
substantial equity interest in, or a substantial portion of the Parent Common
Stock beneficially owned by the Company.

(b) The Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by the Company or its Representatives with
respect to an Acquisition Proposal. The Company shall notify Parent orally and
in writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the person making it), promptly after the receipt thereof, shall keep Parent
informed of the status and details of any such inquiry, offer or proposal, and
shall give Parent at least five (5) business days prior written notice of (i)
any meeting of the Board of Directors of the Company to take any action with
respect to an Acquisition Proposal or to withdrawing or

-25-
<PAGE>

modifying, in a manner adverse to Parent, its recommendation to the Company's
stockholders in favor of approval of the Merger, and (ii) any agreement to be
entered into with any person making such inquiry, offer or proposal.

(c) Prior to accepting a Superior Proposal, the Company shall, and
shall cause its financial and legal advisors to, negotiate in good faith with
Parent, for a period of not less than five (5) business days, to make such
changes to the terms and conditions of this Agreement as would enable the
Company to proceed with the transactions contemplated hereby.

ARTICLE V
CONDITIONS TO CLOSING

SECTION 5.1. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND PARENT AND
MERGER SUB. The respective obligations of the Company, on the one hand, and
Parent and Merger Sub, on the other hand, to consummate the transactions
contemplated hereby are subject to the requirements that:

(a) Stockholder Approval. This Agreement shall have been approved and
--------------------
adopted by the requisite vote of the stockholders of the Company in accordance
with the DGCL and the Certificate of Incorporation and Bylaws of the Company.

(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition shall have been issued and be in effect (i) restraining or
prohibiting the consummation of the Merger or any of the transactions
contemplated hereby or (ii) prohibiting or limiting the ownership, operation or
control by the Company, Parent or any of their respective Subsidiaries of any
portion of the business or assets of the Company, Parent or any of their
respective Subsidiaries, or compelling the Company, Parent or any of their
respective Subsidiaries to dispose of, grant rights in respect of, or hold
separate any portion of the business or assets of the Company, parent or any of
their respective Subsidiaries (except as contemplated by Section 4.8(b) hereof);
nor shall any action have been taken by a Governmental Entity or any federal,
state or foreign statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity or arbitrator, which is in effect and has the effect of
making the Merger illegal or otherwise prohibiting the consummation of the
Merger.

(c) HSR Act. Any waiting period applicable to the consummation of the
-------
Merger under the HSR Act shall have expired or been terminated.

(d) Registration Statement. The Registration Statement shall have
----------------------
been declared effective under the Securities Act and no stop orders with respect
thereto shall have been issued, or threatened to be issued, and Parent shall
have received all requisite authorizations under all applicable state securities
or blue sky laws necessary to consummate the transaction, copies of which shall
have been provided to the Company.

(e) Nasdaq National Market. Approval for listing by the NMS upon
----------------------
official notice of issuance of Parent Common Stock to be issued in the Merger
shall have been received by Parent and remain in full force and effect.

-26-
<PAGE>

(f) Permitted Distribution. The Company shall have made the Permitted
----------------------
Distribution. For purposes hereof, "Permitted Distribution" means the total
----------------------
cash and cash equivalents of the Company minus the total liabilities (each as
calculated in accordance with GAAP, consistently applied) of the Company, each
as of the closing of business on the day prior to the Closing Date. The Company
shall provide Parent with the opporunity to review its preliminary calculation
of the Permitted Distribution not less than five business days prior to any
payment of the Permitted Distribution and will provide Parent with advance
notice of any material changes from such preliminary calculation prior to any
payment thereof.

SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the transactions contemplated hereby
are subject to the further requirements that:

(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub contained in this Agreement or in any other
document delivered pursuant hereto shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on and as
of the Closing Date and at the Closing Parent shall have delivered to the
Company a certificate to that effect.

(b) Performance of Obligations. Each of the obligations of Parent and
--------------------------
the Merger Sub to be performed on or before the Closing Date pursuant to the
terms of this Agreement shall have been duly performed in all material respects
on or before the Closing Date and at the Closing Parent shall have delivered to
the Company a certificate to that effect.

(c) Absence of Material Adverse Effect. No Parent Material Adverse
----------------------------------
Effect shall have occurred, and no fact or circumstance shall exist which could
reasonably be expected to result in a Parent Material Adverse Effect.

(d) Litigation. There shall not be any litigation or other
----------
proceeding pending or threatened to restrain or invalidate the transactions
contemplated by this Agreement, which in the reasonable judgment of the Company
would make the consummation of the Merger imprudent or inadvisable in light of
applicable law.

(e) Fairness Opinion. The fairness opinion issued by the Company
----------------
Financial Advisor shall not have been rescinded by such Advisor.

(f) Tax Opinion. The opinion of Arthur Andersen LLP dated on or
-----------
prior to the Closing Date in form and substance reasonably satisfactory to the
Company (the "Tax Opinion") shall be in full force and effect and shall not have
-----------
been withdrawn.

SECTION 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate the transactions contemplated
hereby are subject to the further requirements that:

(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement or in any other document
delivered pursuant hereto shall be true and correct in all material respects on
and as of the Closing Date with the same effect as if made on and

-27-
<PAGE>

as of the Closing Date and at the Closing the Company shall have delivered to
Parent a certificate to that effect.

(b) Performance of Obligations. Each of the obligations of the
--------------------------
Company to be performed on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed in all material respects on or
before the Closing Date and at the Closing the Company shall have delivered to
Parent a certificate to that effect.

(c) Sale of CMC. The Company shall have consummated the sale of all
-----------
of its capital stock of CMC pursuant to the terms of an agreement that imposes
no continuing indemnification obligation or other liability on the Company that
survives the closing of such transactions.

(d) Absence of Material Adverse Effect. No Company Material Adverse
----------------------------------
Effect shall have occurred, and no fact or circumstance shall exist which could
reasonably be expected to result in a Company Material Adverse Effect.

(e) No Litigation. There shall not be any proceeding pending or
-------------
threatened to restrain or invalidate the transactions contemplated by this
Agreement, which in the reasonable judgment of Parent would make the
consummation of the Merger imprudent or inadvisable in light of applicable law
or the defense of which would involve material expense.

(f) No Equity Rights in Surviving Corporation. There shall not be any
-----------------------------------------
securities, rights, warrants, options, or other instruments outstanding which,
after consummation of the Merger, would be convertible into or exercisable for
securities of the Surviving Corporation, and Parent shall be satisfied that all
outstanding options, warrants and convertible securities of the Company will
become options, warrants and convertible securities solely with respect to
Parent Common Stock on the terms described in Section 1.5 hereof;

(g) Appraisal Shares. The Appraisal Shares, if any, shall not
----------------
represent more than 10% of the aggregate outstanding shares of Company Common
Stock;

(h) Consents. All authorizations, consents, orders or approvals of,
--------
or declarations or filings with, and all expirations of waiting periods imposed
by, any governmental body, agency or official (all of the foregoing, "Consents")
--------
which are necessary for the consummation of the transactions contemplated
hereby, other than Consents the failure to obtain which would not have (i) a
material adverse effect on the consummation of the transactions contemplated
hereby or (ii) a Company Material Adverse Effect, shall have been filed, have
occurred or have been obtained (all such permits, approvals, filings and
consents and the lapse of all such waiting periods being referred to as the
"Requisite Regulatory Approvals") and all such Requisite Regulatory Approvals
------------------------------
shall be in full force and effect, provided, however, that a Requisite
Regulatory Approval shall not be deemed to have been obtained if in connection
with the grant thereof there shall have been an imposition by any state or
federal governmental body, agency or official of any condition, requirement,
restriction or change of regulation, or any other action directly or indirectly
related to such grant taken by such governmental body, which would reasonably be
expected to either have a Company Material Adverse Effect or prevent Parent from
exercising authority and control over the shares of Parent Common Stock owned by
the Company expected to be acquired by Parent by virtue of the Merger.

-28-
<PAGE>

ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER

SECTION 6.1. TERMINATION. This Agreement may be terminated (by written
notice by the terminating party to the other party effective on the date such
notice is deemed to have been given) and the transactions contemplated hereby
may be abandoned at any time prior to the Closing Date:

(a) By mutual written consent of each of Parent and the Company;

(b) By either Parent or the Company if the Merger shall not have been
consummated on or before December 31, 1998 (the "Termination Date"); provided,
----------------
however, that the right to terminate this Agreement under this Section 6.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;

(c) By either Parent or the Company if a Governmental Entity or
arbitrator shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties shall use their commercially
reasonable efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and nonappealable;

(d) By (i) Parent if the Company shall have breached, or failed to
comply with, in any material respect any of its obligations under this Agreement
or any representation or warranty made by the Company shall have been incorrect
in any material respect when made or shall have since ceased to be true and
correct in any material respect, and such breach, failure or misrepresentation
is not cured within thirty (30) days after notice thereof or (ii) by the Company
if the Parent shall have breached, or failed to comply with, in any material
respect any of its obligations under this Agreement or any representation or
warranty made by the Parent shall have been incorrect in any material respect
when made or shall have since ceased to be true and correct in any material
respect, and such breach, failure or misrepresentation is not cured within
thirty (30) days after notice thereof;

(e) By Parent if the Board of Directors of the Company or any
committee of the Board of Directors of the Company (i) shall withdraw or modify
in any adverse manner its approval and recommendation of this Agreement to its
stockholders, (ii) within ten (10 ) days after Parent's request, shall fail to
reaffirm such approval or recommendation referred to in clause (i), (iii) shall
approve or recommend any acquisition of the shares of Parent Common Stock owned
by it (other than pursuant to the TLSP/CRW Warrants) or any tender offer for
shares of its capital stock, in each case, other than by Parent or an affiliate
thereof, (iv) shall have recommended that the stockholders of the Company tender
their shares or publicly announced its intention to take no position with
respect to a tender offer or exchange offer for any of the outstanding shares of
the Company Common Stock that shall have been commenced or a registration
statement with respect thereto shall have been filed (other than by Parent or an
affiliate thereof), or (v) shall resolve to take any of the actions specified in
this clause (e);

(f) By either Parent or the Company if the Required Company
Stockholder Approval shall not have been obtained at the Stockholders Meeting,
including any adjournments thereof;

-29-
<PAGE>

(g) By the Company, prior to the approval of this Agreement by the
stockholders of the Company, upon five (5) days' prior notice to Parent, if, as
a result of a Superior Proposal by a party other than Parent or any of its
affiliates, the Board of Directors of the Company determines in good faith that
their fiduciary obligations under applicable law require that such Superior
Proposal be accepted provided, however, that the Company has fully complied with
its obligations under Section 4.14 hereof and with all the applicable
requirements of Section 6.2(b) hereof, including the payment of the Termination
Fee and the Parent Expenses.

SECTION 6.2. EFFECT OF TERMINATION.

(a) In the event of termination of this Agreement as provided in
Section 6.1 hereof, this Agreement shall forthwith become void and there shall
be no liability on the part of any of the parties, except (i) as set forth in
the last sentence of Section 4.3, the provisions of Section 4.6 hereof and the
provisions of 6.2(b), and (ii) nothing herein shall relieve any party from
liability for any willful breach hereof.

(b) (i) If this Agreement (A) is terminated by the Parent pursuant to
Section 6.1(e) or (f) hereof or by the Company pursuant to Section 6.1(g)
hereof, or (B) is terminated as a result of the Company's breach of Section 4.14
hereof which is not cured within 10 days after notice thereof to the Company,
and (ii) either (A) at the time of such termination or prior to the Stockholders
Meeting there shall have been an Acquisition Proposal (whether or not such
offer shall have been rejected or shall have been withdrawn prior to the time of
such termination or of the Stockholders Meeting) or (B) within one (1) year
after termination of the Agreement the Company shall have entered into an
agreement with respect to, or consummated, an Acquisition Proposal, the Company
shall pay to Parent an amount equal to (x) a cash termination fee of $1,800,000
(the "Termination Fee"), and (y) all expenses incurred by Parent in connection
---------------
with the negotiation, execution and performance of the transactions contemplated
hereby (including without limitation all fees and expenses payable to Parent's
financial advisors, auditor and counsel) not to exceed $150,000 ("Parent
------
Expenses") within one (1) business day after such termination or, in the case of
- --------
(ii)(B), entering into an agreement with respect to, or consummating an
Acquisition Proposal.

(c) If the Company fails to promptly pay to Parent any Termination
Fee or Parent Expenses due under Section 6.2(b), the Company shall pay the costs
and expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required to be
paid.

SECTION 6.3. AMENDMENT. This Agreement may be amended by Parent and the
Company pursuant to a writing adopted by action taken by Parent and the Company
at any time before the Effective Time; provided, however, that, after approval
of this Agreement by the stockholders of the Company, no amendment may be made
which would alter or change the amount or kinds of consideration to be received
by the holders of Company Common Stock upon consummation of the Merger or which
would materially and adversely affect the holders of Company Common Stock. This
Agreement may not be amended except by an instrument in writing signed by the
parties to this Agreement.

-30-
<PAGE>

SECTION 6.4. WAIVER. At any time before the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only as against such party and only if set
forth in an instrument in writing signed by such party.

ARTICLE VII
MISCELLANEOUS

SECTION 7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein shall not survive beyond the
Closing Date. This Section 7.1 shall not limit any covenant or agreement of the
parties hereto which by its terms requires performance after the Closing Date.

SECTION 7.2. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior written and oral and all contemporaneous oral agreements
and understandings with respect to the subject matter hereof.

SECTION 7.3. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy or by overnight courier service to the respective parties
as follows:

if to Parent or Merger Sub:

TeleSpectrum Worldwide Inc.
443 S. Gulph Road
King of Prussia, PA 19406
Telecopy: (610) 878-7475
Attention: Mr. Keith E. Alessi

with copies to:

Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopy: (215) 963-5299
Attention: Stephen M. Goodman, Esq.

-31-
<PAGE>

if to the Company:

CRW Financial, Inc.
200 Four Falls Corporate
Suite 415
W. Conshohocken, PA 19428
Telecopy: (610) 878-7466
Attention: Mr. Jonathan P. Robinson

with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Telecopy: (215) 981-4750
Attention: Barry M. Abelson, Esq.

or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed
effective on the first business day at the place of which such notice or
communication is received following the day on which such notice or
communication was sent.

SECTION 7.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.

SECTION 7.5. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.

SECTION 7.6. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person
(including without limitation any employee of the Company or any Subsidiary) any
rights or remedies of any nature whatsoever under or by reason of this Agreement
except for Section 1.5 and Section 4.10 (which are intended to be for the
benefit of the persons provided for therein, and may be enforced by such
persons.)

SECTION 7.7. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This Agreement may be
executed by facsimile signature which, for all purposes, shall be deemed to be
an original signature.

SECTION 7.8. EXPENSES. Except as otherwise provided herein, all costs
and expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses except that Parent
and the Company shall share equally (i) the filing fees payable with respect to
the required filings under the HSR Act, (ii) the registration fees payable with
respect to filing

-32-
<PAGE>

the Registration Statement, and (iii) all printing expenses incurred with
respect to the Proxy Statement and the Registration Statement.

SECTION 7.9. PERSONAL LIABILITY. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of any party hereto or any officer, director,
employee, agent, representative or investor of any party hereto.

SECTION 7.10. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to
the benefit of be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto without the prior written consent of the other party.

SECTION 7.11. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstance in any other jurisdiction or to
other persons or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.

-33-
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.

TELESPECTRUM WORLDWIDE INC.

By: /s/ Keith Alessi
-------------------------------
Name: Keith Alessi
Title: President

CRW ACQUISITION CORP.

By: /s/ Keith Alessi
--------------------------------
Name: Keith Alessi
Title: President

CRW FINANCIAL, INC.

By: /s/ Jonathan P. Robinson
--------------------------------
Name: Jonathan P. Robinson
Title: Vice President

-34-
<PAGE>

TABLE OF DEFINED TERMS

<TABLE>
<CAPTION>
Page
Defined Term No.
---------------- ---
<S> <C>
Acquisition Proposal..................................... 25
Agreement................................................ 1
Appraisal Shares......................................... 3
Authorizations........................................... 11
Balance Sheet Date....................................... 9
Certificate of Merger.................................... 2
Certificates............................................. 3
Closing.................................................. 2
Closing Date............................................. 2
CMC...................................................... 14
CMC Merger............................................... 20
Code..................................................... 1
Company.................................................. 1
Company 1997 Form 10-K................................... 9
Company Audit Date....................................... 10
Company Balance Sheet.................................... 10
Company Common Stock..................................... 1
Company Financial Advisor................................ 16
Company Form S-3......................................... 6
Company Forms 10-Q....................................... 9
Company Material Adverse Effect.......................... 6
Company Preferred Stock.................................. 7
Company Schedule......................................... 6
Company Stock Plans...................................... 7
Company Tax Certificate.................................. 25
Company's SEC Reports.................................... 9
Company's Auditors....................................... 9
Confidentiality Agreement................................ 21
Consents................................................. 28
Contract................................................. 11
DGCL..................................................... 1
Effective Time........................................... 2
Employee Plans........................................... 12
ERISA.................................................... 12
ERISA Affiliate.......................................... 12
Exchange Act............................................. 6
Exchange Agent........................................... 3
Exchange Ratio........................................... 2
Fully-Diluted Common Stock............................... 2
GAAP..................................................... 9
Governmental Entity...................................... 9
HSR Act.................................................. 9
</TABLE>

-35-
<PAGE>

<TABLE>
<S> <C>
IRS...................................................... 13
ISO...................................................... 14
Joint Venture............................................ 6
Liens.................................................... 7
Merger................................................... 1
Merger Consideration..................................... 2
Merger Stock............................................. 3
Merger Sub............................................... 1
Merger Sub Common Stock.................................. 3
NMS...................................................... 21
Other Filings............................................ 22
Parent................................................... 1
Parent Common Stock...................................... 1
Parent Expenses.......................................... 30
Parent Form S-3.......................................... 6
Parent Material Adverse Effect........................... 16
Parent Preferred Stock................................... 17
Parent Stock Plan........................................ 17
Parent Schedule.......................................... 16
Parent Tax Certificate................................... 25
Parent's SEC Reports..................................... 17
Parent's Auditors........................................ 18
Permitted Distribution................................... 27
Permitted Liens.......................................... 11
Proxy Statement.......................................... 15
Registration Statement................................... 14
Replacement Options...................................... 19
Representatives.......................................... 25
Required Company Stockholder Approval.................... 8
Requisite Regulatory Approvals........................... 28
SEC...................................................... 9
SEC Transaction Filings.................................. 22
Securities Act........................................... 9
Stockholders Meeting..................................... 15
Subsidiary............................................... 6
Superior Proposal........................................ 25
Surviving Corporation.................................... 1
Surviving Corporation Common Stock....................... 3
Tax Opinion.............................................. 27
Tax Returns.............................................. 11
Taxes.................................................... 12
Termination Date......................................... 29
Termination Fee.......................................... 30
TLSP/CRW Warrants........................................ 5
</TABLE>

-36-
<PAGE>

AMENDMENT NO. 1 TO
------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------

This Amendment No. 1 to the Agreement and Plan of Merger and Reorganization
(this "Amendment No. 1") is made and entered into as of December 30, 1998, by
and among, CRW Financial, Inc., a Delaware corporation (the "Company"),
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Parent") and CRW
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent
(the "Merger Sub"). The Company, the Parent and the Merger Sub are referred to
collectively herein as the "Parties."

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, the Parties previously entered into an Agreement and Plan of
Merger and Reorganization dated as of September 3, 1998 (the "Agreement");

WHEREAS, the Parties wish to amend certain provisions of the Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Parties agree
as follows:

1. Each of the references to the date December 31, 1998 in Sections 4.5 and
6.1(b) of the Agreement is hereby changed to July 31, 1999.

2. Except as expressly provided for in this Amendment No. 1, all terms and
conditions contained in the Agreement are hereby confirmed and shall
remain unchanged and in full force and effect.

3. This Amendment No. 1 shall be governed by, and construed in accordance
with, the laws of the State of Delaware, and may be executed in any
number of counterparts (including by facsimile signature), each of which
shall be an original and all of which, taken together, shall be deemed
one and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1 to
be executed as of the date first written above by their respective officers
thereunto duly authorized.

CRW FINANCIAL, INC.

By: /s/ J. Brian O'Neill
-------------------------------------
Name: J. Brian O'Neill
Title: President and Chief Executive Officer

TELESPECTRUM WORLDWIDE INC.

By: /s/ Keith E. Alessi
-------------------------------------
Name: Keith E. Alessi
Title: Chief Executive Officer

CRW ACQUISITION CORP.

By: /s/ Keith E. Alessi
-------------------------------------
Name: Keith E. Alessi
Title: Chief Executive Officer

2
<PAGE>

APPENDIX II

CRW AGREEMENT AND PLAN OF MERGER
<PAGE>

================================================================================

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

AMONG

CRW FINANCIAL, INC.

TELESPECTRUM WORLDWIDE INC.,

and

AND CRW ACQUISITION CORP.

Dated as of September 3, 1998

================================================================================
<PAGE>

TABLE OF CONTENTS

W I T N E S S E T H............................................................................ 1
- -------------------
ARTICLE I
THE MERGER..................................................................................... 1
SECTION 1.1. THE MERGER................................................................. 1
SECTION 1.2. STOCKHOLDER MEETING, CLOSING, EFFECTIVE TIME OF THE MERGER................. 2
SECTION 1.3. CONVERSION AND CANCELLATION OF SECURITIES.................................. 2
SECTION 1.4. EXCHANGE OF CERTIFICATES................................................... 3
SECTION 1.5. OPTIONS AND WARRANTS....................................................... 5

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 6
SECTION 2.1. ORGANIZATION, POWERS AND QUALIFICATIONS.................................... 6
SECTION 2.2. SUBSIDIARIES............................................................... 6
SECTION 2.3. CAPITAL STOCK.............................................................. 7
SECTION 2.4. CERTIFICATE OF INCORPORATION, BY-LAWS AND MINUTE BOOKS..................... 8
SECTION 2.5. AUTHORITY; BINDING EFFECT.................................................. 8
SECTION 2.6. CONFLICT WITH OTHER AGREEMENTS; APPROVALS.................................. 8
SECTION 2.7. GOVERNMENTAL CONSENTS AND APPROVALS........................................ 8
SECTION 2.8. SEC REPORTS................................................................ 9
SECTION 2.9. FINANCIAL STATEMENTS....................................................... 9
SECTION 2.10. ABSENCE OF CERTAIN CHANGES................................................. 10
SECTION 2.11. INDEBTEDNESS; ABSENCE OF UNDISCLOSED LIABILITIES........................... 10
SECTION 2.12. ASSETS..................................................................... 10
SECTION 2.13. CONTRACTS.................................................................. 11
SECTION 2.14. INSURANCE.................................................................. 11
SECTION 2.15. AUTHORIZATIONS; COMPLIANCE WITH LAW........................................ 11
SECTION 2.16. TAXES...................................................................... 11
SECTION 2.17. ABSENCE OF LITIGATION; CLAIMS.............................................. 12
SECTION 2.18. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.............................. 12
SECTION 2.19. LABOR MATTERS.............................................................. 14
SECTION 2.20. INTELLECTUAL PROPERTY...................................................... 14
SECTION 2.21. ADEQUACY OF DISCLOSURE..................................................... 14
SECTION 2.22. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS......................... 14
SECTION 2.23. TAX MATTERS................................................................ 15
SECTION 2.24. AFFILIATES................................................................. 15
SECTION 2.25. BOARD ACTION; VOTE REQUIRED; APPLICABILITY OF SECTION 203.................. 15
SECTION 2.26. OPINION OF FINANCIAL ADVISOR............................................... 15
SECTION 2.27. BROKERS AND FINDERS........................................................ 15

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................ 16
SECTION 3.1. ORGANIZATION AND POWERS.................................................... 16
SECTION 3.2. AUTHORITY; BINDING EFFECT.................................................. 16
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
SECTION 3.3. CONFLICT WITH OTHER AGREEMENTS; APPROVALS.................................. 16
SECTION 3.4. GOVERNMENTAL CONSENTS AND APPROVALS........................................ 16
SECTION 3.5. CAPITAL STOCK.............................................................. 17
SECTION 3.6. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS......................... 17
SECTION 3.7. SEC REPORTS................................................................ 17
SECTION 3.8. FINANCIAL STATEMENTS....................................................... 18
SECTION 3.9. ABSENCE OF CERTAIN CHANGES................................................. 18
SECTION 3.10. ABSENCE OF LITIGATION; CLAIMS.............................................. 18
SECTION 3.11. TAX MATTERS................................................................ 18
SECTION 3.12. AFFILIATES................................................................. 19
SECTION 3.13. ADEQUACY OF DISCLOSURE..................................................... 19
SECTION 3.14. BROKERS AND FINDERS........................................................ 19

ARTICLE IV
OTHER AGREEMENTS............................................................................... 19
SECTION 4.1. CONDUCT OF THE COMPANY'S BUSINESS.......................................... 19
SECTION 4.2. PARENT'S UNDERTAKINGS...................................................... 21
SECTION 4.3. ACCESS TO INFORMATION...................................................... 21
SECTION 4.4. STOCKHOLDER VOTE; PROXY STATEMENT.......................................... 21
SECTION 4.5. REASONABLE BEST EFFORTS.................................................... 23
SECTION 4.6. PUBLIC ANNOUNCEMENTS....................................................... 23
SECTION 4.7. NOTIFICATION............................................................... 23
SECTION 4.8. SUBSEQUENT FINANCIAL STATEMENTS............................................ 23
SECTION 4.9. CONTROL OF OPERATIONS...................................................... 24
SECTION 4.10. REGULATORY AND OTHER AUTHORIZATIONS........................................ 24
SECTION 4.11. TAKEOVER STATUTE........................................................... 24
SECTION 4.12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 24
SECTION 4.13. TAX-FREE REORGANIZATION.................................................... 24
SECTION 4.14. NO SOLICITATION............................................................ 25

ARTICLE V
CONDITIONS TO CLOSING.......................................................................... 26
SECTION 5.1. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND PARENT AND MERGER SUB..... 26
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY............................... 27
SECTION 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB..................... 27

ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER.............................................................. 29
SECTION 6.1. TERMINATION................................................................ 30
SECTION 6.2. EFFECT OF TERMINATION...................................................... 30
SECTION 6.3. AMENDMENT.................................................................. 30
SECTION 6.4. WAIVER..................................................................... 30

ARTICLE VII
MISCELLANEOUS.................................................................................. 31
SECTION 7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................................. 31
</TABLE>

ii
<PAGE>

<TABLE>
<S> <C>
SECTION 7.2. ENTIRE AGREEMENT........................................................... 31
SECTION 7.3. NOTICES.................................................................... 31
SECTION 7.4. GOVERNING LAW.............................................................. 32
SECTION 7.5. DESCRIPTIVE HEADINGS....................................................... 32
SECTION 7.6. PARTIES IN INTEREST........................................................ 32
SECTION 7.7. COUNTERPARTS; FACSIMILE SIGNATURES......................................... 32
SECTION 7.8. EXPENSES................................................................... 32
SECTION 7.9. PERSONAL LIABILITY......................................................... 32
SECTION 7.10. BINDING EFFECT; ASSIGNMENT................................................. 33
SECTION 7.11. SEVERABILITY............................................................... 33

</TABLE>

iii

<PAGE>

AMENDMENT NO. 1 TO
------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------

This Amendment No. 1 to the Agreement and Plan of Merger and Reorganization
(this "Amendment No. 1") is made and entered into as of December 30, 1998, by
and among CRW Financial, Inc., a Delaware corporation (the "Company"),
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Parent") and CRW
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent
(the "Merger Sub"). The Company, the Parent and the Merger Sub are referred to
collectively herein as the "Parties."

W I N E S S E T H:
- - - - - - - - -

WHEREAS, the Parties previously entered into an Agreement and Plan of
Merger and Reorganization dated as of September 3, 1998 (the "Agreement");

WHEREAS, the Parties wish to amend certain provisions of the Agreement.

1. Each of the references to the date December 31, 1998 in Sections 4.5 and
6.1(b) of the Agreement is hereby changed to July 31, 1999.

2. Except as expressly provided for in this Amendment No. 1, all terms and
conditions contained in the Agreement are hereby confirmed and shall
remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1 to
be executed as of the date first written above by their respective officers
thereunto duly authorized.

CRW FINANCIAL, INC.

By: /s/ J. Brian O'Neill
---------------------------
Name: J. Brian O'Neill
Title: President and Chief Executive Officer

TELESPECTRUM WORLDWIDE INC.

By: /s/ Keith E. Alessi
---------------------------
Name: Keith E. Alessi
Title: Chief Executive Officer

CRW ACQUISITION CORP.

By: /s/ Keith E. Alessi
---------------------------
Name: Keith E. Alessi
Title: Chief Executive Officer

<PAGE>

EXHIBIT 23.01

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 333-52545), (File No. 333-52837)
and (File No. 333-52895).

/s/ Arthur Andersen LLP
-----------------------

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND RESULTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 794 774
<SECURITIES> 0 0
<RECEIVABLES> 36,859 37,360
<ALLOWANCES> 2,851 969
<INVENTORY> 0 0
<CURRENT-ASSETS> 39,960 78,984
<PP&E> 35,430 36,731
<DEPRECIATION> 17,867 9,848
<TOTAL-ASSETS> 103,689 144,721
<CURRENT-LIABILITIES> 23,258 58,329
<BONDS> 3,696 33,960
0 0
0 0
<COMMON> 258 252
<OTHER-SE> 76,310 80,125
<TOTAL-LIABILITY-AND-EQUITY> 103,689 144,721
<SALES> 167,428 178,922
<TOTAL-REVENUES> 167,428 178,922
<CGS> 154,316 177,565
<TOTAL-COSTS> 173,369 342,960
<OTHER-EXPENSES> (71) (2,174)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,317 2,290
<INCOME-PRETAX> (7,187) (164,154)
<INCOME-TAX> (247) (2,310)
<INCOME-CONTINUING> (6,940) (161,844)
<DISCONTINUED> 479 1,369
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,461) (160,475)
<EPS-PRIMARY> (0.25) (6.36)
<EPS-DILUTED> (0.25) (6.36)

</TABLE>